<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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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 0-18364
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American Income Partners V-A Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3057303
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad St., Sixth Floor, Boston, MA 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
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Securities registered pursuant to Section 12(b) of the Act NONE
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Name of each exchange on which
Title of each class registered
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Securities registered pursuant to Section 12(g) of the Act:
1,380,661 Units Representing Limited Partnership Interest
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(Title of class)
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(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
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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, 1997 (Part I and II)
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Partnership's Securities and Related Security
Holder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Partnership 8
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
13-15
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PART I
ITEM 1. BUSINESS.
(a) General Development of Business
American Income Partners V-A Limited Partnership (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on July 24, 1989 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 General Partner (AFG Leasing IV Incorporated) and $100 from the Initial
Limited Partner (AFG Assignor Corporation). On September 29, 1989, the
Partnership issued 1,380,661 units, representing assignments of limited
partnership interests (the "Units"), to 1,815 investors. Unitholders and Limited
Partners (other than the Initial Limited Partner) are collectively referred to
as Recognized Owners. The Partnership has one General Partner, AFG Leasing IV
Incorporated, a Massachusetts corporation formed in 1987 and an affiliate of
Equis Financial Group Limited Partnership (formerly American Finance Group), a
Massachusetts limited partnership ("EFG"). The common stock of the General
Partner is owned by AF/AIP Programs Limited Partnership, of which EFG and a
wholly-owned subsidiary are the 99% limited partners and AFG Programs, Inc.,
which is wholly-owned by EFG, is the 1% general partner. The General Partner is
not required to make any other capital contributions except as may be required
under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement
and Certificate of Limited Partnership (the "Restated Agreement, as amended").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one industry segment: the business of
acquiring capital equipment and leasing the equipment to creditworthy lessees on
a full payout or operating lease basis. (Full payout leases are those in which
aggregate noncancellable rents exceed the Purchase Price of the leased
equipment. Operating leases are those in which the aggregate noncancellable
rental payments are less than the Purchase Price of the leased equipment.)
Industry segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases and to lease the
equipment to third parties as income-producing investments. More specifically,
the Partnership's primary investment objectives are to acquire and lease
equipment which will:
1. Generate quarterly cash distributions;
2. Preserve and protect invested capital; and
3. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the Offering of Units of the Partnership was September
29, 1989. The initial purchase of equipment and the associated lease commitments
occurred on September 29, 1989. The acquisition of the equipment and its
associated leases is described in Note 3 to the financial statements included in
Item 14, herein. The Partnership is expected to terminate no later than December
31, 2000; however, the Partnership is a Nominal Defendant in a Class Action
Lawsuit. The outcome of the Class Action Lawsuit could alter the nature of the
Partnership's organization and its future business operations. See Note 7 to the
accompanying financial statements.
The Partnership has no employees; however, it is managed pursuant to a
Management Agreement with EFG or one of its affiliates (the "Manager"). The
Manager's role, among other things, is to (i) evaluate, select, negotiate, and
consummate the acquisition of equipment, (ii) manage the leasing, re-leasing,
financing, and refinancing of equipment, and (iii) arrange the resale of
equipment. The Manager is compensated for such
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services as described in the Restated Agreement, as amended, Item 13 herein, and
in Note 5 to the financial statements included in Item 14, herein.
The Partnership's investment in equipment is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence and defaults by lessees. A principal business risk of owning and
leasing equipment is the possibility that aggregate lease revenues and equipment
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
Consequently, the success of the Partnership is largely dependent upon the
ability of the General Partner and its Affiliates to forecast technological
advances, the ability of the lessees to fulfill their lease obligations and the
quality and marketability of the equipment at the time of sale.
In addition, the leasing industry is very competitive. Although all funds
available for acquisitions have been invested in equipment, subject to
noncancellable lease agreements, the Partnership will encounter considerable
competition when equipment is re-leased or sold at the expiration of primary
lease terms. The Partnership will compete with lease programs offered directly
by manufacturers and other equipment leasing companies, including limited
partnerships and trusts organized and managed similarly to the Partnership and
including other EFG sponsored partnerships and trusts, which may seek to
re-lease or sell equipment within their own portfolios to the same customers as
the Partnership. Many competitors have greater financial resources and more
experience than the Partnership, the General Partner and the Manager.
Default by a lessee under a lease may cause equipment to be returned to the
Partnership at a time when the General Partner or the Manager is unable to
arrange for the re-lease or sale of such equipment. This could result in the
loss of a material portion of anticipated revenues.
Generally, the Partnership is prohibited from reinvesting the proceeds
generated by refinancing or selling equipment. Accordingly, it is anticipated
that the Partnership will begin to liquidate its portfolio of equipment at the
expiration of the initial and renewal lease terms and to distribute the net
liquidation proceeds. As an alternative to sale, the Partnership may enter
re-lease agreements when considered advantageous by the General Partner and the
Manager.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1997, 1996 and 1995 is
incorporated herein by reference to Note 2 to the financial statements in the
1996 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
Direct-Participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also owns
a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
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(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not applicable.
ITEM 2. PROPERTIES.
Incorporated herein by reference to Note 3 to the financial statements in
the 1997 Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
Incorporated herein by reference to Note 7 to the financial statements in
the 1997 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1997, there were 1,633 record holders of Units in the
Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the
Partnership's Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings are determined and distributed to the Partners quarterly.
Each quarter's distribution may vary in amount. Distributions may be made to the
General Partner prior to the end of the fiscal quarter; however, the amount of
such distribution reflects only amounts to which the General Partner is entitled
at the time such distribution is made. Currently, there are no restrictions that
materially limit the Partnership's ability to distribute Distributable Cash From
Operations and Distributable Cash From Sales or Refinancings or that the
Partnership believes are likely to materially limit the future distribution of
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings. The Partnership expects to continue to distribute all
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings on a quarterly basis.
Distributions in 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
General Recognized
Total Partner Owners
----------- ----------- -----------
<S> <C> <C> <C>
Total 1997 distributions $ 681,245 $ 34,062 $ 647,183
Total 1996 distributions 6,082,175 304,109 5,778,066
----------- ----------- -----------
Total $ 6,763,420 $ 338,171 $ 6,425,249
=========== =========== ===========
</TABLE>
Distributions payable at December 31, 1997 and 1996 were $136,250 and
$181,665, respectively.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the General Partner, and increased by any portion of such reserves
deemed by the General Partner not to be required for Partnership operations and
reduced by all accrued and unpaid Equipment Management Fees and, after Payout,
further reduced by all accrued and unpaid Subordinated Remarketing Fees.
Distributable Cash From Operations does not include any Distributable Cash From
Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the General Partner determines shall be reinvested in similar
equipment for the remainder of the original lease term of the lost or destroyed
equipment, or in isolated instances, in other equipment, if the General Partner
determines that investment of such proceeds will significantly improve the
diversity of the Partnership's equipment portfolio, and subject in either case
to satisfaction of all existing indebtedness secured by such equipment to the
extent deemed necessary or appropriate by the General Partner, or (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
governing a joint venture which the General Partner determines will be invested
in additional
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equipment or interests in equipment and which ultimately are so reinvested and
(ii) any accrued and unpaid Equipment Management Fees and, after Payout, any
accrued and unpaid Subordinated Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partner, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) any reserves for working capital and
contingent liabilities funded from such cash to the extent deemed reasonable by
the General Partner and (ii) increased by any portion of such reserves deemed by
the General Partner not to be required for Partnership operations. In the event
the Partnership accepts a note in connection with any sale or refinancing
transaction, all payments subsequently received in cash by the Partnership with
respect to such note shall be included in Cash From Sales or Refinancings,
regardless of the treatment of such payments by the Partnership for tax or
accounting purposes. If the Partnership receives purchase money obligations in
payment for equipment sold, which are secured by liens on such equipment, the
amount of such obligations shall not be included in Cash From Sales or
Refinancings until the obligations are fully satisfied.
Each distribution of Distributable Cash From Operations and Distributable
Cash From Sales or Refinancings of the Partnership shall be made 95% to the
Recognized Owners and 5% to the General Partner.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Recognized Owners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Recognized Owners' original capital contributions plus a cumulative annual
return of 11% (compounded quarterly and calculated beginning with the last day
of the month of the Partnership's Closing Date) on their aggregate unreturned
capital contributions. For purposes of this definition, capital contributions
shall be deemed to have been returned only to the extent that distributions of
cash to the Recognized Owners exceed the amount required to satisfy the
cumulative annual return of 11% (compounded quarterly) on the Recognized Owners'
aggregate unreturned capital contributions, such calculation to be based on the
aggregate unreturned capital contributions outstanding on the first day of each
fiscal quarter.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") are distributed within 45 days after the
completion of each quarter, beginning with the first full fiscal quarter
following the Partnership's Closing Date. Each Distribution is described in a
statement sent to the Recognized Owners.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled "Selected
Financial Data" in the 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1997 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of
this report, AFG Leasing IV Incorporated is the sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely responsible for the operation of the Partnership's properties and the
Recognized Owners have no right to participate in the control of such
operations. The names, titles and ages of the Directors and Executive Officers
of the General Partner as of March 15, 1998 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (See Item 13)
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<TABLE>
<CAPTION>
Name Title Age Term
- ----------------------------------- --------------------------------------------- ------ -----------
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the General Partner 49 elected
and
qualified
Gary D. Engle President and Chief Executive
Officer and member of the
Executive Committee of EFG and a
Director of the General Partner 49
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the General Partner 38
James A. Coyne Executive Vice President of EFG 37
Michael J. Butterfield Vice President, Finance and Treasurer
of EFG and Treasurer of the
General Partner 38
James F. Livesey Vice President, Aircraft and Vessels
of EFG 48
Sandra L. Simonsen Senior Vice President, Information Systems
of EFG 47
Gail D. Ofgant Vice President, Lease Operations of EFG 32
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners,
Directors or Executive Officers.
(e) Business Experience
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Mr. MacDonald, age 49, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the General Partner.
Mr. MacDonald was also a co-founder, Director and Senior Vice President of EFG's
predecessor corporation from 1980 to 1988. Mr. MacDonald is President of
American Finance Group Securities Corp. and a limited partner in Atlantic
Acquisition Limited Partnership ("AALP") and Old North Capital Limited
Partnership ("ONC"). Prior to co-founding EFG's predecessors, Mr. MacDonald held
various executive and management positions in the leasing and pharmaceutical
industries. Mr. MacDonald holds an M.B.A. from Boston College and a B.A. degree
from the University of Massachusetts (Amherst).
Mr. Engle, age 49, is President and Chief Executive Officer and a member of
the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle is Vice President and a Director of certain of EFG's affiliates. On
December 16, 1994, Mr. Engle acquired control of EFG, the General Partner and
each of EFG's subsidiaries. Mr. Engle controls the general partner of AALP and
is a limited partner in AALP. Mr. Engle is also a limited partner in ONC. In May
1997, Mr. Engle was elected to the Board of Directors of Semele Group, Inc.
("Semele"). From 1987 to 1990, Mr. Engle was a principal and co-founder of Cobb
Partners Development, Inc., a real estate and mortgage banking company. From
1980 to 1987, Mr. Engle was Senior Vice President and Chief Financial Officer of
Arvida Disney Company, a large scale community development company owned by Walt
Disney Company. Prior to 1980, Mr. Engle served in various management consulting
and institutional brokerage capacities. Mr. Engle has an M.B.A. from Harvard
University and a B.S. degree from the University of Massachusetts (Amherst).
Mr. Romano, age 38, is Executive Vice President and Chief Operating Officer
of EFG and certain of its affiliates and Clerk of the General Partner. Mr.
Romano was appointed Chief Financial Officer of Semele in November 1997. Mr.
Romano joined EFG in November 1989 and was appointed Executive Vice President
and Chief Operating Officer in April 1996. Prior to joining EFG, Mr. Romano was
Assistant Controller for a privately-held real estate company which he joined in
1987. Mr. Romano held audit staff and manager positions at Ernst & Whinney (now
Ernst & Young LLP) from 1982 to 1986. Mr. Romano is a C.P.A. and holds a B.S.
degree from Boston College.
Mr. Coyne, age 37, is Executive Vice President of EFG. Mr. Coyne joined EFG
in 1989, remained until May 1993, and rejoined EFG in November 1994. Mr. Coyne
was appointed Executive Vice President of EFG in September 1997. Mr. Coyne is a
limited partner in AALP and ONC. In October 1997, Mr. Coyne was elected
President and Chief Operating Officer of Semele. From May 1993 through November
1994, he was with the Raymond Company, a private investment firm, where he was
responsible for financing corporate and real estate acquisitions. From 1985
through 1989, Mr. Coyne was affiliated with a real estate investment company and
an equipment leasing company. Prior to 1985 he was with the accounting firm of
Ernst & Whinney (now Ernst & Young LLP). He has a BS in Business Administration
from John Carroll University, a Masters Degree in Accounting from Case Western
Reserve University and is a Certified Public Accountant.
Mr. Butterfield, age 38, joined EFG in June 1992 and became Vice President,
Finance and Treasurer of EFG and certain of its affiliates in April 1996 and is
Treasurer of the General Partner. Mr. Butterfield was appointed Treasurer of
Semele in November 1997. Prior to joining EFG, Mr. Butterfield was an Audit
Manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield was
employed in public accounting and industry positions in New Zealand and London
(U.K.) prior to coming to the United States in 1987. Mr. Butterfield attained
his Associate Chartered Accountant (A.C.A.) professional qualification in New
Zealand and has completed his C.P.A. requirements in the United States. He holds
a Bachelor of Commerce degree from the University of Otago, Dunedin, New
Zealand.
Mr. Livesey, age 48, is Vice President, Aircraft and Vessels, of EFG. Mr.
Livesey joined EFG in October, 1989, and was promoted to Vice President in
January 1992. Prior to joining EFG, Mr. Livesey held sales and marketing
positions with two privately-held equipment leasing firms. Mr. Livesey holds an
M.B.A. from Boston College and B.A. degree from Stonehill College.
Ms. Simonsen, age 47, joined EFG in February 1990 and was promoted to
Senior Vice President, Information Systems of EFG in April 1996. Prior to
joining EFG, Ms. Simonsen was Vice President, Information Systems with Investors
Mortgage Insurance Company which she joined in 1973. Ms. Simonsen provided
systems consulting for a subsidiary of American International Group and authored
a software program published by IBM. Ms. Simonsen holds a B.A. degree from
Wilson College.
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<PAGE>
Ms. Ofgant, age 32, is Vice President, Lease Operations of EFG and certain
of its affiliates. Ms. Ofgant joined EFG in June 1989, and was promoted to
Manager, Lease Operations in April 1994. In April 1996, Ms. Ofgant was appointed
Vice President, Lease Operations. Prior to joining EFG, Ms. Ofgant was employed
by Security Pacific National Trust Company. Ms. Ofgant holds a B.S. degree in
Finance from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
ITEM 11. EXECUTIVE COMPENSATION.
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of
the Restated Agreement, as amended, the Partnership is obligated to pay all
costs of personnel employed full or part-time by the Partnership, including
officers or employees of the General Partner or its Affiliates. There is no plan
at the present time to make any officers or employees of the General Partner or
its Affiliates employees of the Partnership. The Partnership has not paid and
does not propose to pay any options, warrants or rights to the officers or
employees of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to section 10.4 of the Restated Agreement, as amended, the Partnership
incurs a monthly charge for personnel costs of the Manager for persons engaged
in providing administrative services to the Partnership. A description of the
remuneration paid by the Partnership to the Manager for such services is
included in Item 13, herein and Note 5 to the financial statements included in
Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partner
or its Affiliates which results or may result from their resignation, retirement
or any other termination.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
By virtue of its organization as a limited partnership, the Partnership has
no outstanding securities possessing traditional voting rights. However, as
provided in Section 11.2(a) of the Restated Agreement, as amended (subject to
Sections 11.2(b) and 11.3), a majority interest of the Recognized Owners have
voting rights with respect to:
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1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all, or substantially all, of
the assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
As of March 1, 1998, the following person or group owns beneficially more
than 5% of the Partnership's 1,380,661 outstanding Units:
<TABLE>
<CAPTION>
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
- ------------------------------ ---------------------------------------- -------------- ---------
<S> <C> <C> <C>
Units Representing Atlantic Acquisition Limited Partnership
Limited Partnership 88 Broad Street 125,843 Units 9.11%
Interests Boston, MA 02110
</TABLE>
Messrs. Engle, MacDonald and Coyne have ownership interests in AALP. In
December 1996, EFG purchased a Class D interest in AALP. See Item 10 and Item 13
of this report.
The ownership and organization of EFG is described in Item 1 of this
report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The General Partner of the Partnership is AFG Leasing IV Incorporated, an
affiliate of EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1997, 1996 and 1995, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Equipment management fees $ 81,303 $ 181,367 $ 189,250
Administrative charges 55,668 36,560 21,000
Reimbursable operating
expenses due to third parties 270,409 406,871 176,990
--------------- --------------- ---------------
Total $ 407,380 $ 624,798 $ 387,240
=============== =============== ===============
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenues and 2% of gross
full payout lease rental revenues received by the Partnership or (ii) fees which
the 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 EFG for services connected
to the sale of equipment is calculated as the lesser of (i) 3% of gross sale
proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under
arm's length circumstances. Payment of the remarketing fee is subordinated to
Payout and is subject to certain limitations defined in the Management
Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4 of the Restated Agreement, as amended, for persons employed by EFG who are
engaged in providing administrative services to
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the Partnership. Reimbursable operating expenses due to third parties represent
costs paid by EFG on behalf of the Partnership which are reimbursed to EFG.
All equipment was acquired from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, or from third-party sellers. The
Partnership's Purchase Price was determined by the method described in Note 2 to
the financial statements, included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid by the lessees
directly to either EFG or a lender. EFG temporarily deposits collected funds in
a separate interest-bearing escrow account prior to remittance to the
Partnership. At December 31, 1997 the Partnership was owed $67,828 by EFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in January 1998.
During 1997, the Partnership and certain affiliated investment programs
sponsored by EFG exchanged their ownership interests in certain vessels for
aggregate consideration of $11,565,375. The Partnership's share of such
consideration was $2,018,804, consisting of common stock in Semele valued at
$512,153, a note receivable from Semele of $771,450 and cash of $735,201. For
further discussion, see Note 4, "Investment Securities - Affiliate / Note
Receivable - Affiliate to the financial statements included in Item14 herein and
Item 10.
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC"), both Massachusetts limited partnerships formed in
1995 owned and controlled by certain principals of EFG, own 125,843 Units or
9.11% and 4,452 Units or 0.32% of the total outstanding units of the
Partnership, respectively. EFG owns a Class D interest in AALP and a 49% limited
partnership interest in ONC, both of which it acquired in December 1996.
On September 30, 1996, the Partnership sold (i) a 23% ownership interest,
representing its entire ownership interest, in a cargo vessel leased by Gearbulk
Shipowning Ltd. ("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S
(the "Vessel"), having an original cost to the Partnership of $1,829,796 and a
net book value at September 30, 1996 of $782,887 and (ii) a 50% ownership
interest, representing its entire ownership interest, in 22 locomotives leased
by Union Pacific Railroad Company (the "Locomotives"), having an original cost
to the Partnership of $4,692,023 and a net book value at September 30, 1996 of
$2,584,785. The Partnership received net sale proceeds of $3,104,537, a portion
of which was used to repay the outstanding principal balance of notes payable
associated with the Vessel of $65,690. The Partnership sold its interests in the
Vessel and Locomotives prior to the expiration of the related lease terms. These
sales were effected in connection with a joint remarketing effort involving 15
individual equipment leasing programs sponsored by EFG, consisting of the
Partnership and 14 affiliates.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors...............................*
Statement of Financial Position
at December 31, 1997 and 1996................................*
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995.........*
Statement of Changes in Partners' Capital
for the years ended December 31, 1997, 1996 and 1995.........*
Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995.........*
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. 33-27828).
13 The 1996 Annual Report to security holders, a copy of which is
furnished for the information of the Securities and Exchange
Commission. Such Report, except for those portions thereof
which are incorporated herein by reference, is not deemed
"filed" with the Commission.
23 Consent of Independent Auditors.
99 (a) Lease agreement with Northwest Airlines, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990 as Exhibit 28 (b) and is incorporated herein
by reference.
* Incorporated herein by reference to the appropriate portion of the 1997 Annual
Report to security holders for the year ended December 31, 1997 (see Part II).
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<PAGE>
Exhibit
Number
--------
99 (b) Lease agreement with Gearbulk Shipowning Ltd. (formerly
Kristian Gerhard Jebsen Skipsrederi A/S) was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 as Exhibit 28 (c) and is incorporated herein
by reference.
99 (c) Lease agreement with Union Pacific Railroad Company was filed
in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 as Exhibit 99(c) and is incorporated
herein by reference.
99 (d) Lease agreement with Sunworld International Airlines, Inc. is
filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 and is included herein.
(b) Reports on Form 8-K
None.
-14-
<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 V-A LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated,
a Massachusetts corporation and the
General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
------------------------------ ------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG and a
General Partner Director of the General Partner
(Principal Executive Officer)
Date: March 31, 1998 Date: March 31, 1998
--------------------------- ----------------------------
By: /s/ Gary M. Romano By: Michael J. Butterfield
------------------------------ ------------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Chief Vice President, Finance and
Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer
of the General Partner of the General Partner
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1998 Date: March 31, 1998
--------------------------- ----------------------------
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<PAGE>
AMERICAN INCOME PARTNERS V
American Income Partners V-A Limited Partnership
Annual Report to the Partners, December 31, 1997
<PAGE>
AMERICAN INCOME PARTNERS V-A 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 3-7
FINANCIAL STATEMENTS:
Report of Independent Auditors 8
Statement of Financial Position
at December 31, 1997 and 1996 9
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995 10
Statement of Changes in Partners' Capital
for the years ended December 31, 1997, 1996 and 1995 11
Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 12
Notes to the Financial Statements 13-21
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 22
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 23
Schedule of Costs Reimbursed to the General
Partner and its Affiliates as Required by
Section 10.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 24
</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, 1997:
<TABLE>
<CAPTION>
Summary of
Operations 1997 1996 1995 1994 1993
- -------------------------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 1,626,206 $ 3,616,524 $ 3,993,645 $ 6,528,735 $ 7,108,672
Net income (loss) before
extraordinary item $ 698,307 $ 2,922,308 $ 974,602 $ 782,396 $ (3,932,716)
Extraordinary item -- -- -- -- 417,451
-------------- ------------- -------------- ------------- --------------
Net income (loss) $ 698,307 $ 2,922,308 $ 974,602 $ 782,396 $ (3,515,265)
Per Unit:
Net income (loss) before
extraordinary item $ 0.48 $ 2.01 $ 0.67 $ 0.54 $ (2.71)
Extraordinary item -- -- -- -- 0.29
-------------- ------------- -------------- ------------- -------------
Net income (loss) $ 0.48 $ 2.01 $ 0.67 $ 0.54 $ (2.42)
Cash distributions $ 0.47 $ 4.18 $ 2.00 $ 2.94 $ 3.25
Financial Position
- ---------------------------
Total assets $ 3,794,549 $ 4,266,781 $ 9,980,073 $ 14,457,077 $ 21,676,535
Total long-term obligations $ -- $ 144,594 $ 2,231,365 $ 4,725,690 $ 7,793,200
Partners' capital $ 3,621,873 $ 3,792,601 $ 6,952,468 $ 8,884,521 $ 12,371,274
</TABLE>
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1997 compared to the year ended
December 31, 1996 and the year ended December 31, 1996
compared to the year ended December 31, 1995
Certain statements in this annual report of American Income Partners V-A
Limited Partnership (the "Partnership") that are not historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are subject to a variety of risks and
uncertainties. There are a number of important factors that could cause actual
results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
outcome of the Class Action Lawsuit described in Note 7 to the accompanying
financial statements and the ability of Equis Financial Group Limited
Partnership (formerly American Finance Group), a Massachusetts limited
partnership ("EFG"), to collect all rents due under the attendant lease
agreements and successfully remarket the Partnership's equipment upon the
expiration of such leases.
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. EFG's computer
programs were designed and written using four digits to define the applicable
year. As a result, EFG does not anticipate system failure or miscalculations
causing disruptions of operations. Based on recent assessments, EFG determined
that minimal modification of software is required so that its network operating
system will function properly with respect to dates in the year 2000 and
thereafter. EFG believes that with these modifications to the existing operating
system, the Year 2000 Issue will not pose significant operational problems for
its computer systems. EFG will utilize internal resources to upgrade software
for Year 2000 modifications and anticipates completing the Year 2000 project by
December 31, 1998, which is prior to any anticipated impact on its operating
system. The total cost of the Year 2000 project is expected to be insignificant
and have no effect on the results of operations of the Partnership.
OVERVIEW
The Partnership was organized in 1989 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The value of the Partnership's equipment
portfolio decreases over time due to depreciation resulting from age and usage
of the equipment, as well as technological changes and other market factors. In
addition, the Partnership does not replace equipment as it is sold; therefore,
its aggregate investment value in equipment declines from asset disposals
occurring in the normal course. The Partnership's stated investment objectives
and policies contemplated that the Partnership would wind-up its operations
within approximately seven years of its inception. Presently, the Partnership is
a Nominal Defendant in a Class Action Lawsuit. The outcome of the Class Action
Lawsuit could alter the nature of the Partnership's organization and its future
business operations. See Note 7 to the accompanying financial statements.
RESULTS OF OPERATIONS
For the year ended December 31, 1997, the Partnership recognized lease
revenue of $1,626,206 compared to $3,616,524 and $3,993,645 for the years ended
December 31, 1996 and 1995, respectively. The overall decrease in lease revenue
between 1995 and 1997 was expected and resulted principally from lease term
expirations and the sale of equipment. The significant decrease in lease revenue
from 1996 to 1997 resulted principally from the Partnership's sale of its
interest in two Boeing 727-Advanced aircraft, a vessel and certain railroad
equipment in 1996 (see discussions below). Partially offsetting this decrease
was the receipt in 1997 of prepaid contractual rental obligations of $991,703
associated with the exchange of the Partnership's interest in a second vessel
during 1997 (see discussion below). Lease revenue for the year ended December
31, 1996 also included the receipt of $846,649 of lease termination rents
received in connection with the sale of the Partnership's interest in the two
aircraft in 1996.
Interest income for the year ended December 31, 1997 was $131,575 compared
to $133,238 and $127,593 for the years ended December 31, 1996 and 1995,
respectively. Interest income is typically generated from
-3-
<PAGE>
temporary investment of rental receipts and equipment sale proceeds in
short-term instruments. Interest income in 1997 included $15,215 earned on a
note receivable from Semele Group, Inc. (formerly Banyan Strategic Land Fund II)
("Semele") (see Note 4 to the financial statements herein). The amount of future
interest income is expected to fluctuate in relation to prevailing interest
rates, the collection of lease revenue and the proceeds from equipment sales.
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 an affiliated equipment leasing program
sponsored by EFG. 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 1997, the Partnership sold equipment which had been fully depreciated to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $102,027. During 1997, the Partnership also
exchanged its interest in a vessel with an original cost and net book value of
$3,666,680 and $1,385,750, respectively. In connection with this transaction,
the Partnership realized proceeds of $1,027,101, which resulted in a net loss
for financial statement purposes, of $358,649. In addition, as this vessel was
disposed of prior to the expiration of the related lease term, the Partnership
received a prepayment of the remaining contracted rent due under the vessel's
lease agreement, as described above.
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of
common stock in Semele, a purchase money note of $8,219,500 (the "Note") and
cash of $365,375. Semele is a Delaware corporation organized on April 14, 1987
and has its common stock listed on NASDAQ. At the date of the exchange
transaction, the common stock of Semele had a net book value of approximately
$1.50 per share and closing market value of $1.00 per share. Semele has one
principal real estate asset consisting of an undeveloped 274 acre parcel of land
near Malibu, California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Semele (the "Semele Note").
As a result of the exchange transaction and its original 46.46% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $735,201 in cash, became the beneficial owner of 341,435 shares of
Semele common stock (valued at $512,153 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$771,450. The Semele Note bears an annual interest rate of 10% and will be
amortized over three years with mandatory principal reductions, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
Rancho Malibu.
Cash equal to the amount of the Semele Note was placed in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in the size of the Board to as many as nine members,
provided a majority of the Board shall consist of members independent of Semele,
EFG or any affiliate; and (ii) an
-4-
<PAGE>
amendment extending Semele's life to perpetual and changing its name from Banyan
Strategic Land Fund II. Contemporaneously with the Consent being obtained,
Semele declared a $0.20 per share dividend to be paid on all shares, including
those beneficially owned by the Partnership. A dividend of $68,287 was paid to
the Partnership on November 17, 1997. This dividend represented a return of
equity to the Partnership, which proportionately reduced the Partnership's
investment in Semele.
In 1996, the Partnership sold equipment having a net book value of
$4,679,670 to existing lessees and third parties. These sales resulted in a net
gain, for financial statement purposes, of $1,410,867. These equipment sales
included the sale of the Partnership's interest in two Boeing 727-Advanced jet
aircraft with an original cost and net book value of $7,622,493, and $1,188,593,
respectively, which the Partnership sold to the existing lessee in July 1996. In
connection with these sales, the Partnership realized sale proceeds of
$1,959,671, which resulted in a net gain, for financial statement purposes, of
$771,078. This equipment was sold prior to the expiration of the related lease
term. The Partnership realized lease termination rents equal to $846,649,
relating to these aircraft. In addition, equipment sales included the
Partnership's interest in a vessel with an original cost and net book value of
$1,829,796 and $782,887, respectively which the Partnership sold to a third
party in September 1996. In connection with this sale, the Partnership realized
net sale proceeds of $603,243 which resulted in a net loss, for financial
statement purposes, of $179,644. This equipment was sold prior to the expiration
of the related lease term. The Partnership also sold its interest in certain
railroad equipment with an original cost and net book value of $4,692,023 and
$2,584,785, respectively, to a third party. The Partnership realized net sale
proceeds of $2,501,294, which resulted in a net loss, for financial statement
purposes, of $83,491. This equipment was sold prior to the expiration of the
related lease term. The sales of the vessel and the railroad equipment were
effected in connection with a joint remarketing effort involving 15 individual
leasing programs sponsored by EFG, consisting of the Partnership and 14
affiliates. See Note 3 to the financial statements for additional discussion of
the vessel and railroad equipment transaction.
In 1995, the Partnership sold equipment having a net book value of $275,880
to existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $680,698.
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 EFG'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. EFG 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 revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation expense was $392,082, $1,540,402 and $3,100,690 for the years
ending December 31, 1997, 1996 and 1995, 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.
Interest expense was $3,390, or less than 1% of lease revenue for the year
ended December 31, 1997, compared to $73,721 and $339,404, or 2% and 8.5% of
lease revenue for the years ending December 31, 1996
-5-
<PAGE>
and 1995, respectively. The Partnership's notes payable were fully amortized
during the year ending December 31, 1997.
Management fees were approximately 5% of lease revenue during each of the
years ended December 31, 1997 and 1996, and 4.7% of lease revenue during the
year ended December 31, 1995. Management fees during the year ended December 31,
1996 included $6,065, resulting from an underaccrual in 1995. Management fees
are based on 5% of gross lease revenue generated by operating leases and 2% of
gross lease revenue generated by full payout leases.
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. Significant operating expenses were incurred during the years ended
December 31, 1997 and 1996 due to heavy maintenance and airframe overhaul costs
incurred in connection with the Partnership's interests in two Boeing 727
aircraft. In 1996, the Partnership entered into a new 36-month lease agreement
with Sunworld International Airlines, Inc. to re-lease one of the aircraft at a
base rent to the Partnership of $14,560 per month. The second aircraft was
re-leased to Transmeridian Airlines beginning April 1997 at a base rent to the
Partnership of $17,920 per month for 8 months and $15,680 per month for 10
months. The amount of future operating expenses cannot be predicted with
certainty; however, such expenses are usually higher during the acquisition and
liquidation phases of a partnership. Other fluctuations typically occur in
relation to the volume and timing of remarketing activities.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from asset rental transactions. Accordingly, the Partnership's principal
source of cash from operations is generally 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 $1,605,911, $2,745,878
and $3,705,226 in 1997, 1996 and 1995, respectively. Net cash from operating
activities in both 1997 and 1996 included lease termination rents as described
above. Future renewal, re-lease and equipment sale activities will cause a
decline in the Partnership's lease revenue and corresponding sources of
operating cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will also decline
as the Partnership experiences a higher frequency of remarketing events.
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 the year ended December 31, 1997,
the Partnership realized net cash proceeds or $102,027, compared to $6,090,537
and $956,578 in 1996 and 1995, respectively. The proceeds in 1996 included cash
in the amount of $3,038,847 representing the net sale proceeds resulting from
the Partnership's sale of its interest in a vessel and certain railroad
equipment less an associated debt payment, discussed above. 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. During the year ended December 31, 1996, the Partnership
expended $245,280 to replace certain aircraft engines to facilitate the re-lease
of an aircraft, in which the Partnership has an ownership interest, to
Transmeridian Airlines (as discussed above). There were no equipment
acquisitions during 1997 and 1995.
-6-
<PAGE>
As a result of the vessel exchange transaction and its original 46.46%
beneficial ownership interest in Larkfield, one of the three Vessels, the
Partnership received $735,201 in cash, became the beneficial owner of 341,435
shares of Semele common stock (valued at $512,153 ($1.50 per share) at the time
of the exchange transaction) and received a beneficial interest in the Semele
Note of $771,450. The Semele Note bears an annual interest rate of 10% and will
be amortized over three years with mandatory principal reductions, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
Rancho Malibu.
In accordance with the Financial Accounting Standard Board's Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities,
marketable equity securities classified as available-for-sale are required to be
carried at fair value. As such, the Partnership reduced the carrying value of
its investment in Semele common stock to $0.75 per share (the quoted price of
the Semele stock on NASDAQ at December 31, 1997) resulting in an unrealized loss
in 1997 of $187,790 which was reported as a separate component of partner's
capital. However, the General Partner believes that the underlying tangible
assets of Semele, particularly the Rancho Malibu property, can be sold or
developed on a tax free basis due to Semele's net operating loss carryforwards
and can provide an attractive economic return to the Partnership.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. The Partnership's notes payable
were fully amortized during the year ended December 31, 1997.
Cash distributions to the General Partner 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, 1997, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $681,245. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Recognized Owners were allocated 95% of these distributions, or $647,183, and
the General Partner was allocated 5%, or $34,062. The fourth quarter 1997 cash
distribution was paid on January 13, 1998.
Cash distributions paid to the Recognized Owners consist of both a return
of and a return on 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 EFG 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 Partnership's future cash distributions will be adversely affected by
the bankruptcy of a former lessee of the Partnership, Midway Airlines, Inc. In
1993, the Partnership's interests in two DC-9-30 aircraft leased by Midway were
transferred to a designee of the lender in lieu of foreclosure. Although this
bankruptcy had no immediate adverse effect on the Partnership's cash flow, as
the Partnership had almost fully leveraged its ownership interest in the
underlying aircraft, this event resulted in the Partnership's loss of any future
interest in the residual value of the aircraft. Notwithstanding such adverse
impact, the overall investment results to be achieved by the Partnership will be
dependent upon the collective performance results of all of the Partnership's
equipment leases.
The future liquidity of the Partnership will be influenced by the
foregoing, as well as the outcome of the Class Action Lawsuit described in Note
7 to the accompanying financial statements. The General Partner anticipates that
cash proceeds resulting from the collection of contractual rents, the outcome of
residual activities and the Partnership's available cash 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 future
quarterly cash distributions are anticipated.
-7-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Partners V-A Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners V-A Limited Partnership as of December 31, 1997 and
1996, 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,
1997. 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 V-A
Limited Partnership at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, 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.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1998
-8-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 2,614,272 $ 1,709,301
Rents receivable, net of allowance for doubtful
accounts of $5,000 at December 31, 1996 3,971 214,338
Accounts receivable - affiliate 67,828 484,358
Note receivable - affiliate 771,450 --
Investment securities - affiliate 256,076 --
Equipment at cost, net of accumulated
depreciation of $5,824,458 and $9,264,523
at December 31, 1997 and 1996, respectively 80,952 1,858,784
------------------- -------------------
Total assets $ 3,794,549 $ 4,266,781
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ -- $ 144,594
Accrued interest -- 1,836
Accrued liabilities 9,200 38,430
Accrued liabilities - affiliate 16,868 95,991
Deferred rental income 10,358 11,664
Cash distributions payable to partners 136,250 181,665
------------------- -------------------
Total liabilities 172,676 474,180
------------------- -------------------
Partners' capital (deficit):
General Partner (1,349,878) (1,341,341)
Limited Partnership Interests
(1,380,661 Units; initial purchase
price of $25 each) 4,971,751 5,133,942
------------------- -------------------
Total partners' capital 3,621,873 3,792,601
------------------- -------------------
Total liabilities and partners' capital $ 3,794,549 $ 4,266,781
=================== ===================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-9-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Income:
Lease revenue $ 1,626,206 $ 3,616,524 $ 3,993,645
Interest income 116,360 133,238 127,593
Interest income - affiliate 15,215 -- --
Gain on sale of equipment 102,027 1,410,867 680,698
Loss on exchange of equipment (358,649) -- --
------------ ------------ ------------
Total income 1,501,159 5,160,629 4,801,936
------------ ------------ ------------
Expenses:
Depreciation 392,082 1,540,402 3,100,690
Interest expense 3,390 73,121 339,404
Equipment management fees -
affiliate 81,303 181,367 189,250
Operating expenses - affiliate 326,077 443,431 197,990
------------ ------------ ------------
Total expenses 802,852 2,238,321 3,827,334
------------ ------------ ------------
Net income $ 698,307 $ 2,922,308 $ 974,602
============ ============ ============
Net income
per limited partnership unit $ 0.48 $ 2.01 $ 0.67
============ ============ ============
Cash distributions declared
per limited partnership unit $ 0.47 $ 4.18 $ 2.00
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-10-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Recognized Owners
Partner -----------------
Amount Units Amount Total
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ (1,086,744) 1,380,661 $ 9,971,265 $ 8,884,521
Net income - 1995 48,730 -- 925,872 974,602
Cash distributions declared (145,333) -- (2,761,322) (2,906,655)
-------------- -------------- -------------- --------------
Balance at December 31, 1995 (1,183,347) 1,380,661 8,135,815 6,952,468
Net income - 1996 146,115 -- 2,776,193 2,922,308
Cash distributions declared (304,109) -- (5,778,066) (6,082,175)
-------------- -------------- -------------- --------------
Balance at December 31, 1996 (1,341,341) 1,380,661 5,133,942 3,792,601
Net income - 1997 34,915 -- 663,392 698,307
Unrealized loss on investment securities (9,390) -- (178,400) (187,790)
Cash distributions declared (34,062) -- (647,183) (681,245)
-------------- -------------- -------------- --------------
Balance at December 31, 1997 $ (1,349,878) 1,380,661 $ 4,971,751 $ 3,621,873
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-11-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 698,307 $ 2,922,308 $ 974,602
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 392,082 1,540,402 3,100,690
Gain on sale of equipment (102,027) (1,410,867) (680,698)
Loss on exchange of equipment 358,649 -- --
Decrease in allowance for doubtful accounts (5,000) -- --
Non-cash proceeds on termination rents (256,502) -- --
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 215,367 (34,393) 138,583
Accounts receivable - affiliate 416,530 (349,917) 222,675
Increase (decrease) in:
Accrued interest (1,836) (29,831) (28,995)
Accrued liabilities (29,230) 18,430 4,500
Accrued liabilities - affiliate (79,123) 86,445 (18,095)
Deferred rental income (1,306) 3,301 (8,036)
---------------- ---------------- ----------------
Net cash from operating activities 1,605,911 2,745,878 3,705,226
---------------- ---------------- ----------------
Cash flows from (used in) investing activities:
Dividend received 68,287 -- --
Purchase of equipment -- (245,280) --
Proceeds from equipment sales 102,027 6,090,537 956,578
---------------- ---------------- ----------------
Net cash from (used in) investing activities 170,314 5,845,257 956,578
---------------- ---------------- ----------------
Cash flows used in financing activities:
Principal payments - notes payable (144,594) (2,086,771) (2,494,325)
Distributions paid (726,660) (6,627,174) (2,906,655)
---------------- ---------------- ----------------
Net cash used in financing activities (871,254) (8,713,945) (5,400,980)
---------------- ---------------- ----------------
Net increase (decrease) in cash
and cash equivalents 904,971 (122,810) (739,176)
Cash and cash equivalents at beginning of year 1,709,301 1,832,111 2,571,287
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 2,614,272 $ 1,709,301 $ 1,832,111
================ ================ ================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 5,226 $ 102,952 $ 368,399
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-12-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1997
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
American Income Partners V-A Limited Partnership (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on July 24, 1989 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 General Partner (AFG Leasing IV Incorporated) and $100 from the Initial
Limited Partner (AFG Assignor Corporation). On September 29, 1989, the
Partnership issued 1,380,661 units, representing assignments of limited
partnership interests (the "Units"), to 1,815 investors. Unitholders and Limited
Partners (other than the Initial Limited Partner) are collectively referred to
as Recognized Owners. The Partnership has one General Partner, AFG Leasing IV
Incorporated, a Massachusetts corporation formed in 1987 and an affiliate of
Equis Financial Group Limited Partnership (formerly American Finance Group), a
Massachusetts limited partnership ("EFG"). The common stock of the General
Partner is owned by AF/AIP Programs Limited Partnership, of which EFG and a
wholly-owned subsidiary are the 99% limited partners and AFG Programs, Inc.,
which is wholly-owned by EFG, is the 1% general partner. The General Partner is
not required to make any other capital contributions except as may be required
under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement
and Certificate of Limited Partnership (the "Restated Agreement, as amended").
Significant operations commenced September 29, 1989 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 95% to the Recognized Owners and 5% to the
General Partner.
Under the terms of a management agreement between the Partnership and
AF/AIP Programs Limited Partnership and the terms of an identical management
agreement between AF/AIP Programs Limited Partnership and EFG (collectively, the
"Management Agreement") management services are provided by EFG to the
Partnership at fees which the General Partner believes to be competitive for
similar services (see Note 4).
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
Direct-Participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also owns
a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF CASH FLOWS
-13-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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 federal agency
discount notes and in reverse repurchase agreements with overnight securities.
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, 1997, the Partnership had $2,510,081 invested in
federal agency discount notes and 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 or quarterly 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 $340,177
are due as follows:
<TABLE>
<S> <C>
For the year ending December 31, 1998 $ 338,939
1999 1,238
--------------
Total $ 340,177
==============
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Gearbulk Shipowning Ltd. (formerly Kristian
Gerhard Jebsen Skipsrederi A/S) $ 1,110,453 $ 905,688 $ 957,130
Sunworld International Airlines, Inc. $ 174,720 $ -- $ --
Northwest Airlines, Inc. $ -- $ 1,535,146 $ 1,487,210
Union Pacific Railroad Company $ -- $ 463,087 $ 658,318
</TABLE>
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
EQUIPMENT ON LEASE
All equipment was acquired from EFG, one of its affiliates, including
other equipment leasing programs sponsored by EFG, 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 EFG or an affiliate, asset base price was the lower of (i) the
actual price paid for the equipment by EFG or the affiliate plus all actual
costs accrued by EFG or the affiliate while carrying the equipment less the
amount of all rents earned by EFG or the affiliate prior to selling the
equipment or (ii) fair market value as determined by the 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
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
-14-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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 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.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG'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.
INVESTMENT SECURITIES - AFFILIATE
The Partnership's investment in Semele Group, Inc. is considered to be
available-for-sale and as such is carried at fair value with unrealized gains
and losses reported as a separate component of Partner's Capital (see Note 4).
ACCRUED LIABILITIES - AFFILIATE
Unpaid operating expenses paid by EFG on behalf of the Partnership and
accrued but unpaid administrative charges and management fees are reported as
Accrued Liabilities - Affiliate (see Note 5).
ALLOCATION OF PROFITS AND LOSSES
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the
Recognized Owners and 5% to the General Partner). See Note 6 concerning
allocation of income or loss for income tax purposes.
NET INCOME AND CASH DISTRIBUTIONS PER UNIT
Net income and cash distributions per Unit are based on 1,380,661 Units
outstanding during each of the three years in the period ended December 31, 1997
and computed after allocation of the General Partner's 5% share of net income
and cash distributions.
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 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. This
statement establishes standards for reporting comprehensive income and its
components and requires this disclosure be added as a new section in a financial
statement. This statement is effective for fiscal years beginning after December
31, 1997. The Partnership will adopt the new disclosures required by SFAS No.
130 in 1998.
-15-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
December 31, 1997. Remaining Lease Term (Months), as used below, represents the
number of months remaining from December 31, 1997 under contracted lease terms
and is presented as a range when more than one lease agreement is contained in
the stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
- ----------------------- --------- ------------ --------------------------
<S> <C> <C> <C>
Aircraft 10-13 $ 4,596,188 KY/TX
Materials handling 0-17 1,074,110 CT/GA/IL/IN/MA/MI/NC/NY/PA
SC/TX
Communications 0 226,017 GA/MO
Furniture & fixtures 0 5,636 NJ
Computers & peripherals 0 3,459 TX
------------
Total equipment cost 5,905,410
------------
Accumulated depreciation (5,824,458)
------------
Equipment, net of accumulated
depreciation $ 80,952
============
</TABLE>
On September 30, 1996, the Partnership sold (i) a 23% ownership interest,
representing its entire ownership interest, in a cargo vessel leased by Gearbulk
Shipowning Ltd. ("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S
(the "Vessel"), having an original cost to the Partnership of $1,829,796 and a
net book value at September 30, 1996 of $782,887 and (ii) a 50% ownership
interest, representing its entire ownership interest, in 22 locomotives leased
by Union Pacific Railroad Company (the "Locomotives"), having an original cost
to the Partnership of $4,692,023 and a net book value at September 30, 1996 of
$2,584,785. The Partnership received net sale proceeds of $3,104,537, a portion
of which was used to repay the outstanding principal balance of notes payable
associated with the Vessel of $65,690. The Partnership sold its interests in the
Vessel and Locomotives prior to the expiration of the related lease terms. These
sales were effected in connection with a joint remarketing effort involving 15
individual equipment leasing programs sponsored by EFG, consisting of the
Partnership and 14 affiliates.
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or an
affiliated equipment leasing program sponsored by EFG. 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, 1997, the Partnership's equipment
portfolio included equipment having a proportionate original cost of $4,596,189
representing approximately 75% of total equipment cost.
Generally, the costs associated with maintaining, insuring and operating
the Partnership's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the
-16-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
proceeds realized upon sale or disposition. The ultimate realization of
estimated residual value in the equipment is dependent upon, among other things,
EFG's ability to maximize proceeds from selling or re-leasing the equipment upon
the expiration of the primary lease terms. The summary above includes equipment
held for sale or re-lease which had been fully depreciated with a cost of
approximately $188,500. The General Partner is actively seeking the sale or
re-lease of all equipment not on lease. In addition, the summary above also
includes equipment being leased on a month-to-month basis.
NOTE 4 - INVESTMENT SECURITIES - AFFILIATE / NOTE RECEIVABLE - AFFILIATE
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of
common stock in Semele Group, Inc. ("Semele") (formerly Banyan Strategic Land
Fund II), a purchase money note of $8,219,500 (the "Note") and cash of $365,375.
Semele is a Delaware corporation organized on April 14, 1987 and has its common
stock listed on NASDAQ. At the date of the exchange transaction, the common
stock of Semele had a net book value of approximately $1.50 per share and
closing market value of $1.00 per share. Semele has one principal real estate
asset consisting of an undeveloped 274 acre parcel of land near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Semele (the "Semele Note").
As a result of the exchange transaction and its original 46.46% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $735,201 in cash, became the beneficial owner of 341,435 shares of
Semele common stock (valued at $512,153 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$771,450. The Semele Note bears an annual interest rate of 10% and will be
amortized over three years with mandatory principal reductions, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
Rancho Malibu. The Partnership's interest in the vessel had an original cost and
net book value of $3,666,680 and $1,385,750, respectively. The proceeds realized
by the Partnership of $1,027,101 resulted in a net loss, for financial statement
purposes, of $358,649. In addition, as this vessel was disposed of prior to the
expiration of the related lease term, the Partnership received a prepayment of
the remaining contracted rent due under the vessel's lease agreement of
$991,703.
Cash equal to the amount of the Semele Note was placed in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in the size of the Board to as many as nine members,
provided a majority of the Board shall consist of members independent of Semele,
EFG or any affiliate; and (ii) an amendment extending Semele's life to perpetual
and changing its name from Banyan Strategic Land Fund II. Contemporaneously with
the Consent being obtained, Semele declared a $0.20 per share dividend to be
paid on all shares, including those beneficially owned by the Partnership. A
dividend of $68,287 was paid to the
-17-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Partnership on November 17, 1997. This dividend represented a return of equity
to the Partnership, which proportionately reduced the Partnership's investment
in Semele. In May 1997, Gary D. Engle, President and Chief Executive Officer of
EFG, was elected to the Board of Directors of Semele and in October 1997, James
A. Coyne, Executive Vice President of EFG was elected Semele's President and
Chief Operating Officer.
In accordance with the Financial Accounting Standard Board's Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities,
marketable equity securities classified as available-for-sale are required to be
carried at fair value. As such, the Partnership reduced the carrying value of
its investment in Semele common stock to $0.75 per share (the quoted price of
the Semele stock on NASDAQ at December 31, 1997) resulting in an unrealized loss
in 1997 of $187,790 which was reported as a separate component of partner's
capital.
NOTE 5 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1997, 1996 and 1995 which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Equipment management fees $ 81,303 $ 181,367 $ 189,250
Administrative charges 55,668 36,560 21,000
Reimbursable operating
expenses due to third parties 270,409 406,871 176,990
------------ ------------ ------------
Total $ 407,380 $ 624,798 $ 387,240
============ ============ ============
</TABLE>
As provided under the terms of the Management Agreement, EFG is
compensated for its services to the Partnership. Such services include all
aspects of acquisition, management and sale of equipment. For acquisition
services, EFG is compensated by an amount equal to 2.23% of Equipment Base Price
paid by the Partnership. For management services, EFG is compensated by an
amount equal to the lesser of (i) 5% of gross operating lease rental revenue and
2% of gross full payout lease rental revenue received by the Partnership or (ii)
fees which the 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 EFG for
services connected to the sale of equipment is calculated as the lesser of (i)
3% of gross sale proceeds or (ii) one-half of reasonable brokerage fees
otherwise payable under arm's length circumstances. Payment of the remarketing
fee is subordinated to Payout and is subject to certain limitations defined in
the Management Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4 of the Restated Agreement, as amended, for persons employed by EFG who are
engaged in providing administrative services to the Partnership. Reimbursable
operating expenses due to third parties represent costs paid by EFG on behalf of
the Partnership which are reimbursed to EFG.
All equipment was acquired from EFG, one of its affiliates, including
other equipment leasing programs sponsored by EFG, or from third-party sellers.
The Partnership's Purchase Price was determined by the method described in Note
2, Equipment on Lease.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1997, the Partnership was owed $67,828 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1998.
-18-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC"), both Massachusetts limited partnerships formed in
1995 owned and controlled by certain principals of EFG, own 125,843 Units or
9.11% and 4,452 Units or 0.32% of the total outstanding units of the
Partnership, respectively. EFG owns a Class D interest in AALP and a 49% limited
partnership interest in ONC, both of which it acquired in December 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 (95% to the Recognized Owners and 5% to the General Partner). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss, in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon dissolution of the Partnership, the
General Partner will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partner's tax
capital account. At December 31, 1997, the General Partner 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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income $ 698,307 $ 2,922,308 $ 974,602
Financial statement depreciation in
excess of (less than) tax depreciation (162,802) 60,169 486,934
Deferred rental income (1,306) 3,301 (8,036)
Other 148,614 (83,593) 274,795
------------------ ------------------ ------------------
Net income for federal income tax
reporting purposes $ 682,813 $ 2,902,185 $ 1,728,295
================== ================== ==================
</TABLE>
The principal component of "Other" consists of the difference between the
tax gain (loss) on equipment disposals and the financial statement gain (loss)
on 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Partners' capital $ 3,621,873 $ 3,792,601
</TABLE>
-19-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Unrealized loss on investment securities 187,790 --
Add back selling commissions and organization
and offering costs 3,878,114 3,878,114
Financial statement distributions in excess of
tax distributions 6,812 9,083
Cumulative difference between federal income tax
and financial statement income (loss) 1,040,446 1,055,940
------------------ ------------------
Partners' capital for federal income tax reporting purposes $ 8,735,035 $ 8,735,738
================== ==================
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 7 - LEGAL PROCEEDINGS
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed
a class and derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and a number
of its affiliates, including the General Partner, as defendants (collectively,
the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had
filed an earlier derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit."
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On March 9, 1998, counsel for the Defendants and the Plaintiffs entered
into a Memorandum of Understanding setting forth the terms pursuant to which a
settlement of the Class Action Lawsuit is intended to be achieved and which,
among other things, is expected to reduce the burdens and expenses attendant to
continuing litigation. The Memorandum of Understanding represents a preliminary
step towards a comprehensive Stipulation of Settlement between the parties that
must be presented to and approved by the Court as a condition precedent to
effecting a settlement. The Memorandum of Understanding (i) prescribes a number
of conditions necessary to achieving a settlement, including providing the
partners (or beneficiaries, as applicable) of the Nominal Defendants with the
opportunity to vote on any settlement and (ii) contemplates various changes
that, if effected, would alter the future operations of the Nominal Defendants.
With respect to the Partnership and 10 affiliated partnerships (hereafter
referred to as the "Exchange Partnerships"), the Memorandum of Understanding
provides for the restructuring of their respective business operations into a
single successor company whose securities would be listed and traded on a
national stock exchange. The partners of the Exchange Partnerships would receive
both common stock in the new company and a cash distribution in exchange for
their existing partnership interests. Such a transaction would, among other
things, allow for the consolidation of the Partnership's operating expenses with
other similarly-organized equipment leasing programs. To the extent that the
parties agree upon a Stipulation of Settlement that is approved by the Court,
the complete terms thereof will be communicated to all of the partners (or
beneficiaries) of the Nominal Defendants to enable them to vote thereon.
-20-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
There can be no assurance that the parties will agree upon a Stipulation
of Settlement, or that it will be approved by the Court, or that the outcome of
the voting by the partners (or beneficiaries) of the Nominal Defendants,
including the Partnership, will result in a settlement finally being effected or
in the Partnership being included in any such settlement. The General Partner
and its affiliates, in consultation with counsel, concur that there is a
reasonable basis to believe that a Stipulation of Settlement will be agreed upon
by the parties and approved by the Court. In the absence of a Stipulation of
Settlement approved by the Court, the Defendants intend to defend vigorously
against the claims asserted in the Class Action Lawsuit. The General Partner and
its affiliates cannot predict with any degree of certainty the ultimate outcome
of such litigation.
On July 27, 1995, EFG, on behalf of the Partnership and other
EFG-sponsored investment programs, filed an action in the Commonwealth of
Massachusetts Superior Court Department of the Trial Court in and for the County
of Suffolk, for damages and declaratory relief against a lessee of the
Partnership, National Steel Corporation ("National Steel"), under a certain
Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is
seeking the reimbursement by National Steel of certain sales and/or use taxes
paid to the State of Illinois and other remedies provided by the MLA. On August
30, 1995, National Steel filed a Notice of Removal which removed the case to the
United States District Court, District of Massachusetts. On September 7, 1995,
National Steel filed its Answer to EFG's Complaint along with Affirmative
Defenses and Counterclaims, seeking declaratory relief and alleging breach of
contract, implied covenant of good faith and fair dealing and specific
performance. EFG filed its Answer to these counterclaims on September 29, 1995.
Though the parties have been discussing settlement with respect to this matter
for some time, to date, the negotiations have been unsuccessful. Notwithstanding
these discussions, EFG recently filed an Amended and Supplemental Complaint
alleging further default under the MLA and EFG recently filed a motion for
Summary Judgment on all claims and counterclaims. The Court held a hearing on
EFG's motion in December 1997 and the matter remains pending before the Court.
The Partnership has not experienced any material losses as a result of this
action.
On September 22, 1995, Investors Asset Holding Corp. and First Security
Bank, N.A., trustees of the Partnership and various other affiliated investment
programs, filed an action in the United States District Court for the District
of Massachusetts against Northwest Airlines, Inc. ("Northwest"), a lessee of the
Partnership. The trustees are seeking damages from Northwest and a declaratory
judgment concerning Northwest's maintenance and return obligations for certain
aircraft owned by the Partnership. In addition to filing its Answer to the
Plaintiffs' Complaint, Northwest also filed a motion to transfer venue of this
proceeding to Minnesota. The Court denied such motion. The parties have
completed the initial phase of discovery, and motions for partial summary
judgment are pending. At present, it is not possible to determine the ultimate
outcome of this matter.
-21-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1997, 1996 and 1995
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, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $ 1,800,550 $ 17,670,136 $ 3,959,099
Sale proceeds realized upon
disposition of equipment 102,027 6,090,537 956,578
------------------ ------------------ ------------------
Total cash generated from rents
and equipment sale proceeds 1,902,577 23,760,673 4,915,677
Original acquisition cost of equipment
disposed 1,551,218 19,929,876 4,135,962
------------------ ------------------ ------------------
Excess of total cash generated to cost
of equipment disposed $ 351,359 $ 3,830,797 $ 779,715
================== ================== ==================
</TABLE>
-22-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1997
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net income $ 596,280 $ 102,027 $ 698,307
Add:
Depreciation 392,082 -- 392,082
Management fees 81,303 -- 81,303
Decrease in allowance for doubtful
accounts (5,000) -- (5,000)
Loss on exchange 358,649 -- 358,649
Non-cash proceeds on termination rents (256,502) -- (256,502)
Less:
Principal reduction of notes payable (144,594) -- (144,594)
------------------ ------------------ ------------------
Cash from operations, sales and
refinancings 1,022,218 102,027 1,124,245
Less:
Management fees (81,303) -- (81,303)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings 940,915 102,027 1,042,942
Other sources and uses of cash:
Cash at beginning of year 1,709,301 -- 1,709,301
Net change in receivables and
accruals 520,402 -- 520,402
Dividend received 68,287 -- 68,287
Less:
Cash distributions paid (624,633) (102,027) (726,660)
------------------ ------------------ ------------------
Cash at end of year $ 2,614,272 $ -- $ 2,614,272
================== ================== ==================
</TABLE>
-23-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 10.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE` OF LIMITED PARTNERSHIP
December 31, 1997
For the year ended December 31, 1997, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
Operating expenses $ 346,563
-24-
<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 V-A Limited Partnership of our report dated
March 10, 1998, included in the 1997 Annual Report to the Partners of American
Income Partners V-A Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1998
================================================================================
AIRCRAFT LEASE AGREEMENT
between
FIRST SECURITY BANK OF UTAH, N.A.
as Owner Trustee,
Lessor
and
SUNWORLD INTERNATIONAL AIRLINES, INC.,
Lessee
Dated as of January 1, 1996
covering one Boeing model 727-251A Aircraft
equipped with Pratt & Whitney model JT8D-15A Engines
Serial No. 21161
================================================================================
<PAGE>
LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. Definitions ................................................................... 1
SECTION 2. Lease and Delivery of the Aircraft ............................................ 5
2.1. Lease, Lessee's Obligations, and Conditions Precedent .......................... 5
2.1.1. Execution of Operative Documents ....................................... 6
2.1.2. Evidence of Legal Authority to Lease and Operate the Aircraft .......... 6
2.1.3. Evidence of Corporate Authority ........................................ 6
2.1.4. Evidence of Insurance .................................................. 7
2.1.5. Opinion of Counsel ..................................................... 7
2.1.6. Payment of Basic Rent and Security Deposit ............................. 7
2.2. Delivery ....................................................................... 7
2.3. Lessor Authority; Ancillary Documents .......................................... 8
SECTION 3. Term, Rent, and Purchase Option ............................................... 8
3.1. Term; Option to Extend ......................................................... 8
3.2. Basic Rent ..................................................................... 8
3.3. Method of Payment .............................................................. 8
3.4. Supplemental Rent .............................................................. 9
3.5. Security Deposit ............................................................... 9
3.6. Reserves ....................................................................... 9
3.7. Purchase Option ................................................................ 11
SECTION 4. Representations, Warranties and Miscellaneous Covenants ....................... 11
4.1. The Lessee's Representations and Warranties .................................... 11
4.1.1. Organization and Qualification ......................................... 11
4.1.2. Corporate Authorization ................................................ 11
4.1.3. Government Approval .................................................... 11
4.1.4. Valid and Binding Agreements ........................................... 12
4.1.5. Litigation ............................................................. 12
4.1.6. Financial Condition .................................................... 12
4.1.7. Accuracy and Disclosure of Information ................................. 12
4.2. Representations and Warranties of the Lessor ................................... 12
4.2.1. Due Organization ....................................................... 12
4.2.2. Due Authorization; Enforceability ...................................... 12
4.2.3. No Violation ........................................................... 13
4.2.4. Ownership of Aircraft .................................................. 13
4.2.5 No Consents or Approvals ............................................... 13
4.2.6. Citizenship ............................................................ 13
4.2.7. Discharge of FSBU Liens ................................................ 13
4.2.8. Litigation ............................................................. 13
4.2.9. FSBU Litigation ........................................................ 13
4.3. Disclaimer and Acknowledgement of Disclaimer; Waiver of Consequential Damages .. 14
<PAGE>
4.4. Lessee's Miscellaneous Covenants .............................................. 15
4.4.1. Maintenance of Corporate Status: No Merger or Consolidation ............ 15
4.4.2. Notice of Default or Adverse Occurrence ................................ 15
4.4.3. Maintenance of Consents and Approvals .................................. 15
4.4.4. Change of Locale ....................................................... 15
4.4.5. Financial Information and Reports ...................................... 15
4.5. Lessor's Covenant of Quiet Enjoyment ........................................... 16
SECTION 5. Operation, Maintenance, Possession ............................................ 16
5.1. Title .......................................................................... 16
5.2. Operation ...................................................................... 16
5.3. Maintenance in General ......................................................... 16
5.4. Parts .......................................................................... 17
5.5. Airworthiness Directives ....................................................... 18
5.6. Service Bulletins .............................................................. 18
5.7. Modifications .................................................................. 18
5.8. Reports ........................................................................ 19
5.9. Right to Inspect ............................................................... 20
5.10. Damage and Repairs ............................................................ 20
5.11. Aircraft Documents ............................................................ 20
5.11.1. Airworthiness Directives .............................................. 21
5.11.2. Life Limited Components ............................................... 21
5.11.3. Damage and Repairs .................................................... 21
5.12. Possession .................................................................... 21
5.13. Insignia ...................................................................... 23
SECTION 6. Return of the Aircraft ..................................................... 23
6.1. Return ......................................................................... 23
6.2. Lease Continues ................................................................ 23
6.3. Return of Engines .............................................................. 23
6.4. Condition of Aircraft .......................................................... 24
6.4.1. Operating Condition .................................................... 24
6.4.2. Cleanliness Standards .................................................. 24
6.4.3. Certificate of Airworthiness ........................................... 24
6.4.4. Compliance with Governmental Requirements .............................. 24
6.4.5. Deferred Maintenance ................................................... 25
6.4.6. Corrosion Treatment .................................................... 25
6.4.7. Configuration and Condition ............................................ 25
6.5. Condition of Airframe .......................................................... 25
6.5.1. C Check ................................................................ 25
6.5.2. D Check ................................................................ 25
6.5.3. Parts .................................................................. 25
6.6. Condition of Landing Gear ...................................................... 26
6.7. Condition of Auxiliary Power Unit ("APU") ...................................... 26
6.8. Condition of Engines ........................................................... 26
6.9. Historical Records, Trend Monitoring Data ...................................... 26
<PAGE>
6.10. Inspections ................................................................... 27
6.11. Acceptance .................................................................... 27
6.12. Discrepancy Correction; Financial Settlement .................................. 27
6.13. Aircraft Documents ............................................................ 28
6.14. Service Bulletin Kits ......................................................... 28
6.15. Lessee's Special Exterior Markings ............................................ 28
6.16. Disputes ...................................................................... 28
SECTION 7. Liens ......................................................................... 29
SECTION 8. Taxes ......................................................................... 29
8.1. Tax Indemnity .................................................................. 29
8.2. Withholding .................................................................... 31
8.3. After-tax Payment .............................................................. 32
SECTION 9. Risk of Loss; Event of Loss; Requisition for Use .............................. 32
9.1. Risk of Loss ................................................................... 32
9.2. Airframe Event of Loss ......................................................... 32
9.3. Engine Event of Loss ........................................................... 33
9.4. Requisition .................................................................... 33
SECTION 10. Insurance .................................................................... 34
10.1. Reports ....................................................................... 34
10.2. Lessor Maintaining Insurances ................................................. 34
10.3. Insurance Proceeds ............................................................ 34
10.4. Property Insurance ............................................................ 35
10.5. Liability Insurance ........................................................... 35
10.6. Provisions Relating To All Insurances ......................................... 36
SECTION 12. Further Assurances ........................................................... 37
SECTION 13. Events of Default ............................................................ 37
13.1. Failure to Pay Basic Rent ..................................................... 37
13.2. Failure to Pay Supplemental Rent .............................................. 37
13.3. Failure to Maintain Insurance ................................................. 37
13.4. Misrepresentation or Breach of Warranty ....................................... 37
13.5. Bankruptcy, Etc. .............................................................. 37
13.6. General Default ............................................................... 38
13.7. Loss of Airline or Corporate Authority ........................................ 38
13.8. Other Obligations ............................................................. 38
13.9. Guarantor Default ............................................................. 38
SECTION 14. Remedies ..................................................................... 38
14.1. Return and Repossession ....................................................... 39
14.2. Sale, Use, Etc. ............................................................... 39
14.3. Liquidated Damages: Fair Market Rental ........................................ 39
<PAGE>
14.4. Cancellation, Termination, and Rescission ..................................... 39
14.5. Other Remedies ................................................................ 40
SECTION 15. General Indemnity and Expenses .............................................. 40
15.1. General Indemnity ............................................................. 40
15.2. Legal Fees and Expenses ....................................................... 41
SECTION 16. Assignment and Alienation .................................................... 41
SECTION 17. Notices ...................................................................... 42
SECTION 18. No Set-Off, Counterclaim, Etc. ............................................... 43
SECTION 19. Governing Law ................................................................ 44
19.1. Consent to Jurisdiction ....................................................... 44
19.2. Choice of Law ................................................................. 44
SECTION 20. Miscellaneous ................................................................ 44
SECTION 21. Truth-In-Leasing ............................................................. 45
EXHIBIT A: FORM OF LEASE SUPPLEMENT AND RECEIPT .......................................... 47
EXHIBIT B: FORM OF AIRCRAFT RETURN RECEIPT AND LEASE TERMINATION ......................... 53
EXHIBIT C: FORM OF GUARANTY .............................................................. 56
</TABLE>
<PAGE>
AIRCRAFT LEASE AGREEMENT
This AIRCRAFT LEASE AGREEMENT dated as of January 1, 1996 between
FIRST SECURITY BANK OF UTAH, N.A., a national banking association organized and
existing under the laws of the United States, not in its individual capacity but
solely as owner trustee under that certain Trust Agreement 1989-4 dated as of
December 13, 1989, and amended as of March 1, 1990, by and among the Lessor and
the Beneficiaries (defined below), with its principal place of business at 79
South Main Street, Salt Lake City, Utah 84111 ("Lessor"), and SUNWORLD
INTERNATIONAL AIRLINES, INC., a Kentucky corporation with its principal place of
business at 207 Grandview Drive, Fort Mitchell, Kentucky 41017-2799 ("Lessee"),
WHEREAS, the Lessee desires to lease from the Lessor and the Lessor
is willing to lease to the Lessee the aircraft described herein upon and subject
to the terms and conditions of this Lease;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Lessee and Lessor agree as follows:
SECTION 1. Definitions. The following terms shall have the
following meanings for all purposes of this Lease:
"Aircraft" means the Airframe, Engines, Appliances, and the Aircraft
Documents. Engines and Appliances shall be deemed part of the "Aircraft" whether
or not from time to time attached to the Airframe or to another airframe or on
the ground.
"Aircraft Documents" has the meaning given such term in Section 5.11
hereof.
"Airframe" means the Boeing model 727-251 airframe, manufacturer serial
number 21161, registration mark N282US, and component Parts thereof (including
landing gear) so long as such Parts shall be either incorporated or installed in
or attached to the Airframe or required to be subject to this Lease as provided
in Section 5 hereof.
"Airworthiness Directive" means any airworthiness directive or other
mandatory regulation, directive or instruction that the Aviation Authority may
from time to time issue and that is required to be carried out on airframes,
engines or appliances of the same type as the Airframe, Engines, or Appliances
in order to meet the requirements of Aviation Law for the commercial
transportation of passengers or cargo.
"Appliance" means any instrument, mechanism, equipment, apparatus,
appurtenance, or accessory, including communications equipment and auxiliary
power units, that is used or intended to be used in operating or controlling the
Aircraft in flight, and is installed in or attached to the Aircraft, but is not
part of the Airframe or Engines, and component Parts thereof, so long as the
same shall be either incorporated or installed in or attached to such Appliance
or required to be subject to this Lease as provided in Section 5 hereof.
<PAGE>
"Applicable Law" means, without limitation, all applicable laws,
treaties, international agreements, decisions and orders of any court,
arbitration or governmental agency or authority and rules, regulations, orders,
directives, licenses and permits of any governmental body, instrumentality,
agency or authority, including, without limitation, the law of the Commonwealth
of Massachusetts, and such laws of the United States which prohibit trade with
enemies of the United States.
"Approved Maintenance Program" means a maintenance program applicable to
the Aircraft encompassing scheduled maintenance, condition monitored
maintenance, and on-condition maintenance of Airframe, Engines and Appliances,
including, but not limited to, servicing, testing, preventive maintenance,
repairs, structural inspections, systems checks, approved modifications, service
bulletins, engineering orders, Airworthiness Directives, corrosion control
inspections and treatments, and which meets the Aviation Law requirements for
commercial airline passenger operations and is approved by the appropriate
Aviation Authority officer having responsibility for Lessee's operations and
maintenance of the Aircraft.
"Aviation Authority" means the Federal Aviation Administration of the
United States Department of Transportation or any successor agency, or any such
other governmental authorities from time to time vested with the control and
supervision of the Aviation Law, or having jurisdiction over the registration,
airworthiness, operation of or other matters relating to the Aircraft or civil
aviation in the United States.
"Aviation Law" means the Applicable Law of the United States including
all regulations promulgated by the Aviation Authority pursuant to Aviation Law,
as amended from time to time, respecting the ownership and operation of aircraft
registered or operated in the United States.
"Basic Rent" means the rent payable for the Aircraft pursuant to Section
3.2 hereof.
"Beneficiaries" means American Income Partners V-A Limited Partnership, a
Massachusetts limited partnership, American Income Partners V-B Limited
Partnership, a Massachusetts limited partnership, American Income Partners V-C
Limited Partnership, a Massachusetts limited partnership, and American Income
Fund I-A, a Massachusetts Limited Partnership, a Massachusetts limited
partnership, each with its principal place of business at 98 North Washington
Street, Boston, Massachusetts 02114.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which commercial banking institutions are authorized to be closed by Applicab1e
Law in Boston, Massachusetts, or Fort Mitchell, Kentucky.
"C Check" means the inspection, overhaul, repair, preservation and
replacement of Parts of the Aircraft, including preventive maintenance,
identified as a full block C Check under the Airframe manufacturer's maintenance
planning documents, or equivalent. Such full block C Check shall include all
structural inspections, corrosion control and other work normally completed in
conjunction with each block C Check.
Page 2 of 56
<PAGE>
"Default" means an event which with the passage of time or the giving of
notice, or both, would constitute an Event of Default.
"Delivery Date" has the meaning given such term in Section 2.2 hereof.
"Delivery Location" has the meaning given such term in Section 2.2
hereof.
"Engine" means each of three (3) Pratt & Whitney model JT8D-15A engines,
serial numbers 696253, 696529 and 695260, or any other engine which may from
time to time replace an Engine leased hereunder in accordance with the terms
hereof, and component Parts thereof, so long as the same shall be either
incorporated or installed in or attached to such Engine or required to be
subject to this Lease as provided in Section 5 hereof.
"Event of Default" has the meaning given such term in Section 13 hereof.
"Event of Loss" shall mean any of the following events with respect to
any property:
(i) loss of such property due to theft, disappearance, destruction,
damage beyond economic repair or rendition of such property permanently
unfit for normal use for any reason;
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of an actual,
constructive, agreed, arranged, or compromised total loss; or
(iii) the condemnation, confiscation or seizure of, or requisition
of title to such property by private persons or by any governmental or
purported governmental authority (but excluding requisition for use or
hire not involving requisition of title, provided such requisition for use
or hire does not continue beyond the end of the Term, and excluding
confiscation by the United States of America).
"Expiry" shall mean any of the following: (i) expiration of the Term
through the passage of time in accordance with the terms of this Lease, or (ii)
termination, cancellation, or rescission of the Lease in accordance with its
terms and in accordance with Applicable Law.
"FSBU" means First Security Bank of Utah, N.A., in its individual
capacity.
"Guarantor" means Columbia Sussex Corporation, a Kentucky corporation
with its principal place of business at 207 Grandview Drive, Fort Mitchell,
Kentucky 41017-2799.
"Guaranty" means the Guaranty made by the Guarantor in favor of the
Lessor and in the form attached hereto as Exhibit C.
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<PAGE>
"Indemnitee" means (i) the Lessor; (ii) the Beneficiaries; (iii) any
Lender; (iv) American Finance Group, a Massachusetts general partnership, and
(iv) their respective successors, assigns, employees, officers, directors and
agents, and each of them.
"Lease" shall mean this Aircraft Lease Agreement, as supplemented by the
Lease Supplement and Receipt, and as may be amended in accordance with Section
20 hereof.
"Lease Supplement and Receipt" shall mean a Lease Supplement and Receipt,
substantially in the form of Exhibit A hereto.
"Lender" shall mean any holder of a security interest in the Aircraft
and/or assignee of this Lease (or any interest therein), which security interest
and/or assignment was acquired in exchange for financing provided to Lessor to
acquire the Aircraft or to refinance Lessor's acquisition of the Aircraft.
"Lessor Liens" means Liens which result from claims against or affecting
the Lessor not related to the transactions contemplated by this Lease, or any
Lien which Lessor has caused to be placed on the Aircraft as permitted pursuant
to Section 19 hereof, or any Lien for Taxes imposed on any Indemnitee for which
the Lessee is not required to indemnify hereunder.
"Lien" means any mortgage, security interest, lease or other charge or
encumbrance or claim or right of others, including, without limitation, rights
of others under any airframe, appliance or engine interchange or pooling
agreement.
"Life Limited Component" means any Part that is required either by the
Airframe, Engine, Appliance, or Part manufacturer or by the Aviation Authority
or by the Approved Maintenance Program to be overhauled or replaced after a
certain number of hours, calendar time, cycles, or landings, including without
limitation life-limited parts, rotables, and discard items.
"Maintenance Provider" means Triad International Maintenance Corp.,
Greensboro, North Carolina, or other internationally recognized service,
overhaul and repair agency fully qualified to service, repair and overhaul the
Airframe, Engines and Appliances approved by the Aviation Authority, as selected
by Lessee and approved in writing by Lessor, such approval not to be
unreasonably withheld.
"Operative Documents" means this Lease (including a Lease Supplement and
Receipt), the Guaranty, and any ancillary documents executed in connection
therewith.
"Overdue Payment Rate" means 12% per annum.
"Parts" means all components, parts, instruments, appurtenances,
accessories, furnishings or other equipment of whatever nature (other than
complete engines or appliances) which may
Page 4 of 56
<PAGE>
from time to time be incorporated or installed in or attached to the Airframe or
any Engine or any Appliance, including replacement parts.
"Permitted Liens" means: (i) Lessor Liens; (ii) Liens for Taxes; (iii)
materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising in the ordinary course of business, including (without limitation)
Liens in respect of airport user and en route charges; and (iv) Liens arising
out of judgments or awards; provided, however, that with respect to foregoing
clauses (ii), (iii), and (iv), the payments associated with the Liens described
therein are either not yet due or being contested in good faith (and for the
payment of which adequate reserves have been provided) by appropriate
proceedings so long as such proceedings do not involve any material danger of
the sale, forfeiture, confiscation, seizure or loss of the Airframe or any
Engine or interest therein.
"Rent" means Basic Rent, Reserves, and Supplemental Rent.
"Rent Payment Date" means the Delivery Date and the day of each calendar
month following the Delivery Date which corresponds to the Delivery Date (or, if
any such month does not have such a corresponding day then the last day of such
month) during the Term.
"Reserves" has the meaning given to such term in Section 3.6 hereof.
"Reserve Tasks" has the meaning given to such term in Section 3.6 hereof.
"Return Date" has the meaning given to such term in Section 6.1 hereof.
"Return Location" has the meaning given to such term in Section 6.1
hereof.
"Security Deposit" has the meaning given to such term in Section 3.5
hereof.
"Stipulated Loss Value" has the meaning given to such term in Section
10.4.1 hereof.
"Supplemental Rent" means all amounts, liabilities, indemnifications and
obligations of any kind whatsoever (other than Basic Rent but including any
payment of Stipulated Loss Value) which the Lessee is obligated to pay in
accordance with the terms of this Lease.
"Tax" has the meaning given to such word in Section 8.1 hereof.
"Term" has the meaning given to such word in Section 3.1 hereof.
"US$ and Dollars" means the lawful currency of the United States.
Page 5 of 56
<PAGE>
SECTION 2. Lease and Delivery of the Aircraft.
2.1. Lease. Lessee's Obligations, and Conditions Precedent.
The Lessor agrees to lease to the Lessee, and the Lessee agrees to lease
from the Lessor, the Aircraft, on the terms and conditions of this Lease. The
Lessee's obligation to lease the Aircraft shall be conditioned upon the Aircraft
not having suffered an Event of Loss prior to the Delivery Date, and being in
the following condition (the "Conditions Precedent to Lessee's Acceptance"): (1)
registered in the United States in the name of the Lessor (Lessor shall provide
a copy of a certificate of registration to Lessee); (2) with a current and valid
certificate of airworthiness (Lessor shall provide a copy of such certificate to
Lessee); (3) in compliance with all Aviation Authority regulations, including
without limitation, with all Airworthiness Directives (including twenty-year
aging aircraft Airworthiness Directives) completed on a terminating action
basis, qualified under Aviation Authority Part 121 for commercial passenger
operations, and accompanied by all Aircraft Documents required by the Aviation
Authority (Aircraft Documents for life-limited parts shall be "back-to-birth");
(4) fully equipped to Lessee's satisfaction; (5) configured with a minimum of
166 economy-class seats; (6) with Engines having an average of 3,000
hours/cycles across the wing, but no less than 2,000 hours/cycles on any one
Engine before next scheduled removal; (7) with all life-limited parts and
Aircraft time-controlled components having at least 2,000 hours/cycles remaining
based on the Northwest Airlines maintenance program; (8) zero time since a full
C Check and that segment of a D check necessary to bridge the Aircraft to the
Approved Maintenance Program; (9) with windshear detector installed; (10) with
MTOW increased to 186,500 pounds; (11) stripped or painted white; (12) clean by
commercial airlines standards; and with the auxiliary power unit in serviceable
condition and functioning satisfactorily. The Lessee shall be entitled to a
predelivery inspection of the Aircraft that shall include a full borescope and
power assurance check on all Engines and the auxiliary power unit and a test
flight, all at Lessor's expense. At any such predelivery inspection and flight
Lessee's representatives may be accompanied by an Aviation Authority Designated
Airworthiness Representative. Furthermore, the Lessee's obligation to lease the
Aircraft shall be conditioned upon provision, on the Delivery Date, to Lessee of
written confirmation in a form provided by Lessee and reasonably satisfactory to
Lessor from each Lender and Beneficiary that such Lender and Beneficiary is
aware of the covenant contained in Section 4.5 hereof and agrees that, provided
no Event of Default has occurred and continuing, such Lender or Beneficiary will
not interfere with Lessee's rights hereunder or its peaceful and quiet use,
operation and possession of the Aircraft hereunder. The Lessor's obligation to
lease the Aircraft shall be conditioned upon the absence of any Default
hereunder, and the performance by Lessee of each of the following obligations on
or before the Delivery Date (unless a sooner date is specified), all in form and
substance satisfactory to Lessor and its counsel:
2.1.1. Execution of Operative Documents. The Lessee shall have
executed and delivered this Lease, the Lease Supplement and Receipt (dated
the Delivery Date), and each other Operative Document to which it is a
party, and the Guarantor shall have executed and delivered the Guaranty;
Page 6 of 56
<PAGE>
2.1.2. Evidence of Legal Authority to Lease and Operate the
Aircraft. [INTENTIONALLY OMITTED]
2.1.3. Evidence of Corporate Authority. The Lessee shall have
delivered to the Lessor certified resolutions of the board of directors of
the Lessee and the Guarantor, duly authorizing the execution, delivery and
performance of this Lease, the other Operative Documents to which the
Lessee or the Guarantor is a party, and other satisfactory evidence as may
be requested by Lessor that the Lessee and the Guarantor have taken all
corporate action necessary to authorize the Operative Documents and the
transactions contemplated hereby, together with an incumbency certificate
as to the person or persons authorized to execute and deliver the same;
2.1.4. Evidence of Insurance. The Lessee shall have delivered to the
Lessor reports and certificates of insurance in compliance with the
requirements of Section 10 hereof;
2.1.5. Opinion of Counsel. At Lessee's expense, the Lessor shall
have received a favorable opinion addressed to Lessor from counsel to
Lessee, dated the Delivery Date, confirming (subject to standard
exceptions) that (i) Lessee is a corporation duly incorporated, validly
existing, in good standing, and is qualified to do business under the laws
of the State of Kentucky; (ii) the execution, delivery and performance by
Lessee of this Lease have been duly authorized by all necessary corporate
action on the part of the Lessee, are not inconsistent with its
Certificate of Incorporation or By-Laws, and do not violate any United
States or Kentucky law, regulation or order applicable to Lessee; (iii)
this Lease is the legal, valid, binding and enforceable agreement of
Lessee; and (iv) no consent or approval by any United States or Kentucky
authority or agency is required with respect to the execution, delivery
and performance by Lessee of this LeaSe other than licenses, permits and
approvals required of the Aviation Authority for the operation and
maintenance of the Aircraft by Lessee.
2.1.6. Payment of Basic Rent and Security Deposit. Lessor shall have
received payment of Basic Rent for the first month of the Term, and
payment of the Security Deposit.
2.2. Delivery. The Aircraft shall be delivered to the Lessee "AS IS,"
"WHERE IS," AND SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND
REPRESENTATION AS SET FORTH IN SECTION 4.3 HEREOF. Lessee shall accept delivery
of the Aircraft at Smyrna Airport, Smyrna, Tennessee, or such other place as may
be mutually agreed upon in writing by the Lessor and Lessee (the "Delivery
Location") and on January 19, 1996, or such other date as may be mutually agreed
upon in writing by the Lessor and Lessee (the "Delivery Date", which date shall
be the date of the Lease Supplement and Receipt). Upon acceptance of the
Aircraft, the Lessee shall execute and deliver the Lease Supplement and Receipt
to the Lessor, which shall constitute, without further act, unconditional and
irrevocable acceptance, as between Lessor and Lessee, by the Lessee of the
Aircraft under,
Page 7 of 56
<PAGE>
and for all purposes of, this Lease and as being airworthy, in good working
order and repair and without defect or inherent vice in condition, design,
operation or fitness for use, whether or not discoverable by the Lessee on the
Delivery Date. There shall be attached to the Lease Supplement and Receipt
Schedule 3, signed by both parties, setting forth qualifications affecting the
return conditions set forth in Section 6 hereof.
2.3. Lessor Authority; Ancillary Documents. On the Delivery Date, the
Lessor shall furnish to the Lessee (i) satisfactory evidence that the Lessor has
taken all corporate action necessary to authorize this Lease and the
transactions contemplated hereby; (ii) an incumbency certificate as to the
person or persons authorized to execute and deliver the same, in each case in
form and substance satisfactory to the Lessee; (iii) an assignment of such
rights as the Lessor may have under any warranty (express or implied) or
otherwise with respect to the Aircraft, made by the manufacturer of the Aircraft
or by any subcontractor or supplier of such manufacturer, as the case may be, or
made by a repair station or supplier in respect to repair or overhaul of the
Aircraft to the extent that the same exists in favor of the Lessor and is
capable of being assigned or otherwise made available; and (iv) a favorable
opinion addressed to Lessee from counsel to Lessor, dated the Delivery Date and
in form and substance reasonably satisfactory to the Lessee.
2.4. Failure of Condition Precedent to Lessee's Acceptance. In the event
that the Aircraft does not meet the Conditions Precedent to Lessee's Acceptance
on the Delivery Date, then Lessee shall have the right to terminate this
agreement by written notice to Lessor. Upon such termination, Lessee shall be
entitled to the immediate return of the Security Deposit, and thereafter neither
party shall have any further liability or obligation to the other. In no event
shall Lessor be liable to Lessee for breach of contract or consequential damages
if the Aircraft does not meet the Conditions Precedent to Lessee's Acceptance.
SECTION 3. Term, Rent, and Purchase Option.
3.1. Term; Option to Extend. The term for which the Aircraft is leased
hereunder (the "Term") shall be thirty-six (36) months, commencing on the
Delivery Date, unless Expiry occurs sooner pursuant to the express provisions of
this Lease. Provided no Default has occurred and is continuing, the Lessee may
extend the Term on the same terms for one year by providing Lessor with written
notice of its irrevocable election to extend the Term no less than ninety days
prior to the expiration of the original thirty-six-month Term.
3.2. Basic Rent. The Lessee shall pay to the Lessor monthly rental for
the Aircraft (the "Basic Rent"), payable in advance on each Rent Payment Date
during the Term, in the amount of Sixty-Five Thousand United States Dollars
(US$65,000).
3.3. Method of Payment. All Rent hereunder shall be paid by the Lessee
not later than 2:00 P.M., New York time, on the date due thereof in U.S. Dollars
and in immediately available funds to the Lessor by deposit to:
Page 8 of 56
<PAGE>
National Westminster Bank
80 Pine Street
New York, New York 10005
ABA #021-000-322
Acct.#2181-01-7585
Acct. Name: American Finance Group
Reference: AFG Sunworld
or to such other United States bank account as the Lessor shall specify to the
Lessee in writing. Any Rent due on a day which is not a Business Day shall be
due on the next Business Day.
3.4. Supplemental Rent. The Lessee also agrees to pay to the Lessor any
and all Supplemental Rent promptly as the same shall become due and owing. In
the event of any failure on the part of the Lessee to pay any Supplemental Rent,
the Lessor shall have all rights, powers and remedies provided for herein or by
law or equity in the case of nonpayment of Basic Rent. The Lessee will also pay,
on demand, as Supplemental Rent, an amount equal to interest at the Overdue
Payment Rate on any part of any payment of Rent not paid on the date it becomes
due for any period for which the same shall be overdue.
3.5. Security Deposit. Upon the execution of this Lease, Lessee shall
make a deposit, in cash, with Lessor in an amount equal to One Hundred Thirty
Thousand United States Dollars (US$130,000) to serve as security for Lessee's
full and faithful performance of all of its obligations under this Lease (the
"Security Deposit"). If Lessee fails to pay Rent or any other sums due or fails
to perform any of the other terms or provisions of this Lease or is otherwise in
Default hereunder, in addition to all other rights Lessor shall have, Lessor may
use, apply or retain all or any portion of the Security Deposit in partial
payment for any sums it may in its discretion advance to cure such Default by
the Lessee. If Lessor uses or applies all or any portion of the Security
Deposit, such application shall not be deemed a cure of any Default, and Lessee
shall within five Business Days after receipt of written demand from Lessor pay
an amount necessary to restore the Security Deposit to its required amount, and
the failure to do so shall be an Event of Default without further notice. Except
as otherwise expressly provided herein, the Security Deposit shall remain in
effect until the Aircraft is returned in the condition required by this Lease
and an Aircraft Return Receipt and Lease Termination in the form of Exhibit B is
executed. Lessee shall not be entitled to off-set any Rent against the Security
Deposit. At the return of the Aircraft in the condition required by this Lease,
Lessor shall return the Security Deposit, without interest, provided that Lessee
has otherwise fulfilled all its obligations hereunder. Lessor shall be under no
obligation to segregate the Security Deposit, and may mingle the Security
Deposit with other funds. Lessee hereby grants Lessor a security interest in the
Security Deposit, and Lessee shall deliver to Lessor any financing statement or
other documentation necessary or advisable to perfect Lessor's security interest
in the Security Deposit.
3.6. Reserves. D Checks (whether phased or block, as defined in the
Approved Maintenance Manual), C Checks, Engine heavy maintenance requiring shop
repair, landing gear
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<PAGE>
overhauls, and auxiliary power unit overhauls are collectively and individually
referred to as "Reserve Tasks." In addition to monthly installments of Basic
Rent, Lessee shall pay to Lessor an hourly payment to be reserved for Reserve
Tasks as follows:
3.6.1. The Lessee shall, on or before the 10th day of each calendar
month during the Term of this Lease, submit to Lessor a true summary of
the Aircraft usage for the preceding month, specifying the number of hours
the Aircraft shall have flown in such month. Such usage shall be
determined by Lessee by reference to the Aircraft operating logs, subject
to audit and verification by Lessor. On or before the 15th day of each
month, Lessee shall pay to Lessor for each flight hour the Aircraft was
operated during the immediately preceding month the following amounts
applicable to the specified Reserve Tasks: for D Check, US$50; for C
Checks, US$50; for Engine heavy maintenance (including overhaul, hot
section inspection, replacement of internal Life Limited Components that
have reached their applicable hour or cycle limits, disassembly, assembly
and testing required thereof) requiring shop repair US$60 per Engine, and
applicable per specific Engine (a separate Engine Reserve shall be
established and maintained for each Engine); for complete landing gear
overhaul, US$12, combined for all landing gear; and for auxiliary power
unit overhaul in accordance with the Approved Maintenance Program, US$3.
The foregoing amounts shall be collectively or individually referred to as
"Reserves."
3.6.2. Upon submission by Lessee to Lessor of invoices or receipts
evidencing the performance of a Reserve Task in accordance with the
provisions hereof, Lessor shall, provided that an Event of Default shall
not have occurred and be continuing, reimburse Lessee from Reserves
corresponding to the Reserve Task, but not in an amount to exceed the
actual invoices or receipts, and not in excess of Reserves actually
received for the corresponding Reserve Task, and not for repairs arising
as a result of foreign object damage, an insured occurrence, or
operational mishandling. Except as expressly set forth below in subsection
3.6.5, if, on any occasion, Reserves actually received are insufficient to
pay for the corresponding Reserve Task, the shortfall shall be for the
account of the Lessee and may not be carried forward or made the subject
of any further claim for payment.
3.6.3. [INTENTIONALLY OMITTED]
3.6.4. Reserves shall be and remain the property of the Lessor until
disbursed. Except as expressly set forth in Section 3.7 below, all
undisbursed Reserves, upon Expiry, shall be retained by Lessor as
additional Rent for the Aircraft. Lessor shall be under no obligation to
segregate Reserves, and may mingle Reserves with other funds.
3.6.5. Lessor Contribution for Reserve Tasks. Only for the first
scheduled overhaul for each Engine during the Term (provided the build
standard for such Engine overhaul does not exceed 6,000 hours/cycles), for
the first auxiliary power unit overhaul
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<PAGE>
during the Term, and for the first landing gear overhaul during the Term,
the Lessor shall reimburse Lessee for a fraction of the cost to Lessee
for each such Reserve Task, the numerator of which fraction shall be the
time since such overhaul on the Delivery Date and the denominator of
which fraction shall be the time since overhaul when such Reserve Task is
occasioned.
3.7 Purchase Option. Provided no Default has occurred and is continuing,
the Lessee may purchase (i) the Aircraft, together with (ii) any undisbursed
Reserves less any Lessor contribution for Reserve Tasks pursuant to Section
3.6.5 above (the "Sold Reserves") on the following terms and conditions. The
Lessee may purchase the Aircraft together with the Sold Reserves at the end of
the twenty-fourth month of the Term for a purchase price of US$2,750,000, or at
the end of the thirty-sixth month of the Term for a purchase price of
US$2,450,000. To purchase the Aircraft together with the Sold Reserves at either
time, the Lessee must first provide the Lessor with written notice of its
irrevocable election to purchase no less than ninety days prior to the purchase
date. Any sale shall be "AS-IS," and Lessee shall be responsible for and
indemnify Lessor from any sales or use taxes. Upon such sale, the Lease shall
terminate, and Lessor shall return to Lessee the Security Deposit.
SECTION 4. Representations, Warranties and Miscellaneous Covenants.
4.1. The Lessee's Representations and Warranties. The Lessee represents
and warrants as follows:
4.1.1. Organization and Qualification. The Lessee is a corporation
duly incorporated in and validly existing under the laws of Kentucky,
possessing perpetual corporate existence, having the capacity to sue and
be sued in its own name, has full power, legal right and authority
(corporate and otherwise) to carry on its business as currently conducted,
to own and hold under lease its properties and to execute, deliver and
perform and observe the provisions of this Lease and other Operative
Documents to which it is a party, and is duly qualified to do business in
good standing wherever the nature of its business makes such qualification
necessary.
4.1.2. Corporate Authorization. The execution, delivery, and
performance by the Lessee of this Lease and each of the other Operative
Documents to which it is or will be a party (A) have been duly authorized
by all necessary corporate action on behalf of the Lessee, (B) do not
require the consent or approval of the Lessee's stockholders or of any
trustee or the holders of any indebtedness or obligations of the Lessee
(except such as have been obtained, and certified copies of which have
been furnished to the Lessor), (C) [INTENTIONALLY OMITTED], (D) do not
conflict with or result in any breach of any of the terms or constitute a
default under any document, instrument, or agreement to which the Lessee
is a party or is subject or by which it or any of its assets are bound,
(E) do not contravene the Lessee's charter or by-laws, or any other
provisions of Lessee's constitutive documents, and (F) do not and will not
result in the creation or
Page 11 of 56
<PAGE>
imposition of or oblige Lessee to create any Lien on or over the Aircraft
other than any Permitted Lien.
4.1.3. Government Approval. Excepting only requirements covered in
Section 4.4.6 below, every consent, authorization, and approval required
by the Lessee to enable it to carry on its business or required by it to
authorize or in connection with the execution, delivery, legality,
validity, priority, enforceability, admissibility in evidence, or
effectiveness of this Lease and the other Operative Documents to which
Lessee is or will be a party or the performance by it of any of its
obligations under this Lease and each of the other Operative Documents to
which it is or will be a party has been duly obtained or made and is in
full force and effect and there has been no default in observance or
performance of any of the conditions, restrictions (if any), imposed on or
in connection with any such consent or approval or sanction. At Delivery,
the Lessee will have and will thereafter maintain valid all necessary
certificates and licenses for the operation of (a) its business as an
airline operating scheduled or charter flights for the carriage of
passengers and cargo and (b) the Aircraft on such flights; the Lessee is
not exempt from the obtaining of any such certificates or licenses usually
required by commercial airline operators.
4.1.4. Valid and Binding Agreements. This Lease constitutes the
legal, valid and binding obligations of the Lessee enforceable against the
Lessee.
4.1.5. Litigation. There are no unsatisfied judgements against
Lessee, and there is no pending or, to the best of the Lessee's knowledge,
threatened action or proceeding affecting the Lessee before any court,
tribunal, governmental agency or arbitrator which if adversely determined
would materially adversely affect the financial condition or operations of
the Lessee or the ability of the Lessee to perform its obligations under
the Lease.
4.1.6. Financial Condition. [INTENTIONALLY OMITTED]
4.1.7. Accuracy and Disclosure of Information. [INTENTIONALLY
OMITTED]
4.2. Representations and Warranties of the Lessor and FSBU. The Lessor
and, with respect to Sections 4.2.5, 4.2.6, 4.2.7, and 4.2.9., FSBU, make the
following representations and warranties:
4.2.1. Due Organization. The Lessor is a national banking
association duly organized and validly existing in good standing under the
laws of the United States, and has the power and authority to enter into
and perform its obligations under this Lease and the Lease Supplement and
Receipt, and any other documents delivered by lessor in connection
therewith;
Page 12 of 56
<PAGE>
4.2.2. Due Authorization; Enforceability. This Lease has been, and
the Lease Supplement and Receipt, and each other document delivered by
Lessor in connection herewith to which the Lessor is a party will be, duly
authorized, executed and delivered by the Lessor, and, assuming due
authorization, execution and delivery thereof by the other parties hereto
and thereto, are, or in the case of the Lease Supplement and Receipt will
be, legal, valid and binding obligations of the Lessor, enforceable
against Lessor.
4.2.3. No Violation. The execution and delivery by the Lessor of
this Lease are not, and the execution and delivery by the Lessor of the
Lease Supplement and Receipt and each other document to with Lessor is a
party will not be, and the performance by the Lessor of its obligations
under each of the foregoing documents will not be, inconsistent with its
partnership agreement or by-laws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to it, and
do not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which the
Lessor is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration with or the taking
of any action in respect of or by, any Federal, state or local
governmental authority or agency, except such as have been obtained, given
or accomplished.
4.2.4. Ownership of Aircraft. On the Delivery Date, the Lessor shall
have full legal title to the Aircraft, free and clear of all Liens except
any Lien which Lessor caused to be placed on the Aircraft as permitted
pursuant to Section 16 hereof.
4.2.5. No Consents or Approvals. Neither the execution and delivery
by Lessor of this Agreement or any other document delivered by it in
connection herewith nor the consummation of any of the transactions
contemplated thereby requires the consent or approval of, the giving of
notice to, or the registration with, any Utah state governmental authority
or agency or any United States federal governmental authority or agency
governing the banking or trust powers of FSBU.
4.2.6. Citizenship. FSBU is a "citizen of the United States" as
defined in Aviation Law, and Lessor hereby agrees, promptly upon an
officer in its Corporate Trust Department obtaining actual knowledge of
its failure to maintain its status as a citizen of the United States, to
give notice to the Lessee and to resign as owner trustee promptly upon its
ceasing to be a citizen of the United States.
4.2.7. Discharge of FSBU Liens. There are no Liens on the Aircraft
attributable to FSBU and FSBU agrees that it will, in its individual
capacity and at its own cost and expense, promptly take such action as may
be necessary to duly discharge and satisfy in full any such Liens.
4.2.8. Litigation. There are no unsatisfied judgements against
Lessor, and there is no pending or, to the best of the Lessor's knowledge,
threatened action or proceeding affecting the Lessor before any court,
tribunal, governmental agency or arbitrator which
Page 13 of 56
<PAGE>
if adversely determined would materially adversely affect the financial
condition or operations of the Lessor or the ability of the Lessor to
perform its obligations under the Lease.
4.2.9. FSBU Litigation. There are no pending or, to the actual
knowledge of an official in FSBU's Corporate Trust Department, threatened
actions or proceedings before any court or administrative agency to which
FSBU is a party, or any other actions or proceedings before any court or
administrative agency which relate to FSBU's banking or trust powers
which, if determined adversely to FSBU, would materially and adversely
affect its right, power, and authority to perform its obligations under
this Agreement or any document delivered by it in accordance herewith.
4.3. Disclaimer and Acknowledgement of Disclaimer; Waiver of
Consequential Damages.
THE AIRCRAFT SHALL BE LEASED BY THE LESSOR TO THE LESSEE "AS IS" AND
"WHERE IS," WHICH IS ACKNOWLEDGED AND AGREED TO BY THE LESSEE. THE WARRANTIES
AND REPRESENTATIONS SET FORTH IN 4.2 ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL
OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND LESSOR
HAS NOT MADE, SHALL NOT BE CONSIDERED TO HAVE MADE, AND SPECIFICALLY DISCLAIMS
(1) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE
AIRCRAFT, REGARDING CONDITION, DESIGN, OPERATION, MERCHANTABILITY, FREEDOM FROM
CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR USE FOR A PARTICULAR PURPOSE,
QUALITY OF MATERIALS OR WORKMANSHIP, OR ABSENCE OF DISCOVERABLE OR
NONDISCOVERABLE DEFECTS; (2) ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY WITH RESPECT TO THE AIRCRAFT (INCLUDING ANY IMPLIED WARRANTY ARISING
FROM A COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE); AND (3) ANY
EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO CONDITIONS
PRECEDENT TO LESSEE'S ACCEPTANCE.
THE LESSEE HEREBY WAIVES, RELEASES, DISCLAIMS AND RENOUNCES ALL
EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR WARRANTIES.
THE LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO THE LESSEE
WHETHER ARISING IN CONTRACT OR TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF
LESSOR OR OTHERWISE, AND LESSEE HEREBY DISCLAIMS AND WAIVES ANY RIGHT IT WOULD
OTHERWISE HAVE TO RECOVER FOR (1) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR
ALLEGED TO BE CAUSED DURING THE TERM DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR
BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN; (2) THE USE,
OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING TO IT; OR (3) ANY
CONSEQUENTIAL DAMAGES, INCLUDING THOSE FOR INTERRUPTION OF SERVICE, LOSS OF
BUSINESS OR ANTICIPATED PROFITS, OR FOR CONSEQUENTIAL DAMAGES AS A RESULT OF ANY
BREACH OR ALLEGED BREACH BY THE LESSOR
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OF ANY OF THE AGREEMENTS, REPRESENTATION, OR WARRANTIES OF THE LESSOR CONTAINED
IN THIS LEASE; PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL RELIEVE LESSOR OF
ANY RESPONSIBILITY OR LIABILITY TO LESSEE FOR, OR CONSTITUTE A WAIVER BY LESSEE
OF RIGHTS WITH RESPECT TO (a) ANY BREACH BY LESSOR OF THE COVENANT SET FORTH IN
SECTION 4.5 HEREOF, OR (b) LESSOR'S OBLIGATIONS PURSUANT TO SECTIONS 3.6.5 AND
5.5 HEREOF.
4.4. Lessee's Miscellaneous Covenants.
4.4.1. Maintenance of Corporate Status; No Merger or Consolidation.
Lessee will preserve and maintain its corporate existence and such of its
licenses and franchises in any jurisdiction where failure to obtain such
licensing or qualification would have a material adverse effect upon
Lessee. The Lessee shall not consolidate or merge with or into any other
corporation or sell, convey, transfer, lease or otherwise dispose of,
whether in one transaction or a series of related transactions, all or
substantially all of its assets. Lessee shall not (A) voluntarily suspend
its operations; or (B) voluntarily or involuntarily permit to be revoked,
canceled or otherwise terminated all or substantially all of the
franchises, concessions, or permits required for the conduct of business
and operations of Lessee or the free and continued use and exercise
thereof.
4.4.2. Notice of Default or Adverse Occurrence. The Lessee shall
promptly inform the Lessor of the occurrence of or the existence of a
Default forthwith upon becoming aware of such Default.
4.4.3. Maintenance of Consents and Approvals. The Lessee shall
obtain or cause to be obtained, maintain in full force and effect and
comply in all material respects with the conditions and restrictions (if
any) imposed on, or in connection with, every consent, license,
authorization, approval, filing and registration obtained or effected in
connection with this Lease and the Operative Documents, or which may from
time to time be necessary under Applicable Law for the continued due
performance of all obligations of the Lessee under this Lease, including
without limitation qualifications to operate the Aircraft in accordance
with Aviation Law, and under the other Operative Documents. Where it is
required of Lessee under Applicable Law with respect to this Lease or
under any Operative Document, consent, approval, sanction, to stamp, file,
register or attend to any act, matter or thing, Lessee will do so promptly
and within any applicable prescribed time period in respect thereof.
4.4.4. Change of Locale. Lessee will promptly advise Lessor of any
change in its principal place of business or chief executive office if
there is more than one place of business.
4.4.5. Financial Information and Reports. The Lessee shall provide
the Lessor (i) as soon as available and in any event within 120 days after
the end of each fiscal year
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of each of the Lessee and the Guarantor, the Lessee's and the Guarantor's
respective audited annual financial statements in a form consistent with
generally accepted accounting principles certified as to their correctness
by independent public auditors, and (ii) within 45 days after the end
thereof their respective quarterly financial statements certified as to
their correctness by their respective duly authorized chief financial
officer, together with a certificate signed by the Lessee's duly
authorized chief executive officer to the effect that, based upon due
inquiry and investigation, during such financial quarter no Event of
Default occurred. The Lessee's fiscal year ends December 31. The
Guarantor's fiscal year ends December 31.
4.4.6. Evidence of Legal Authority to Lease and Operate the
Aircraft. No later than January 31, 1996, the Lessee shall have obtained
all licenses, permits and approvals required with respect to the Aircraft
by the Aviation Authority or Applicable Law for the lease of the Aircraft,
and for the commercial operation thereof by the Lessee, and Lessee shall
provide Lessor with certified copies of such; provided, however, that if
Lessee is unable to obtain the requisite approvals by such date despite
its diligent efforts to do so, such date shall be extended, subject to
Lessor's consent not to be unreasonably withheld.
4.5. Lessor's Covenant of Quiet Enjoyment. The Lessor agrees that, so
long as no Event of Default shall have occurred and be continuing, neither the
Lessor, any Lender, the Beneficiaries, nor anyone validly claiming through or
under any of them will take (or fail to take) any action, the taking (or failure
to take) of which causes interference with the Lessee's rights hereunder or its
peaceful and quiet use, operation and possession of the Aircraft under this
Lease. Should such interference occur, Lessor shall promptly eliminate the cause
thereof, upon written notice from Lessee.
SECTION 5. Operation, Maintenance, Possession
5.1. Title. Title to the Aircraft shall remain vested in Lessor.
5.2. Operation. Lessee agrees not to operate the Aircraft unless the
Aircraft is covered by insurance as required by the provisions of Section 10
hereof or contrary to the terms of such insurance. Lessee agrees not to operate
the Aircraft except in a passenger configuration, in commercial or other
operations for which Lessee is duly authorized by the Aviation Authority. Lessee
will not permit the Airframe, an Engine or Appliance 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, provided that Lessee will not
knowingly allow passengers or cargo customers to transport illegal drugs on the
Aircraft. Lessee shall pay all costs incurred in the operation of the Aircraft,
including but not limited to flight crews, cabin personnel, fuel, oil,
lubricants, maintenance, insurance, landing and navigation fees, airport
charges, passenger service and any and all other expenses of any kind or nature,
arising directly or indirectly in connection with or related to the use,
movement and operation of the Aircraft by Lessee during the Term. The
obligations of Lessee under this provision shall survive the end of the Term.
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5.3. Maintenance in General. Lessee, at its own cost and expense (except
as expressly otherwise provided in Sections 3.6.5 and 5.5), shall (i) service,
repair, maintain and overhaul the Airframe, each Engine, and each Appliance so
as to keep the same in as good operating condition as when delivered to Lessee
hereunder, and in such operating condition as may be necessary to enable the
airworthiness certification of the Aircraft to be maintained in good standing at
all times under Aviation Law, and (ii) at a minimum, give the Aircraft the same
level of attention and maintenance as the Lessee affords to the other Boeing
727-200 aircraft in its fleet, including Airworthiness Directive compliance and
level of incorporation, repairs, cleanliness, and correction of items of a
cosmetic nature (such as hail damage), except where the terms of this Lease
dictate other standards (provided, however, that lessee shall not be required to
hushkit the Aircraft); and (iii) maintain the Aircraft in compliance with the
requirements of the Airframe manufacturer's aging aircraft and corrosion control
program document and supplemental inspection document as periodically revised.
Included within the obligation of maintenance and repair is the obligation and
affirmative undertaking by Lessee to replace from time to time all worn or
defective Parts, to the extent required to cause the Aircraft to be in an
airworthy condition in all respects, and covered by an effective commercial
passenger transport category certificate of airworthiness at all times except
during those periods when the Aircraft is undergoing maintenance or repairs as
required by this Lease. The "build standard" applicable to all Engine shop
visits shall be 6,000 hours with regard to both exhaust gas temperature and Life
Limited Components. Excepting only "AOG" situations, selection of a Maintenance
Provider shall be subject to Lessor's prior written approval, such approval not
to be unreasonably withheld. All maintenance (other than routine flight line
maintenance) shall be performed by the manufacturer or the Maintenance Provider
(excepting "AOG" situations) in accordance with the Approved Maintenance
Program. If any significant changes (including without limitation, time limit
changes) shall be made to such Approved Maintenance Program, a copy of such
proposed changes shall be delivered to Lessor for its prior written approval,
such approval not to be unreasonably withheld, before such change is submitted
to the Aviation Authority for approval.
5.4. Parts.
5.4.1. Unless the Airframe, an Engine or an Appliance has suffered
an Event of Loss, Lessee, at its own cost and expense, will during the
Term promptly replace all Parts 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. In
addition, in the ordinary course of maintenance, service, repair, overhaul
or testing, Lessee may remove any Parts, whether or not worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use, provided that Lessee shall replace
such Parts as promptly as practicable with replacement Parts. All
replacement Parts shall be free and clear of all Liens except Permitted
Liens and shall be in as good operating condition as, and shall have a
value and utility at least equal to, the Parts replaced assuming such
replaced Parts were in the condition and repair required to be maintained
by the terms hereof.
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5.4.2. All Parts at any time removed from the Airframe, an Engine or
an Appliance 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, Engine, or Appliance and that meet the requirements for
replacement Parts specified in this Section 5. Immediately upon any
replacement Part becoming incorporated or installed in or attached to such
Airframe, Engine, or Appliance, 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, Engine, or Appliance, 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 or Appliance; 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.
5.5. Airworthiness Directives. Except as expressly provided below, Lessee
agrees to comply with all Airworthiness Directives which become due during the
Term. All Airworthiness Directives shall be accomplished in strict compliance
with all issuing agency's specific instructions. Lessee shall comply with all
Airworthiness Directives at its sole cost and expense up to US$25,000 per any
one Airworthiness Directive, In the event that the cost of incorporating any
terminating Airworthiness Directive (including parts, labor, and materials, but
excluding any profit to Lessee) exceeds US$25,000 per any one Airworthiness
Directive, the amount of the excess to be borne by the Lessor shall be
calculated in accordance with the following formula:
1 - ((N-M)/T) x (C-25,000)
where "N" equals the total duration of the Term in months; "M" represents the
month of the Term in which the modification is completed; "C" represents the
total actual cost of labor, parts, and materials for the modification; and "T"
equals the actual useful life of the modification in months, not to extend
beyond December 31,1999. If the Lessee's cost of complying with any one
Airworthiness Directive that must be accomplished during the Term exceeds One
Hundred Thousand Dollars (US$100,000) in any individual case, then Lessee may,
by written notice to Lessor, elect not to pay any portion of the cost of
complying with such Airworthiness Directive costing in excess of US$100,000, in
which event Lessor shall have the right to comply with the Airworthiness
Directive at its own expense, or by written notice to the Lessee within 15 days
following receipt of such notice from Lessee, may advise Lessee that Lessor
shall not perform such Airworthiness Directive (the "Excepted AD"), in which
case the Lease shall terminate, effective upon the earlier of the end of the
Term or the final compliance date for the Excepted AD, whereupon the Lessee
shall return the Aircraft to the Lessor in accordance with the provisions of
Section 6 hereof, excepting only (i) the Excepted AD, and (ii) the C Check
required by Section 6.5.1.
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5.6. Service Bulletins. Lessee agrees, at its sole cost and expense, to
incorporate into the Aircraft all those Airframe, Engine, and Appliance
manufacturer and other vendor service bulletins which Lessee adopts and
incorporates during the Term on the rest of the B727-200 aircraft in its fleet.
The Aircraft, with respect to the rest of the B727-200 aircraft in Lessee's
fleet, shall not be discriminated against in service bulletin compliance or
other maintenance matters.
5.7. Modifications.
5.7.1. Lessee, at its own expense, shall make such alterations and
modifications in and additions to the Airframe or any Engine or Appliance
as may be required to be made from time to time by Aviation Law during the
Term regardless upon whom such requirements are, by their terms, nominally
imposed, including, without limitation, any modifications required to
enable the Aircraft to comply with environmental, noise, air pollution,
and other standards ("Required Modifications"); provided, however, that
Lessee shall not be required to hushkit the Aircraft.
5.7.2. Lessee shall not, without Lessor's prior written consent,
make any major modifications, alterations or additions (collectively,
"Optional Modifications") to the Aircraft. For purposes of this Section 5,
the term Optional Modifications shall include, but shall not be limited
to, (i) changes to the Aircraft structure or performance, (ii) changes
which could adversely affect spare parts, interchangeability or
replaceability, and shall exclude Required Modifications.
5.7.3. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NO
OPTIONAL MODIFICATION SHALL BE MADE WHICH 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.
5.7.4. All Optional Modifications, except as otherwise provided
herein, shall be accomplished by Lessee at its own expense. Lessee shall
provide advance copies of all drawings and data to be used by Lessee in
accomplishing such Optional Modifications for Lessor's approval prior to
such work. In the event Lessor does not consent to certain Optional
Modifications to the Aircraft desired by Lessee, Lessor may give its
qualified consent in writing to Lessee to accomplish such modifications
which are unacceptable to Lessor on the condition that Lessee agrees to
remove all such unacceptable modifications accomplished by Lessee and to
reconstruct the modified areas to their original configuration in a good
and workmanlike manner prior to return of the Aircraft to Lessor. In the
event of Lessor's granting such qualified consent in writing, Lessee
shall, at Lessee's sole expense, accomplish all such Optional
Modifications, removal of such modifications and required reconstruction
necessary to return the Aircraft to Lessor in its original configuration
at the end of the Term. Lessor hereby consents to the following Optional
Modifications, and agrees that such Optional Modifications may be
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removed from the Aircraft on the Return Date: (1) a global positioning
system, provided that wiring therefor shall become an accession to the
Aircraft owned by Lessor; (2) overwater emergency equipment supplied by
Lessee; (3) an HF radio system supplied by Lessee; and (4) ACARS
supplied by Lessee.
5.8. Reports. Lessee shall furnish to Lessor the following reports on a
monthly basis: (i) the hours and cycles operated by the Airframe; and (ii) the
hours and cycles operated by each of the Engines (noting their location). Lessee
shall furnish to Lessor the following reports on a quarterly basis: (iii)
scheduled and unscheduled Engine and Appliance changes; (iv) damage reports; (v)
a list of those service bulletins, Airworthiness Directives and engineering
modifications issued during such quarter and applicable to the Aircraft, whether
or not incorporated on the Aircraft; (vi) copies of any written communications
with manufacturers with respect to defects or malfunctions of the Aircraft or
such other matters; and (vii) C Check, D Check, and Engine shop visit scheduled
dates. In addition, Lessee shall notify Lessor of all accidents, cases of
significant theft or vandalism, extended periods of Aircraft grounding for
cause, and insured occurrences as promptly as practicable.
5.9. Right to Inspect. Lessor and its agents shall have the right to
inspect the Aircraft or the Aircraft Documents at any reasonable time, upon
giving Lessee reasonable notice, to ascertain the condition of the Aircraft and
to satisfy Lessor that the Aircraft is being properly repaired and maintained in
accordance with the requirements of this Lease. No such inspection shall
interfere with Lessee's business or operations. 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 paid by the Lessor.
All repairs which shall be shown by the inspection or survey to be required
shall be made at Lessee's expense in accordance with the Approved Maintenance
Program. All required repairs shall be performed as soon as practicable after
such inspection. 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
the manufacturer of the Airframe, Engines, Appliances, or Part(s) (as
applicable) shall control. 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.
5.10. Damage and Repairs. All damage to the Aircraft shall be documented
and any repair to the Aircraft shall be documented and accomplished pursuant to
the applicable manufacturer's structural repair manual instructions and (where
applicable) the Approved Maintenance Program. Such repairs shall be permanent.
Repairs to the skin of the Aircraft shall be flush and not merely patched,
unless otherwise permitted or provided in the Airframe manufacturer structural
repair manual; provided that any such permitted patch shall be permanent and not
temporary. Lessee shall notify Lessor and the manufacturer of any repair to the
structure or skin of the Aircraft or any other repair costing in excess of One
Hundred Thousand Dollars (US$ 100,000) promptly after its being made; provided,
however, that Lessor shall have no liability to Lessee or third parties with
regard to such repair or the quality thereof and Lessee shall indemnify and hold
Lessor harmless with regard thereto. All technical and engineering data,
calculations, drawings, and documentation covering major repairs shall become
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a permanent part of the Aircraft Documents. Any disagreement between Lessor and
Lessee as to what constitutes a "major" repair or a "permanent" repair shall be
referred to the applicable manufacturer and the Aviation Authority.
5.11. Aircraft Documents. Lessee, at its expense, will at all times
maintain and preserve all flight records, maintenance records, historical
records, modification records, overhaul records, manuals, logbooks,
authorizations, drawings and data required by the Airframe, Engine, Appliance,
or any Part manufacturer, or required from time to time by the Aviation
Authority with respect to the Aircraft, including without limitation shop
records detailing service checks, inspections, tests, repairs, or overhauls. All
documentation of any type referred to in the preceding sentence is herein
individually and collectively referred to as the "Aircraft Documents." Records
produced by electronic data processing or other automated means are not
acceptable, except as summary documents accompanied by original, or manual,
records, unless specifically approved by the Lessor in writing. Aircraft
Documents pertaining to maintenance shall contain verification of accomplishment
and quality assurance by actual identifiable signature. All Aircraft Documents
shall be the property of the Lessor. All Aircraft Documents shall be stored by
Lessee during the Term at a secure facility, and Lessee shall notify Lessor in
writing of the location of such facility. All Aircraft Documents will be at all
times kept current and up to date in order to facilitate Lessor's ability to
inspect periodically the Aircraft, monitor the maintenance of the Aircraft
during the Term and to facilitate the sale or re-lease of the Aircraft to a
third party at the end of the Term. The Lessee shall retain a revision service
for all Airframe, Engine, Appliance and Part manufacturer's manuals and
documentation, and the Aircraft Documents shall at all times contain the latest
issued revisions and reflect the current configuration and status of the
Airframe, Engines, Appliances, and Parts.
5.11.1. Airworthiness Directives. Lessee shall include within the
Aircraft Documents all documentation necessary to establish the source
data, method of compliance, verification of accomplishment, quality
assurance, and all schedules of recurring action of any Airworthiness
Directive.
5.11.2. Life Limited Components. AIRCRAFT DOCUMENTS FOR LIFE LIMITED
COMPONENTS INSTALLED DURING THE TERM SHALL ESTABLISH TOTAL SERVICE,
ORIGIN, AND AUTHENTICITY; SHALL BE "BACK-TO-BIRTH" WITH RESPECT TO ENGINE
LIFE-LIMITED PARTS AND BACK TO LAST OVERHAUL WITH RESPECT TO OTHER
LIFE-LIMITED COMPONENTS; AND SHALL ESTABLISH STRICT COMPLIANCE WITH THE
AIRCRAFT AVIATION AUTHORITY TYPE DATA SHEET AND WITH THE APPROVED
MAINTENANCE PROGRAM.
5.11.3. Damage and Repairs. All damage to the Aircraft, whether
repaired or not, and all repairs to the Aircraft shall be documented in
strict accordance with the manufacturer's structural repair manual.
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5.12. Possession. The Lessee will not, without the prior written consent
of the Lessor, which may be withheld in the sole and absolute discretion of
Lessor, assign any of its rights or obligations under this Lease or sublease or
otherwise in any manner deliver, transfer or relinquish possession or control
of, or transfer any right, title or interest in, the Airframe, any Engine,
Appliance or Part (whether through pooling or interchange agreements or
otherwise) or install any Engine or Appliance, or permit any Engine or Appliance
to be installed, on any airframe other than the Airframe, provided that the
Lessee may, without the prior written consent of the Lessor:
5.12.1. deliver temporary possession and control of the Airframe,
an Engine, and Appliance or Part to the manufacturer or Maintenance
Provider thereof for testing, service, maintenance, overhaul or repair
or, to the extent permitted by this Section 5, for modifications or
additions;
5.12.2. install an Engine or Appliance on an airframe owned by the
Lessee free and clear of all Liens except Permitted Liens;
5.12.3. install an Engine or Appliance on an airframe leased to the
Lessee or owned by the Lessee and subject to a security agreement under
which the Lessee is the debtor, provided that (A) such airframe is free
and clear of all Liens except the rights of the parties to such lease or
security agreement and except Permitted Liens, and (B) such lessor or
secured party agrees in writing that it shall not acquire any right,
title or interest in such Engine or Appliance;
5.12.4. in the ordinary course of testing, servicing, maintenance,
repair or overhaul, remove any Part from the Airframe, an Engine, or an
Appliance, provided that the Lessee replaces such Part as promptly as
possible with a Part which has a value and utility at least equal to the
Part being replaced and is owned by the Lessee free and clear of all
Liens except Permitted Liens; and any such replacement Part shall thereby
become subject to this Lease without necessity of further act; provided,
however, that any Part removed from the Airframe, an Engine, or an
Appliance for such purpose shall remain subject to this Lease until
replaced by a replacement Part as provided in this clause;
5.12.5. enter into a wet lease (defined as a lease of the Aircraft
and flight crew, during which Lessee maintains exclusive operational
control of the Aircraft and during which lease Lessee continues to
maintain the Aircraft in accordance with Lessee's Approved Maintenance
Program) for the Aircraft with any third party provided, however, that
the term of such wet lease shall not extend beyond the end of the Term;
and
5.12.6. enter into a sublease of the Aircraft with a certificated
United States airline provided (i) the Lessee shall provide not less than
thirty days prior written notice to the Lessor; (ii) no Default or Event
of Default shall have occurred and be continuing; (iii) the term of any
such sublease shall not exceed the Term of this Lease; (iv) the
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aircraft maintenance procedures of any sublessee shall be equivalent to
those of the Lessee; (v) the Lessee shall assign any such sublease to the
Lessor as security for Lessee's obligations under this Lease, provided
that so long as no Event of Default shall have occurred and be
continuing, (A) the Lessee, to the exclusion of the Lessor, may (in the
name of the Lessor or otherwise) exercise all rights and powers, and have
all benefits, of the sublessor under any such sublease, including,
without limitation, the right to collect and retain for the Lessee's own
account all rent and other payments due from the sublessee thereunder,
and (B) Lessor shall not, without the prior written consent of Lessee,
amend, modify or terminate such sublease; (vi) any sublessee shall be
solvent and not seeking protection from its creditors; (vii) any
sublessee shall covenant not to sublease or part with possession of the
Aircraft other than for maintenance, required modifications, or repairs
to comply with this Lease; (viii) any sublessee shall agree in writing
that such sublease shall be subordinate to this Lease and all terms
hereof, and shall terminate if this Lease shall terminate; and (ix) the
Lessee shall pay Lessor's reasonable expenses, including attorney fees,
in connection with any such sublease.
No transfer of possession or control or other right afforded the Lessee pursuant
to this Section 5 shall in any manner affect any of the obligations of the
Lessee under this Lease or under the other Operative Documents, which
obligations shall remain primary and shall continue to the same extent as in the
absence of such transfer or other right. In the event that the Lessor shall have
received a written agreement or existing security agreement or lease complying
with the terms of clause 5.12.3, the Lessor hereby agrees for the benefit of the
lessor or secured party furnishing such agreement that the Lessor will not
acquire or claim, as against such lessor or secured party, any right, title or
interest in any engine owned by such lessor or in which such secured party has a
security interest by reason of such engine being installed on the Airframe.
5.13. Insignia. [INTENTIONALLY OMITTED]
SECTION 6. Return of the Aircraft.
6.1. Return. Subject to the provisions of Sections 3.7 and 5.5 above,
Section 9 below, and subject to any qualifications as may be set forth in a
Schedule 3 signed by both parties and attached to the executed Lease Supplement
and Receipt, on the last day of the Term or earlier Expiry (the "Return Date"),
all of the terms of this Section 6 shall apply and the Lessee shall return the
Aircraft to the Lessor by delivering the same, at the Lessee's own risk and
expense, to Marana, Arizona, or such other place as may be mutually agreed upon
in writing by the Lessor and Lessee (the "Return Location"), fully equipped with
all Engines installed thereon. The Aircraft at the time of its return shall be
in the condition set forth in this Section 6 and shall be free and clear of all
Liens other than Lessor Liens; provided, however that if on the Return Date the
Aircraft is not in Lessee's possession as a result of a breach by Lessor of the
covenant set forth in Section 4.5 hereof, the aircraft shall be deemed
redelivered to Lessor wherever then located and any taxes or other costs and
expenses associated with delivery at such location shall be for the account of
Lessor. At the time of acceptance of return of the Aircraft to Lessor,
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Lessor and Lessee shall execute an Aircraft Return Receipt and Lease Termination
in the form attached hereto as Exhibit B.
6.2. Lease Continues, In the event, for any cause, Lessee does not return
the Aircraft to Lessor on the last day of the Term or earlier Expiry in the
condition required hereunder, then all of the obligations of Lessee under this
Lease shall continue and such continued use shall not be considered a renewal of
the Term of this Lease or a waiver of any right of Lessee hereunder. During such
continued use, Rent shall continue to be paid by Lessee to Lessor and the other
performance and obligations of Lessee to Lessor shall continue hereunder and the
same shall be prorated at the rate of one thirtieth (1/30) of the monthly
installment of Basic Rent for each day until the Aircraft is actually delivered
to Lessor, and all other terms and conditions of this Lease shall remain in full
force and effect. Payment shall be made within five (5) Business Days after
presentation of Lessor's invoice and any failure to pay shall constitute an
Event of Default of Lessee.
6.3. Return of Engines and Appliances. In the event any engine or
appliance not owned by Lessor shall be returned with the Airframe, Lessee will,
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 or appliance and shall take such other
action as Lessor may reasonably request in order that such replacement engine or
appliance shall be duly and properly titled in Lessor. Upon passage of title to
Lessor such replacement engine or appliance shall be deemed to be an Engine or
Appliance for all purposes hereof and thereupon Lessor will transfer by bill of
sale to Lessee, without recourse or warranty except a warranty against Lessor's
Liens, all of Lessor's right, title and interest in and to an Engine or
Appliance not installed on such Airframe at the time of the return thereof.
Provided, however, that any replacement engine or appliance shall, in the
opinion of the Lessor, have a value and utility at least equal to (and be in as
good operating condition as) such Engine or Appliance replaced, assuming
compliance by the Lessee with all of the terms of this Lease with respect to
such Engine or Appliance.
6.4. Condition of Aircraft. The Aircraft at the time of its return to
Lessor shall have been maintained and repaired in accordance with the Approved
- -Maintenance Program and this Lease with the same care and consideration for the
technical condition of the Aircraft as if it were to have been kept in continued
regular service by the Lessee, and shall meet the following requirements:
6.4.1. Operating Condition. The Aircraft shall be in as good
operating condition as on the Delivery Date, with all of the Aircraft
Engines, Appliances, Parts, equipment, components, and systems
functioning in accordance with their intended use irrespective of
deviations or variations authorized by the minimum equipment list or
configuration deviation list.
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Lessor and Lessee shall execute an Aircraft Return Receipt and Lease Termination
in the form attached hereto as Exhibit B.
6.2. Lease Continues, In the event, for any cause, Lessee does not return
the Aircraft to Lessor on the last day of the Term or earlier Expiry in the
condition required hereunder, then all of the obligations of Lessee under this
Lease shall continue and such continued use shall not be considered a renewal of
the Term of this Lease or a waiver of any right of Lessee hereunder. During such
continued use, Rent shall continue to be paid by Lessee to Lessor and the other
performance and obligations of Lessee to Lessor shall continue hereunder and the
same shall be prorated at the rate of one thirtieth (1/30) of the monthly
installment of Basic Rent for each day until the Aircraft is actually delivered
to Lessor, and all other terms and conditions of this Lease shall remain in full
force and effect. Payment shall be made within five (5) Business Days after
presentation of Lessor's invoice and any failure to pay shall constitute an
Event of Default of Lessee.
6.3. Return of Engines and Appliances. In the event any engine or
appliance not owned by Lessor shall be returned with the Airframe, Lessee will,
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 or appliance and shall take such other
action as Lessor may reasonably request in order that such replacement engine or
appliance shall be duly and properly titled in Lessor. Upon passage of title to
Lessor such replacement engine or appliance shall be deemed to be an Engine or
Appliance for all purposes hereof and thereupon Lessor will transfer by bill of
sale to Lessee, without recourse or warranty except a warranty against Lessor's
Liens, all of Lessor's right, title and interest in and to an Engine or
Appliance not installed on such Airframe at the time of the return thereof.
Provided, however, that any replacement engine or appliance shall, in the
opinion of the Lessor, have a value and utility at least equal to (and be in as
good operating condition as) such Engine or Appliance replaced, assuming
compliance by the Lessee with all of the terms of this Lease with respect to
such Engine or Appliance.
6.4. Condition of Aircraft. The Aircraft at the time of its return to
Lessor shall have been maintained and repaired in accordance with the Approved
Maintenance Program and this Lease with the same care and consideration for the
technical condition of the Aircraft as if it were to have been kept in continued
regular service by the Lessee, and shall meet the following requirements:
6.4.1. Operating Condition. The Aircraft shall be in as good
operating condition as on the Delivery Date, with all of the Aircraft
Engines, Appliances, Parts, equipment, components, and systems
functioning in accordance with their intended use irrespective of
deviations or variations authorized by the minimum equipment list or
configuration deviation list.
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<PAGE>
6.4.2. Cleanliness Standards. The Aircraft shall be clean by commercial
airline standards and shall have received an exterior and an interior deep
cleaning since its last commercial flight.
6.4.3. Certificate of Airworthiness. The Aircraft shall have, and be in
compliance with (except to the extent that the provisions of Section 5.5 above
pertain) a legal and valid transport-category certificate of airworthiness for
commercial passenger operations issued by the Aviation Authority, and shall be
airworthy according to manufacturer's specifications and Aviation Authority
regulations; provided, however, the Lessee shall not be required to hushkit the
Aircraft.
6.4.4. Compliance with Governmental Requirements. Subject only to the
provisions of Section 5.5 above, the Aircraft shall be in compliance with all
Airworthiness Directives affecting the Aircraft which have an effective date for
compliance within the Term. In the event Lessee has obtained a waiver or
deviation from the Aviation Authority from 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 prior to the return of the Aircraft to Lessor as if such
waiver or deviation did not exist.
6.4.5. Deferred Maintenance. The Aircraft shall have had accomplished
thereon all outstanding deferred maintenance items, carry-over items,
configuration deviation list items and flight discrepancies. Items deferred
because of maintenance concessions (i.e., an 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. Components whose time status exceeds
the conditions or requirements imposed by this Lease shall be brought into
compliance with such conditions or requirements.
6.4.6. 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 manufacturer's recommended
corrosion prevention and control procedures and the Approved Maintenance
Program. Fuel tanks shall be free from contamination and corrosion and in
compliance with an approved tank treatment program.
6.4.7. Configuration and Condition. The Aircraft shall be returned in the
same configuration and condition with all Parts installed therein as on the
Delivery Date, excepting only modifications, additions, replacements and
substitution of Parts as may have been properly made by Lessee pursuant to
Section 5 and parts permitted to be removed pursuant to Section 5.7.4. Lessee
shall, prior to such return of the Aircraft, furnish Lessor a listing of all
such modifications, additions, or replacements made during the Term. Lessee
shall provide Lessor with all supporting paperwork, drawings, calculations and
approvals associated with all repairs and modifications to the Aircraft.
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<PAGE>
6.5. Condition of Airframe. The Airframe at the time of its return to
Lessor shall meet the requirements as set forth below, all at Lessee's expense,
except as otherwise provided herein:
6.5.1. C Check. The Airframe shall be zero (0) hours out of a C
Check immediately prior to its flight to the Return Location which C
Check shall include a corrosion inspection and clean-up under galleys,
forward and aft cargo pit areas and lavatories. Lessee will correct any
deficiencies revealed during such check and all deferred maintenance
items.
6.5.2. D Check. [INTENTIONALLY OMITTED]
6.5.3. Parts. All Parts installed in the Aircraft shall be
serviceable in accordance with Aviation Authority standards and have a
value, modification status and condition equivalent to the Parts in the
Aircraft on the Delivery Date, ordinary wear and tear excepted.
6.5.4. Fuselage. Windows and Doors. The fuselage shall be free of
major dents and abrasions, scab patches and loose or pulled or missing
rivets. Paint will be touched up. Windows shall be free of delamination,
blemishes, crazing and shall be properly sealed. Doors shall be free
moving, correctly rigged and be fitted with serviceable seals.
6.5.5. Wings and Empennage. All leading edges shall be free from
damage. All paint shall be touched up. Wings shall be free of fuel leaks.
6.5.6. Interior. Ceilings, sidewalls and bulkhead panels shall be
clean and free of cracks and stains. All floor panels shall be firm. All
window shades shall operate properly and be undamaged. All carpets and
seat covers shall be in good condition, clean and stain free and meet all
Aviation Authority fire resistance regulations. All seats shall be
serviceable, in good condition and repainted as necessary. Recline
mechanism and table operation shall be satisfactory, and table condition
level, tight, and undamaged. All signs and decals shall be in the English
language, clean and legible. All emergency equipment having a calendar
life shall have a minimum of one year or one hundred per cent of its
total approved life whichever is less, remaining.
6.5.7. Cockpit. All decals shall be in the English language, clean,
secure and legible. All fairing panels shall be free of stains and
cracks, shall be clean, secure and repainted as necessary. Floor
coverings shall be clean and effectively sealed, and painted as
necessary. Seat covers shall be in good condition, clean and shall
conform to all Aviation Authority fire resistance regulations. Seats
shall be fully serviceable and shall be repainted as necessary. Wear
areas will be painted or refurbished as necessary.
6.5.8. Cargo Compartment. All panels and nets shall be in good
condition.
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<PAGE>
6.6. Condition of Landing Gear. Each main and nose landing gear component
and each associated actuator and Part shall be clean, free of leaks and repaired
as necessary. All decals shall be in the English language, clean, secure, and
legible.
6.7. Condition of Auxiliary Power Unit ("APU"). Lessee will return the
Aircraft's installed APU in serviceable condition, in accordance with the
manufacturer's specifications. Any operational discrepancies of the APU shall be
corrected at Lessee's expense prior to the return of the Aircraft to Lessor.
6.8. Condition of Engines. Each Engine shall meet both the Engine
manufacturer specifications and the Approved Maintenance Program parameters for
acceptable exhaust gas temperature margin, engine pressure ratio, and fuel flow
at maximum certificated rated thrust.
6.9. Historical Records; Trend Monitoring Data. If the Engine historical
and maintenance records and/or trend monitoring data indicate a rate of
acceleration in performance deterioration of any installed Engine which is
higher than normal based on Lessee's maintenance experience in operating such
Engines, or if an Engine is "on watch," Lessee shall, prior to the Aircraft's
return, correct or cause to be corrected such conditions which are determined to
exceed the Engine manufacturer's maintenance manual tolerances or otherwise be
causing such performance deteriorations or "on watch" condition.
6.10. Inspections. The following inspections shall be conducted utilizing
the standards and specifications of the applicable manufacturer maintenance
manual for the Airframe, Engines, Appliances, and component Parts thereof. Any
item or discrepancy noted during the inspections that is found to be
non-compliant with the tolerances and conditions of the applicable manufacturer
maintenance manual shall be classified as a condition of non-airworthiness and
shall be corrected or rectified by Lessee prior to return of the Aircraft.
6.10.1. The Aircraft (including the Aircraft Documents) shall be
made available to Lessor for ground inspection by Lessor at Lessee's
facilities where and while the C Check required by this Section 6 is
being performed. Lessee shall open the areas of the Aircraft, including
without limitation galleys, lavatories, and cargo pits, as determined by
Lessor, and shall allow Lessor to accomplish its inspection in order to
determine that the Aircraft (including the Aircraft Documents) is in the
condition required by the provisions of this Section 6.
6.10.2. A full, videotaped borescope inspection of all Engine and
APU sections in accordance with manufacturer specifications (including
manufacturer service bulletins) shall be performed under the surveillance
of Lessor at Lessee's expense at the time of the Aircraft's return to
Lessor at the Return Location.
6.10.3. Lessee shall conduct an operational ground check in
accordance with the requirements of the Approved Maintenance Program.
Page 27 of 56
<PAGE>
6.10.4. The Aircraft shall be test flown by Lessee at Lessee's
expense for not less than two (2) hours on a non-commercial flight, for
the purpose of demonstrating to Lessor the airworthiness of the Aircraft
and the proper functioning of all systems, equipment, and Appliances.
Five (5) of Lessor's employees or representatives (or more if consented
to by Lessee) may participate in such flight as observers. Lessee's pilot
shall be in command of the Aircraft. Such flight shall be flown using
standard operational check flight procedures as specified by the Airframe
manufacturer's flight functional acceptance procedure or operational test
flight procedures to demonstrate full certificated performance without
limitation.
6.11. Acceptance. Upon completion of the foregoing inspections and after
Lessee has corrected the discrepancies as required to comply with this Section
6, the return of the Aircraft shall be accepted by Lessor's representatives at
the Return Location. At the time of acceptance of return of the Aircraft to
Lessor, Lessor and Lessee shall execute an Aircraft Return Receipt and Lease
Termination in the form attached hereto as Exhibit B.
6.12. Discrepancy Correction; Financial Settlement. Any discrepancies
found during the inspections set forth in Section 6.10 above which are not
corrected by Lessee prior to return of the Aircraft to Lessor 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. Lessee shall pay Lessor for all
such costs and expenses incurred within ten (10) days after presentation of
Lessor's invoice therefor. Any late payments shall be subject to interest at the
Overdue Payment Rate. In the event that the time since overhaul or check for the
Airframe, any Engine, Appliance or component Part thereof on the Return Date is
greater than set forth above, Lessee shall pay Lessor a financial settlement to
account for the difference based upon (1) the then current interval between such
overhaul, check, or inspection prescribed by Lessee's Approved Maintenance
Program and (2) the then current cost to perform such overhaul or check
established by averaging the cost estimates for such overhaul or check by three
Aviation Authority-certified repair stations selected by Lessee and reasonably
acceptable to Lessor. Lessor shall not be obligated to compensate Lessee in the
event that the Aircraft is in better condition on the Return Date than required
hereunder.
6.13. Aircraft Documents. Lessee shall return to Lessor, at the time the
Aircraft is returned to Lessor, all of the Aircraft Documents, updated and
maintained by Lessee through the date of return of the Aircraft. In the event of
missing, incomplete, mutilated, or otherwise unacceptable Aircraft Documents,
the Lessee shall, at its sole cost and expense, re-accomplish the tasks
necessary to produce such Aircraft Documents in accordance with the provisions
of Section 5.11.
6.14. Service Bulletin Kits. All vendors' and manufacturers' service
bulletin kits ordered for the Aircraft but not installed therein shall be
returned with the Aircraft, as part of the Aircraft at the time of return, and
shall be loaded by Lessee on board the Aircraft as cargo.
Page 28 of 56
<PAGE>
6.15. Lessee's Special Exterior Markings. At the time of the return of
the Aircraft, Lessee shall either remove or paint over exterior markings painted
on such Aircraft by Lessee and the area where such markings were removed or
painted over shall be refurbished by Lessee as necessary to blend in with the
surrounding surface. 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; however, if Lessor elects to remove such
markings, Lessee shall pay Lessor's costs and expenses for such removal within
ten (10) days after presentation of Lessor's invoice therefor. Any late payments
shall be subject to interest at the Overdue Payment Rate.
6.16. Disputes. Any dispute between Lessee and Lessor regarding the
condition of the Aircraft arising under this Lease shall be referred to and be
determined by the Airframe, Engine, or Appliance manufacturer, provided this
subsection shall not be construed as requiring binding arbitration. Anything to
the contrary provided in this Section 6, (i) in the event that at the Return
Date Lessee shall not be in possession by reason of a breach by Lessor of the
covenant set forth in Section 4.5 herein, Lessee shall be deemed to be in full
compliance with the conditions set forth in this Section 6, assuming such
Aircraft was in the condition then required at the tune of its removal from
Lessee's possession as a result of such breach; and (ii) Lessee shall not be
required to correct at return conditions existing at delivery and noted in
Schedule 3 to the Lease Supplement and Receipt.
SECTION 7. Liens. The Lessee will not create or suffer to exist any
Lien upon or with respect to the Aircraft, the Airframe, any Engine or any
Appliance, except for the rights of the Lessor and the Lessee hereunder and
Permitted Liens.
SECTION 8. Taxes.
8.1. Tax Indemnity. The Lessee agrees to pay, and to indemnify each
Indemnitee for all taxes, fees, levies, imposts, duties, charges and
withholdings of any nature (together with any and all fines, penalties,
additions to tax and/or interest thereon or computed by reference thereto)
(individually, a "Tax" and collectively, "Taxes") which are imposed by any
government, governmental subdivision or other taxing authority of or in any
jurisdiction, or by any international organization, and which are imposed with
respect to or in connection with any of the following:
8.1.1. The Aircraft or any Engine or any part thereof or any
interest therein;
8.1.2. The acceptance, possession, ownership, delivery, use,
operation, location, leasing, subleasing, condition, maintenance, repair,
modification, overhaul, testing, storage, abandonment, repossession, or
return of the Aircraft or any Engine or any part thereof or any interest
therein;
8.1.3. The rentals, receipts or earnings arising from the Aircraft
or any Engine or any part thereof or any interest therein;
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<PAGE>
8.1.4. This Lease or any other Operative Document; any agreement
or instrument executed in connection with or pursuant to any of the
foregoing; any future amendment, supplement, waiver or consent requested
by Lessee with respect to any thereof, or the execution, delivery,
recording or performance of any thereof; or
8.1.5. Any payment made pursuant to this Lease or any other
Operative Document;
provided, however, that the Lessee shall not be required by this paragraph (a)
to indemnify an Indemnitee for any of the following:
8.1.6. Taxes in respect of net or gross income, profits, gains,
capital or net worth imposed by the United States or any state or local
governments therein;
8.1.7. Taxes which would not have arisen but for delay or failure
by an Indemnitee in notifying the Lessee or in the filing of Tax Returns
or payment of Taxes assessed on such Indemnitee, which delay or failure
shall not have been consented to, caused by or requested by the Lessee;
8.1.8. Any Tax to the extent it results directly from any act or
omission on the part of the Lessor which constitutes a breach by the
Lessor of its express obligations to the Lessee under this Lease or any
Operative Document or otherwise constitutes wilful misconduct or gross
negligence on the part of the Lessor;
8.1.9. Any Taxes to the extent properly attributable to any time or
period prior to the date of this Lease or after its Expiry;
8.1.10. In the event that the Lessor assigns, transfers or
encumbers in whole or in part its interest in the Aircraft or this Lease
and/or the proceeds thereof, any Taxes if and to the extent that such
Taxes exceed those which would have been imposed and in respect of which
the Lessee would have been liable to indemnify the Lessor under this
Lease had the Lessor not so assigned, transferred, or encumbered its
interest;
8.1.11. Any Taxes which are caused by or arise out of or as a
consequence of a Lessor Lien;
8.1.12. Any Taxes in respect of ownership not attributable to
Lessee's acts or omissions under this Lease; or
8.1.12. Any Taxes (including, without limitation, sales, value
added or other transfer Taxes) which arise upon any sale, assignment,
transfer or other disposition of the Aircraft or any interest therein by
the Lessor or any other Indemnitee (or any sale, assignment, transfer or
other disposition by an Indemnitee of any interest in another
Page 30 of 56
<PAGE>
Indemnitee), save where such sale, assignment, transfer or other
disposition is caused by or results from an Event of Default.
If the Lessor becomes aware of any Taxes in respect of which the Lessee may be
required to make an indemnity or other payment pursuant to this Section 8.1, the
Lessor shall promptly notify the Lessee in writing accordingly. If reasonably
requested by the Lessee in writing, the Lessor shall, in good faith, diligently
contest (including pursuing all administrative appeals) in the name of the
Lessor or, if appropriate and requested by the Lessee, in the name of the Lessee
(and will permit the Lessee, if requested by the Lessee, to contest in the name
of the Lessee or the Lessor) the validity, applicability or amount of such Taxes
and shall (i) resist payment thereof if reasonably practicable; (ii) pay the
same only under protest, if protest is necessary or proper; and (iii) if payment
is made, seek a refund thereof in appropriate administrative or judicial
proceedings Provided that (aa) prior to any such action the Lessee shall have
agreed to indemnify the Lessor to the Lessor's reasonable satisfaction for all
costs and expenses which the Lessor may incur in connection with such contest,
including (without limitation) all reasonable legal and accountants' fees and
disbursements, and the amount of any interest or penalties which may be payable
as a result of the contest; and (bb) if the Lessor determines in its reasonable
discretion that such contest is to be initiated by the payment of (and the
claiming of a refund for) such Taxes, the Lessee shall have advanced to the
Lessor sufficient funds (on an interest-free basis and, if such advance
constitutes taxable income in the hands of the Lessor, on an after-tax basis) to
make such payment.
If the Lessor shall obtain a refund, rebate, credit or other relief in respect
of all or any part of any Taxes in respect of which the Lessee shall have made
payment pursuant to this Section 8. 1, the Lessor shall, provided no Event of
Default shall have occurred and be continuing, promptly pay to the Lessee an
amount which is equal to the amount of the refund, rebate, credit or other
relief, plus any interest or other addition received on any refund, Provided
always that any such payment by the Lessor shall leave the Lessor in no more and
no less favorable a position that it would have been in had the Lessee not been
required to make any payment in respect of such Taxes.
Lessee will pay all Taxes imposed upon it, or upon its income or profits, or
upon any property belonging to it, prior to the date on which penalties attach
thereto and prior to the date on which any lawful claim, if not paid, would
become a Lien upon any of the material property of Lessee. The Expiry of this
Lease shall not limit or modify the obligations of the Lessee with respect to
any indemnities contained in this Lease.
8.2. Withholding. If the Lessee is required by Applicable Law to make any
withholding from any amount payable by the Lessee to or for the benefit of an
Indemnitee pursuant to this Lease or any related agreement, then, subject only
to such payee or Indemnitee being a United States person, the Lessee shall (i)
pay such additional amount as may be necessary to make the net amount actually
received by the person entitled to receive the payment, after all withholdings,
equal to the amount such person would have received if no withholding had been
required, and (ii) as soon as practicable thereafter, deliver to the Indemnitee
a receipt or other
Page 31 of 56
<PAGE>
document reasonably satisfactory to the Indemnitee evidencing the withholding
and the payment of the amount withheld to the relevant governmental authority.
8.2.1. If the Lessor receives the benefit of a Tax repayment,
set-off, credit, allowance or deduction resulting from a payment which
includes an additional amount paid by the Lessee under this Section 8.2
(or the Taxes deducted or withheld from such payment) it shall pay to the
Lessee a sum equal to the value to the Lessor of such benefit (account
being taken also of the value to the Lessor of any tax benefit arising by
reason of such payment) as in the opinion of the Lessor's auditors will
leave the Lessor (after such payment) in no more and no less favorable a
position than it would have been if no additional amount had been
required to be paid Provided always that:
8.2.1.1. The Lessor's auditors shall determine in their sole
discretion (acting in good faith) the amount of any such benefit
and the date on which it is received;
8.2.1.2. The Lessor shall have an absolute discretion as to
the order and manner in which it claims tax credits, allowances and
deductions available to it; and
8.2.1.3. The Lessor shall not be obliged to disclose to the
Lessee any information regarding its Tax affairs or Tax
computations.
If and to the extent that the Lessor makes a payment to the Lessee on account of
a tax benefit and it subsequently transpires that the Lessor did not receive
such benefit, the Lessee shall pay to the Lessor such sum as the Lessor's
auditors may certify as being appropriate to restore the after-tax position of
the Lessor to that which it would have been if such tax benefit had been
received.
8.3. After-tax Payment. Each indemnity pursuant to Section 15 or this
Section 8 shall be in an amount which, after taking into account all Taxes
required to be paid by the Indemnitee entitled to the indemnity as a result of
the receipt or accrual of the indemnity and any deductions, credits or other
benefits available to such Indemnitee in respect of such indemnity, shall be
equal to the total amount of the indemnity that the Lessee would be required to
pay if the Indemnitee were not subject to Taxes as a result of the receipt or
accrual of the indemnity.
SECTION 9. Risk of Loss; Event of Loss; Requisition for Use.
9.1. Risk of Loss. The Lessee will bear the entire risk of destruction,
loss, theft, requisition of title, or use, confiscation, taking or damage of or
to the Aircraft from any cause, except only if arising during any period when
the Aircraft shall not be in Lessee's possession as a result of a breach by
Lessor of the covenant set forth in Section 4.5 hereof, during the period
commencing when the Lease Supplement and Receipt is executed and delivered by
Lessee
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<PAGE>
and ending when the Aircraft Return Receipt and Lease Termination is executed
and delivered by Lessor.
9.2. Airframe Event of Loss. If an Event of Loss shall occur with respect
to the Airframe, the Lessee will forthwith notify the Lessor thereof in writing
and will pay to the Lessor, in U.S. Dollars and in immediately available funds
(i) 60 days after the date of the occurrence of such Event of Loss, or (ii) the
date of receipt of insurance proceeds, whichever is earlier, an amount equal to
the Stipulated Loss Value of the Aircraft; provided, however, that if the date
such payment is made by the Lessee is not a Rent Payment Date, there shall be
deducted from the amount payable by the Lessee an amount equal to a pro rata
portion of the Basic Rent for the Aircraft computed on a daily basis from and
including the date such payment is made by the Lessee to but not including the
Rent Payment Date immediately following the date such payment is made by the
Lessee. In addition, the Lessee will pay in full when due, but without
duplication, the Basic Rent for the Aircraft payable on each Rent Payment Date
occurring prior to the date payment is made by the Lessee pursuant to the
immediately preceding sentence hereof. Upon payment in full by the Lessee of all
amounts referred to above in this Section 9.2, this Lease shall terminate and
the Lessor will transfer to Lessee or its insurers, as appropriate, title to the
Airframe and each Engine, without any recourse, representation or warranty on
the part of the Lessor except that the Airframe and Engines are free and clear
of Lessor Liens.
9.3. Engine Event of Loss. If an Event of Loss shall occur with respect
to an Engine when not installed on the Airframe, the Lessee will forthwith
notify the Lessor thereof in writing and will, as soon as reasonably practicable
after the occurrence of such Event of Loss, duly convey to the Lessor (or cause
to be conveyed to the Lessor), as replacement for such Engine, title to another
engine of the same make and model which shall be owned by the Lessee free of all
Liens other than Permitted Liens and shall have a value and utility at least
equal to (and be in as good operating condition as) such Engine immediately
prior to such Event of Loss, assuming compliance by the Lessee with all of the
terms of this Lease with respect to such Engine. At the time of such conveyance
the Lessee will (i) cause to be delivered to the Lessor a favorable opinion of
counsel for the Lessee reasonably acceptable to the Lessor to the effect that
the Lessor has acquired full title to such replacement engine free and clear of
all Liens except for Permitted Liens and that such replacement engine is duly
subjected to this Lease; (ii) cause a Lease Supplement and Receipt to be duly
executed by Lessee and to be filed for recording pursuant to the Aviation Law
and (iii) cause to be delivered to the Lessor evidence satisfactory to the
Lessor as to the due compliance by the Lessee with the insurance provisions of
Section 10 hereof with respect to such replacement engine. Upon compliance by
the Lessee with the foregoing terms of this subsection, the Lessor will (A)
transfer to Lessee or its insurers title to the Engine so replaced without any
recourse, representation or warranty on the part of the Lessor except that such
Engine is free and clear of any of the Lessor Liens and (B) execute and deliver
to the Lessee a partial release, in recordable form, releasing such Engine from
this Lease. Such replacement engine shall thereupon constitute an "Engine" for
all purposes hereof. Lessee shall be entitled to retain or to be reimbursed by
Lessor the amount of insurance or condemnation proceeds, if any, received by
Lessor with respect to such replaced Engine.
Page 33 of 56
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9.4. Requisition. In the event of the requisition for use by the
Government of the United States of the Airframe or any Engine during the Term,
Lessee shall promptly notify Lessor of such requisition and all Lessee's
obligations under this Lease with respect to the Airframe or such Engine shall
continue to the same extent as if such requisition had not occurred. If the
Airframe or such Engine shall not be returned by the Government of United States
prior to the end of the Term, Lessee obligations under this Lease shall continue
until the end of such requisition, including without limitation the obligations
to pay Rent and to return the Airframe or such Engine to Lessor in accordance
with the provisions of Section 6 promptly upon its return by the Government of
the United States. Provided no Event of Default has occurred and is continuing,
all payments received by Lessor or Lessee from the Government of the United
States for the use of the Airframe or such Engine during such requisition shall
be paid over to, or retained by, Lessee.
SECTION 10. Insurance. Throughout the Term the Lessee shall cause
to be obtained maintained and kept in full force and effect property and
liability insurance (the "Insurances") with respect to the Aircraft issued
through brokers and with underwriters reasonably satisfactory to the Lessor.
Such Insurances shall name the Lessor as an additional insured and loss payee
for its interests and shall otherwise comply with the insurance requirements set
out in this Section 10.
10.1. Reports. On or before the Delivery Date, and not later than seven
(7) days prior to each renewal of the Insurances, the Lessee shall provide the
Lessor with evidence satisfactory to the Lessor that the Insurances are and will
continue in full force after the Delivery Date or the renewal date of the
Insurances (as the case may be) for such period as shall then be stipulated and
the Lessee shall produce to the Lessor upon request receipts in respect of
payment of the premiums required by the policies relating to the Insurances (or
installments thereof) or other evidence reasonably acceptable to the Lessor of
the payment thereof. In addition, the Lessee shall furnish or cause to be
furnished to the Lessor, as and when reasonably required by the Lessor, (i)
insurance certificates, and (ii) an opinion of a firm of independent insurance
brokers satisfactory to Lessor (the "Approved Broker") stating the opinion of
the Approved Broker that the insurance then carried and maintained on the
Aircraft complies with the terms hereof. If any material variation is made to
the terms of the Insurances, the Lessee shall forthwith give notice to the
Lessor of such variation and shall provide such further details in relation
thereto (excluding details relating to premiums) as the Lessor may reasonably
require. The Lessee shall pay or cause to be paid all additional premiums or
surcharges necessary in order to maintain in full force and effect the
Insurances.
10.2 Lessor Maintaining Insurances. If the Insurances are not kept in
full force and effect the Lessor, without prejudice to any other rights it may
have on the occurrence of an Event of Default, shall be entitled (but not bound)
to pay the premiums due to or to take out and maintain new insurances of the
types and in the amounts herein provided and any sums so expended by the Lessor
shall become immediately due and payable to the Lessor by the Lessee together
with interest thereon from the date of expenditure by the Lessor until the date
of reimbursement thereof by the Lessee at the Overdue Rate. In addition, the
Lessor may at any
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time while the Insurances are not maintained in full force and effect and if
such Insurances cannot be procured by the Lessor, as the case may be, require
the Aircraft to be grounded or, subject to the Aircraft being adequately
insured, require the Aircraft to proceed to and remain at an airport designated
by the Lessor until the provisions of this Section shall be fully complied with.
10.3 Insurance Proceeds. Until such time as the insurers are notified of
an Event of Default hereunder, all insurance proceeds in respect of repairable
damage to the Aircraft not amounting to an Event of Loss shall be payable by the
insurers directly to such party or parties as may be necessary to repair the
Aircraft unless otherwise agreed between the Lessor, the Lessee and the insurers
in accordance with Lloyd's Endorsement AVN67B and shall be applied to the cost
of restoration, repair or replacement of the Aircraft hereunder. To the extent
that such insurance proceeds may be insufficient to pay the cost or the
estimated cost of completing such restoration, repair or replacement, the Lessee
will pay or procure the payment of such deficiency. All insurance proceeds in
circumstances resulting from an Event of Loss or if the insurers have been
notified in writing of an Event of Default hereunder shall be payable by the
insurers directly to the Lessor unless and until such insurers shall be notified
in writing that such Event of Default is no longer continuing.
10.4 Property Insurance. The Lessee shall ensure that there is obtained
and maintained with respect to the Aircraft:
10.4.1. "All Risks" hull insurance on the Aircraft (including all
flight and ground risks and ingestion coverages) in an amount not less
than Three Million Five Hundred Thousand Dollars (US$3,500,000) (the
"Stipulated Loss Value").
10.4.2. "All Risks" insurance on the Engines while not installed on
any Airframe in an amount not less than replacement cost thereof.
10.4.3. "War Risks" and related insurance covering the following
perils on the Aircraft in an amount not less than the Stipulated Loss
Value: (i) war, invasion, acts of foreign enemies, hostilities (whether
war be declared or not), civil war, rebellion, revolution, insurrection,
martial law, military or usurped power, or attempts at usurpation of
power; (ii) strikes, riots, civil commotions or labor disturbances; (iii)
any act of one or more persons, whether or not agents of a sovereign
power, for political or terrorist purposes and whether the loss or damage
resulting therefrom is accidental or intentional; (iv) any malicious act
or act of sabotage; (v) confiscation, nationalization, deprivation,
seizure, restraint, detention, appropriation, requisition for title or
use by or under the order of any government (whether civil, military or
de facto) and/or public or local authority other than the government of
the United States or a state thereof; and (vi) hijacking or any unlawful
seizure or wrongful exercise of control of such Aircraft or crew in
flight (including any attempt at such seizure or control) made by any
person or persons on board such Aircraft acting without consent of the
Lessee.
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10.4.4 The Insurances required under this Subsection 10.4 shall
(except for the insurance referenced in paragraph 10.4.2) be provided on
an agreed value basis and shall: (i) include, in the event of separate
insurances being arranged to cover the "All Risk" hull insurance and the
"War Risk" and related insurance, a 50/50 claims funding arrangement in
the event of any dispute as to whether a claim is covered by the "All
Risks" or "War Risks" policy; and (ii) be subject to a deductible no
greater than Five Hundred Thousand Dollars (US$500,000).
10.5. Liability Insurance. The Lessee shall obtain and maintain or
procure that there is obtained and maintained a policy or policies of insurance
covering third party liability, bodily injury and property damage, passenger
legal liability and cargo legal liability for a combined single limit of not
less than Two Hundred Fifty Million Dollars (US$250,000,000) for any one
occurrence. The policies evidencing the Insurances required under this Section
10.5 shall: (i) include the Indemnitees as additional insureds; (ii) provide
that all the provisions thereof, except the limits of liability, shall operate
to give each insured the same protection as if there were a separate policy
covering each such person; (iii) be primary and without right of contribution
from other insurance which may be available to the Indemnitees; and (iv) not
provide coverage to the Indemnitees with respect to claims arising out of their
legal liability as manufacturer, repairer or servicing agent of the Aircraft or
any Part thereof.
10.6. Provisions Relating To All Insurances. The policies evidencing the
Insurances with respect to the Aircraft required under Subsection 10.4 and 10.5
shall:
10.6.1. specifically reference this Agreement and shall provide
that the insurers agree that the coverage under the policies is extended
(to the extent of the risks covered by the policies) to insure such
Aircraft in accordance with the terms of this Agreement;
10.6.2. provide for worldwide coverage (subject only to such
exceptions in the War Risks and related insurance as are imposed by the
insurers, provided that full war risks and related insurance must be in
effect at all times for all areas into or over which the Aircraft may
operate);
10.6.3. provide that the Lessor has no operational interest in the
Aircraft;
10.6.4. provide that the Insurances shall not be invalidated, so
far as concerns the Indemnitees by any act or omission (including
misrepresentation and non-disclosure) by the Lessee or any other person
which results in a breach of any term, condition or warranty of such
Insurances provided that the Indemnitees have not caused, contributed to
or knowingly condoned such act or omission;
10.6.5. provide that the Lessor shall not be liable for any
premiums in respect thereof, and that the insurers waive any right of
set-off or counterclaim against the Lessor except in respect of
outstanding premiums in respect of the Aircraft;
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10.6.6. provide that upon payment of any loss or claim to or on
behalf of an Indemnitee, the insurers shall to the extent and in respect
of such payment be thereupon subrogated to all legal and equitable rights
of the Indemnitees. At the expense of the insurers, such persons shall do
all things reasonably necessary to assist the insurers to exercise such
subrogated rights; and
10.6.7. provide that the Insurances provided under such policy may
only be cancelled or materially altered in a manner adverse to the
interests of the Lessor by the giving of not less than thirty (30) days'
notice in writing to the Lessor except that in the case of War Risks
insurance for which seven (7) days' notice (or such lesser period as may
be customarily available in respect of war risks or allied perils
insurance) will be given or in the case of war between any of the five
(5) great powers or nuclear peril for which termination is automatic.
Lessee will cause the Approved Broker to advise Lessor in writing
promptly of any default in the payment of any premium and of any other
act of omission on the part of Lessee of which they have knowledge and
which would in the Approved Broker's opinion invalidate or render
unenforceable, in whole or in any material part, any insurance on the
Aircraft.
SECTION 11. The Lessor's Right to Perform for the Lessee. If the
Lessee fails to make any payment required hereunder or fails to perform or
comply with any of its other agreements contained herein, the Lessor may make
such payment or perform or comply with such agreement, including, but not
limited to, the placement of insurance required by this Lease, and the amount of
such payment and the amount of its out-of-pocket costs and expenses incurred in
connection with the performance of or compliance with such agreement (together
with interest thereon at the Overdue Payment Rate) shall be payable by the
Lessee on demand as Supplemental Rent.
SECTION 12. Further Assurances. The Lessor and Lessee will each
promptly and duly execute and deliver such documents and assurances and take
such action as may be necessary or desirable, or as either party may from time
to time reasonably request, in order to more effectively carry out the intent
and purpose of this Lease and the other Operative Documents and to establish and
protect the Lessor's title to the Aircraft and its rights and remedies created
or intended to be created under this Lease and the other Operative Documents.
SECTION 13. Events of Default. The following events shall
constitute Events of Default (whether any such event shall be voluntary or
involuntary or arise by operation of law or pursuant to or in compliance with
any judgment, decree, order, rule or regulation of any court or any
administrative or governmental body):
13.1. Failure to Pay Basic Rent. The Lessee shall fail to make any
payment of Basic Rent or Stipulated Loss Value within three days after receipt
of notice from Lessor that such payment was not received when due; or
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13.2. Failure to Pay Supplemental Rent. The Lessee shall fail to make
any other payment of Rent of any kind and such failure shall continue
unremedied for a period of ten days after written demand therefor by the
Lessor to the Lessee; or
13.3. Failure to Maintain Insurance. The Lessee shall fail to maintain
insurance in accordance with Section 10 hereof;
13.4. Misrepresentation or Breach of Warranty. Any representation or
warranty made by the Lessee in this Lease or in any other Operative Document or
in any document or certificate furnished by the Lessee in connection herewith or
therewith shall have been incorrect in any material respect at the time made; or
13.5. Bankruptcy. Etc. The Lessee shall generally not pay its debts as
such debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Lessee under the laws of
any country seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law of any country relating
to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and either
such proceeding shall remain undismissed, unbonded or unstayed for a period of
60 days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur; or the Lessee shall take any
corporate action to authorize any of the actions set forth above in this
subsection 13.5; or
13.6. General Default. The Lessee fails to duly observe or perform any of
its other obligations under this Lease and such failure shall not have been
remedied within a period of thirty (30) calendar days after delivery of written
notice specifying the same from Lessor, including without limitation failure to
maintain the Aircraft as required by this Lease or the Aviation Authority or
failure to protect or preserve Lessor's title to the Aircraft and, if
applicable, the Lien of any Lender thereon; or
13.7. Loss of Airline or Corporate Authority. Lessee shall cease to be a
commercial airline, or the franchises, concessions, permits, rights or
privileges required for the conduct of the business and operations of Lessee
shall be revoked, canceled or otherwise terminated or the free and continued use
and exercise thereof curtailed or prevented, and as a result thereof the
preponderant business activity of Lessee shall cease to be that of a commercial
airline; or
13.8. Other Obligations. Lessee shall fail to pay any indebtedness or
other obligation of Lessee due and payable in excess of the value of US$100,000,
or there shall occur a declaration of default, an acceleration or any exercise
of remedies with respect to any
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obligation or liability of Lessee in or relating to an amount in excess of
the value of US$100,000; or
13.9. Guarantor Default. An "Event of Default," as defined therein,
shall have occurred under the Guaranty.
SECTION 14. Remedies. Upon the occurrence of any Event of Default
and at any time thereafter so long as the same shall be continuing, the Lessor
may, at its option, declare in writing to the Lessee that this Lease is in
default; and at any time thereafter, so long as the Lessee shall not have
remedied all outstanding Events of Default, the Lessor may do one or more of the
following as the Lessor in its sole discretion shall elect, to the extent
permitted by Applicable Law then in effect:
14.1. Return and Repossession. Lessor may in writing demand the prompt
return, and the Lessee hereby agrees that it shall return promptly, the Aircraft
to the Lessor in the manner and condition required by, and otherwise in
accordance with all the provisions of, Section 6 as if the Aircraft were being
returned at the end of the Term, or the Lessor or the Lessor's agent, at its
option, may, but shall be under no obligation to, enter upon the premises where
all or any part of the Airframe or any Engine or Appliance is located and take
immediate possession of and remove the same by summary proceedings or otherwise,
all without liability accruing to the Lessor or the Lessor's agent for or by
reason of such entry or taking of possession or removal whether for the
restoration of damage to property caused by such action or otherwise.
14.2. Sale. Use. Etc. Lessor may sell the Aircraft at public or private
sale, as the Lessor may determine, or otherwise dispose of, hold, use, operate,
lease to others or keep idle the Aircraft as the Lessor may determine, all free
and clear of any rights or claims of the Lessee and without any duty to account
to the Lessee with respect to such action or inaction or for any proceeds with
respect thereto.
14.3. Liquidated Damages: Fair Market Rental. The Lessor, by written
notice to the Lessee specifying a payment date which shall be a Rent Payment
Date not earlier than ten days from the date of such notice, may cause the
Lessee to pay to the Lessor, and the Lessee shall pay to the Lessor, on the
payment date specified in such notice, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the Basic Rent for the Aircraft due on
Rent Payment Dates occurring on and after the payment date specified for payment
in such notice), any unpaid Basic Rent for the Aircraft due (or which would have
been due in the absence of the Expiry) prior to the payment date specified in
such notice, plus an amount equal to the present value (computed as of the
payment date specified in such notice and using 6%) of the total Basic Rents due
for what would have been the remainder of the Term in the absence of the Expiry
("Liquidated Rental") (together with interest on all amounts payable by the
Lessee under this subsection 14.3 at the Overdue Payment Rate from such
specified payment date until the date of actual payment); and upon such payment
of Liquidated Rental and the payment of all other Rent then due hereunder,
Lessor shall
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proceed to exercise its best efforts to lease the Aircraft for what would have
been the remainder of the Term in the absence of Expiry and shall pay over to
Lessee an amount equal to the present value of the rents due for the remainder
of the term under the new lease agreement (after deducting from such rents, all
costs and expenses whatsoever incurred by Lessor in connection therewith and all
other amounts which may become payable to Lessor) up to the amount of Liquidated
Rental actually paid.
14.4. Cancellation, Termination, and Rescission. The Lessor may cancel,
terminate, or rescind this Lease, or may exercise any other right or remedy
which may be available to it under Applicable Law or proceed by court action to
enforce the terms hereof or to recover damage for the breach hereof, including
without limitation Lessee's agreement to lease the Aircraft for the Term and to
pay Rent.
14.5. Other Remedies. In addition, the Lessee shall be liable, except as
otherwise provided above, for any and all unpaid Rent due hereunder before,
after or during the exercise of any of the foregoing remedies and for all legal
fees and other costs and expenses incurred by reason of the occurrence of any
Event of Default or the exercise of remedies with respect thereto, including all
costs and expenses incurred in connection with any retaking of the Aircraft or
in placing the Aircraft in the condition and airworthiness required by Sections
5 and 6. At any sale of the Aircraft pursuant to this Section 14 the Lessee may
bid for and purchase such property. 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 the Lessor at law or in
equity, including without limitation the Uniform Commercial Code of the
Commonwealth of Massachusetts; and the exercise or beginning of exercise by the
Lessor of any one or more of such remedies shall not preclude the simultaneous
or later exercise by the Lessor of any or all of such other remedies. No express
or implied waiver by the Lessor of any Event of Default or Default shall in any
way be, or be construed to be, a waiver of any future or subsequent Event of
Default or Default. To the extent permitted by Applicable Law, the Lessee hereby
waives any rights now or hereafter conferred by statute or otherwise which may
require the Lessor to sell, lease or otherwise use the Aircraft in mitigation of
the Lessor's damages except as set forth in this Section 14 or which may
otherwise limit or modify any of the Lessor's rights or remedies under this
Section 14.
SECTION 15. General Indemnity and Expenses.
15.1. General Indemnity.
15.1.1. The Lessee agrees to indemnify, reimburse, and hold harmless
each Indemnitee from and against all claims, damages, losses, liabilities,
demands, suits, judgments, causes of action, civil and criminal legal
proceedings, penalties, fines, and other sanctions, and any attorney fees and
other reasonable costs and expenses, arising or imposed with or without the
Lessor's fault or negligence or under the doctrine of strict liability
(collectively, "Claims"), relating to or arising in any manner out of:
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15.1.1.1. This Lease, any misrepresentation made by the Lessee
under this Lease, or the breach of any representation, warranty, or
covenant made by the Lessee under this Lease;
15.1.1.2. The manufacture, lease, delivery, nondelivery,
acceptance, rejection, ownership (to the extent attributable to Lessee's
acts or omissions), possession, use, operation, or return of the
Aircraft;
15.1.1.3. The Aircraft's condition or any discoverable or
nondiscoverable defect in it arising from its design, testing, or
construction; any article used in the Aircraft; or any maintenance,
service or repair, whether or not the Aircraft is in the Lessee's
possession and regardless of where the Aircraft is located; or
15.1.1.4. Any transaction, approval, or document contemplated by
this Lease.
15.1.1.5. The foregoing indemnity shall not apply to (i) any Claim
that constitutes a Permitted Lien, (ii) Claims for Taxes, it being agreed
that Section 8 hereof represents Lessee's entire obligation with respect
to Taxes, (iii) Claims attributable to the wilful misconduct of an
Indemnitee; (iv) Claims attributable to any misrepresentation made by the
Lessor under this Lease, or the breach of any representation, warranty,
or covenant made by the Lessor under this Lease; or (v) Claims arising
prior to the Delivery Date or subsequent to the Return Date; provided,
however, that this Subsection 15.1.1.5 shall be construed only as a
limitation on the indemnity set forth in this Section 15, and shall not
be deemed a waiver by Lessor of any Claims available to Lessor at law or
in equity.
15.1.2. The Lessee waives and releases each Indemnitee from any Claims in
any way connected with injury to or death of the Lessee's personnel, loss or
damage of the Lessee's property, which may:
15.1.2.1. Result from or arise during the Term in any manner out of
the leasing, condition, use or operation of the Aircraft; or
15.1.2.2. Be caused during the Term by any defect in the Aircraft;
its design, testing, or construction; any article used in the Aircraft;
or any maintenance, service, or repair, whether or not the Aircraft is in
the Lessee's possession and regardless of where the Aircraft is located,
except to the extent that such Claim arises out of the breach by any
Indemnitee of its obligations hereunder. The foregoing waiver and release
shall not apply to any Claim arising out of the wilful misconduct of any
Indemnitee.
15.1.3. The indemnities described in this Section will continue in full
force and effect notwithstanding the expiration or other termination of this
Lease and are expressly made for the benefit of and will be enforceable by each
Indemnitee.
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15.2. Lega1 Fees and Expenses. The Lessee agrees to pay the reasonable
legal fees and expenses of Lessor's counsel in connection with the enforcement
against Lessee of this Lease, any other Operative Document and the other
documents to be delivered hereunder or thereunder.
SECTION 16. Assignment and Alienation. Lessor shall have the right
to assign, sell or encumber any interest of Lessor in the Aircraft or this Lease
and/or the proceeds hereof subject to the rights of Lessee under the provisions
of this Lease. To effect or facilitate any such assignment, sale or encumbrance,
Lessee agrees to provide such agreements, consents, conveyances or documents as
may be reasonably requested by Lessor, which shall include, without limitation,
a commercially standard estoppel certificate. The agreements, covenants,
obligations and liabilities contained herein including, but not limited to, all
obligations to pay Rent and indemnify each Indemnitee are made for the benefit
of each Indemnitee and their respective successors and assigns; provided,
however, that no assignment, sale or encumbrance shall in any manner adversely
affect Lessee's rights or increase the aggregate financial exposure under the
indemnity obligations of Lessee under this Lease or unreasonably increase any
other obligation, liability, cost, or expense, as compared to what such
indemnity obligations, or any other obligation, liability, cost or expense would
have been had such assignment, sale or encumbrance not occurred; provided,
however, that as a minimum level cooperation Lessee at its expense shall, if
requested by Lessor, (i) execute documents naming any Lender as an Indemnitee
hereunder; (ii) cause the Insurances to designate any Lender as a loss payee and
additional insured; (iv) provide notices to any Lender pursuant to Section 17
hereof; and (v) execute a reasonable consent to an assignment of this Lease to
such Lender. In the event any interest of the Lessor in the Aircraft or this
Lease and/or the proceeds therefrom is assigned, sold or encumbered by Lessor,
any assignee, transferee, mortgagee, or other secured party shall agree as a
condition precedent thereto, and shall furnish written evidence of such
agreement to Lessee, not to disturb or otherwise interfere with the rights of
Lessee under this Lease or the quiet enjoyment of Lessee of the Aircraft so long
as no Event or Default shall have occurred and be continuing; and provided,
further, that no such assignment, sale or encumbrance shall be to other than an
entity which shall be a United States citizen in accordance with Aviation Law.
SECTION 17. Notices. All notices required under the terms and
provisions hereof shall be in writing in the English language, and any such
notice shall become effective when received by the other party, by hand, by
registered mail with proper postage for airmail prepaid, by overnight courier
service, or, if in the form of a telecopy, upon confirmation of receipt thereof,
in each case addressed (i) if to the Lessee:
Sunworld International Airlines, Inc.
207 Grandview Drive
Fort Mitchell, Kentucky 41017-2799
Attention: Treasurer
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Telecopier: (606) 331 6383
with copies to:
Winthrop, Stimson, Putnam & Roberts
1 Battery Park Plaza
New York, New York 10004
Attention: Ruth J. Weinstein
Telecopier: (212) 858-1500
or to such other address as the Lessee shall from time to time designate in
writing to the Lessor, or (ii) if to the Lessor:
First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier: (801) 246-5053
with copy to:
American Finance Group
98 North Washington Street
Boston, Massachusetts 02114
Attention: Manager
Telecopier: (617) 523-1410
and:
American Finance Group, Inc.
One Market Plaza, Steuart Street Tower, Suite 900
San Francisco, CA 94105 U.S.A.
Attention: General Counsel
Telecopier: (415) 905-7256
or to such other address as the Lessor shall from time to time designate in
writing to Lessee.
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SECTION 18. No Set-Off. Counterclaim. Etc. Subject only to the
Lessor's compliance with its obligations under Sections 3.6.5, 4.5, and 5.5, the
Lessee's obligation to pay all Rent payable hereunder shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which the Lessee may have against the Lessor, any partner comprising the Lessor,
the manufacturer of the Airframe or of any Engine or Appliance or anyone else
for any reason whatsoever (whether in connection with the transactions
contemplated hereby or in connection with any unrelated transaction), (ii) any
defect in the airworthiness, eligibility for registration, condition, design,
operation, or fitness for use of, or any damage to or loss or destruction of, or
any Lien upon, the Aircraft, or any interruption or cessation in the use or
possession thereof by the Lessee (iii) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Lessee, the Lessor or
any other person, (iv) the invalidity or unenforceability of this Lease or any
absence of right, power, or authority of the Lessor or Lessee to enter into this
Lease, or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing. If for any reason whatsoever this Lease
shall be terminated in whole or in part by operation of Applicable Law the
Lessee nonetheless agrees to pay to the Lessor an amount equal to each Basic
Rent payment for the Aircraft at the time such payment would have become due and
payable in accordance with the terms hereof had this Lease not been so
terminated in whole or in part. The Lessee hereby waives, to the extent
permitted by Applicable Law, any and all rights which it may now have or which
at any time hereafter may be conferred upon it, by Applicable Law to terminate,
cancel, quit or surrender this Lease, or any obligation imposed on the Lessee by
this Lease. Nothing in this Section 18 shall be construed to preclude the Lessee
from bringing any suit at law or in equity against any person which it would
otherwise be entitled to bring for breach of any representation, warranty,
covenant or duty hereunder.
SECTION 19. Governing Law.
19.1. Consent to Jurisdiction. Each of the Lessor and the Lessee
irrevocably agrees that any legal suit, action or proceeding arising out of or
relating solely to this Lease or any other Operative Document, or any of the
transactions contemplated hereby or thereby or any document referred to herein
or therein, may be instituted in the state or Federal courts in the Commonwealth
of Massachusetts, and it hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may have now or hereafter to the laying
of the venue or the jurisdiction or the convenience of the forum of any such
legal suit, action or proceeding and irrevocably submits generally and
unconditionally to the jurisdiction of any such court but only in any such suit,
action or proceeding. Final judgment against the Lessee or the Lessor in any
suit shall be conclusive, and may be enforced in other jurisdictions by suit on
the judgment, a certified or true copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness or liability of the Lessee or the
Lessor, as the case may be, therein described; provided always that the
plaintiff may at its option bring suit, or institute other judicial proceedings,
against the Lessee or the Lessor, as
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the case may be, or any of its assets in the courts of any country or place
where the Lessee or the Lessor, as the case may be, or such assets may be found.
19.2. Choice of Law. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
SECTION 20. Miscellaneous. This Lease constitutes the entire
agreement of the parties. Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibitions or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
This Lease shall constitute an agreement of lease, and nothing
herein shall be construed as conveying to the Lessee any right, title or
interest in the Aircraft except as a lessee only.
This Lease, including all agreements, covenants, representations and
warranties, shall be binding upon and inure to the benefit of, and may be
enforced by, (1) Lessor and its agents, servants and personal representatives
and, to the extent permitted hereby, assigns and (2) Lessee and its agents,
servants, and personal representatives and, to the extent permitted hereby,
assigns. The section and subsection headings in this Lease are for convenience
of reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof. This Lease may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument. 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 the enforcement of the change, waiver, discharge or
termination is sought.
Page 45 of 56
<PAGE>
SECTION 21. Truth-In-Leasing. FOR PURPOSES OF 14 CRF SECTION 91.23
ONLY, LESSOR CERTIFIES THAT DURING THE TWELVE MONTHS PRECEDING THE EXECUTION OF
THIS LEASE THE AIRCRAFT WAS MAINTAINED AND INSPECTED UNDER PART 121 OF THE
FEDERAL AVIATION REGULATIONS.
THE LESSEE CERTIFIES THAT THE LESSEE, AND NOT THE LESSOR, IS RESPONSIBLE
FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF,
THE LESSEE FURTHER CERTIFIES THAT THE LESSEE UNDERSTANDS ITS RESPONSIBILITIES
FOR COMPLAINCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. THE LESSEE FURTHER
CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 121 OF
THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO BE CONDUCTED UNDER THIS
LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FAA REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT
OFFICE.
IN WITNESS WHEREOF, the Lessor the Lessee have each caused this
Lease to be duly executed as of the date and year first above written.
FIRST SECURITY BANK OF UTAH, National
Association, not in its individual capacity
but solely as owner trustee under that
certain Trust Agreement "AFG/Northwest
Airlines 1989-4 Trust" dated as of December
13, 1989, and amended as of March 1, 1990,
the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
By:
Title:
Page 46 of 56
<PAGE>
SECTION 21. Truth-In-Leasing. FOR PURPOSES OF 14 CRF SECTION 91.23
ONLY, LESSOR CERTIFIES THAT DURING THE TWELVE MONTHS PRECEDING THE
EXECUTION OF THIS LEASE THE AIRCRAFT WAS MAINTAINED AND INSPECTED UNDER
PART 121 OF THE FEDERAL AVIATION REGULATIONS.
THE LESSEE CERTIFIES THAT THE LESSEE, AND NOT THE LESSOR, IS RESPONSIBLE
FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF,
THE LESSEE FURTHER CERTIFIES THAT THE LESSEE UNDERSTANDS ITS RESPONSIBILITIES
FOR COMPLAINCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. THE LESSEE FURTHER
CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 121 OF
THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO BE CONDUCTED UNDER THIS
LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FAA REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT
OFFICE.
IN WITNESS WHEREOF, the Lessor the Lessee have each caused this
Lease to be duly executed as of the date and year first above written.
FIRST SECURITY BANK OF UTAH, National
Association, not in its individual capacity
but solely as owner trustee under that
certain Trust Agreement "AFG/Northwest
Airlines 1989-4 Trust" dated as of
December 13, 1989, and amended as of March 1,
1990,
the Lessor
By:
Title:
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence O. Dennison
By: Terence O. Dennison
Title: Executive Vice President
Page 46 of 56
<PAGE>
EXHIBIT A: FORM OF LEASE SUPPLEMENT AND RECEIPT
LEASE SUPPLEMENT AND RECEIPT dated January 19, 1996 between FIRST
SECURITY BANK OF UTAH, N.A., not in its individual capacity but solely as owner
trustee under that certain Trust Agreement 1989-4 dated as of December 13, 1989,
and amended as of March 1, 1990 (the "Lessor"), and Sunworld International
Airlines, Inc. (the "Lessee").
The Lessor and the Lessee have heretofore entered into that certain
Aircraft Lease Agreement, dated as of January 1,1996 (herein called the "Lease"
and the defined terms therein being hereinafter used with the same meanings),
relating to one Boeing model 727-25lA aircraft, manufacturer serial number
21161. The Lease provides for the execution and delivery of a Lease Supplement
and Receipt.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, the Lessor and the Lessee hereby agree as follows:
A. THE LEASE. The Lease and all related Operative Documents to be
executed by the Lessee have been duly authorized, executed and delivered by
Lessee and constitute valid, legal, binding, and enforceable agreements of
Lessee. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement and Receipt to the same extent as if fully
set forth herein. The parties confirm that the Delivery Date is the date of this
Lease Supplement and Receipt.
B. THE AIRCRAFT. The Lessee hereby certifies that the Aircraft
described Schedule 1 hereto, consisting of 5 pages (including attachments) and
made a part hereof, and the Aircraft Documents described in Schedule 2 hereto,
consisting of 1 pages (including attachments) and made a part hereof, have been
delivered to the Lessee, inspected by the Lessee, and accepted under, and for
all purposes of, the Lease, all on the date hereof. Any qualifications to the
return conditions set forth in Lease Section 6 are attached hereto in Schedule
3. Lessee accepts delivery of the Aircraft "AS IS," "WHERE IS," AND SUBJECT TO
EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET FORTH IN
SECTION 4.3 OF THE LEASE.
C. REPRESENTATIONS BY THE LESSEE. The Lessee hereby represents and
warrants to the Lessor that on the date hereof:
1. The representations and warranties of the Lessee set forth in the
Lease are true and correct in all material respects as though made on and
as of the date hereof.
2. The Lessee has satisfied or complied with all requirements set
forth in the Lease to be satisfied or complied with on or prior to the
date thereof.
Page 47 of 56
<PAGE>
3. No default or Event of Default under the Lease has occurred and
is continuing on the date hereof.
4. The Lessee has obtained, and there are in full force and effect,
such insurance policies with respect to the Aircraft as are required to be
obtained under the terms of the Lease.
This Lease Supplement and Receipt may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
Supplement and Receipt to be duly executed as of the date and year first above
written.
FIRST SECURITY BANK OF UTAH, National Association,
not in its individual capacity but solely
as Owner Trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and amended as of March 1, 1990,
the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence 0. Dennison
By: Terence 0. Dennison
Title: Executive Vice President
Page 48 of 56
<PAGE>
SCHEDULE 1 TO LEASE SUPPLEMENT AND RECEIPT: AIRCRAFT DESCRIPTION
Airframe: Boeing model 727-251A, serial number 21161,
US registration N282US
Total hours: 50598:33 Total cycles: 35609
Time since C check: 0 Time since D check: 0
Engine No.1: Pratt & Whitney model JT8D-15A engine,
manufacturer serial number 696253.
See. Attached disk sheet dated 9/15/95, 1995
Engine No. 2: Pratt & Whitney model JT8D-15-A engine,
manufacturer serial number 696520.
See. Attached disk sheet dated 10/10/95, 1995
Engine No. 3: Pratt & Whitney model JT8D-15-A engine,
manufacturer serial number 695260.
See. Attached disk sheet dated 10/10/95, 1995
Landing gear time since overhaul: L9309 hours, R6 hours, N17779 hours.
Auxiliary power unit: manufacturer Garrett serial number P36543. Time since hot
section inspection: 0
Avionics (specified by manufacturer): see attachment consisting of 3 pages. see
attachment A.
Interior configuration: 164 seats coach
Loose equipment: [SPECIFY GALLEY EQUIPMENT, EXTRA SEATS, ETC.]
see attachment B.
*1 *2
--- ---
Operating weights: Maximum ramp weight: 177,500 187,500
Maximum gross take-off weight: 176,500 186,500
Maximum landing weight: 150,000 150,000
Zero fuel weight: 138,000 141,000
*1 As delivered
*2 Weight per lease, awaiting FAA Engineering approval.
Page 49 of 56
<PAGE>
SCHEDULE 2 TO LEASE SUPPLEMENT AND RECEIPT: AIRCRAFT DOCUMENTS
AIRCRAFT DOCUMENTS CHECKLIST
1. Avionics Installation List
2. Original Manufacturer's Inventory List
3. Current Component Inventory List (Northwest)
4. Service Bulletin (SB) Accomplishment List (Northwest)
5. Record of last Compass Swing
6. List of Oils and Fluids
7. FAA Approved Airplane Flight Manual (AFM)
8. Manufacturer's Flight Crew Operating Manual (FCOM) (Northwest)
9. Releasing Operator's Flight Crew Operating Manual (Northwest)
10. Weight and Balance Manual; last weighing
11. Minimum Eqipment List (MEL) (Northwest)
12. MEL Procedures manual (Northwest)
13. Maintenance Manuals (Northwest)
14. Wiring Diagram Manual; Termination and Equipment Lists (Northwest)
15. Structural Repair Manual (SRM) (Northwest)
16. Illustrated Parts Catalog (IPC) (Northwest)
17. Aircraft/Cockpit Log Books (Northwest)
18. Engine Log Books (Northwest)
19. Auxiliary Power Unit (APU) Log Book (Northwest)
20. Current, or last, Airworthiness Certificate
21. Current, or last, Registration
22. Current, or last, Radio License
23. Supplemental Type Certificates (STC)
24. Certificate of Sanitary Construction, Galleys
25. Modification Records
26. Form 337, major Repair and Alteration
27. Major and Minor Repair Records
28. Airworthiness Directive (AD) Accomplishment List
29. Airworthiness Directive (AD) Records and Documentation
30. Time Controlled Component (TCC) List, history and status (Northwest)
31. Life Limited Part (LLP) List, history and status (Northwest)
32. Scheduled Maintenance Check Status
33. Total Time and Cycle Justification
34. Maintenance Records
35. Performance Manual (Northwest)
36. Quick Reference Manual (Northwest)
Page 50 of 56
<PAGE>
SCHEDULE 3 TO LEASE SUPPLEMENT AND RECEIPT;
QUALIFICATIONS TO RETURN CONDITIONS
Lessor and Lessee hereby agree that the following particulars of the
condition of the Aircraft shall be qualifications to the return conditions set
forth in Section 6 of the Lease.
See Attachment C
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Schedule 3 to Lease Supplement and Receipt to be duly executed as of January __,
1996.
FIRST SECURITY BANK OF UTAH, National Association,
not in its individual capacity but solely
as Owner Trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and amended as of March 1, 1990,
the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence 0. Dennison
By: Terence 0. Dennison
Title: Executive Vice President
Page 51 of 56
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Lower Yaw Damper Computer Sperry 4030952-901 77090124
- -----------------------------------------------------------------------------------------------------
Audio Accessory Unit Bac 65-5280438 R00032
- -----------------------------------------------------------------------------------------------------
GPW Computer Bendix 2041033-8313 1043
- -----------------------------------------------------------------------------------------------------
Passenger Address Collins 522-4538-002 6376
- -----------------------------------------------------------------------------------------------------
ADF Receiver Bendix 2087786-7302 4214
- -----------------------------------------------------------------------------------------------------
VHF Transceiver #1 Collins 618M-3 8416
- -----------------------------------------------------------------------------------------------------
VHF Transceiver #2 Collins 618M-3 6921
- -----------------------------------------------------------------------------------------------------
Radio Altimeter Bendix 2067631-5315 5431
- -----------------------------------------------------------------------------------------------------
Autopilot Access. Bac 65-24917-72 R00010S
- -----------------------------------------------------------------------------------------------------
Pitch Control Channel (SP-50) Sperry 2585804-4 0191616
- -----------------------------------------------------------------------------------------------------
Static Inverter Bendix 39B168-B 1099
- -----------------------------------------------------------------------------------------------------
Upper Yaw Damper Coupler Sperry 2588880-901 0190872
- -----------------------------------------------------------------------------------------------------
ATC Transponder Mode C Collins 787-6211-003 2078
- -----------------------------------------------------------------------------------------------------
Roll Control Channel (SP-150) Sperry 4030951-901 80040705
- -----------------------------------------------------------------------------------------------------
Fire & Overheat Detection Unit Bac 65-24920-3 R00601
- -----------------------------------------------------------------------------------------------------
Temperature Controller Sundstrand 548376-5 67C-859
- -----------------------------------------------------------------------------------------------------
Anti-skid Control Unit Bac 10-61853-11 217C
- -----------------------------------------------------------------------------------------------------
Air Data Computer Sperry HG180U255 A-892/70
- -----------------------------------------------------------------------------------------------------
Vertical Gyro Aux. Sperry 2587335-12 9024865
- -----------------------------------------------------------------------------------------------------
Transformer Rectifier APU Elden D10-60011-2 740
- -----------------------------------------------------------------------------------------------------
General Protection Panel APU Westinghouse 904F242-5 UB7895M
- -----------------------------------------------------------------------------------------------------
Voltage Regulator APU Westinghouse 939D150-2 XA5009
- -----------------------------------------------------------------------------------------------------
Bus Protection Panel Westinghouse 902F283-2 ZW1108A
- -----------------------------------------------------------------------------------------------------
Transformer Rectifier Ext Power Elden D10-60011-2 7447530
- -----------------------------------------------------------------------------------------------------
Frequency and Load Controller #2 G.E. 700662A 2709
- -----------------------------------------------------------------------------------------------------
Frequency and Load Controller #3 G.E. 700662A 3380
- -----------------------------------------------------------------------------------------------------
Directional Gyro #2 Sperry 2588302-2 78032190
- -----------------------------------------------------------------------------------------------------
Vertical Gyro #2 Sperry 2587335-11 6088944
- -----------------------------------------------------------------------------------------------------
Vertical Gyro #1 Sperry 2587335-11 7052215
- -----------------------------------------------------------------------------------------------------
GPW Pressure Rate Sensor Collins 66-3444-9-001 01215
- -----------------------------------------------------------------------------------------------------
Battery Charger Ledec 2-301-3 3736
- -----------------------------------------------------------------------------------------------------
Autospeed Brake Controller Bac 65-8409-1 M00019
- -----------------------------------------------------------------------------------------------------
VHF Transceiver Aux Bendix 2070945-4301 1965
- -----------------------------------------------------------------------------------------------------
Marker Receiver Bendix MKA-28C 1679
- -----------------------------------------------------------------------------------------------------
ILS Receiver #2 Collins 522-4280-102 4793
- -----------------------------------------------------------------------------------------------------
ILS Receiver #1 Collins 522-4280-102 B1794
- -----------------------------------------------------------------------------------------------------
DME #1 Collins 622-2920-001 6497
- -----------------------------------------------------------------------------------------------------
DME #2 Collins 622-2920-001 6503
- -----------------------------------------------------------------------------------------------------
Comparator Warning Monitor Collins 522-3948-002 322
- -----------------------------------------------------------------------------------------------------
Flight Instrument Accessory Unit Bac 65-60214-36 R00149
- -----------------------------------------------------------------------------------------------------
Steering Computer #1 Collins 562A-5F4 1104
- -----------------------------------------------------------------------------------------------------
Steering Computer #2 Collins 562A-5F4 1403
- -----------------------------------------------------------------------------------------------------
Instrument AMP #1 Collins 52-3120-005 2757
- -----------------------------------------------------------------------------------------------------
Instrument AMP #2 Collins 52-3120-004 791
- -----------------------------------------------------------------------------------------------------
Window Heat Control R1 Pacific 231-2 2678
- -----------------------------------------------------------------------------------------------------
Window Heat Control R2 Pacific 65-52803-8 R02557
- -----------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 1 of 3
Page 52 of 56
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Window Heat Control L1 Pacific 231-2 3570
- -----------------------------------------------------------------------------------------------------
Window Heat Control L2 Pacific 231-2 4412
- -----------------------------------------------------------------------------------------------------
Landing Gear Accessory Unit Bac 65-60211-32 00095
- -----------------------------------------------------------------------------------------------------
Compass System Rack #2 Sperry 614937-101 8057427A
- -----------------------------------------------------------------------------------------------------
Compass System Rack #1 Sperry 614937-101 5040270A
- -----------------------------------------------------------------------------------------------------
LILS Receiver Aux Collins 522-4280-105 B638
- -----------------------------------------------------------------------------------------------------
Flight Director Indicator F/O Collins 522-3752-001 140
- -----------------------------------------------------------------------------------------------------
Course Director Indicator F/O Collins 522-3342-001 27
- -----------------------------------------------------------------------------------------------------
Serve Altimeter F/O Smith WL708AMFAZ AE151
- -----------------------------------------------------------------------------------------------------
Radio Altimeter F/O Bendix INA-51A 7409
- -----------------------------------------------------------------------------------------------------
VSI/TRA Indicator F/O Honeywell 4067241-860 42046
- -----------------------------------------------------------------------------------------------------
VSI Pressure Transducer F/O Honeywell 4067487-901 91020508
- -----------------------------------------------------------------------------------------------------
Pressure Ration Indicator #1 G.E. JG298A4 E-256
- -----------------------------------------------------------------------------------------------------
Pressure Ration Indicator #2 G.E. JG298A4 D-351
- -----------------------------------------------------------------------------------------------------
Pressure Ration Indicator #3 G.E. JG298A4 E-195
- -----------------------------------------------------------------------------------------------------
N1 Indicator #1 G.E. 8DJ81-WAG4 V0087
- -----------------------------------------------------------------------------------------------------
N1 Indicator #2 G.E. 8DJ81-WAG4 S0177
- -----------------------------------------------------------------------------------------------------
N1 Indicator #3 G.E. 8DJ81-WAG4 S3930
- -----------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #1 Lewis 152BL801E 62
- -----------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #2 Lewis 152BL801E 624
- -----------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #3 Lewis 152BL801E 656
- -----------------------------------------------------------------------------------------------------
N2 Indicator #1 G.E. 8DJ81-LXHU L3766
- -----------------------------------------------------------------------------------------------------
N2 Indicator #2 G.E. 8DJ81-LYV4 R6291
- -----------------------------------------------------------------------------------------------------
N2 Indicator #3 G.E. 8DJ81-LYV4 R5893
- -----------------------------------------------------------------------------------------------------
Fuel Flow Indicator #1 G.E. 8DJ88-LWC B987
- -----------------------------------------------------------------------------------------------------
Fuel Flow Indicator #2 G.E. 8DJ88-LWC 00265
- -----------------------------------------------------------------------------------------------------
Fuel Flow Indicator #3 G.E. 8DJ88-LWC M0350
- -----------------------------------------------------------------------------------------------------
Outboard Flap Position Indicator Memoor 18-1299-3 0574AN
- -----------------------------------------------------------------------------------------------------
Inboard Flap Position Indicator Memoor 18-1299-2 16299
- -----------------------------------------------------------------------------------------------------
Autopilot Capture Indicator F/O Bac 75-0149-77 2367
- -----------------------------------------------------------------------------------------------------
Airspeed Indicator F/O Kollsman A3615910057 1392
- -----------------------------------------------------------------------------------------------------
Clock Indicator F/O Wakemann 651-12-24-15 1222
- -----------------------------------------------------------------------------------------------------
Machmeter F/O Bac 10-60713-1 NT989
- -----------------------------------------------------------------------------------------------------
ADF/VOR Compass RMI F/O Sperry CI-600 3070877
- -----------------------------------------------------------------------------------------------------
Pneumatic Brake Pressure Indicator US Gage SRL-07AM 5739
- -----------------------------------------------------------------------------------------------------
Hydraulic Brake Pressure Indicator US Gage SRL-07CA 5830
- -----------------------------------------------------------------------------------------------------
DME Indicator F/O Collins 522-1859-033 4018
- -----------------------------------------------------------------------------------------------------
Airspeed Indicator Capt. Kollsman A3615910057 1360
- -----------------------------------------------------------------------------------------------------
Compass ADF/VOR RMI Capt. Sperry CI-600 24
- -----------------------------------------------------------------------------------------------------
Clock Indicator Capt. Wakemann 651-12-24-15 1219
- -----------------------------------------------------------------------------------------------------
Machmeter Capt. Bac 10-60713-1 NT1156
- -----------------------------------------------------------------------------------------------------
DME Indicator Capt. Collins 522-1859-033 C8002
- -----------------------------------------------------------------------------------------------------
Flight Director Indicator Capt. Collins 522-3752-001 135
- -----------------------------------------------------------------------------------------------------
Course Director Indicator Capt. Collins 522-3342-001 446
- -----------------------------------------------------------------------------------------------------
Autopilot Capture Indicator Capt. Bac 75-0149-77 2371
- -----------------------------------------------------------------------------------------------------
Rad/Alt. Indicator Capt. Bendix INA-51A 01988
- -----------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 2 of 3
Page 52a of 56
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Baro-Altimeter Capt. Kollsman A3811910008 1752
- -----------------------------------------------------------------------------------------------------
Total Air Indicator Capt. Lewis 161BL501 B545
- -----------------------------------------------------------------------------------------------------
Servo Altimeter Capt. Smith WL1152AM8 AE968
- -----------------------------------------------------------------------------------------------------
VSI/TRA Indicator Capt. Honeywell 4067241-860 11532
- -----------------------------------------------------------------------------------------------------
VSI Pressure Transducer Capt. Honeywell 4067487-901 91010491
- -----------------------------------------------------------------------------------------------------
Standby Horizon Indicator Sfena 705-7V9 19728
- -----------------------------------------------------------------------------------------------------
Altitude Alert Honeywell JG1052AA03 U-12
- -----------------------------------------------------------------------------------------------------
Elevator & Rudder Position Indicator Sperry 248541 00286
- -----------------------------------------------------------------------------------------------------
Radar Indicator Bendix 66-3442-9-0002 03141
- -----------------------------------------------------------------------------------------------------
VOR/DME Control Panel Capt. Gables G-4578 138
- -----------------------------------------------------------------------------------------------------
ADF Control Panel Capt. Bendix 2087780-7308 3141
- -----------------------------------------------------------------------------------------------------
Radar Control Panel Gables G-4104 96
- -----------------------------------------------------------------------------------------------------
Flight Director Control Panel Capt. Collins 777-1253-001 102
- -----------------------------------------------------------------------------------------------------
Instrument Warning Capt. Gables G-2662 27
- -----------------------------------------------------------------------------------------------------
Transponder Control Panel F/O Gables G-6993-03 00214
- -----------------------------------------------------------------------------------------------------
Lighted Flight Counter Dexter-Wilson 600 4275
- -----------------------------------------------------------------------------------------------------
Flight Director Control Panel F/O Collins 777-1253-001 47
- -----------------------------------------------------------------------------------------------------
VOR/DME Control Panel F/O Gables G-4578 86
- -----------------------------------------------------------------------------------------------------
Frequency and Load Controller #1 G.E. 700662B 3798
- -----------------------------------------------------------------------------------------------------
Voltage Regulator #1 Westinghouse 939D150-2 UW3601M
- -----------------------------------------------------------------------------------------------------
Voltage Regulator #2 Westinghouse 939D150-2 SB5430
- -----------------------------------------------------------------------------------------------------
Voltage Regulator #3 Westinghouse 939D150-2 PY3961M
- -----------------------------------------------------------------------------------------------------
Transformer/Rectifier #1 Bac 10-3257-3 5474
- -----------------------------------------------------------------------------------------------------
Transformer/Rectifier #2 Bac 10-3257-3 5205
- -----------------------------------------------------------------------------------------------------
Transformer/Rectifier #3 Bac 10-3257-3 5256
- -----------------------------------------------------------------------------------------------------
General Protection Panel #3 Westinghouse 902F242-5 OB7667
- -----------------------------------------------------------------------------------------------------
General Protection Panel #2 Westinghouse 902F242-5 UJ599M
- -----------------------------------------------------------------------------------------------------
General Protection Panel #1 Westinghouse 902F242-5 RO3532
- -----------------------------------------------------------------------------------------------------
TCAS Processor Honeywell 4066010-904 91020299
- -----------------------------------------------------------------------------------------------------
Transponder Mode S Collins TPR-720 1741
- -----------------------------------------------------------------------------------------------------
Radar Transceiver Bendix 66-3442-9-0004 02329
- -----------------------------------------------------------------------------------------------------
Main Battery Sonotone CA-727-3 120406
- -----------------------------------------------------------------------------------------------------
Flight Data Recorder Sundstrand 980-4100-GQUS 8378
- -----------------------------------------------------------------------------------------------------
Accelerometer Sundstrand 3001-01-101-2 9510-2132
- -----------------------------------------------------------------------------------------------------
Windshear Computer Honeywell 4061048-904 90040242
- -----------------------------------------------------------------------------------------------------
Windshear Switching Unit ASM 103006-001-01 134
- -----------------------------------------------------------------------------------------------------
Windshear Switching Unit ASM 103006-001-01 109
- -----------------------------------------------------------------------------------------------------
Selcal Encoder Motorola NA135PH50 Unk
- -----------------------------------------------------------------------------------------------------
Selcal Control Panel Gables G1402 85
- -----------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 3 of 3
Page 52b of 56
<PAGE>
ATTACHMENT B
Loose Equipment:
1 each Right Hand Coat Closet
1 each Left Hand Movable Bulkhead
1 each Left Hand Triple Seat Assy
6 each First Class Seat Assys
2 each Galley Carts
9 each Oven Tray Carriers with 54 Trays
12 each Large Carriers
6 each Small Carriers
6 each Coffee Pots
4 each Trash Cans
Page 52c of 56
<PAGE>
ATTACHMENT C
1. External doubler at Left cockpit sliding window
2. External doubler at Left windshield
3. External doubler at Right cockpit sliding window
4. Dent in fuselage above #3 Left cockpit window
5. Minor dents in fuselage AFT of Left main door
6. 7 each external doublers inside #2 engine S duct
7. External doubler station 440 lower Left side fuselage skin
8. Deep scratch station 650 lower Left Side fuselage skin
9. Latches for external air conditioning connection damaged
10. External repair #1 Left leading edge flap
11. Dent in #1 Left leading edge flap center
12. External repair #2 Left leading edge flap
13. External repair #3 Left leading edge flap
14. External repair inboard of Left wing fuel vent box on inspection plate
15. External repair outboard flap jack screw cover
16. Dent in left outboard trailing edge flap 18 inches from inboard bottom end
17. Left inboard flap has dent bottom side 12 inches from outboard end - Also
dents between flap fairings
18. External repair on fuselage at Left rear service door at station 1030
19. External repair at Left rear service door station 1070
20. #1 Engine Thrust Reverser does not have speed kit installed
21. Right leading edge inboard flap has 3 external repairs
22. Right leading edge outboard flap has external repair
23. #7 leading edge slat Right wing has external repair
24. Right wing outboard flap has dent bottom of flap 18 inches from outboard
end. Also dent between flap fairings
25. External doubler on top Right wing middle ground spoiler
26. Several dents on inboard flap top trailing edge inboard end
27. External doubler Right side fuselage at 3rd window behind rear emergency
window
28. External doubler Right side fuselage at 5th window behind rear emergency
window
29. Several dents on inboard flap bottom side trailing edge inboard end and
between flap fairings
30. Two external repairs on bottom of AFT stair
31. Overhead panel row 8 center retension is broken out and covered with metal
peace
32. Seats 29F, 30D & E do not have tray tables
Page 52d of 56
<PAGE>
EXHIBIT B: FORM OF AIRCRAFT RETURN RECEIPT AND LEASE TERMINATION
The undersigned FIRST SECURITY BANK OF UTAH, N.A., not in its individual
capacity but solely as owner trustee under that certain Trust Agreement 1989-4
dated as of December 13, 1989, and amended as of March 1, 1990 ("Lessor") has
inspected the following described Aircraft in conjunction with its return to the
Lessor under the Aircraft Lease Agreement dated as of January 1, 1996 (the
"Lease") by and between Lessor and SUNWORLD INTERNATIONAL AIRLINES, INC.
("Lessee"). Lessor hereby certifies that said Aircraft has been found to be in
the condition required by the Lease, except for the discrepancies agreed to by
the parties, listed below. Lessor hereby accepts return of the Aircraft from
Lessee and acknowledges receipt thereof.
Airframe: Boeing model 727-251A, serial number 21161, US registration N282US
Total hours: _____ Total cycles: _____
Time since C check:_____ Time since D check: _____
Engine No. 1: Pratt & Whitney model JT8D-15A engine, manufacturer serial number
696523.
SEE. ATTACHED DISK SHEET DATED _______, 199_
Engine No. 2: Pratt & Whitney model JT8D-15A engine, manufacturer serial number
696520.
SEE. ATTACHED DISK SHEET DATED _______, 199_
Engine No. 3: Pratt & Whitney model JT8D-15A engine, manufacturer serial number
695260.
SEE. ATTACHED DISK SHEET DATED _______, 199_
Landing gear time remaining until next scheduled overhaul: L ___ hours, R ___
hours, N ___ hours
Auxiliary power unit: manufacturer ______ serial number______
Time since hot section inspection:______
Avionics (specified by manufacturer): see attachment consisting of _____ pages
Interior configuration:
Loose equipment: [SPECIFY GALLEY EQUIPMENT, EXTRA SEATS, ETC.]
Operating weights: Maximum ramp weight:
Maximum gross take-off weight:
Maximum landing weight:
Page 53 of 56
<PAGE>
Zero fuel weight:
Discrepancies in components returned (see Schedule 1 to Lease Supplement and
Receipt):
Discrepancies in Aircraft Documents (see Schedule 2 to Lease Supplement and
Receipt):
Discrepancies in Aircraft return condition (see Lease Section 6):
Lessor and Lessee each agree with the other in respect to said Aircraft:
1. The parties shall execute and deliver an FAA Aircraft Registry Lease
Termination in the form attached hereto as Schedule 1.
2. Without waiver or release of (i) the foregoing discrepancies, or (ii) all
indemnities of Lessee under the Lease which, by the terms of the Lease,
survive Expiry of the Lease, the Lease is hereby terminated.
Executed this _____ day of _____, 1998, at ____________.
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity but solely
as owner trustee under that certain
Trust Agreement 1989-4 dated as of December 13, 1989,
and amended as of March 1, 1990,
the Lessor
By:
Title:
SUNWORLD INTERNATIONAL AIRLINES, INC.,
the Lessee
By:
Title:
Page 54 of 56
<PAGE>
EXHIBIT B SCHEDULE 1
FAA AIRCRAFT REGISTRY
TERMINATION OF LEASE
The undersigned FIRST SECURITY BANK OF UTAH, N.A., not in its individual
capacity but solely as owner trustee under that certain Trust Agreement 1989-4
dated as of December 13, 1989, and amended as of March 1,1990 ("Lessor") and
SUNWORLD INTERNATIONAL AIRLINES, INC. ("Lessee") are parties to that certain
Aircraft Lease Agreement dated as of January 1, 1996 (as amended, the "Lease")
by and between Lessor and Lessee, which Lease was recorded by the FAA Aircraft
Registry on __________ as conveyance number ____________, and which Lease covers
Boeing model 727-251A airframe, serial number 21161, registration mark N282US,
equipped with three Pratt & Whitney model JT8D-15A engines, serial numbers
696529, 696520 and 695260 (collectively, the "Aircraft").
The Lease has been terminated on _________, 199__, and the Aircraft is no
longer subject to the terms and provisions thereof.
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity but solely
as owner trustee under that certain
Trust Agreement 1989-4 dated as of December 13, 1989,
and amended as of March 1, 1990,
the Lessor
By:
Title:
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
By:
Title:
Page 55 of 56
<PAGE>
EXHIBIT C: FORM OF GUARANTY
GUARANTY AGREEMENT
This Guaranty Agreement ("Guaranty) dated as of January 19, 1996, is made
by Columbia Sussex Corporation, a corporation organized under the laws of
Kentucky ("Guarantor").
WITNESSETH:
WHEREAS, FIRST SECURITY BANK OF UTAH, National Association, ("Lessor"), a
national banking association organized and existing under the laws of the United
States, not in its individual capacity but solely as owner trustee under that
certain Trust Agreement "AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and Amended as of March 1, 1990, has agreed to enter into
that certain Aircraft Lease Agreement dated as of January 19, 1996 (the "Lease")
pursuant to which it is to lease the Aircraft defined therein to SUNWORLD
INTERNATIONAL AIRLINES, INC., a Kentucky corporation ("Lessee"), and
WHEREAS, Lessor has agreed to enter into the Lease with Lessee 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:
I. GUARANTY OBLIGATIONS
1.1 Guarantor hereby absolutely and unconditionally guarantees to Lessor,
the punctual and faithful payment and performance of all 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. As used herein, the term "Liabilities" includes, without limitation,
any and all Basic Rent, Supplemental Rent and undertakings of Lessee to Lessor
of every kind and description under the Lease (including, also, without
limitation, reasonable costs and expenses incurred by the Lessor in attempting
to collect or enforce any of the foregoing including reasonable attorneys' fees)
including interest on any such amounts accrued in each case from the due date
thereof to the date payment is received by Lessor provided, however, interest
due Lessor hereunder as Supplemental Rent shall not also be payable to Lessor a
second time because of the provisions of this sentence.
-56-
<PAGE>
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 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
the Guarantor hereunder, except and to the extent Lessor has received payment or
performance of such Liabilities of Lessee. Guarantor hereby unconditionally
waives to the fullest extent permitted by law (except to the extent specifically
provided in this Guaranty) demand, or notice of any nature. Payments by
Guarantor hereunder shall be unlimited in amount with respect to its guaranty of
the Liabilities, as defined above.
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 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,
except to the extent that Lessor has waived or released in writing any
Liabilities and except and to the extent Lessor has received payment or
performance of such Liabilities by Lessee. If for any reason, Lessee has no
legal existence or is under no legal obligation to discharge any of the
Liabilities; or if, by operation of law or for any other reason, moneys included
in the Liabilities have become irrecoverable from Lessee, or if any security for
any of the Liabilities or if any other guaranty thereof is invalid, defective or
unenforceable, this Guaranty shall be binding upon Guarantor to the same extent
as if Guarantor were at all time primarily obligated on the Liabilities.
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, until such time as
-57-
<PAGE>
all Liabilities not waived or released by Lessor in writing and all liabilities
and obligations of Guarantor hereunder have 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 of all of its
Liabilities. So long as this Guaranty remains in force, as aforesaid, Guarantor
will not, (x) by paying any sum recoverable hereunder (whether or not demanded
by the 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 Lessee
or, (y) in bankruptcy or insolvency proceedings of any nature, prove in
competition with Lessor in respect of any payment hereunder or in any such
proceeding 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 be
made in lawful money of the United States of America in immediately available
funds and, so long as the person or entity entitled thereto is a United States
person within the meaning of the Internal Revenue Code, without any deduction or
withholding of any kind.
1.6 Guarantor hereby confirms that this Guaranty shall remain in full
force and effect notwithstanding that:
(a) the obligations of the Lessee under the Lease are discharged,
extinguished, terminated, rescinded, avoided or suspended
(whether pursuant to any provision of the Lease or otherwise)
by virtue of any breach on the part of the Lessee, under the
doctrine of frustration, as a result of the liquidation of the
Lessee or any action taken in such liquidation (for example, a
disclaimer), except by payment or performance thereof; or
(b) subject to the provisions of the Lease, performance of the
Lease by the Lessee becomes impossible or illegal;
and, in particular, the Lessor shall be entitled to recover under this Guaranty
in respect of any payment or obligation (including any obligation of paying
interest) which the Lessor would have received under the Lease but for the
occurrence of any of the circumstances described in subsections (a) or (b)
above.
1.7 If the Lease is disclaimed in a liquidation of the Lessee:
(a) so long as any amounts or obligations then due from the
Guarantor under this Guaranty remain unpaid or unperformed, as
the case may be, the
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<PAGE>
Guarantor shall not, in respect of any payment which it makes
or any liability which it has, under this Guaranty or the
Lease, claim any amount from the Lessee, make or enforce any
security against any asset of the Lessee, or claim any set off
against any sum from it to the Lessee; and
(b) the Guarantor shall not, in respect of such payment or
liability, prove in the liquidation of the Lessee, except
that, if the Guarantor shall have paid and/or performed all of
its obligations then due hereunder, it shall be subrogated to
all rights of Lessor against Lessee, and the Guarantor may, by
exercise of that statutory right, prove for any loss or damage
suffered by the Lessor, and otherwise as its interests may
appear.
II. REPRESENTATIONS AND WARRANTIES
Guarantor hereby represents and warrants to Lessor as follows:
2.1 (a) Guarantor is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Kentucky, is duly qualified
to do business and 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;
(b) The execution, delivery and performance by Guarantor of this
Guaranty have been duly authorized by all necessary corporate action on the part
of the Guarantor, are not inconsistent with its Certificate of Incorporation 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 material 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 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 against it not
covered by insurance which, if adversely determined, would have a materially
adverse effect on Guarantor or would prevent or hinder the performance by it of
its obligations hereunder;
-59-
<PAGE>
2.2 Guarantor will provide an opinion of its counsel confirming (subject
to standard exceptions) that:
(a) Guarantor is a corporation duly incorporated, validly existing,
in good standing and is duly qualified to do business under the laws of the
Commonwealth of Kentucky,
(b) The execution, delivery and performance of Guarantor of this
Guaranty have been duly authorized by all necessary corporate action on the part
of Guarantor, are not inconsistent with its Certificate of Incorporation or
By-Laws, do not violate any law or governmental rule, regulation or order
applicable to Guarantor and this Guaranty is the legal, valid and binding
agreement of the Guarantor, enforceable in accordance with its terms;
(c) No consent or approval by any governmental authority or agency
of the United States or the Commonwealth of Kentucky is required with respect to
the execution, delivery and performance by Guarantor of this Guaranty.
III. DEFAULT
3.1 The following described events shall constitute "Events of Default"
hereunder:
3.1.1 An "Event of Default" as defined in Section 13.3 of the Lease
shall occur and remain unremedied.
3.1.2 An "Event of Default" as defined in Sections 13.1 and 13.2 of
the Lease shall occur and remain unremedied for a period of three Business Days
after written notice thereof to Guarantor;
3.1.3 An "Event of Default" as defined in Section 13.4, 13.5, 13.6,
13.7 and 13.8 of the Lease shall occur and remain unremedied for 10 days
following notice thereof from Lessor to Guarantor or such longer period of time
as is reasonably required to cure such Event of Default provided the Guarantor
is diligently attempting such cure and such default does not result in a
material risk to the Aircraft or Lessor's title thereto.
3.1.4 The Guarantor shall:
(a) admit its inability to pay its debts generally as they become
due or otherwise acknowledging its insolvency;
-60-
<PAGE>
(b) file a petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the Bankruptcy Code (or similar laws 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 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; or
(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 the bankruptcy act; or
(d) consent to the appointment of a receiver or trustee (or other
persons performing a similar function) for the Aircraft or for all or a
substantial part of its property; or
(e) be adjudicated a bankrupt; or
(f) suffer the entry of, or be the subject of, a court order for
all or a substantial part of its property which order shall not be vacated, set
aside, bonded, 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 it 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; or
(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 it inception.
3.1.5 Any representation or warranty made in writing by the
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.
3.1.6 Twenty-five percent (25%) (calculated excluding current
maturities of long-term debt) or more of Guarantor's current liabilities, less
any disputed amounts and other than current maturities of long-term debt, shall
remain unpaid for 45 days or more beyon the due date;
-61-
<PAGE>
3.1.7 Guarantor shall be in default in the observance or
performance of any other covenant, condition or agreement to be observed or
performed by Guarantor hereunder and such default shall continue for a period of
30 days after written notice from Lessor.
IV. MISCELLANEOUS
4.1 No provision of this Guaranty can be changed, waived, discharged or
terminated except by an instrument in writing 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 The Guarantor shall provide financial reports as required by Section
4.4.5 of the Lease.
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.
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 All capitalized terms not otherwise defined herein shall have the
meaning given to such terms in the Lease.
4.6 Guarantor agrees that the federal and state courts located in the
Commonwealth of Massachusetts shall have non-exclusive jurisdiction to settle
any disputes which may arise out of or in connection with this Guaranty.
4.6.1 Guarantor hereby waives any objection on the grounds of
inconvenient forum to any proceedings which relate to this Guaranty being
brought in the courts located in the Commonwealth of Massachusetts.
4.7 All demands, notices and other communications pursuant to or relating
to this Guaranty shall be in writing and shall be
-62-
<PAGE>
delivered in hand by courier or other means, or sent by registered air mail with
postage prepaid, or by telex or telefax with receipt confirmed by answerback or
other means, addressed as follows:
(a) If to Lessor:
First Security Bank of Utah, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier: (801) ( 246-5799
with copies to:
American Finance Group
98 North Washington Street
Boston, Massachusetts 02114
Attention: President
Telecopier: (617) 523-1410
(b) If to Guarantor:
Columbia Sussex Corporation
207 Grandview Drive
Fort Mitchell, Kentucky 41017
Attention: Joseph E. Marquet
Telecopier: (606) 331-6383
with copies to:
Winthrop, Stimson, Putnum & Roberts
1 Battery Park Plaza
New York, New York 10004
Attention: Ruth J. Weinstein
Telecopier: (212) 858-1500
or such other address as either party shall designate in a written notice to the
other party hereto. Any notice provided for herein shall be deemed to have been
effected when delivered in hand to an officer of the addressee, or if sent by
registered air mail or by courier or other similar means and if properly
addressed, either when received or on the seventh day following
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<PAGE>
the day of dispatch, which shall occur earlier. Notices sent by telex or telefax
shall be deemed to have been received when receipt is confirmed.
IN WITNESS WHEREOF Guarantor has executed this Guaranty by its duly
authorized representative as of the date first above written.
GUARANTOR:
COLUMBIA SUSSEX CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------
Title: Vice President - Finance
----------------------------
ACKNOWLEDGED AND ACCEPTED BY:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION, not in its
individual capacity but solely as
Trustee of the "AFG/Northwest
Airline 1989-4 Trust"
By: /s/ Greg A. Hawley
---------------------------
Title: Asst Vice President
------------------------
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<PAGE>
LEASE SUPPLEMENT AND RECEIPT dated January 19, 1996 between FIRST
SECURITY BANK OF UTAH, N.A., not in its individual capacity but solely as owner
trustee under that certain Trust Agreement 1989-4 dated as of December 13, 1989,
and amended as of March 1, 1990 (the "Lessor"), and Sunworld International
Airlines, Inc. (the "Lessee").
The Lessor and the Lessee have heretofore entered into that certain
Aircraft Lease Agreement, dated as of January 1, 1996 (herein called the "Lease"
and the defined terms therein being hereinafter used with the same meanings),
relating to one Boeing model 727-251A aircraft, manufacturer serial number
21161. The Lease provides for the execution and delivery of a Lease Supplement
and Receipt.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, the Lessor and the Lessee hereby agree as follows:
A. THE LEASE. The Lease and all related Operative Documents to be
executed by the Lessee have been duly authorized, executed and delivered by
Lessee and constitute valid, legal, binding, and enforceable agreements of
Lessee. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement and Receipt to the same extent as if fully
set forth herein. The parties confirm that the Delivery Date is the date of this
Lease Supplement and Receipt.
B. THE AIRCRAFT. The Lessee hereby certifies that the Aircraft
described Schedule 1 hereto, consisting of 5 pages (including attachments) and
made a part hereof, and the Aircraft Documents described in Schedule 2 hereto,
consisting of 1 pages (including attachments) and made a part hereof, have been
delivered to the Lessee, inspected by the Lessee, and accepted under, and for
all purposes of, the Lease, all on the date hereof. Any qualifications to the
return conditions set forth in Lease Section 6 are attached hereto in Schedule
3. Lessee accepts delivery of the Aircraft "AS IS," "WHERE IS," AND SUBJECT TO
EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET FORTH IN SECTION
4.3 OF THE LEASE.
C. REPRESENTATIONS BY THE LESSEE. The Lessee hereby represents and
warrants to the Lessor that on the date hereof:
1. The representations and warranties of the Lessee set forth in the
Lease are true and correct in all material respects as though made on and
as of the date hereof.
2. The Lessee has satisfied or complied with all requirements set
forth in the Lease to be satisfied or complied with on or prior to the
date thereof.
<PAGE>
3. No default or Event of Default under the Lease has occurred and
is continuing on the date hereof.
4. The Lessee has obtained, and there are in full force and effect,
such insurance policies with respect to the Aircraft as are required to be
obtained under the terms of the Lease.
This Lease Supplement and Receipt may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
Supplement and Receipt to be duly executed as of the date and year first above
written.
FIRST SECURITY BANK OF UTAH, National Association, not in its individual
capacity but solely as Owner Trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of December 13, 1989, and amended
as of March 1, 1990,
the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence O. Dennison
By: Terence O. Dennison
Title: Executive Vice President
Page 48 of 56
<PAGE>
SCHEDULE 1 TO LEASE SUPPLEMENT AND RECEIPT: AIRCRAFT DESCRIPTION
Airframe: Boeing model 727-251A, serial number 21161, US
registration N282US
Total hours: 50598:33 Total cycles: 35609
Time since C check: 0 Time since D check: 0
Engine No.1: Pratt & Whitney model JT8D-l5A engine, manufacturer
serial number 696253.
See. Attached disk sheet dated 9/15/95, 1995
Engine No. 2: Pratt & Whitney model JT8D-15-A engine, manufacturer
serial number 696520.
See. Attached disk sheet dated 10/10/95, 1995
Engine No. 3: Pratt & Whitney model JT8D-15-A engine, manufacturer
serial number 695260.
See. Attached disk sheet dated 10/10/95, 1995
Landing gear time since overhaul: L9309 hours, R6 hours, N17779 hours.
Auxiliary power unit: manufacturer Garrett serial number P36543. Time since hot
section inspection: 0
Avionics (specified by manufacturer): see attachment consisting of 3 pages. see
attachment A.
Interior configuration: 164 seats coach
Loose equipment: [SPECIFY GALLEY EQUIPMENT, EXTRA SEATS, ETC.]
see attachment B.
*1 *2
-- --
Operating weights: Maximum ramp weight: 177,500 187,500
Maximum gross take-off weight: 176,500 186,500
Maximum landing weight: 150,000 150,000
Zero fuel weight: 138,000 141,000
*1 As delivered
*2 Weight per lease, awaiting FAA Engineering approval.
<PAGE>
SCHEDULE 2 TO LEASE SUPPLEMENT AND RECEIPT: AIRCRAFT DOCUMENTS
AIRCRAFT DOCUMENTS CHECKLIST
1. Avionics Installation List
2. Original Manufacturer's Inventory List
3. Current Component Inventory List (Northwest)
4. Service Bulletin (SB) Accomplishment List (Northwest)
5. Record of last Compass Swing
6. List of Oils and Fluids
7. FAA Approved Airplane Flight Manual (AFM)
8. Manufacturer's Flight Crew Operating Manual (FCOM) (Northwest)
9. Releasing Operator's Flight Crew Operating Manual (Northwest)
10. Weight and Balance Manual; last weighing
11. Minimum Equipment List (MEL) (Northwest)
12. MEL Procedures manual (Northwest)
13. Maintenance Manuals (Northwest)
14. Wiring Diagram Manual; Termination and Equipment Lists (Northwest)
15. Structural Repair Manual (SRM) (Northwest)
16. Illustrated Parts Catalog (IPC) (Northwest)
17. Aircraft/Cockpit Log Books (Northwest)
18. Engine Log Books (Northwest)
19. Auxiliary Power Unit (APU) Log Book (Northwest)
20. Current, or last, Airworthiness Certificate
21. Current, or last, Registration
22. Current, or last, Radio License
23. Supplemental Type Certificates (STC)
24. Certificate of Sanitary Construction, Galleys
25. Modification Records
26. Form 337, major Repair and Alteration
27. Major and Minor Repair Records
28. Airworthiness Directive (AD) Accomplishment List
29. Airworthiness Directive (AD) Records and Documentation
30. Time Controlled Component (TCC) List, history and status (Northwest)
31. Life Limited Part (LLP) List, history and status (Northwest)
32. Scheduled Maintenance Check Status
33. Total Time and Cycle Justification
34. Maintenance Records
35. Performance Manual (Northwest)
36. Quick Reference Manual (Northwest)
<PAGE>
SCHEDULE 3 TO LEASE SUPPLEMENT AND RECEIPT;
QUALIFICATIONS TO RETURN CONDITIONS
Lessor and Lessee hereby agree that the following particulars of the
condition of the Aircraft shall be qualifications to the return conditions set
forth in Section 6 of the Lease.
See Attachment C
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Schedule 3 to Lease Supplement and Receipt to be duly executed as of January __,
1996.
FIRST SECURITY BANK OF UTAH, National Association, not in its individual
capacity but solely as Owner Trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of December 13, 1989, and amended
as of March 1, 1990,
the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence O. Dennison
By: Terence O. Dennison
Title: Executive Vice President
Page 51 of 56
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Lower Yaw Damper Computer Sperry 4030952-901 77090124
- -----------------------------------------------------------------------------------------------------
Audio Accessory Unit Bac 65-5280438 R00032
- -----------------------------------------------------------------------------------------------------
GPW Computer Bendix 2041033-8313 1043
- -----------------------------------------------------------------------------------------------------
Passenger Address Collins 522-4538-002 6376
- -----------------------------------------------------------------------------------------------------
ADF Receiver Bendix 2087786-7302 4214
- -----------------------------------------------------------------------------------------------------
VHF Transceiver #1 Collins 618M-3 8416
- -----------------------------------------------------------------------------------------------------
VHF Transceiver #2 Collins 618M-3 6921
- -----------------------------------------------------------------------------------------------------
Radio Altimeter Bendix 2067631-5315 5431
- -----------------------------------------------------------------------------------------------------
Autopilot Access. Bac 65-24917-72 R00010S
- -----------------------------------------------------------------------------------------------------
Pitch Control Channel (SP-50) Sperry 2585804-4 0191616
- -----------------------------------------------------------------------------------------------------
Static Inverter Bendix 39B168-B 1099
- -----------------------------------------------------------------------------------------------------
Upper Yaw Damper Coupler Sperry 2588880-901 0190872
- -----------------------------------------------------------------------------------------------------
ATC Transponder Mode C Collins 787-6211-003 2078
- -----------------------------------------------------------------------------------------------------
Roll Control Channel (SP-150) Sperry 4030951-901 80040705
- -----------------------------------------------------------------------------------------------------
Fire & Overheat Detection Unit Bac 65-24920-3 R00601
- -----------------------------------------------------------------------------------------------------
Temperature Controller Sundstrand 548376-5 67C-859
- -----------------------------------------------------------------------------------------------------
Anti-skid Control Unit Bac 10-61853-11 217C
- -----------------------------------------------------------------------------------------------------
Air Data Computer Sperry HG180U255 A-892/70
- -----------------------------------------------------------------------------------------------------
Vertical Gyro Aux. Sperry 2587335-12 9024865
- -----------------------------------------------------------------------------------------------------
Transformer Rectifier APU Elden D10-60011-2 740
- -----------------------------------------------------------------------------------------------------
General Protection Panel APU Westinghouse 904F242-5 UB7895M
- -----------------------------------------------------------------------------------------------------
Voltage Regulator APU Westinghouse 939D150-2 XA5009
- -----------------------------------------------------------------------------------------------------
Bus Protection Panel Westinghouse 902F283-2 ZW1108A
- -----------------------------------------------------------------------------------------------------
Transformer Rectifier Ext Power Elden D10-60011-2 7447530
- -----------------------------------------------------------------------------------------------------
Frequency and Load Controller #2 G.E. 700662A 2709
- -----------------------------------------------------------------------------------------------------
Frequency and Load Controller #3 G.E. 700662A 3380
- -----------------------------------------------------------------------------------------------------
Directional Gyro #2 Sperry 2588302-2 78032190
- -----------------------------------------------------------------------------------------------------
Vertical Gyro #2 Sperry 2587335-11 6088944
- -----------------------------------------------------------------------------------------------------
Vertical Gyro #1 Sperry 2587335-11 7052215
- -----------------------------------------------------------------------------------------------------
GPW Pressure Rate Sensor Collins 66-3444-9-001 01215
- -----------------------------------------------------------------------------------------------------
Battery Charger Ledec 2-301-3 3736
- -----------------------------------------------------------------------------------------------------
Autospeed Brake Controller Bac 65-8409-1 M00019
- -----------------------------------------------------------------------------------------------------
VHF Transceiver Aux Bendix 2070945-4301 1965
- -----------------------------------------------------------------------------------------------------
Marker Receiver Bendix MKA-28C 1679
- -----------------------------------------------------------------------------------------------------
ILS Receiver #2 Collins 522-4280-102 4793
- -----------------------------------------------------------------------------------------------------
ILS Receiver #1 Collins 522-4280-102 B1794
- -----------------------------------------------------------------------------------------------------
DME #1 Collins 622-2920-001 6497
- -----------------------------------------------------------------------------------------------------
DME #2 Collins 622-2920-001 6503
- -----------------------------------------------------------------------------------------------------
Comparator Warning Monitor Collins 522-3948-002 322
- -----------------------------------------------------------------------------------------------------
Flight Instrument Accessory Unit Bac 65-60214-36 R00149
- -----------------------------------------------------------------------------------------------------
Steering Computer #1 Collins 562A-5F4 1104
- -----------------------------------------------------------------------------------------------------
Steering Computer #2 Collins 562A-5F4 1403
- -----------------------------------------------------------------------------------------------------
Instrument AMP #1 Collins 52-3120-005 2757
- -----------------------------------------------------------------------------------------------------
Instrument AMP #2 Collins 52-3120-004 791
- -----------------------------------------------------------------------------------------------------
Window Heat Control R1 Pacific 231-2 2678
- -----------------------------------------------------------------------------------------------------
Window Heat Control R2 Pacific 65-52803-8 R02557
- -----------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 1 of 3
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Window Heat Control L1 Pacific 231-2 3570
- -----------------------------------------------------------------------------------------------------
Window Heat Control L2 Pacific 231-2 4412
- -----------------------------------------------------------------------------------------------------
Landing Gear Accessory Unit Bac 65-60211-32 00095
- -----------------------------------------------------------------------------------------------------
Compass System Rack #2 Sperry 614937-101 8057427A
- -----------------------------------------------------------------------------------------------------
Compass System Rack #1 Sperry 614937-101 5040270A
- -----------------------------------------------------------------------------------------------------
LILS Receiver Aux Collins 522-4280-105 B638
- -----------------------------------------------------------------------------------------------------
Flight Director Indicator F/O Collins 522-3752-001 140
- -----------------------------------------------------------------------------------------------------
Course Director Indicator F/O Collins 522-3342-001 27
- -----------------------------------------------------------------------------------------------------
Serve Altimeter F/O Smith WL708AMFAZ AE151
- -----------------------------------------------------------------------------------------------------
Radio Altimeter F/O Bendix INA-51A 7409
- -----------------------------------------------------------------------------------------------------
VSI/TRA Indicator F/O Honeywell 4067241-860 42046
- -----------------------------------------------------------------------------------------------------
VSI Pressure Transducer F/O Honeywell 4067487-901 91020508
- -----------------------------------------------------------------------------------------------------
Pressure Ration Indicator #1 G.E. JG298A4 E-256
- -----------------------------------------------------------------------------------------------------
Pressure Ration Indicator #2 G.E. JG298A4 D-351
- -----------------------------------------------------------------------------------------------------
Pressure Ration Indicator #3 G.E. JG298A4 E-195
- -----------------------------------------------------------------------------------------------------
N1 Indicator #1 G.E. 8DJ81-WAG4 V0087
- -----------------------------------------------------------------------------------------------------
N1 Indicator #2 G.E. 8DJ81-WAG4 S0177
- -----------------------------------------------------------------------------------------------------
N1 Indicator #3 G.E. 8DJ81-WAG4 S3930
- -----------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #1 Lewis 152BL801E 62
- -----------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #2 Lewis 152BL801E 624
- -----------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #3 Lewis 152BL801E 656
- -----------------------------------------------------------------------------------------------------
N2 Indicator #1 G.E. 8DJ81-LXHU L3766
- -----------------------------------------------------------------------------------------------------
N2 Indicator #2 G.E. 8DJ81-LYV4 R6291
- -----------------------------------------------------------------------------------------------------
N2 Indicator #3 G.E. 8DJ81-LYV4 R5893
- -----------------------------------------------------------------------------------------------------
Fuel Flow Indicator #1 G.E. 8DJ88-LWC B987
- -----------------------------------------------------------------------------------------------------
Fuel Flow Indicator #2 G.E. 8DJ88-LWC 00265
- -----------------------------------------------------------------------------------------------------
Fuel Flow Indicator #3 G.E. 8DJ88-LWC M0350
- -----------------------------------------------------------------------------------------------------
Outboard Flap Position Indicator Memoor 18-1299-3 0574AN
- -----------------------------------------------------------------------------------------------------
Inboard Flap Position Indicator Memoor 18-1299-2 16299
- -----------------------------------------------------------------------------------------------------
Autopilot Capture Indicator F/O Bac 75-0149-77 2367
- -----------------------------------------------------------------------------------------------------
Airspeed Indicator F/O Kollsman A3615910057 1392
- -----------------------------------------------------------------------------------------------------
Clock Indicator F/O Wakemann 651-12-24-15 1222
- -----------------------------------------------------------------------------------------------------
Machmeter F/O Bac 10-60713-1 NT989
- -----------------------------------------------------------------------------------------------------
ADF/VOR Compass RMI F/O Sperry CI-600 3070877
- -----------------------------------------------------------------------------------------------------
Pneumatic Brake Pressure Indicator US Gage SRL-07AM 5739
- -----------------------------------------------------------------------------------------------------
Hydraulic Brake Pressure Indicator US Gage SRL-07CA 5830
- -----------------------------------------------------------------------------------------------------
Dime Indicator F/O Collins 522-1859-033 4018
- -----------------------------------------------------------------------------------------------------
Airspeed Indicator Capt. Kollsman A3615910057 1360
- -----------------------------------------------------------------------------------------------------
Compass ADF/VOR RMI Capt. Sperry CI-600 24
- -----------------------------------------------------------------------------------------------------
Clock Indicator Capt. Wakemann 651-12-24-15 1219
- -----------------------------------------------------------------------------------------------------
Machmeter Capt. Bac 10-60713-1 NT1156
- -----------------------------------------------------------------------------------------------------
DME Indicator Capt. Collins 522-1859-033 C8002
- -----------------------------------------------------------------------------------------------------
Flight Director Indicator Capt. Collins 522-3752-001 135
- -----------------------------------------------------------------------------------------------------
Course Director Indicator Capt. Collins 522-3342-001 446
- -----------------------------------------------------------------------------------------------------
Autopilot Capture Indicator Capt. Bac 75-0149-77 2371
- -----------------------------------------------------------------------------------------------------
Rad/Alt. Indicator Capt. Bendix INA-51A 01988
- -----------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 2 of 3
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Baro-Altimeter Capt. Kollsman A3811910008 1752
- -----------------------------------------------------------------------------------------------------
Total Air Indicator Capt. Lewis 161BL501 B545
- -----------------------------------------------------------------------------------------------------
Servo Altimeter Capt. Smith WL1152AM8 AE968
- -----------------------------------------------------------------------------------------------------
VSI/TRA Indicator Capt. Honeywell 4067241-860 11532
- -----------------------------------------------------------------------------------------------------
VSI Pressure Transducer Capt. Honeywell 4067487-901 91010491
- -----------------------------------------------------------------------------------------------------
Standby Horizon Indicator Sfena 705-7V9 19728
- -----------------------------------------------------------------------------------------------------
Altitude Alert Honeywell JG1052AA03 U-12
- -----------------------------------------------------------------------------------------------------
Elevator & Rudder Position Indicator Sperry 248541 00286
- -----------------------------------------------------------------------------------------------------
Radar Indicator Bendix 66-3442-9-0002 03141
- -----------------------------------------------------------------------------------------------------
VOR/DME Control Panel Capt. Gables G-4578 138
- -----------------------------------------------------------------------------------------------------
ADF Control Panel Capt. Bendix 2087780-7308 3141
- -----------------------------------------------------------------------------------------------------
Radar Control Panel Gables G-4104 96
- -----------------------------------------------------------------------------------------------------
Flight Director Control Panel Capt. Collins 777-1253-001 102
- -----------------------------------------------------------------------------------------------------
Instrument Warning Capt. Gables G-2662 27
- -----------------------------------------------------------------------------------------------------
Transponder Control Panel F/O Gables G-6993-03 00214
- -----------------------------------------------------------------------------------------------------
Lighted Flight Counter Dexter-Wilson 600 4275
- -----------------------------------------------------------------------------------------------------
Flight Director Control Panel F/O Collins 777-1253-001 47
- -----------------------------------------------------------------------------------------------------
VOR/DME Control Panel F/O Gables G-4578 86
- -----------------------------------------------------------------------------------------------------
Frequency and Load Controller #1 G.E. 700662B 3798
- -----------------------------------------------------------------------------------------------------
Voltage Regulator #1 Westinghouse 939D150-2 UW3601M
- -----------------------------------------------------------------------------------------------------
Voltage Regulator #2 Westinghouse 939D150-2 SB5430
- -----------------------------------------------------------------------------------------------------
Voltage Regulator #3 Westinghouse 939D150-2 PY3961M
- -----------------------------------------------------------------------------------------------------
Transformer/Rectifier #1 Bac 10-3257-3 5474
- -----------------------------------------------------------------------------------------------------
Transformer/Rectifier #2 Bac 10-3257-3 5205
- -----------------------------------------------------------------------------------------------------
Transformer/Rectifier #3 Bac 10-3257-3 5256
- -----------------------------------------------------------------------------------------------------
General Protection Panel #3 Westinghouse 902F242-5 OB7667
- -----------------------------------------------------------------------------------------------------
General Protection Panel #2 Westinghouse 902F242-5 UJ599M
- -----------------------------------------------------------------------------------------------------
General Protection Panel #1 Westinghouse 902F242-5 RO3532
- -----------------------------------------------------------------------------------------------------
TCAS Processor Honeywell 4066010-904 91020299
- -----------------------------------------------------------------------------------------------------
Transponder Mode S Collins TPR-720 1741
- -----------------------------------------------------------------------------------------------------
Radar Transceiver Bendix 66-3442-9-0004 02329
- -----------------------------------------------------------------------------------------------------
Main Battery Sonotone CA-727-3 120406
- -----------------------------------------------------------------------------------------------------
Flight Data Recorder Sundstrand 980-4100-GQUS 8378
- -----------------------------------------------------------------------------------------------------
Accelerometer Sundstrand 3001-01-101-2 9510-2132
- -----------------------------------------------------------------------------------------------------
Windshear Computer Honeywell 4061048-904 90040242
- -----------------------------------------------------------------------------------------------------
Windshear Switching Unit ASM 103006-001-01 134
- -----------------------------------------------------------------------------------------------------
Windshear Switching Unit ASM 103006-001-01 109
- -----------------------------------------------------------------------------------------------------
Selcal Encoder Motorola NA135PH50 Unk
- -----------------------------------------------------------------------------------------------------
Selcal Control Panel Gables G1402 85
- -----------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 3 of 3
<PAGE>
ATTACHMENT B
Loose Equipment:
1 each Right Hand Coat Closet
1 each Left Hand Movable Bulkhead
1 each Left Hand Triple Seat Assy
6 each First Class Seat Assys
2 each Galley Carts
9 each Oven Tray Carriers with 54 Trays
12 each Large Carriers
6 each Small Carriers
6 each Coffee Pots
4 each Trash Cans
<PAGE>
ATTACHMENT C
1. External doubler at Left cockpit sliding window
2. External doubler at Left windshield
3. External doubler at Right cockpit sliding window
4. Dent in fuselage above #3 Left cockpit window
5. Minor dents in fuselage AFT of Left main door
6. 7 each external doublers inside #2 engine S duct
7. External doubler station 440 lower Left side fuselage skin
8. Deep scratch station 650 lower Left Side fuselage skin
9. Latches for external air conditioning connection damaged
10. External repair #1 Left leading edge flap
11. Dent in #1 Left leading edge flap center
12. External repair #2 Left leading edge flap
13. External repair #3 Left leading edge flap
14. External repair inboard of Left wing fuel vent box on inspection
plate
15. External repair outboard flap jack screw cover
16. Dent in left outboard trailing edge flap 18 inches from inboard bottom
end
17. Left inboard flap has dent bottom side 12 inches from outboard end - Also
dents between flap fairings
18. External repair on fuselage at Left rear service door at station 1030
19. External repair at Left rear service door station 1070
20. #1 Engine Thrust Reverser does not have speed kit installed
21. Right leading edge inboard flap has 3 external repairs
22. Right leading edge outboard flap has external repair
23. #7 leading edge slat Right wing has external repair
24. Right wing outboard flap has dent bottom of flap 18 inches from
outboard end. Also dent between flap fairings
25. External doubler on top Right wing middle ground spoiler
26. Several dents on inboard flap top trailing edge inboard end
27. External doubler Right side fuselage at 3rd window behind rear
emergency window
28. External doubler Right side fuselage at 5th window behind rear
emergency window
29. Several dents on inboard flap bottom side trailing edge inboard end and
between flap fairings
30. Two external repairs on bottom of AFT stair
31. Overhead panel row 8 center retension is broken out and covered with
metal peace
32. Seats 29F, 30D & E do not have tray tables
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,614,272
<SECURITIES> 256,076
<RECEIVABLES> 843,249
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,713,597
<PP&E> 5,905,410
<DEPRECIATION> 5,824,458
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 172,676
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,621,873
<TOTAL-LIABILITY-AND-EQUITY> 3,794,549
<SALES> 0
<TOTAL-REVENUES> 1,501,159
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 799,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,390
<INCOME-PRETAX> 698,307
<INCOME-TAX> 0
<INCOME-CONTINUING> 698,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 698,307
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
