<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
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Commission file number 0-19135
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American Income Partners V-D Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3090151
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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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Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
480,227 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.
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
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>
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
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
</TABLE>
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PART I
Item 1. Business.
(a) General Development of Business
American Income Partners V-D Limited Partnership (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on May 21, 1990 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 27, 1990, the Partnership
issued 480,227 units, representing assignments of limited partnership interests
(the "Units"), to 806 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 and an affiliate of Equis Financial Group Limited
Partnership (formerly American Finance Group), a Massachusetts limited
partnership ("EFG"). 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 27, 1990. The initial purchase of equipment and the associated lease
commitments occurred on September 28, 1990. 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 6 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 services as described in the
Restated Agreement, as amended, Item 13 herein, and in Note 4 to the financial
statements included in Item 14, herein.
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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 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 1997 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.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
Not applicable.
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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 6 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 749 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> <C>
Total 1997 distributions $ 284,344 $ 14,217 $ 270,127
Total 1996 distributions 2,284,869 114,243 2,170,626
---------- ---------- ----------
Total $2,569,213 $ 128,460 $2,440,753
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Distributions payable at December 31, 1997 and 1996 were $56,869 and
$75,825, 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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<PAGE>
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 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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<PAGE>
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)
<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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<PAGE>
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. 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 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. 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. 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 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.
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.
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<PAGE>
(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 in Note 4 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:
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).
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No person or group is known by the General Partner to own beneficially
more than 5% of the Partnership's 480,227 outstanding Units as of March 1, 1998.
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 $ 30,066 $ 89,296 $ 93,197
Administrative charges 58,303 37,037 20,544
Reimbursable operating
expenses due to third parties 84,399 65,882 108,100
-------- -------- --------
Total $172,768 $192,215 $221,841
-------- -------- --------
-------- -------- --------
</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 to the financial statements, included in Item 14, herein.
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 $36,232 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1998.
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 20,888 Units or
4.35% and 1,240 Units or 0.26% of the total outstanding units of the
Partnership, respectively.
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<PAGE>
EFG owns a Class D interest in AALP and a 49% limited partnership interest in
ONC, both of which it acquired in December 1996.
(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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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:
<TABLE>
<S> <C>
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......................................*
</TABLE>
(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. 33-35148).
13 The 1997 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 (a)
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).
Exhibit
Number
---------
-13-
<PAGE>
99 (b) Lease agreement with Consolidated Rail Corporation
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 (c) Lease agreement with Awin Leasing Company, Inc. is
filed in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 and is
included herein.
99 (d) Lease agreement with Ford Motor Company is filed in
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 and is included herein.
99 (e) Lease agreement with Transnet Limited 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-D 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: /s/ 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
--------------------------- ---------------------------
-15-
<PAGE>
AMERICAN INCOME PARTNERS V
American Income Partners V-D Limited Partnership
Annual Report to the Partners, December 31, 1997
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
Dear Investor:
We are pleased to provide the Annual Report for American Income Partners V-D
Limited Partnership which contains important information concerning the recent
operating results and current financial position of your investment program.
Please refer to the index on the following page for a listing of information
contained in this report.
If you have any questions about your investment program or, if you would like a
copy of Form 10-K for this program, please contact our Investor Services
Representatives at 1-800-247-3863.
Very truly yours,
/s/ GEOFFREY A. MACDONALD
Geoffrey A. MacDonald
Chairman and Co-founder
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
<TABLE>
<CAPTION>
Page
------
<S> <C>
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-6
FINANCIAL STATEMENTS:
Report of Independent Auditors 7
Statement of Financial Position
at December 31, 1997 and 1996 8
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995 9
Statement of Changes in Partners' Capital
for the years ended December 31, 1997, 1996 and 1995 10
Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 11
Notes to the Financial Statements 12-19
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 20
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 21
Schedule of Costs Reimbursed to the
General Partner and its Affiliates as Required by
Section 10.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 22
</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 $ 653,111 $ 1,816,273 $ 2,179,607 $ 2,992,070 $ 3,663,342
Net income (loss) $ 720,339 $ 1,656,646 $ 733,938 $ 213,680 $(1,165,153)
Per Unit:
Net income (loss) $ 1.42 $ 3.28 $ 1.45 $ 0.42 $ (2.30)
Cash distributions $ 0.56 $ 4.52 $ 2.00 $ 2.50 $ 2.50
Financial Position
- ------------------------
Total assets $ 3,443,037 $ 3,551,413 $ 4,132,437 $ 5,673,509 $ 8,184,084
Total long-term obligations $ -- $ 307,479 $ 86,802 $ 1,182,287 $ 2,683,780
Partners' capital $ 3,363,706 $ 2,927,711 $ 3,555,934 $ 3,833,000 $ 4,883,075
</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 Partner's
V-D 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 6 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 1990 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 6 to the accompanying financial statements.
Results of Operations
For the year ended December 31, 1997, the Partnership recognized lease
revenue of $653,111 compared to $1,816,273 and $2,179,607 for the years ended
December 31, 1996 and 1995, respectively. Lease revenue in 1996 includes the
receipt of $516,712 of lease termination rents received in connection with the
sale of the Partnership's interest in two Boeing 727-251 Advanced aircraft in
July 1996 (see below). The decrease in lease revenue from 1995 to 1997 was
expected and resulted principally from primary lease term expirations and the
sale of equipment. The Partnership also earns interest income from temporary
investments of rental receipts and equipment sales proceeds in short-term
instruments.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment
-3-
<PAGE>
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 having a net book value of $709,387
to existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $389,295 compared to a net gain of $703,591 in
1996 on equipment having a net book value of $858,150 and a net gain of $229,279
in 1995 on equipment having a net book value of $199,826. The 1996 equipment
sales included the sale of the Partnership's interest in two Boeing 727-251
Advanced Aircraft with an original cost and net book value of $4,536,732 and
$740,021, respectively, sold to the existing lessee in July 1996. In connection
with this sale, the Partnership realized sale proceeds of $1,195,994 which
resulted in a net gain, for financial statement purposes, of $455,973. This
equipment was sold prior to the expiration of the related lease term, resulting
in the receipt by the Partnership of lease termination rents, described above.
During July 1996, the Partnership transferred its ownership interest in
certain trailers to a third party for cash consideration of $60,170 (See Note 3
to the financial statements). The trailers had a net book value of $22,808 at
the time of the transfer, resulting in a net gain, for financial statement
purposes, of $37,362. In September 1996, the Partnership replaced these trailers
with comparable trailers and leased such to a new lessee. The transaction was
structured as a like-kind exchange for income tax reporting purposes. The net
carrying value of the new trailers, $357,884, was net of $36,574, representing
the proportionate amount of gain deferred on the original trailers. The
Partnership funded this transaction with $58,901 of the cash consideration and
long-term financing of $335,557. The unused cash consideration of $1,269 was
recognized as proceeds from equipment sales. The associated deferred gain of
$788 was recognized as Gain on Sale of Equipment on the Statement of Operations
in 1996.
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 and amortization expense was $261,657, $753,448 and $1,441,415
for the years ended 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 $18,835 or 2.9% of lease revenue in 1997, $15,362 or
less than 1% of lease revenue in 1996 and $57,049 or 2.6% of lease revenue in
1995. Interest expense in both 1997 and 1996 resulted from financing obtained
from a third-party lender in connection with the like-kind exchange transaction
which occurred during the third quarter of 1996, described above. The
Partnership's notes payable were fully amortized during the year ending December
31, 1997.
-4-
<PAGE>
Management fees were 4.6%, 4.9% and 4.3% of lease revenue during the years
ended December 31, 1997, 1996 and 1995, respectively. Management fees during the
year ended December 31, 1996 include $4,617, 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. Collectively, operating expenses were $142,702, $102,919 and
$128,644 for the year ended December 31, 1997, 1996 and 1995, respectively. The
increase in operating expenses from 1996 to 1997 resulted primarily from
increases in administrative charges and professional service fees. Operating
expenses were higher in 1995 than 1996 due to maintenance costs incurred
associated with the Partnership's interest in an aircraft engine. 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 continue to be used to pay management fees
and operating costs. Operating activities generated net cash inflows of
$611,077, $1,772,557 and $1,953,038 in 1997, 1996 and 1995, respectively. Future
renewal, re-lease and equipment sale activities will continue to 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 realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During 1997, the
Partnership realized $904,590 in equipment sale proceeds compared to $1,563,010
and $429,105 in 1996 and 1995, respectively. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
The Partnership obtained long-term financing in connection with certain
equipment leases. The 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 utilizing rental
payments and a portion of the Partnership's available cash.
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 $284,344. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Recognized Owners were allocated 95% of these distributions, or $270,127, and
the General Partner was allocated 5%, or $14,217. The fourth quarter 1997 cash
distribution was paid on January 13, 1998.
-5-
<PAGE>
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 future liquidity of the Partnership will be influenced by the
foregoing, as well as the outcome of the Class Action Lawsuit described in Note
6 to the accompanying financial statements. The General Partner anticipates that
cash proceeds resulting from the collection of contractual rents and the outcome
of residual activities 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.
-6-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Partners V-D Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners V-D 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-D 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
-7-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,772,762 $ 1,867,874
Rents receivable 38,705 15,859
Accounts receivable - affiliate 36,232 101,298
Equipment at cost, net of accumulated
depreciation of $2,918,957 and $4,761,138
at December 31, 1997 and 1996, respectively 595,338 1,566,382
----------- -----------
Total assets $ 3,443,037 $ 3,551,413
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ -- $ 307,479
Accrued interest -- 1,336
Accrued liabilities 9,200 23,245
Accrued liabilities - affiliate 12,822 20,837
Deferred rental income 440 194,980
Cash distributions payable to partners 56,869 75,825
----------- -----------
Total liabilities 79,331 623,702
----------- -----------
Partners' capital (deficit):
General Partner (363,867) (385,667)
Limited Partnership Interests
(480,227 Units; initial purchase
price of $25 each) 3,727,573 3,313,378
----------- -----------
Total partners' capital 3,363,706 2,927,711
----------- -----------
Total liabilities and partners' capital $ 3,443,037 $ 3,551,413
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-8-
<PAGE>
AMERICAN INCOME PARTNERS V-D 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 $ 653,111 $1,816,273 $2,179,607
Interest income 131,193 97,019 45,357
Gain on sale of equipment 389,295 704,379 229,279
---------- ---------- ----------
Total income 1,173,599 2,617,671 2,454,243
---------- ---------- ----------
Expenses:
Depreciation and amortization 261,657 753,448 1,441,415
Interest expense 18,835 15,362 57,049
Equipment management fees
- affiliate 30,066 89,296 93,197
Operating expenses - affiliate 142,702 102,919 128,644
---------- ---------- ----------
Total expenses 453,260 961,025 1,720,305
---------- ---------- ----------
Net income $ 720,339 $1,656,646 $ 733,938
---------- ---------- ----------
---------- ---------- ----------
Net income
per limited partnership unit $ 1.42 $ 3.28 $ 1.45
---------- ---------- ----------
---------- ---------- ----------
Cash distributions declared
per limited partnership unit $ 0.56 $ 4.52 $ 2.00
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-9-
<PAGE>
AMERICAN INCOME PARTNERS V-D 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 $ (340,403) 480,227 $ 4,173,403 $ 3,833,000
Net income - 1995 36,697 -- 697,241 733,938
Cash distributions declared (50,550) -- (960,454) (1,011,004)
----------- ----------- ----------- -----------
Balance at December 31, 1995 (354,256) 480,227 3,910,190 3,555,934
Net income - 1996 82,832 -- 1,573,814 1,656,646
Cash distributions declared (114,243) -- (2,170,626) (2,284,869)
----------- ----------- ----------- -----------
Balance at December 31, 1996 (385,667) 480,227 3,313,378 2,927,711
Net income - 1997 36,017 -- 684,322 720,339
Cash distributions declared (14,217) -- (270,127) (284,344)
----------- ----------- ----------- -----------
Balance at December 31, 1997 $ (363,867) 480,227 $ 3,727,573 $ 3,363,706
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-10-
<PAGE>
AMERICAN INCOME PARTNERS V-D 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 $ 720,339 $ 1,656,646 $ 733,938
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 261,657 753,448 1,441,415
Gain on sale of equipment (389,295) (704,379) (229,279)
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable (22,846) 34,015 78,404
Accounts receivable - affiliate 65,066 29,379 33,893
Increase (decrease) in:
Accrued interest (1,336) (693) (14,928)
Accrued liabilities (14,045) 3,245 4,500
Accrued liabilities - affiliate (8,015) 9,164 (73,919)
Deferred rental income (448) (8,268) (20,986)
----------- ----------- -----------
Net cash from operating activities 611,077 1,772,557 1,953,038
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from equipment sales 904,590 1,563,010 429,105
----------- ----------- -----------
Net cash from investing activities 904,590 1,563,010 429,105
----------- ----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (307,479) (114,880) (1,095,485)
Distributions paid (303,300) (2,461,795) (1,074,192)
----------- ----------- -----------
Net cash used in financing activities (610,779) (2,576,675) (2,169,677)
----------- ----------- -----------
Net increase in cash and cash equivalents 904,888 758,892 212,466
Cash and cash equivalents at beginning of year 1,867,874 1,108,982 896,516
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,772,762 $ 1,867,874 $ 1,108,982
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 20,171 $ 16,055 $ 71,977
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Supplemental disclosure of non-cash investing and financing activity:
The Partnership received $194,092 from a lessee prior to 1997, representing
an equipment purchase option. These funds were classified as deferred
rental income on the Statement of Financial Position at December 31, 1996.
During the year ended December 31, 1997, the Partnership sold the equipment
and such funds were recognized as sales proceeds. See also Note 3 to the
financial statements for 1996 non-cash activities.
The accompanying notes are an integral part of
these financial statements.
-11-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1997
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
American Income Partners V-D Limited Partnership (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on May 21, 1990 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 27, 1990, the Partnership
issued 480,227 units, representing assignments of limited partnership interests
(the "Units"), to 806 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 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 AFG and a wholly-owned subsidiary are the
99% limited partners and AFG Programs, Inc., which is wholly-owned by Geoffrey
A. MacDonald, 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 28, 1990 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
-12-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Statement of Cash Flows
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in federal agency
discount notes and reverse repurchase agreements with overnight maturities.
Under the terms of the agreements, title to the underlying securities passes to
the Partnership. The securities underlying the agreements are book entry
securities. At December 31, 1997, the Partnership had $2,668,538 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 $373,158
are due as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1998 $ 148,918
1999 93,398
2000 84,778
2001 46,064
-----------
Total $ 373,158
-----------
-----------
</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>
Transnet Limited $161,114 $ -- $ --
Ford Motor Company $ 90,897 $ -- $ --
Awin Leasing Company, Inc. $ 84,778 $ -- $ --
Northwest Airlines, Inc. $ -- $936,905 $720,331
Consolidated Rail Corporation $ -- $218,922 $218,923
</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
-13-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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
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.
Organization costs were amortized using the straight-line method over a
period of five years.
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 4).
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 5 concerning
allocation of income or loss for income tax purposes.
Net Income and Cash Distributions Per Unit
-14-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Net income and cash distributions per Unit are based on 480,227 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.
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 0 $ 1,160,990 FL
Materials handling 0-8 939,826 CA/IL/MI/MN/NE/NY/OH/PA/WA/WI
Trailers/intermodal containers 42-43 357,884 GA
Tractors and heavy duty trucks 0-14 301,746 CO/NJ/WV
Communications 0-2 229,633 CA/FL/GA/LA/MS/OK/SC/TN/TX/UT
Construction and mining 0-13 151,097 AL/GA/IL
Computer and peripherals 0 107,488 AK/CA/CT/KS/LA/MI/MS/ND/NM/OK
PA/TX/UT/WV/WY
Research and test 4 105,805 CA
Manufacturing 8 95,459 NJ
Motor vehicles 14 64,367 NJ
-----------
Total equipment cost 3,514,295
Accumulated depreciation (2,918,957)
-----------
Equipment, net of accumulated depreciation $ 595,338
-----------
-----------
</TABLE>
During July 1996, the Partnership transferred its ownership interest in
certain trailers, previously leased to The Atchison Topeka and Santa Fe
Railroad, to a third party for cash consideration of $60,170. The trailers had a
net book value of $22,808 at the time of the transfer, which resulted in a net
gain, for financial statement purposes, of $37,362. In September 1996, the
Partnership replaced these trailers with comparable trailers and leased such to
a new lessee. The transaction was structured as a like-kind exchange for income
tax reporting purposes. The net carrying value of the new trailers, $357,884,
was net of $36,574, representing the proportionate amount of gain deferred on
the original trailers. The Partnership funded this transaction with $58,901 of
the cash consideration and long-term financing of $335,557. The unused cash
consideration of $1,269 was recognized as proceeds from equipment sales. The
associated deferred gain of $788 was recognized as Gain on Sale of Equipment on
the Statement of Operations in 1996.
-15-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by 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 $1,332,708,
representing approximately 38% of total equipment cost.
Generally, the costs associated with maintaining, insuring and operating
the Partnership's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, 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 with an original cost and net book value of approximately
$1,267,000 and $323,000, respectively, at December 31, 1997. This equipment
includes the Partnership's proportionate interest in a Pratt & Whitney JT9D-7J
jet engine, formerly leased to Southern Air Transport, Inc., having a cost and
net book value of approximately $1,161,000 and $323,000, respectively. 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 - 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 $ 30,066 $ 89,296 $ 93,197
Administrative charges 58,303 37,037 20,544
Reimbursable operating
expenses due to third parties 84,399 65,882 108,100
-------- -------- --------
Total $172,768 $192,215 $221,841
-------- -------- --------
-------- -------- --------
</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
-16-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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 $36,232 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1998.
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 20,888 Units or
4.35% and 1,240 Units or 0.26% 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 5 - INCOME TAXES
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income
or loss to each class of partner according to their respective ownership
percentages (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:
-17-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 720,339 $ 1,656,646 $ 733,938
Financial statement depreciation
in excess of (less than) tax depreciationdepreciation (24,133) 137,148 195,845
Deferred rental income (194,540) (8,268) (20,986)
Other 639,021 (881,535) 116,488
----------- ----------- -----------
Net income for federal income tax
reporting purposes $ 1,140,687 $ 903,991 $ 1,025,285
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The principal component of "Other" consists of the differences between the
tax gain or loss on equipment disposals and the financial statement gain or 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 $ 3,363,706 $ 2,927,711
Add back selling commissions and organization
and offering costs 1,345,638 1,345,638
Financial statement distributions in excess of
tax distributions 2,843 3,791
Cumulative difference between federal income tax
and financial statement income (loss) (403,255) (823,603)
----------- -----------
Partners' capital for federal income tax reporting purposes $ 4,308,932 $ 3,453,537
----------- -----------
----------- -----------
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 6 - LEGAL PROCEEDINGS
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.
-18-
<PAGE>
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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.
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 the matter remains pending before the
Court.
-19-
<PAGE>
AMERICAN INCOME PARTNERS V-D 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 revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition, may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $2,680,821 $6,375,173 $1,260,881
Sale proceeds realized upon disposition
of equipment 1,098,682 1,563,010 429,105
---------- ---------- ----------
Total cash generated from rents
and equipment sale proceeds 3,779,503 7,938,183 1,689,986
Original acquisition cost of equipment
disposed 2,813,225 6,821,144 1,293,887
---------- ---------- ----------
Excess of total cash generated to cost
of equipment disposed $ 966,278 $1,117,039 $ 396,099
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
-20-
<PAGE>
AMERICAN INCOME PARTNERS V-D 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 $ 331,044 $ 389,295 $ 720,339
Add:
Depreciation and amortization 261,657 -- 261,657
Management fees 30,066 -- 30,066
Book value of disposed equipment -- 709,387 709,387
Less:
Principal reduction of notes payable (307,479) -- (307,479)
----------- ----------- -----------
Cash from operations, sales and
refinancings 315,288 1,098,682 1,413,970
Less:
Management fees (30,066) -- (30,066)
----------- ----------- -----------
Distributable cash from operations,
sales and refinancings 285,222 1,098,682 1,383,904
Other sources and uses of cash:
Cash at beginning of year 1,867,874 -- 1,867,874
Net change in receivables and
accruals 18,376 (194,092) (175,716)
Less:
Cash distributions paid -- (303,300) (303,300)
----------- ----------- -----------
Cash at end of year $ 2,171,472 $ 601,290 $ 2,772,762
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
-21-
<PAGE>
AMERICAN INCOME PARTNERS V-D 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:
<TABLE>
<S> <C>
Operating expenses $ 162,956
</TABLE>
-22-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American Income Partners V-D Limited Partnership of our report dated
March 10, 1998, included in the 1997 Annual Report to the Partners of American
Income Partners V-D Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1998
<PAGE>
[CONFORMED COPY #2 STAMP]
I HEREBY CERTIFY THAT THIS IS A
TRUE, COMPLETE AND CORRECT COPY
OF THE DOCUMENT.
/s/ [Illegible]
-----------------------
95.03.31 Rev. 1/94
MASTER LEASE AGREEMENT FOR EQUIPMENT
This Agreement, dated March 31, 1995, is between SLC FINANCIAL
CORPORATION, having its principal place of business at 6560 North Scottsdale
Road, Suite J205, Scottsdale, Arizona 85253 (together with any permitted
assignee of any Item of Equipment, ("Lessor") and AWIN LEASING COMPANY, INC.,
having its principal place of business at 7201 East Camelback Road, Suite 375,
Scottsdale, Arizona 85251 ("Lessee").
Section 1. DEFINITIONS.
"Equipment Schedule" means the one Equipment Schedule, numbered 01, which
is attached to this Master Lease Agreement, and any Equipment Schedules
subsequently attached to this Master Lease Agreement with the mutual consent of
Lessor and Lessee, and includes all attachments to any such Equipment Schedule.
"Items of Equipment" means and includes all of the items of equipment
described on any single Equipment Schedule.
"Equipment" means and includes the aggregate of all Items of Equipment on
all of the Equipment Schedules attached to this Master Lease Agreement.
"Lease" means any individual Lease of any Items of Equipment which is
created pursuant to the terms of this Master Lease Agreement and the particular
Equipment Schedule pertaining to such Items of Equipment.
The terms "Overdue Rate", "Interim Rent Date", "First Basic Rent Date",
"Last Basic Rent Date", "Expiration Date" and "Casualty Value", when used with
respect to the leasing of any Items of Equipment, shall have the meanings set
forth in the relevant Equipment Schedule or Certificate of Acceptance attached
to the Equipment Schedule for such Items of Equipment.
Section 2. AGREEMENT FOR LEASE OF EQUIPMENT.
Subject to, and upon all of the terms and conditions contained in this
Master Lease Agreement and in the Equipment Schedules attached hereto, Lessor
hereby agrees to lease to Lessee and Lessee hereby agrees to lease from Lessor
all of the Equipment which is delivered to and accepted by Lessee in the manner
described in Section 4 below. Each Equipment Schedule, with the attached
Certificate of Acceptance and all other attachments thereto, when fully-executed
by Lessor and Lessee as provided therein, shall constitute a separate Lease of
the Items of Equipment described on such Equipment Schedule. The terms and
provisions of this Master Lease Agreement shall be incorporated by reference in
each Equipment Schedule, and such terms and provisions are intended to govern
and be applied to the rights and obligations of Lessor and Lessee regarding each
of the Items of Equipment and the Lease pertaining thereto.
Section 3. ACCEPTANCE OF EQUIPMENT.
Immediately upon delivery to Lessee of any Items of Equipment, Lessee
shall inspect such Items of Equipment and, unless Lessee gives Lessor prompt
written notice of any defect in, or other proper objection to, such Items of
Equipment, Lessee shall, promptly upon completion of such inspection (which
inspection may include any reasonable period of time necessary to determine the
functionality and fitness of such Items of Equipment) and the installation of
such Items of Equipment, execute and deliver to Lessor the Certificate of
Acceptance attached to the Equipment Schedule for such Items of Equipment.
Lessee's execution of such Certificate of Acceptance shall constitute (a)
Lessee's unconditional acceptance of such Items of Equipment for lease from
Lessor on the Date of Acceptance specified in such Certificate of Acceptance and
(b) Lessee's acknowledgment and certification that such Items of Equipment have
been delivered to and inspected by Lessee, have been installed to Lessee's
satisfaction, are in good working order, repair, and condition, and have been
accepted for maintenance by the manufacturer.
Section 4. TERM OF LEASE.
The Lease term for any Items of Equipment shall commence on the date of
execution by Lessee of the Certificate of Acceptance for such Items of
Equipment, provided that each of the conditions precedent set forth in Section 3
hereof has been fulfilled to Lessor's satisfaction by that date, and shall
continue until the Expiration Date as specified in the Certificate of Acceptance
("Initial Term"). All terms and conditions of this
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Agreement shall remain in full force and effect during any successive period.
Lessee shall provide written notice to Lessor thirty (30) days prior to the
Expiration Date as to whether, at the Expiration Date of the initial term,
Lessee intends to (i) return the Items of Equipment to the Lessor, (ii) extend
the Lease in conformity with the terms and conditions set forth on the Equipment
Schedule pertaining to the Items of Equipment or (iii) purchase the Items of
Equipment for the price and on the terms and conditions set forth in the
Equipment Schedule. If Lessee is not in default at the time, upon tender at the
Expiration Date (as it may be extended in accordance with this Section 4) of
payment of the purchase price stipulated in the relevant Equipment Schedule for
any Item of Equipment, Lessee shall be entitled to possession and ownership of
such Item of Equipment, all obligations of Lessee to pay Rent on such Item of
Equipment shall cease, all limitations on the use or disposition by Lessee of
such Item of Equipment shall cease and Lessee shall be released from all and
every other obligation, limitation or responsibility pertaining to such Item of
Equipment hereunder. In addition, any security interest claimed by Lessor or its
assignee in such Item of Equipment shall be null and void and Lessor or its
assignee shall promptly take all actions to evidence such purchase by Lessee,
including without limitation, filing any termination statements to evidence
complete release of any security interest in such Items of Equipment and
preparing and executing any bill of sale to evidence such transfer. The previous
sentence of this section shall apply with equal force to any Item of Equipment
which is transferred to Lessee pursuant to the terms of Section 14(c) hereof.
Section 5. RENTAL CHARGES.
Lessee shall pay to Lessor as rent for any Items of Equipment during the
Lease term therefor the following amounts (collectively, the "Rent"):
(a) On the Interim Rent Date, an amount ("Interim Rent") equal to the
total monthly Basic Rent, divided by thirty (30) days, and then multiplied by
the number of days from and including the date of Lessee's execution of the
Certificate of Acceptance to and including the day immediately preceding the
First Basic Rent Date;
(b) As Basic Rent, commencing on the First Basic Rent Date, and on each
Basic Rent Date thereafter to and including the Last Basic Rent Date, an amount
equal to the Basic Rent as stipulated on the appropriate Equipment Schedule;
(c) As Supplemental Rent, on or before the date required by the terms
hereof (or upon Lessor's demand if no such date is specified herein), any other
amount which Lessee is obligated to pay hereunder with respect to such Items of
Equipment including indemnity payments and payments of Casualty Value.
(d) To the extent permitted by applicable law, Lessee shall pay to Lessor
a late charge (computed on the basis of a 360-day year) at the Overdue Rate on
any payment of Basic Rent or Supplemental Rent for any Items of Equipment which
is not paid when due (with a fifteen (15) day grace period). Such late charge
shall accrue at the Overdue Rate from the applicable due date until said Rent
payment is made in full.
Section 6. NET LEASE.
Each Lease created hereunder for any Items of Equipment shall be a net
lease and Lessee acknowledges that Lessee's obligations thereunder, including,
without limitation, its obligation to pay all Rent, shall be absolute and
unconditional and, except as provided in Section 14 hereof, Lessee shall not be
entitled to any abatement, reduction, defense, counterclaim, set-off, or
recoupment, including, without limitation, abatements, deductions or set-offs
due or alleged to be due by reason of any past, present or future claim of
Lessee under any Lease, or any other agreement, contract or undertaking, against
Lessor, any assignee of Lessor, or any vendor or manufacturer of the Equipment.
Provided, however, that nothing herein shall limit Lessee's right to pursue any
claims that it may have against Lessor or any other party in any appropriate
manner. Except as otherwise expressly provided herein, such Leases shall not
terminate, nor the obligations of Lessee or Lessor thereunder be otherwise
affected, for any reason whatsoever, including, without limitation, any defect
in the Equipment or any part or Items thereof or Lessor's title thereto or any
damage to or destruction or loss of or interference with the possession or use
of any Items of Equipment from any cause whatsoever (except for losses caused by
Lessor); any liens, encumbrances or rights of others with respect to all or any
part of the Equipment; the invalidity or unenforceability or lack of due
authorization of this Agreement or any Lease; any insolvency of or any
bankruptcy, reorganization or similar proceeding against Lessee or Lessor; or
for any other cause similar or dissimilar to the foregoing, any present or
future law to the contrary notwithstanding, it being the intention of the
parties hereto that all Rent and other amounts payable by Lessee hereunder shall
continue to be payable in all events in the manner and the times herein
provided, unless the obligation to pay the same shall be terminated pursuant to
the express provisions of this Agreement. To the extent permitted by applicable
law,
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Lessee hereby waives any and all rights which it may now have or which at any
time hereafter may be conferred upon it, by statute or otherwise, to cancel,
quit or surrender this Agreement, any Lease or any of the Equipment except in
accordance with the express provisions hereof.
Section 7. OWNERSHIP OF EQUIPMENT.
The Equipment shall at all times (prior to the exercise by Lessee of any
purchase option pertaining to any Item of Equipment as set forth herein and
except as otherwise set forth in Section 14(c) hereof) remain the property of
Lessor and any Items of Equipment may be removed by Lessor at any time after
termination of the Lease with respect thereto (unless purchased by Lessee in
accordance with the terms hereof and except as otherwise set forth in Section
14(c) hereof). Lessee shall, at its own expense, protect and defend Lessor's
title in the Equipment and any Items thereof against all claims and liens of
Lessee's creditors or any other person or entity whatsoever and shall at all
times keep all Items of Equipment free and clear of all claims, liens and
encumbrances except those resulting from the agreements or acts of Lessor.
Section 8. POSSESSION.
(a) Lessor warrants to Lessee that Lessee shall be entitled, as against
all persons claiming by, through or under Lessor, to possess each of the Items
of Equipment (and ultimately to purchase each Item of Equipment on the terms and
at the price set forth in the relevant Equipment Schedule, free and clear of any
liens or encumbrances not created by Lessee and to receive good and marketable
title thereto), subject to the terms of the individual Lease for such Items of
Equipment, which shall include the terms of this Agreement, so long as Lessee is
not in default hereunder and under such Lease.
(b) Unless Lessee exercises its purchase option, upon the expiration or
earlier termination of each such Lease, Lessee, at its sole cost and expense,
shall return the Items of Equipment leased thereunder to Lessor at Scottsdale,
Arizona, or such other location in the United States as Lessor and Lessee may
mutually agree and in as good condition and operating order as when delivered to
Lessee, reasonable wear and tear excepted, subject to the terms of this
Agreement.
Section 9. TERMINATION OF LEASE; END OF TERM LIABILITY.
This Lease will terminate at the end of the Expiration Date of the Initial
Term or such later date as determined in accordance with the provisions of
Section 4 hereof (the "End of the Lease Term") unless terminated earlier in
accordance with the terms of this Agreement. Lessee hereby agrees to return the
Equipment at Scottsdale, Arizona or such other location in the United States as
Lessor and Lessee may mutually agree, at the End of the Lease Term or at
Lessor's request upon default by Lessee hereunder (unless Lessee has purchased
such Equipment in accordance with the terms hereof and except as otherwise set
forth in Section 14(c) hereof).
Section 10. MAINTENANCE.
(a) Lessee at all times shall keep, repair, maintain and preserve the
Equipment in good order and operating condition. Lessee covenants that the
Equipment will be used and operated at all times materially in accordance with
manufacturer instructions and in compliance in all material respects with any
restriction contained in manufacturer warranties regarding the Equipment, and as
otherwise may be required to enforce warranty claims against the manufacturer.
(b) All maintenance and service charges related to the Equipment shall be
borne by Lessee.
Section 11. LOCATION AND USE OF EQUIPMENT.
(a) During the term of each Lease for Items of Equipment, such Items shall
be located at the address indicated in the relevant Certificate of Acceptance,
or such other location as may be approved by the Lessor from time to time (which
consent shall not be unreasonably withheld). Items of Equipment may be removed
from such address only with the prior written consent of Lessor and any assignee
of Lessor and provided that prior to such removal Lessee has executed and filed
such Uniform Commercial Code financing statements and such other filings in any
new locations as are necessary to preserve the right, title and interest of
Lessor and any assignee of Lessor in such Items of Equipment.
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(b) Lessee covenants and warrants that during the period that any
Equipment is leased to Lessee hereunder, such Equipment will be used and
operated at all times in compliance, in all material respects, with the laws of
the jurisdiction(s) in which it is located, and in compliance, in all material
respects, with all actions, rules, regulations and orders of any commission,
board or other legislative, administrative, or judicial body or officer having
power to regulate or supervise the use or operation of the Equipment.
Section 12. INSURANCE.
During the period that any Equipment is leased to Lessee hereunder, Lessee
will, at all times and at its sole expense, carry and maintain, or cause to be
carried and maintained: (a) insurance for loss of or damage to the Equipment
caused by fire, lightning, tornado and windstorms, explosion, smoke and smudge,
aircraft and motor vehicle damage, strikes, riots and civil commotion, burglary
and theft, vandalism and malicious mischief, and other casualty events
customarily insured against with respect to similar equipment, in an amount not
less than the Casualty Value of the Equipment, and (b) public liability
insurance covering the Equipment, in such amounts to be not less than two
million dollars ($2,000,000) and against such risks as is customary with respect
to similar equipment. Such policies will provide that the same may not be
invalidated against Lessor or any assignee of Lessor by reason of any violation
of a condition or breach of warranty of the policies or the application therefor
by Lessee, that the policies may be cancelled or materially altered or reduced
in coverage by the insurer only after thirty (30) days prior written notice to
Lessor and any assignee of Lessor, and that the insurer will give written notice
to Lessor and any assignee of Lessor in the event of nonpayment of premium by
Lessee when due. Upon the execution of this Agreement and thereafter not less
than thirty (30) days prior to the expiration dates of any such policies
theretofore furnished under this Section, copies of the policies of insurance
required by this Section shall be delivered by Lessee to Lessor and any assignee
of Lessor. Such policies may be blanket policies covering other equipment not
subject to the Leases created hereunder and under the Equipment Schedules,
provided that any such blanket policy or certificate of insurance issued with
respect thereto shall specifically describe the Equipment as being included
therein and covered thereby to the full extent of the coverages and amounts
required hereunder. If Lessee shall fail to cause the insurance required under
this Section to be carried and maintained, Lessor or any assignee of Lessor may
provide such insurance and Lessee shall reimburse Lessor or any such assignee of
Lessor as the case may be, upon demand, for the reasonable cost thereof as
Supplemental Rent hereunder. Lessor and any assignee of Lessor will be named as
the sole loss payees, as their interest may appear, on all policies referred to
in clause (a) above, so that the insurance proceeds payable under such policies
will be payable and paid solely to Lessor and to any assignee of Lessor, as
their interests may appear. Lessor and any assignee of Lessor will be named as
additional insureds on all policies referred to in clause (b) above.
Section 13. RISK OF LOSS, EVENT OF LOSS.
(a) Lessee hereby assumes and shall bear the entire risk of loss or damage
including, but not limited to, destruction, theft, or governmental taking of any
Items of Equipment or any part or component thereof ("Event of Loss"), however
caused or occasioned, whether partial or complete and whether or not covered by
insurance. No such loss or damage shall relieve Lessee of any of its obligations
under this Lease including, without limitation, the obligation to pay Rent.
Lessee shall immediately notify Lessor of any Event of Loss involving the
Equipment or any Items or part thereof.
(b) If an Event of Loss occurs with respect to any Items of Equipment,
Lessee, at the option and direction of Lessor, shall: (i) repair or restore the
Items of Equipment to good repair, condition and working order; or (ii) replace
the Items of Equipment with substantially identical equipment in good repair,
condition and working order, title to which shall be transferred to Lessor free
and clear of all liens, claims and encumbrances whatsoever; or (iii) pay Lessor
in cash the Casualty Value for such Items of Equipment as set forth in the
relevant Equipment Schedule.
(c) If Lessor has directed Lessee to repair, restore or replace any Item
of Equipment pursuant to clause (i) or (ii) above and if Lessee is not in
default hereunder, then Lessor shall pay to Lessee any insurance proceeds
received by it in connection with the Event of Loss affecting such Item of
Equipment. In the event of an election by Lessor pursuant to clause (iii) above,
and upon payment by Lessee of the Casualty Value and any accrued and unpaid Rent
and all other amounts due under the Lease for such Items of Equipment, Lessee's
obligation to pay Rent with respect to such Items of Equipment shall terminate,
and Lessee shall become entitled
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to possession and ownership of such Items of Equipment, or parts or components
thereof, AS-IS, WHERE-IS without any warranty by Lessor, express or implied, and
all insurance proceeds from such Event of Loss shall be paid to Lessee.
Section 14. ENFORCEMENT OF WARRANTY.
(a) Upon receipt of written request from Lessee, so long as Lessee shall
not be in default under the relevant Lease or Equipment in question, Lessor
shall take all reasonable action requested by Lessee to enforce any
manufacturer's warranty, express or implied, issued on or applicable to any
Items of Equipment, which is enforceable only by Lessor in its own name,
provided, however, that Lessor shall not be obligated to resort to litigation to
enforce any such warranty unless Lessee shall pay all reasonable expenses in
connection therewith. Provided, Lessor's obligation under this paragraph (a)
after the term of any relevant Lease shall have expired shall be subject to
reimbursement of its actual expenses incurred thereby by Lessee, which shall be
payable within thirty (30) days.
(b) Similarly, if any such warranty for any Items of Equipment shall be
enforceable by Lessee in its own name, Lessee hereby agrees, upon receipt of
written request from Lessor and so long as this Agreement and the relevant
Leases for Items of Equipment shall remain in force, to take all reasonable
action requested by Lessor to enforce any such warranty, provided, however, that
Lessee shall not be obligated to resort to litigation to enforce any such
warranty unless Lessor shall pay all reasonable expenses in connection
therewith.
(c) Lessor hereby assigns to Lessee any warranty rights which Lessor may
have against the manufacturer with respect to any Items of Equipment, to the
extent such warranty rights are assignable. With respect to such warranty rights
as are not assignable, Lessor hereby appoints Lessee as its agent and
attorney-in-fact for the purpose of enforcing such warranty rights at Lessee's
expense for so long as no Event of Default hereunder shall have occurred and be
continuing.
(d) In the event that either Lessor or Lessee resorts to litigation to
enforce any warranty ("Litigating Party"), it is agreed that the Litigating
Party shall have the right to take such action as it deems appropriate to
settle, compromise or otherwise dispose of any claim under any such warranty,
provided that the non-Litigating Party shall not be bound by any rulings,
judgments, decisions, agreements, compromises and settlements made or handed
down with respect thereto or entered into by the Litigating Party unless the
non-Litigating Party shall have agreed in writing to be bound thereby.
Section 15. DISCLAIMER OF WARRANTIES.
Lessor leases the Equipment to Lessee AS-IS, WHERE-IS, in whatever
condition it may be, without any agreement, warranty or representation, express
or implied as to any matter whatsoever respecting the Equipment except as
expressly set forth herein or in the Schedules hereto. Without limiting the
generality of the foregoing, Lessor expressly disclaims any implied warranty of
merchantability, fitness or adequacy for any particular purpose or use, quality,
productiveness or capacity.
Section 16. INDEMNIFICATION.
(a) Lessor shall not be liable to Lessee for, and Lessee shall indemnify
and hold Lessor and any assignee of Lessor, including, but not limited to, any
security assignee, under any Lease (each such party referred to as an
"indemnified party") harmless on an after-tax basis from and against any
obligation, liability (including liability for negligence), claim, demand,
action, suit, judgment, cost, loss, damage or expense (including litigation
expense and attorneys' fees) of any kind or nature imposed on, incurred by or
asserted against Lessor, caused, directly or indirectly, by or relating to (i)
the inadequacy of any Items of Equipment for its or their intended purpose, (ii)
any deficiency or defect (patent or latent) in any Items of Equipment, (iii) the
use, operation or performance by Lessee of any Items of Equipment, (iv) any
interruption or loss of service, use or performance of any Items of Equipment,
(v) any patent, trademark, or copyright infringement relating to use by Lessee
of any Items of Equipment, or (vi) any loss of business or other consequential
damage whether or not resulting from any of the foregoing. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, LESSOR SHALL NOT BE LIABLE FOR INJURIES TO PERSONS
OR DAMAGE TO THE EQUIPMENT OR ANY OTHER PROPERTY UNDER ANY THEORY OF STRICT
LIABILITY, AND LESSEE SHALL INDEMNIFY AND SAVE LESSOR AND EACH OTHER INDEMNIFIED
PARTY HARMLESS ON AN AFTER-TAX BASIS FROM ANY SUCH LIABILITY AND ALL COSTS AND
EXPENSES IN DEFENDING THE SAME. All of Lessor's rights under this Section shall
survive the termination of the Leases created
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hereunder, for a period of one (1) year. Lessee shall not be required to
indemnify Lessor for claims in connection with any Items of Equipment arising
from events which occur after such Items of Equipment have been redelivered to
Lessor.
(b) Lessee shall pay, indemnify and hold Lessor and each other indemnified
party harmless on an after-tax basis from and against all taxes, fees and other
charges, however designated, which are levied or imposed by any governmental
authority upon any Items of Equipment or upon the sale, purchase, ownership,
lease, use, possession or disposition thereof or upon Rent payable under the
Lease therefor, including but not limited to sales and use taxes, personal
property taxes, privilege and excise taxes, franchise taxes, ad valorem and
value added taxes, leasing taxes, stamp taxes, gross receipts and gross income
taxes and license and registration fees, excluding however, taxes levied against
Lessor upon or measured by Lessor's net income, net worth or capital stock. To
the extent permitted by applicable law, Lessee shall prepare (in such manner as
will show Lessor's ownership of the Items of Equipment) and timely file all tax
returns required by law in connection with taxes payable or indemnified by
Lessee hereunder. With respect to any such tax return required to be filed by
Lessor, Lessee shall notify Lessor of such requirement and furnish Lessor with
all forms and information necessary for the preparation and timely filing of
such return.
Section 17. MODIFICATION OF EQUIPMENT.
(a) If subsequent to the commencement of the relevant Lease, Lessee
desires to: (i) make, or cause to be made, modifications or alterations to the
physical condition of any Items of Equipment then subject to the Lease
("Modifications"); or (ii) add additional features or model changes ("Additional
Features") to any Items of Equipment then under the Lease, which Additional
Features are integral to the current functions of any of such Items of
Equipment; or (iii) add Additional Features, whether or not integral to the
current functions of any Items of Equipment, the installation or use of which
would require any Modifications to any Items of Equipment, then Lessee shall
give Lessor an opportunity to obtain any such Modifications, or Additional
Features described in clauses (ii) and (iii) above, at Lessor's expense and to
lease such Modifications or Additional Features to Lessee upon terms and
conditions mutually agreeable to Lessor and Lessee (it being understood that the
additional monthly rental payments which shall be paid by Lessee to Lessor for
such Modifications or Additional Features must be sufficient to cover Lessor's
related monthly debt payments, if any, incurred to finance the acquisition of
such Modifications or Additional Features, that any such Modifications or
Additional Features obtained by Lessor shall be deemed to be part of the Items
of Equipment leased under the relevant Lease, and that Lessee shall be
responsible for all related transportation and installation charges and
maintenance charges for such Modifications or Additional Features. In the event
that Lessor does not wish to obtain such Modifications or Additional Features,
or Lessor and Lessee are unable to agree on leasing terms and conditions related
to such Modifications or Additional Features, then Lessee, with the prior
written consent of Lessor, which consent may not be unreasonably withheld, may
purchase and install any such Modifications or Additional Features at Lessee's
own expense with no additional Rent due Lessor for such Modifications or
Additional Features.
(b) Lessee may, at its own expense, and without the prior consent of
Lessor, add Additional Features which enhance the capabilities of any existing
Items of Equipment, but which are not integral to the current functions of such
Items of Equipment and whose installation or use involves no Modifications,
provided that such Additional Features do not interfere with the normal
operation or maintenance of any Items of Equipment. Anything to the contrary in
this clause (b) notwithstanding, any Additional Features described in this
clause (b) which could not be removed or detached from the applicable Items of
Equipment following installation, or whose installation or use would prevent the
Items of Equipment from being restored to the condition in which such Items of
Equipment are to be returned to Lessor as specified in Section 9(b) hereof
("Return Condition"), may not be added by Lessee to the Items of Equipment
without the prior written consent of Lessor. Lessee agrees to give Lessor
written notice of the addition of any such Additional Features within 30 days
after installation thereof.
Section 18. TRANSPORTATION EXPENSES.
All transportation and installation expenses incurred in connection with
the delivery of the Equipment to Lessee shall be paid by Lessee. Transportation
expenses incurred in connection with redelivery of the Equipment to Lessor shall
be paid by Lessee.
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Section 19. EVENTS OF DEFAULT AND LESSOR'S REMEDIES.
(a) Any of the following events shall constitute an Event of Default under
any Lease created hereunder: (i) Lessee shall fail to pay any Basic Rent or
other amount due under any such Lease within fifteen (15) days after written
demand from Lessor is received by Lessee; (ii) Lessee shall attempt to remove,
sell, transfer, encumber, part with possession of, assign or sublet (except as
expressly permitted by the provisions hereof) the Items of Equipment leased
under such Lease or any part thereof; (iii) any representation or warranty made
by Lessee in this Agreement or in any document or certificate furnished to
Lessor in connection herewith, shall prove to have been incorrect in any
material respect when made; (iv) Lessee shall fail to perform or observe any
other of its covenants or obligations under the Lease for a continuous period of
thirty (30) days after receipt by Lessee of written notice thereof from Lessor;
(v) Lessee shall cease doing business as a going concern; (vi) a petition shall
be filed by or against Lessee under the Federal Bankruptcy Act or any amendment
thereto (including a petition for reorganization or arrangement), and, if filed
against Lessee, such petition shall not have been discharged within sixty (60)
days after such filing; (vii) a receiver shall be appointed for Lessee or its
property; or (viii) Lessee shall commit an act of bankruptcy, become insolvent,
make an assignment for the benefit of creditors, or offer a composition
generally of its indebtedness.
(b) Upon the occurrence of any Event of Default under such Lease, as
specified in subsection (a) of this Section 20, and at any time thereafter so
long as the same shall be continuing, Lessor or any assignee of Lessor with
respect to such Lease, at its sole option, may (i) declare immediately due and
payable by Lessee, as liquidated damages for loss of a bargain and not as a
penalty, an amount equal to the sum of (A) all unpaid Rent due under such Lease
up to the date of payment by Lessee under this clause (i), and (B) the Casualty
Value of the Items of Equipment leased under such Lease as of the Basic Rent
Date immediately preceding the date on which Lessor or its assignee declares an
Event of Default to exist; (ii) terminate the Lease, without prejudice to any
other remedies of Lessor hereunder; (iii) whether or not the Lease has been
terminated pursuant to subsection (ii) above, take possession of the Items of
Equipment subject to such Lease during Lessee's normal business hours, without
demand or notice, wherever the Items of Equipment may be located, without court
order or other process of law (Lessee hereby waiving any right it may have to
notice and hearing before repossession). Lessee hereby waives any and all
damages occasioned by such entry or taking of possession. Any taking of
possession pursuant to this subsection (b) (iii) shall not in itself constitute
termination of the Lease and shall not, in any event, relieve Lessee of its
obligations under the Lease.
Lessee shall reimburse Lessor for all reasonable expenses (including
attorneys' fees) incurred by Lessor in enforcing its rights under this Section
20. Any unpaid Rent and any unpaid Casualty Value payable as liquidated damages
pursuant to clause (i) of this subsection 20(b) shall bear interest at the
Overdue Rate until paid in full.
Upon taking possession of any Items of Equipment, Lessor may, at its sole
option and without notice to Lessee, lease the repossessed Items of Equipment to
any unaffiliated third party on such terms and conditions as Lessor may
determine, or sell such Items of Equipment at public auction or at private sale,
free and clear of any rights of Lessee and without any duty to account to Lessee
with respect to such sale or lease, except to the extent specified in this
subsection 20(b). In the event that Lessor leases or sells any repossessed Items
of Equipment, the Net Proceeds of such lease or sale (as defined below) shall
first be credited to any amounts due and owing by Lessee under clause (i) above,
and second, shall be used to reimburse Lessee for any payment already made by
Lessee on account of amounts owed under clause (i) above. Any surplus shall be
retained by Lessor. Lessee shall remain liable for any deficiency resulting from
an excess of amounts due and owing by Lessee over Net Proceeds. As used in this
subsection 20(b), "Net Proceeds" shall mean the proceeds actually received by
Lessor from a sale of the repossessed Items of Equipment, or the gross proceeds
of a new loan actually received plus any rents received prior to the new loan
being funded, less all reasonable costs and expenses (including attorneys' fees
and disbursements) incurred by Lessor as a result of Lessee's default and
Lessor's exercise of its remedies with respect thereto. No right or remedy
conferred upon or reserved to Lessor hereunder shall be exclusive of any other
right or remedy, and each shall be cumulative and in addition to all other
remedies available at law or in equity. The failure of Lessor to exercise the
rights granted hereunder upon the occurrence of any Event of Default shall not
constitute a waiver of any further or subsequent Event of Default.
Section 20. ASSIGNMENTS.
Lessor may, at any time and from time to time, without notice to, or the
consent of, Lessee: (1) assign, sell or transfer, in whole or in part, Lessor's
rights under any Leases created hereunder with respect to any Items
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of Equipment, and any or all of Lessor's rights thereunder, including, without
limitation, the right to receive any or all Rent payable under such Leases, (ii)
sell, transfer or assign legal title to and ownership of the Equipment or any
Items thereof to any person or entity, and (iii) mortgage or grant a security
interest in any such Lease or in the Equipment or any Items thereof, to any
person or entity; provided, however, that any such assignment, sale, transfer,
mortgage or grant of security interest shall be subject to Lessee's rights under
any such Leases so long as no Event of Default has occurred and is continuing
thereunder. The terms of any such assignment of any Lease, except as security,
shall be such as to permit Lessee to deal exclusively with SLC Financial
Corporation as agent for such assignee in matters relating to the performance
and administration of the Lease. Subsequent to any such assignment by Lessor,
Lessor shall give Lessee written notice of such assignment, identifying therein
the name and address of the assignee. Any such assignee of Lessor shall have all
of the right, title and interest of Lessor as relates solely to the Items of
Equipment and Lease or Leases assigned, sold or transferred to such assignee,
and any assignee, other than an assignee for security only, shall become for all
purposes of this Agreement and the relevant Lease, beginning on the date of such
assignment, the Lessor of such Items of Equipment. Lessee hereby consents to
such assignments, and agrees to acknowledge in writing any such assignment
within five (5) days after receipt of written notice thereof from Lessor, and in
the case of any such assignment, to take steps to confirm the status of any such
assignee hereunder and under the relevant Lease, including, without limitation,
providing to such assignee, at Lessee's sole cost and expense, any document
(including Uniform Commercial Code financing statements or continuation
statements) reasonably requested by such assignee to evidence or protect such
assignee's title or other interest in the relevant Items of Equipment. As it
relates to any assignment by Lessor to a Successor Lessor, any Successor Lessor
must expressly agree to be bound by the terms hereof and of the relevant Lease,
including without limitation, any right on the part of Lessee to purchase the
relevant Items of Equipment under the terms of the applicable Equipment
Schedule.
So long as Lessor's rights hereunder are assigned to any assignee, Lessee
may not assert against any such assignee any defense, counterclaim, recoupment,
or set-off Lessee may have against Lessor. Lessee agrees that it will not seek
to cancel or terminate this Agreement or any of the Leases created hereunder
(except as expressly permitted herein) or otherwise avoid its obligations
hereunder or thereunder as against such assignee, and further agrees that it
will pay to such assignee all Rent due under such Leases and assigned to such
assignee, without regard to any such defense, counterclaim, recoupment, or
set-off. However, nothing herein shall be construed to prevent Lessee from
exercising against Lessor any claim for damages or injunctive relief which
Lessee may have against Lessor.
Section 21. LESSEE'S WARRANTIES.
(a) Lessee hereby warrants and represents to Lessor, its successors and
assigns as follows: (i) Lessee is a corporation duly organized, validly existing
and in good standing under the laws of the State of Arizona, and is qualified to
do business in, and is in good standing in, each state or other jurisdiction in
which the nature of its business makes such qualification necessary (including
each state or other jurisdiction in which the Equipment or any part thereof will
be located); (ii) Lessee has the corporate power and authority to execute and
perform its obligations under this Agreement, the Equipment Schedules and the
Leases created thereunder and any related documents and certificates and to
lease the Equipment under the Leases, and Lessee's execution and performance of
this Agreement, the Equipment Schedules and the Leases created thereunder have
been duly authorized by all necessary corporate action; (iii) the leasing of the
Equipment from Lessor, the execution and delivery of this Agreement, the
Equipment Schedules and any other related instruments, documents and agreements,
and the compliance by Lessee with the terms thereof do not conflict with and
will not result in a violation or breach of Lessee's Certificate of
Incorporation (or equivalent document), or its Bylaws, or any indenture,
contract or agreement by which Lessee is bound, or with any statute, judgment,
decree, rule or regulation binding upon Lessee; (iv) no consent or approval of
any trustee or holder of any indebtedness or obligation of Lessee, and no
consent or approval of any governmental authority, is necessary (or, if
required, has been obtained) for Lessee's execution or performance of this
Agreement, the Equipment Schedules and the Leases created thereunder; (v) this
Agreement, and the Equipment Schedules, when executed by the duly authorized
officer or officers of Lessee, will constitute legal, valid and binding
obligations of Lessee, enforceable against Lessee in accordance with their
terms, subject to enforcement limitations imposed by rules of equity or by
bankruptcy or similar laws; (vi) no mortgage, deed of trust, or other lien which
now covers or affects, or which may hereinafter cover or affect, any property or
interest therein of Lessee, now attaches or hereafter will attach to the
Equipment or any Items of Equipment, or in any manner
9
<PAGE>
[CONFORMED COPY #2 STAMP]
95.03.31 Rev. 1/94
affects or will affect adversely Lessor's right, title and interest therein;
(vii) there is no litigation or other proceeding now pending or, to the best of
Lessee's knowledge threatened, against or affecting Lessee, in any court or
before any regulatory commission, board or other administrative governmental
agency which would directly or indirectly adversely affect or impair the title
of Lessor to the Equipment, or which, if decided adversely to Lessee, would
materially adversely affect the business operations or financial condition of
Lessee; (viii) all balance sheets, statements of profit and loss and other
financial data that have been delivered to Lessor with respect to Lessee (i) are
complete and correct in all material respects, (ii) accurately present the
financial condition of Lessee on the dates for which, and the results of its
operations for the periods for which, the same have been furnished, and (iii)
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods covered thereby, since the January
1995 financial statements delivered to Lessor by Lessee, there has been no
change in the condition of Lessee, financial or otherwise, since the date of the
most recent financial statements delivered to Lessor with respect to Lessee
other than changes in the ordinary course of business, none of which changes,
either separately or in aggregate, has been materially adverse.
Section 22. LESSOR'S RIGHT TO PERFORM FOR LESSEE.
If Lessee fails to make any payment required to be made by it hereunder or
fails to perform or comply with any of its agreements contained herein, Lessor
may itself, after notice to Lessee, make any such payment or perform or comply
with any such agreement, and the amount of any such payment and the amount of
the reasonable expenses of Lessor incurred in connection with such payment or
the performance of or compliance with such agreement, as the case may be,
together with interest thereon at the Overdue Rate, if not paid by Lessee to
Lessor on demand, shall be deemed Supplemental Rent due Lessor hereunder;
provided, however that no such payment, performance or compliance by Lessor
shall be deemed to cure any Event of Default hereunder until such amounts are
paid to Lessor by Lessee.
Section 23. FURTHER ASSURANCES.
Lessee will promptly and duly execute and deliver to Lessor, and any
assignee of Lessor, such other documents, and do such further acts, including,
without limitation, such amendments to this Agreement or any Lease created
hereunder as may be reasonably required by Lessor or by any assignee of Lessor
from time to time in order to carry out more effectively the intent and purposes
of this Agreement and any Lease created hereunder.
Section 24. NOTICES.
All notices provided for or required under the terms and provisions hereof
shall be in writing, and any such notice shall be deemed given when personally
delivered or when deposited in the United States mails, with proper postage
prepaid, for first class certified mail, return receipt requested, addressed (i)
if to Lessor or Lessee, at their respective addresses as set forth herein or at
such other address as either of them shall, from time to time, designate in
writing to the other, and (ii) if to any assignee of Lessor, to the address of
such assignee as such assignee shall designate in writing to Lessor and Lessee.
Section 25. SEVERABILITY OF PROVISIONS.
In the event any one or more of the provisions contained herein shall for
any reason be held to be invalid or unenforceable in any respect, such
invalidity or unenforceability shall not affect any other provision hereof, but
this Agreement shall be construed as if such invalid or unenforceable provision
had never been contained herein.
Section 26. BENEFIT.
This Agreement shall be binding upon and shall inure to the benefit of the
parties, and their respective heirs, legal representative, successors and
assigns.
9
<PAGE>
[CONFORMED COPY #2 STAMP]
95.03.31 Rev. 1/94
Section 27. HEADINGS.
The paragraph headings hereof have been inserted for convenience of
reference only and shall not affect the meaning or interpretation of any of the
provisions of this Agreement.
Section 28. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Arizona.
Section 29. AMENDMENTS.
This Agreement, the Equipment Schedules, and each related instrument,
document, agreement and certificate, collectively constitute the entire
agreement between Lessor and Lessee with respect to the leasing of the Equipment
and may be amended or modified only by a writing signed by the parties hereto or
their respective successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
the day and year first above written.
LESSOR: SLC FINANCIAL CORPORATION LESSEE AWIN LEASING COMPANY, INC.
BY: /s/ [Illegible] BY: /s/ [Illegible]
------------------------- -------------------------
TITLE: Pres. TITLE: Vice President
----------------------- ------------------------
DATE: 4/20/95 DATE: April 3, 1995
------------------------ -------------------------
This is Counterpart No. 3 of 3 serially numbered, manually executed
counterparts. To the extent that this document constitutes chattel paper under
the Uniform Commercial Code, no security interest in this document may be
created through the transfer and possession of any counterpart other than
Counterpart No. 1.
10
<PAGE>
FIRST AMENDMENT TO
LEASE ORDER TERMS
AND CONDITIONS
This FIRST AMENDMENT, dated as of June 28, 1988, between Ford Motor
Company ("Lessee") and American Finance Group ("Lessor") amends Lease Order
Terms and Conditions dated as of April 5, 1988, between Lessee and Lessor (the
"Lease Order"), as follows.
1. Section 6 of the Lease Order Terms and Conditions is hereby amended
and restated to read in its entirety as follows:
"6. Acceptance
Lessee shall accept the Equipment if the Equipment has operated
efficiently for the period indicated in this Lease Order as the "Acceptance
Period" in conformance with both technical specifications therefor and any
proposal submitted to Lessee by Lessor. Lessee's acceptance shall be evidenced
by its execution and delivery to Lessor of the "Certificate of Acceptance" in
the form attached as Exhibit A. Lessee represents and warrants that Lessor is
entitled to rely without independent verification or investigation on each such
Certificate of Acceptance bearing a signature purporting to be that of a
representative of Lessee as a true and genuine signature of a duly authorized
agent of Lessee, valid and binding against Lessee for purposes of acceptance
hereunder. Rental shall begin to accrue as of the first day of the acceptance
period (the "Rental Start Date") at the Daily Acceptance Period Rent per unit of
Equipment accepted shown on the Lease Order (such Daily Acceptance Period Rent
being calculated as the per diem amount, per unit accepted, of the Monthly Rent
based on a thirty-day month). Rental at the Monthly Rent shown on the Lease
Order shall accrue and be payable in advance commencing as of the first day of
calender quarter following the month in which the last unit of Equipment under a
Lease Order has been accepted. (Lease Rate Factors shown on the Lease Order are
the multiple which, applied to the per Unit or aggregate Equipment Cost (as the
case may be), produce the Acceptance Period Rent per Unit or the Monthly Rent,
respectively.)"
2. This First Amendment shall apply to all equipment leased pursuant to
Lease Orders for which the Rental Start Date is on or after May 5,
1988.
IN WITNESS WHEREOF the parties hereto have caused this First Amendment to
be executed and delivered by their duly authorized representatives as of the
date first above written.
AMERICAN FINANCE GROUP
By: /s/ [Illegible]
-----------------------------
Title: Associate General Counsel and Assistant Secretary
-------------------------------------------------
FORD MOTOR COMPANY
By: /s/ J. L. Scicluna
------------------------------
Title: Director
Facilities & Tools Purchasing Office
--------------------------------------
<PAGE>
AMENDMENT TO LEASE ORDER TERMS AND CONDITIONS
BETWEEN FORD MOTOR COMPANY, LESSEE, AND
AMERICAN FINANCE GROUP, INC., LESSOR
The Agreement between Ford Motor Company, as lessee ("Lessee"), and
American Finance Group, Inc., as lessor ("Lessor") effective April 5, 1988 which
established the Lease Order Terms and Conditions for certain personal property,
is hereby amended as follows:
The following is added to Paragraph 13:
(d) Lessor acknowledges and agrees that Lessee shall have no
responsibility to deal with any investors ("Investors") in any
trust, limited partnership or other entity sponsored and
managed by Lessor or its affiliates ("Investment Program") to
which Lessor may assign its rights pursuant to subsection 13
(a) above, in connection with the Leases or the Equipment.
Upon referral by Lessee to Lessor, Lessor shall promptly and
diligently investigate and handle any inquiries or claims or
provide other information as requested by any such Investors.
For so long as no Event of Default has occurred and is
continuing under the Leases, Lessor indemnifies Lessee and
holds Lessee harmless from and against any costs, claims,
losses or liabilities incurred or suffered by Lessee to the
extent resulting from Lessor's assignment of a Lease to an
Investment Program.
This amendment is retroactive to April 5, 1988.
FORD MOTOR COMPANY AMERICAN FINANCE GROUP
By: /s/ R.R. Cronan 12-18-90 By: /s/ [Illegible]
----------------- -------------------
Title: Buyer Title: Manager
-------------- ----------------
Date: 11/19/90 Date: 11/19/91
--------------- -----------------
<PAGE>
SECOND AMENDMENT TO LEASE ORDER TERMS AND CONDITIONS
This SECOND AMENDMENT, dated as of May 19, 1989, between Ford Motor
Company ("Lessee") and American Finance Group ("Lessor") amends Lease Order
Terms and Conditions dated as of April 5, 1988, between Lessee and Lessor (as
successor in interest to American Finance Group, Inc.) (the "Lease Order Terms
and Conditions") as follows:
1. Section 6 of the Lease Order Terms and Conditions is hereby amended and
restated to read in its entirety as follows:
"6. Acceptance
Lessee shall accept the Equipment if the Equipment has operated
efficiently for the period indicated in this Lease Order as the
"Acceptance Period" in conformance with both technical specifications
therefor and any proposal submitted to Lessee by Lessor. Lessee's
acceptance shall be evidenced by its execution and delivery to Lessor of
the "Acceptance Certificate" in the form attached as Exhibit A. Lessee
represents and warrants that Lessor is entitled to rely without
independent verification or investigation on each such Acceptance
Certificate bearing a signature purporting to be that of a representative
of Lessee as a true and genuine signature of a duly authorized agent of
Lessee, valid and binding against Lessee for purposes of acceptance
hereunder and for purposes of enforcement of the Lease. Rentals shall
begin to accrue as of the first day of the acceptance period (the "Rental
Start Date") at the Daily Acceptance Period Rent per unit of Equipment
accepted shown on the Lease Order (such Daily Acceptance Period Rent being
calculated as the per diem amount, per unit accepted, of the Monthly Rent
based on a thirty-day month). Rental at the Monthly Rent shown on the
Lease Order shall accrue and be payable in advance commencing as of the
first day of the month following the month in which the last unit of
Equipment under a Lease Order has been accepted. (Lease Rate Factors shown
on the Lease Order are the multiple which, applied to the per Unit or
aggregate Equipment Cost (as the case may be), produce the Acceptance
Period Rent per Unit or the Monthly Rent, respectively.)"
2. For all purposes under the Lease Order Terms and Conditions and Lease
Orders, "Basic Rent" and "Monthly Rent" shall be synonymous.
3. This Second Amendment shall apply to all equipment leased pursuant to
Lease Orders for which the Rental Start Date is on or after May 19, 1989.
As amended hereby, the Lease Order Terms and Conditions are hereby
approved, confirmed and ratified and are in full force and effect.
IN WITNESS WHEREOF the parties hereto have caused this Second Amendment to
be executed and delivered by their duly authorized representatives as of the
date first above written.
FORD MOTOR COMPANY AMERICAN FINANCE GROUP
By: /s/ R.R. Cronan 12-18-90 By: /s/ [Illegible]
-------------------------- ----------------------
Title: Buyer Title:
-------------------------- ----------------------
<PAGE>
0897G
ATTACHMENT A TO LEASE/PURCHASE ORDER NO. _________________________
Lessor: AMERICAN FINANCE GROUP, INC.
Address: Exchange Place
Boston, Massachusetts 02109
Lessee: FORD MOTOR COMPANY
Address: The American Road
Dearborn, MI 48121
LEASE ORDER TERMS AND CONDITIONS
1. Lease; Entire Agreement
This Attachment, dated as of April 5, 1988, sets forth the terms and
conditions governing the lease of certain items of personal property (the
"Equipment") described on the face of the Lease Order to which this
document is attached. This attachment, such lease/purchase order and any
other attachments thereto shall constitute the "Lease Order" as such term
is used herein and the entire agreement between the parties thereto;
provided, however, that the printed terms and conditions (if any) on the
reverse side of such lease/purchase Order shall have no force and effect.
In the event of a conflict between the typewritten terms and conditions on
the face of the Lease Order and the terms and conditions set forth herein,
the typewritten terms and conditions on the face of the Lease Order shall
govern.
2. Term; Rental Payments
(a) The term of the Lease Order is set forth on the face of this Lease
Order and shall commence on the Rental Start Date as defined herein.
(b) Lessee shall make rental payments to Lessor for lease of the
Equipment in the amounts and on the dates specified in this Lease
Order. All rental or other payments by Lessee to Lessor shall be
made to Lessor at the address set forth in this Lease Order or at
such other address as Lessor may hereafter direct in writing.
3. Net Lease; Lessee's Indemnity; No Warranties By Lessor.
Rent is net of, and Lessee agrees to pay, and will indemnify and hold
Lessor and any assignee of Lessor harmless from and against, all costs
(including, without limitation, maintenance, repair and insurance costs),
claims (but excluding third-party suits based solely on a claim of
product liability or strict liability in tort), losses or liabilities
relating to the Equipment or its use that are incurred by or asserted
against Lessee, any permitted sublessee of Lessee, Lessor or any assignee
of Lessor and arise out of matters occurring prior to the return of the
Equipment (i) unless Lessor's intentional misconduct or negligence is the
direct and proximate cause of the foregoing, and (ii) other than liens and
security interests created by Lessor and (iii) other than taxes, fees,
charges and assessments described in section 5(b) hereof. The Lease Order
is for
<PAGE>
purposes of providing lease financing only. Lessor is not a dealer,
supplier, manufacturer or vendor of the Equipment, and Lessee is solely
responsible for the selection of the Equipment, the manufacturer and
vendor thereof in accordance with Lessee's specifications and for the
inspection, acceptance, use and maintenance of the Equipment. Lessee
agrees that it shall not initiate or participate, by joinder or otherwise,
in a claim or counterclaim against Lessor of product liability or strict
liability in tort and will object by appropriate proceeding to the
inclusion of Lessor as a defendant in any proceeding based upon such a
claim. The Lease Order is a triple net lease. Lessee's obligations are not
subject to defense, counterclaim, set-off, abatement or recoupment, and
Lessee waives all rights to terminate or surrender the Lease Order, for
any reason, including, without limitation, defect in the Equipment or
nonperformance by Lessor, provided, however, that Lessee specifically
retains the right to seek recourse against Lessor by way of separate
action either at law or in equity in the event of nonperformance by Lessor
under the Lease Order. LESSOR HEREBY DISCLAIMS ALL WARRANTIES, WHETHER
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF
MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE. Lessor will assign to
Lessee all manufacturer or vendor warranties and will cooperate with
Lessee in asserting any claims under such warranties.
4. Use, Maintenance and Repairs
The Equipment is to be used exclusively by Lessee in the conduct of its
business, only for the purposes for which it was designed. The Equipment
is not to be removed from the location specified on the Lease Order except
upon prior written notice to Lessor, and in no event may the Equipment be
moved to a location outside the continental United States without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld. Lessee will effect all maintenance and repairs necessary to keep
the Equipment in good and efficient operating condition and appearance,
reasonable wear and tear excepted. All maintenance and repairs will be
made in accordance with the manufacturer's recommendations and by
authorized representatives of the manufacturer or by persons of equal
skill and knowledge whose work will not adversely affect any applicable
manufacturer's or vendor's warranty.
5. Compliance with Laws; Taxes
(a) Lessee shall comply with and conform to all laws and regulations
relating to the possession, use and maintenance of the Equipment,
and shall save Lessor harmless against actual or asserted violations
thereof.
(b) Lessee agrees to prepare and file all required returns or reports
and to pay all sales, gross receipts, personal property and other
taxes, fees, interest, fines or penalties imposed by any
governmental authority relating in any way to the Equipment, except
taxes measured by the net worth, net or gross income or profit of
Lessor, including the Michigan Single Business Tax, which shall be
solely the responsibility of Lessor. Notwithstanding the foregoing,
Lessor will report and pay all use taxes and Lessee will pay to
Lessor, on each Basic Rent Payment Date, as additional rent, an
amount equal to the use taxes attributable to that payment of Basic
Rent. If any item of Equipment is located in a taxing jurisdiction
that does not allow Lessee to report and pay personal property taxes
directly, Lessee will prepare an appropriate tax return to be
delivered, together with funds equal to the taxes Lessee claims are
due on such return, to
-2-
<PAGE>
Lessor not less than ten (10) days prior to the date such taxes are
due. The state and local retail sales and use tax status of the
Equipment shall be indicated on the face of this Lease Order.
6. Acceptance
Lessee shall accept the Equipment if the Equipment has operated
efficiently for the period indicated in this Lease Order as the
"Acceptance Period" in conformance with both technical specifications
therefor and any proposal submitted to Lessee by Lessor. Lessee's
acceptance shall be evidenced by its execution and delivery to Lessor of
the "Certificate of Acceptance" in the form attached as Exhibit A. Lessee
represents and warrants that Lessor is entitled to rely without
independent verification or investigation on each such Certificate of
Acceptance bearing a signature purporting to be that of a representative
of Lessee as a true and genuine signature of a duly authorized agent of
Lessee, valid and binding against Lessee for purposes of acceptance
hereunder. Rental shall begin to accrue as of the first day of the
acceptance period (the "Rental Start Date") at the Daily Acceptance Period
Rent per unit of Equipment accepted shown on the Lease Order (such Daily
Acceptance Period Rate being calculated as the per diem amount, per unit
accepted, of the Monthly Rent based on a thirty-day month). Rental at the
Monthly Rent shown on the Lease Order shall accrue and be payable in
advance commencing as of the first day of month following the month in
which the last unit of Equipment under a Lease Order has been accepted.
(Lease Rate Factors shown on the Lease Order are the multiple which,
applied to the per Unit or aggregate Equipment Cost (as the case may be),
produce the Acceptance Period Rent per Unit or the Monthly Rent,
respectively.)
7. License
Lessor grants to Lessee a nonexclusive, nontransferable license to use the
software products, including related documentation, provided with the
Equipment solely for Lessee's own use on or with the Equipment. Lessee
will not sell, transfer, disclose, or otherwise make available such
software products or copies thereof to third parties; provided, however,
that the software products may be disclosed on a need-to-know basis to
Lessee's employees or independent contractors using the Equipment. No
title or ownership of the software products or any portion thereof is
transferred to Lessee. The license granted herein shall terminate upon
termination of this Lease Order, and Lessee agrees, upon termination, to
return or destroy the software products and all portions or copies
thereof.
8. Transportation Expenses
(a) Unless otherwise indicated in this Lease Order, all Equipment
transportation, rigging and drayage charges shall be paid by Lessee.
Lessee shall furnish such labor as may be necessary for packing and
unpacking Equipment when in the possession of Lessee.
(b) All shipments of Equipment shall be made by a method specified by
Lessee.
9. Risk of Loss.
Lessee will bear all risk of loss with respect to the Equipment during the
Lease Term and until the Equipment is returned to Lessor. Lessee will
-3-
<PAGE>
notify Lessor promptly in writing if any item of Equipment is lost,
stolen, requisitioned by a governmental authority or damaged beyond repair
(each a "Casualty"), describing the Casualty in reasonable detail, and
will promptly file a claim under appropriate policies of insurance. Lessee
may, with the prior written consent of Lessor, replace the Equipment
suffering a Casualty with similar items of at least equal value and
utility. If Lessee does not replace the Equipment, Lessee will pay to
Lessor on the next Payment Date following the Casualty, in addition to
Basic Rent and other sums due on that date, an amount equal to the
Casualty Value specified on the Lease Order for such Equipment. The Lease
Order, solely as it relates to the Equipment suffering the Casualty, will
terminate and ownership of the Equipment suffering the Casualty, including
all claims for insurance proceeds or condemnation awards, will pass to
Lessee upon receipt of such payment by Lessor.
10. Insurance.
Lessee agrees, directly or through an agent, to maintain policies of
insurance on the Equipment in amounts, against risks and on terms and
conditions applicable to other equipment owned or leased by Lessee and
similar to the Equipment. Such insurance will at a minimum include (i)
physical damage and theft insurance in an amount at least equal to the
Casualty Value set forth on the Lease Order for such Equipment and (ii)
comprehensive liability insurance in the amount of at least $5,000,000 per
occurrence, in each case with deductibles not in excess of $100,000. All
policies (A) are to be maintained with insurers acceptable to Lessor; (B)
are to name Lessor and its assignees as loss payees with respect to
physical damage and theft and as additional insureds with respect to
liability, as their interests may appear; and (C) are to provide that they
may not be altered or cancelled except upon thirty days prior written
notice to Lessor and each of Lessor's assignees named as additional
insured and loss payee. Lessee agrees to deliver to Lessor such
certificates of insurance as Lessor may, from time to time, request.
Lessor may hold any insurance proceeds as security for Lessee's
performance of its obligations with respect to the Equipment on behalf of
which the proceeds were paid and the payment of all rent and other sums
then due and unpaid under the Lease Order and will pay such proceeds over
to Lessee only upon receipt of satisfactory evidence thereof. Lessor
accepts Lessee's current practices of self-insurance in satisfaction of
the requirements set forth above.
11. Quiet Possession and Use
(a) Title to the Equipment shall remain in Lessor, and Lessee shall keep
the Equipment free and clear of any and all liens, charges and
encumbrances of any party claiming by or through Lessee.
(b) Lessor convenants and warrants to and with Lessee that Lessor is the
lawful owner of the Equipment, free from all encumbrances, and that,
subject to Lessee performing the conditions hereof, Lessee shall
peaceably and quietly hold, possess and use the Equipment during the
term of this Lease Order. Lessor shall indemnify and hold harmless
Lessee and will protect and defend, at its sole expense, the rights
of Lessee described in this Paragraph against any claims against or
encumbrances on the Equipment asserted by or through Lessor.
-4-
<PAGE>
12. Lessee's Right to Sublease and Assign
Provided that Lessee is not in default hereunder, Lessee shall have the
following rights to sublease the Equipment or assign this Lease Order for
the remainder of the applicable lease term; provided, however, that
Lessee shall remain responsible for all provisions and obligations of
this Lease Order:
(a) Lessee may sublease the Equipment to a Ford Affiliated Company upon
reasonable prior notice to Lessor (a "Ford Affiliated Company" is
any subsidiary or affiliate of Lessee 51% of the voting stock or
assets of which are indirectly or directly owned or controlled by
Lessee); or
(b) Lessee may sublease the Equipment or assign this Lease Order to any
other party upon 30 days prior written notice to Lessor and provided
that Lessor consents in writing to such sublessee or assignee and
all terms and conditions of such sublease or assignment, such
consent not to be unreasonably withheld.
13. Assignment by Lessor
(a) Lessor may at any time and from time to time transfer, assign or
grant a security interest in its rights under this Lease Order, the
Equipment and/or the rental payments and other sums at any time due
and to become due, or at any time owing or payable, by Lessee to
Lessor under any of the provisions of this Lease Order, provided
that Lessor gives Lessee 30 days prior written notice of any
proposed transfer, assignment or grant occurring under this
Paragraph 16(a) and obtains Lessee's prior written approval, which
approval shall not be unreasonably withheld, provided, however, that
no notice to or consent by Lessee is required for an assignment to a
trust, limited partnership or other entity sponsored and managed by
Lessor or its affiliates. Any such assignment may be either absolute
or as collateral security for indebtedness of Lessor. There shall be
only one absolute assignee and one collateral assignee at any one
time. It shall be reasonable for Lessee to withhold its approval if
the proposed transfer, assignment or grant of a security interest
would in any way affect any then existing loan commitments or lines
of credit of Lessee or any member of Lessee's "Affiliated Group"
with such assignee or with any corporation that is a member of an
"Affiliated Group" of which such assignee is also a member. The term
"Affiliated Group" shall have the meaning set forth in Section
1504(a) of the Internal Revenue Code.
(b) No such assignee shall be obligated to perform any duty, covenant or
condition required to be performed by Lessor under any of the terms
and conditions hereof; provided, however, that such assignee shall
be obligated to comply with this Paragraph in the event such
assignee proposes to further transfer, assign or grant a security
interest in its rights under this Lease Order. Notwithstanding any
such assignment, each and every covenant, agreement, representation
and warranty of Lessor shall survive any such assignment and shall
be and remain the sole liability of Lessor and of every person, firm
or corporation succeeding (by merger, consolidation, purchase of
assets or otherwise) to all or substantially all of the business
assets or good will of Lessor. Without limiting the foregoing,
Lessee acknowledges and agrees that from and after the receipt by
Lessee of
-5-
<PAGE>
written notice of an assignment from Lessor (i) If so directed, all
rental and other payments which are the subject matter of the
assignment shall be paid to the assignee thereof at the place of
payment designated in such notice, (ii) if such assignment was made
for collateral purposes, the rights of any such assignee in and to
the rental and other payments by Lessee under any provisions of this
Lease Order shall be absolute and unconditional and shall not be
subject to any abatement whatsoever, or to any defense, set-off,
counterclaim or recoupment whatsoever by reason of any damage to or
loss or destruction of the Equipment, or any defect in or failure of
title of Lessor to the Equipment, or any interruption from
whatsoever cause (other than from any wrongful act of such assignee)
in the use, operation or possession of the Equipment or any
indebtedness or liability howsoever and whenever arising of Lessor
to Lessee or to any other person, firm, corporation or governmental
agency or taxing authority, or any misconduct or negligence of
Lessor, and (iii) the assignee shall have the sole right to exercise
all rights, privileges, consents and remedies (either in its own
name or in the name of Lessor for the use and benefit of the
assignee) which are permitted or provided to be exercised by Lessor.
Lessee shall confirm the above to such assignee in writing in such
form as such assignee may reasonably require. Lessee does not hereby
waive any claim which it may have against Lessor, any assignee or
any other party.
(c) It is further understood and agreed that if a security interest in
the Equipment is granted to an assignee of the rental payments as
additional security for indebtedness of Lessor, the security
agreement covering the Equipment shall expressly provide that the
right, title and interest of the secured party thereunder is subject
to the right and interest of Lessee in and to the Equipment pursuant
to this Lease Order.
14. Alterations and Attachments
Lessee may make or have made on its behalf alterations in and additions or
attachments to the Equipment which are necessary or desirable for the
maintenance or improvement of the Equipment, all at Lessee's sole cost and
expense, provided that no such alteration, addition or attachment reduces
the value or impairs the capabilities or efficiency of the Equipment or
violates the provisions of Revenue Procedure 79-48 or any successor rule,
regulation or Revenue Procedure. Lessor shall, at Lessee's sole expense,
execute and deliver from time to time such instruments, including but not
limited to orders for new equipment, components or modifications, and do
such other matters and things as may be necessary or appropriate to
Lessee's rights under this Paragraph 14. Any part, attachment,
appurtenance or accessory constituting a physical part of the Equipment
which cannot be readily removed without impairing the value or utility of
the Equipment and shall be deemed to be an accession to the Equipment and
shall from that time be deemed part of the Equipment, with title thereto
vesting in Lessor. Such alterations, additions or attachments shall not
modify the term of the lease of the Equipment with respect to which such
alterations, additions or attachments are made unless agreed to by Lessor
and Lessee. If Lessee shall affix the Equipment to any real property, the
Equipment shall remain personalty and shall not become part of the realty.
-6-
<PAGE>
15. Recordation
Lessee, upon demand in writing from Lessor, shall assist Lessor to cause
the Lease Order, all attachments and exhibits hereto and any and all
additional instruments or statements which shall be executed pursuant to
the terms hereof, so far as permitted by applicable law or regulations, to
be kept, filed, and recorded and to be re-executed, refiled, and
re-recorded at all times in the appropriate office and in such other
places, whether within or without the United States, as Lessor may
reasonably request to perfect and preserve its rights hereunder.
16. Inspection; Reports
Lessor may from time to time, upon reasonable notice and during Lessee's
normal business hours, inspect the Equipment and Lessee's records with
respect thereto and discuss Lessee's financial condition with
knowledgeable representatives of Lessee. Lessee will, if requested,
provide a report on the condition of the Equipment, a record of its
maintenance and repair, a summary of all items suffering a Casualty, a
certificate of no default or such other information or evidence of
compliance with Lessee's obligations under the Lease Order as Lessor may
reasonably request.
17. Late Payment Charges; Lessor's Right to Perform for Lessee
A Late Payment Charge equal to the lesser of the late payment charge
assessed against Lessor in connection with the financing of its purchase
of the Equipment or 2% per annum above the prime or base lending rate of
The First National Bank of Boston, as announced from time to time, will
accrue on any sum not paid when due for each day not paid, provided that
Lessor has furnished Lessee with an invoice therefor thirty (30) days
prior to the due date thereof and given ten business days' written notice
of such nonpayment. If Lessee fails to duly and promptly pay or perform
any of its obligations hereunder, Lessor may itself pay or perform such
obligations for the account of Lessee without thereby waiving any default
and Lessee will pay to Lessor, on demand and in addition to Basic Rent, an
amount equal to all sums so paid or expenses so incurred, plus a Late
Payment Charge accruing from the date such sums were paid or expenses
incurred by Lessor.
18. Lessee's Options Upon Lease Expiration
Lessee has the option at the expiration of the Lease Term, exerciseable
with respect to all, but not less than all, items of Equipment leased
pursuant to Lease Orders having the same Expiration Date, (i) to return
the Equipment to Lessor, (ii) to renew the Lease Order at fair rental
value for a Renewal Term the length of which shall be determined by
agreement of Lessee and Lessor or (iii) to purchase the Equipment for cash
at its then fair market value. Lessee agrees to provide Lessor written
notice of its decision to return or purchase the Equipment or renew the
Lease Order not less than 90 days prior to the Expiration Date. If Lessee
fails to give Lessor 90 days' written notice, the Lease Term may, at
Lessor's option, be extended and continue until 90 days from the date
Lessor receives written notice of Lessee's decision to return or purchase
the Equipment or renew the Lease Order. Fair market value, fair rental
value and useful life will be determined by agreement of Lessor and
Lessee, or if the parties cannot agree, by an independent equipment
-7-
<PAGE>
appraiser of nationally recognized standing selected by mutual agreement
of and paid equally by Lessor and Lessee. At the expiration of the Lease
Term or any extension or renewal thereof, Lessee will, at its expense,
assemble, pack, and crate the Equipment, all in accordance with
manufacturer's recommendations, if any, and deliver it by common carrier,
freight and insurance prepaid, to a place to be designated by Lessor
within the continental United States. All packaging will include related
maintenance logs, operating manuals, and other related materials and will
be clearly marked so as to identify the contents thereof. The Equipment
will be returned in good and efficient operating condition and appearance,
reasonable wear and tear excepted, and eligible for manufacturer's
maintenance, if available, free of all Lessee's markings and free of all
liens and encumbrances other than those created by Lessor or arising out
of claims against Lessor and not related to the lease of the Equipment to
Lessee. Lessor may, but is not required to, inspect the Equipment prior to
its return. If, upon inspection, Lessor determines that the condition of
any item of Equipment does not conform to the minimum requirements set
forth on Exhibit B hereto, Lessor will promptly notify Lessee of such
determination, specifying the repairs or refurbishments needed to place
the Equipment in the minimum acceptable condition. Lessor may, at its
option, either require Lessee to effect such repairs or itself effect such
repairs. Lessor may re-inspect the Equipment and require further repairs
as often as necessary until the Equipment is placed in acceptable
condition. In either case, all costs will be paid by Lessee. The Lease
Order shall continue in full force and effect and Lessee shall continue to
pay Basic Rent through and including the date on which the Equipment is
accepted for return by Lessor.
19. Lessee's Representations and Warranties
Lessee represents, warrants and certifies as of the date of execution and
delivery of each Lease Order as follows:
(a) Lessee is duly organized, validly existing and in good standing
under the laws of the state of its incorporation, with full power to
enter into and to pay and perform its obligations under the Lease
Order, and is duly qualifed and in good standing in all other
jurisdictions where its failure to so qualify would adversely affect
the conduct of its business or the performance of its obligations
under or the enforceablility of the Lease Order;
(b) the Lease Order and all related documents (including, without
limitation, the Certificate of Acceptance) have been duly
authorized, executed and delivered by Lessee, are enforceable
against Lessee in accordance with their terms and do not and will
not contravene any provisions of or constitute a default under
Lessee's organizational documents or its By Laws, any agreement to
which it is a party or by which it or its property is bound, or any
law regulation or order of any governmental authority;
(c) Lessor's right, title and interest in and to the Lease Order, the
Equipment and the rentals therefrom will not be affected or impaired
by the terms of any agreement or instrument by which Lessee or its
property is bound;
(d) no approval of, or filing with, any governmental authority or other
person is required in connection with Lessee's entering into or the
payment or performance of its obligations under the Lease Order;
-8-
<PAGE>
(e) there are no suits or proceedings pending or threatened before any
court or governmental agency against or affecting Lessee which, if
decided adversely to Lessee, would materially adversely affect
Lessee's business or financial condition or its ability to perform
any of its obligations under the Lease Order or this Master Lease
Agreement as incorporated therein by reference; and
(f) there has been no material adverse change to Lessee's financial
condition since the date of its most recent audited financial
statement.
20. Default
(a) If, during the continuance of this Lease Order, one or more of the
following events ("Events of Default") shall occur:
(i) Lessee shall fail to make any part of the rental payments
provided in Section 2 hereof within ten days after receipt of
written notice of nonpayment;
(ii) Lessee shall make or permit any unauthorized assignment or
transfer of this Lease Order or possession of the Equipment to
any third party.
(iii) Lessee shall fail to observe or perform any other material
covenant, condition and agreement of Lessee contained herein
and such failure shall continue for 30 days after written
notice thereof from Lessor to Lessee. If such Event of Default
is of such a nature that it cannot reasonably be cured within
30 days, then Lessee shall not be deemed in default during any
period of time that it takes Lessee to cure such Event of
Default, provided that Lessee notifies Lessor in writing that
efforts to cure such defaults have been commenced and Lessee
is diligently pursuing such cure in good faith;
(iv) Lessee shall have entered against it by a court of competent
jurisdiction a decree or order for relief in respect of the
Lessee in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafterin effect, or
appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Lessee or
for any substantial part of its property, or ordering the
winding up or liquidation of its affairs and such decree or
order shall remain unstayed and in effect for a period of 90
consecutive days; or
(v) Lessee shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law nor or hereafter
in effect, or consent or the entry of an order for relief in
an involuntary case under any such law, or consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, trusteee, custodian, sequestrator (or similar
official of the Lessee) or for any substantial part of its
property, or make any general assignment for the benefit of
creditors, or fail generally to pay its debts as they become
due, or take any corporate action in furtherance of any of the
foregoing.
-9-
<PAGE>
(b) Upon the occurrence of an Event of Default, Lessor may, without
notice to Lessee, declare the applicable Lease Order in default and
may exercise any of the following remedies:
I. at Lessor's option, and in its sole discretion either:
(i) declare all Basic Rent and other sums due or to become due under
the Lease Order immediately due and payable, and sue to enforce the
payment thereof; or
(ii) receive from Lessee (and sue to enforce the payment thereof),
as liquidated damages for loss of the bargain and not as a penalty,
and in addition to all accrued and unpaid Basic Rent and other sums
due under the Lease Order, an amount equal to the greater of (A) the
Casualty Value set forth on the Lease Order calculated after the
last payment of Basic Rent actually received by Lessor or (B) the
fair market value of the Equipment as of the date of default
determined by an appraiser selected by Lessor, plus, in either case,
interest thereon at the Late Payment Charge rate from the date of
default until the date of payment, and, after receipt in good funds
of the sums described above, Lessor will, if it has not already done
so, terminate the Lease Order and, at its option, either pay over to
Lessee as, when and if received, any net proceeds (after all costs
and expenses) from any disposition of the Equipment, or convey to
Lessee all of its right, title and interest in and to the Equipment,
as is, where is and with all faults, without recourse and without
warranty; and
II. without regard to whether Lessor has elected either option in
subsection I. above, Lessor may
(i) proceed by appropriate court action either at law or in equity
to enforce performance by Lessee of the covenants and terms of the
Lease Order and to recover damages for the breach thereof; and
(ii) terminate the Lease Order by written notice to Lessee,
whereupon all right of Lessee to use the Equipment will immediately
cease and Lessee will forthwith return the Equipment to Lessor in
accordance with the provisions hereof; and
(iii) repossess the Equipment and without notice to Lessee, dispose
of it by private or public, cash or credit sale or by lease to a
different lessee, in all events free and clear of any rights of
Lessee, and for this purpose Lessee hereby grants to Lessor and its
agents the right to enter upon the premises where the Equipment is
located and to remove the Equipment therefrom and Lessee agrees not
to interfere with the peaceful repossesion of the Equipment; and
(iv) recover from Lessee all costs and expenses arising out of
Lessee's default, including, without limitation, expenses of
repossession, storage, appraisal, repair, reconditioning and
disposition of the Equipment and reasonable attorneys' fees and
expenses.
-10-
<PAGE>
(c) The Remedies provided for in this Lease Order shall not be deemed
exclusive, but shall be cumulative, and shall be in addition to all
other remedies existing at law or in equity. The failure or delay of
either party in exercising any rights granted it hereunder upon any
occurrence of any of the contingencies set forth herein shall not
constitute a waiver of any such right upon the continuation or
recurrence of any of such contingencies or similar contingencies and
any single or partial exercise of any particular right shall not
exhaust the same or constitute a waiver of any other right provided
herein.
21. Notice; Governing Law
All notices required hereunder shall be effective upon receipt in writing
delivered by hand or by other receipt-acknowledged method of delivery at the
address first above written. This Lease Order shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
AMERICAN FINANCE GROUP, INC. FORD MOTOR COMPANY
By: /s/ [Illegible] By: /s/ J. L. Scicluna
------------------------- ---------------------------
Title: Vice President Title: Director, Facilities and
------------------------- Tools Purchasing Office
------------------------
-11-
<PAGE>
Exhibit A
To Lease Order Terms and Conditions
Between American Finance Group, Inc., Lessor,
and Ford Motor Company, Lessee,
dated April __, 1988.
ACCEPTANCE CERTIFICATE
The undersigned Ford Motor Company ("Lessee"), by its duly authorized
representative whose signature appears below, hereby represents, warrants and
certifies (a) that the Equipment described on the Internal Combustion Truck
Pre-Delivery/Delivery Report has been delivered to and inspected and found
satisfactory by Lessee and is accepted for lease by Lessee under Lease Order No.
_________ and the Lease Order Terms and Conditions dated April __, 1988 as
incorporated therein by reference, as of the Acceptance Date set forth below;
(b) all items of Equipment are new and unused as of the Acceptance Date, except
as otherwise specified, and (c) the representations and warranties of Lessee set
forth in the Lease Order Terms and Conditions are true and correct as of the
date hereof.
ACCEPTANCE DATE: ____________________
FORD MOTOR COMPANY
By:_____________________________
Authorized Signer
Accepted and Agreed To:
AMERICAN FINANCE GROUP, INC.
By__________________________________
Authorized Signer
<PAGE>
[ATTACH INTERNAL COMBUSTION TRUCK PRE-DELIVERY/DELIVERY REPORT]
<PAGE>
- ------------------------------------------------------------------------------
DATE DELIVERED LEASE SALE RENTAL DEMO HOUR METER MODEL SERIAL NUMBER
[ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------
UNIT CONFIGURATION
ENGINE
Manufacturer _____________________
Serial No. _______________________
Model ____________________________
FUEL
[ ] Gas [ ] L.P.G. [ ] Diesel
DIFFERENTIAL
[ ] Std. [ ] Lo-speed
TRANSMISSION
Manufacturer _____________________
Serial No. _______________________
Pt. No. __________________________
TYPE
[ ] Standard [ ] Powershift
UPRIGHT
Lift Height ______________________
Pt. No. __________________________
Control No. ______________________
[ ] Int. Free Lift [ ] Standard
[ ] Free Lift [ ] 3-Stage
[ ] Wide 3-Stage [ ] Heavy Duty
[ ] 4-Stage [ ] SPED
[ ] Other
CYL. ASSY. NO. & MFG. CODE
Main ____________________________
Free Lift _______________________
TIRE SIZE AND TYPE
Drive _________ Steer __________
[ ] Std. [ ] Std.
[ ] Poly [ ] Poly
[ ] Other [ ] Other
CARRIAGE TYPE
Pt. No. _________________________
Size ____________________________
[ ] Hook [ ] Pin
FORK
Pt. No. _________________________
[ ] Hook [ ] Pin [ ] Other
ATTACHMENT
Type ____________________________
Mfg. ____________________________
Model ___________________________
Serial No. ______________________
DEALER INSTALLED OPTIONS OR
ACCESSORIES
___________________________________
___________________________________
___________________________________
Pre-Delivery Check List
Mark box with "X" when item is checked and/or corrected per specifications prior
to delivery. Mark box with "O" when item does not apply.
[ ] Engine oil level [ ] Inching qualities
[ ] Cooling system fluid level [ ] Brake operation
[ ] Battery acid level [ ] Upright mounting hardware
[ ] Brake fluid level [ ] Upright adjustment & lube
[ ] Steering gear oil level [ ] Tilt limiters correct
[ ] Differential oil level [ ] Attachment mounting
[ ] Transmission oil level [ ] Steering operation
[ ] Hydraulic system oil level [ ] Hydraulic system operation
[ ] General lubrication (cold)
[ ] Tire inflation (cold) [ ] Hydraulic system operation
[ ] Hoses routed properly (loaded)
[ ] Air cleaner hose connections [ ] Attachment operation
[ ] Electrical connections & [ ] Oil & fluid leaks
wire routing [ ] Engine r.p.m.(idle & governed)
[ ] Horn [ ] Engine starting (hot)
[ ] Warning lights & gauges [ ] Wheel lugs & axis studs
[ ] Optional equipment retorqued
[ ] Engine starting (cold) [ ] Unit matches customer specs
[ ] Clutch shifting [ ] Condition of paint
[ ] Gear Shifting [ ] Name plate correct
[ ] U.L. Tag
Servicemen's Signature: ___________________________________________________
Date: _____________________________________________________________________
CUSTOMER DELIVERY SERVICE CHECK LIST
Review Owners & Operators Guide and Explain
Each Item to the Customer. Mark Each Box With an
"X" When Complete.
[ ] Capacity Limitations
[ ] Operator Safety Rules
[ ] Name Plate Correct
[ ] Location and Use of Instruments & Controls
[ ] Demonstrate Operator Procedures & Techniques
[ ] Routine Maintenance & Lube Requirements
[ ] Operation & Maintenance of Attachment
[ ] Warranty Policy
[ ] Parts Ordering Procedures
[ ] Dealer's After-Delivery Services
[ ] Parts Book Delivered
[ ] Keys Delivered
[ ] O. & O. Guide Delivered
[ ] S.I.O. Package (if applicable)
__________________________________
Dealer
__________________________________
Address
__________________________________
City State Zip
At the time of delivery, the Parts Manual, Owner's and
Operator's Guide and Warranty Policy were explained and
delivered. The delivery service was conducted as noted above.
x _______________________ _________________
Dealer Representative's Date
Signature
_______________________________
Owner
_______________________________
Address
_______________________________
City State Zip
This machine has been received in satisfactory condition. We
have received the Owner's and Operator's Guide and
instruction regarding the operation, maintenance, safety
practices and warranty policy in accordance with the Delivery
Check List and O & O Guide.
x _________________________ ________________
Customer Representative's Date
Signature
FACTORY COPY
<PAGE>
Exhibit B
To Lease Order Terms and Conditions
Between American Finance Group, Inc., Lessor,
and Ford Motor Company, Lessee,
dated April __, 1988.
CONDITION OF EQUIPMENT AT EXPIRATION OF LEASE TERM:
1. When loaded to its rated capacity, each Unit shall:
(a) Start under its own power and idle without water or fuel leaks and
without oil leaks in excess of one drip per minute.
(b) Move through its normal speed ranges in both forward and reverse, in
normal operating manner.
(c) Steer normally right and left in both forward and reverse.
(d) Be able to stop with its service brakes within a safe distance, in
both forward and reverse.
(e) Lift, lower, and tilt normally with and without a load a minimum of
three (3) times. Oil leakage must not be such that there is more
than one drip per minute. Carriage, lift chains and channel assembly
shall be in working condition, normal wear and tear excepted.
(f) Electric trucks, if purchased with batteries, must be returned with
batteries that are capable of sustaining a charge that will permit
use of the equipment for an eight (8) hour shift.
(g) All motors shall operate without arcing and/or sparking.
2. Each Unit's attachment(s), if any, shall perform all of its required
functions, and each Unit's horn, parking brake, and lights shall be
operational.
3. Each Unit shall have tires with at least thirty-five percent (35%)
remaining tread, and without flat spots. Chunking shall be permitted, but
there shall be no chunks larger than a half dollar in size.
4. Each Unit shall be complete with all parts and pieces.
<PAGE>
[LOGO] American Finance Group(SM)
May 9. 1989
Mr. Robert Cronan
Buyer - Plant Equipment and Sales Section
Facilities and Tools Purchasing
FORD MOTOR COMPANY
The American Road
FMCC Bldg., Room 2421
Dearborn, MI 48121-1705
Re: Lease Order Terms and Conditions dated as of April 5, 1988 between
Ford Motor Company, as lessee ("Ford") and American Finance Group,
as lessor ("AFG")
Dear Bob:
An oversight has come to our attention in connection with the referenced
Lease Order Terms and Conditions, which we intend to correct by this letter if
it is acceptable to you.
Section 9 of the Lease Order Terms and Conditions, which apply to all
Lease/Purchase Orders, provides procedures to follow in the event that any item
of equipment is destroyed, lost or requisitioned by the government. It states
that Ford may either replace the destroyed item of equipment or, at Ford's
option, pay AFG an agreed-upon amount as the casualty value of the destroyed
equipment. That agreed-upon amount, or "Casualty Value," was to be spelled out
in each Lease/Purchase Order.
We understand that, to meet its equipment needs, Ford is likely to replace
any destroyed equipment rather than do without. However, it has been our
oversight that in using your form of Lease/Purchase Order we have not been
furnishing the Casualty Values for each item of equipment subject to the orders.
Attached please find two schedules, Casualty Value Schedule A (for
three-year leases) and Casualty Value Schedule B (for five-year leases). These
schedules provide a declining percentage value, based on original equipment
cost, of equipment over the course of a three or five year lease. For the sake
of simplicity, we suggest that these Casualty Value Schedules be incorporated by
amendment into all existing Lease/Purchase Orders and apply automatically to
all future Lease/Purchase Orders unless we specifically agree otherwise.
Nothing in this letter is intended to impair Ford's ability to replace
destroyed equipment as provided in the Lease Order Terms and Conditions rather
than to pay the Casualty Value based on the attached formulas.
<PAGE>
[LOGO] Mr. Robert Cronan
May 9, 1989
Please let me know at your earliest convenience if the attached values and
the proposal set out in this letter are acceptable to you. If the values and
this letter are acceptable, please sign the enclosed counterpart of this letter
and return it to Eileen Waters' attention as soon as possible.
Thanks for your help in resolving this issue.
Best regards,
/s/ David W. Parr
David W. Parr
Associate General Counsel
and Vice President
Accepted and Agreed to:
FORD MOTOR COMPANY
By: /s/ R. R. Cronan
-----------------------
R. R. Cronan
Title: Buyer
--------------------
<PAGE>
FORD MOTOR COMPANY
CASUALTY VALUES
(Stated as Percentage of Equipment Cost
AFTER
PRIMARY
TERM CASUALTY
PAYMENT NO. VALUE
- ------------ --------
Prior to 1 112.00
1 110.98
2 109.94
3 108.89
4 107.83
5 106.75
6 105.66
7 104.55
8 103.43
9 102.29
10 101.14
11 99.97
12 98.78
13 97.58
14 96.37
15 95.13
16 93.88
17 92.62
18 91.33
19 90.03
20 88.71
21 87.38
22 86.02
23 84.65
24 83.26
25 81.85
26 80.42
27 78.97
28 77.51
29 76.02
30 74.51
31 72.99
32 71.44
33 69.87
34 68.28
35 66.67
36 65.00
<PAGE>
FORD MOTOR COMPANY
CASUALTY VALUES
(Stated as Percentage of Equipment Cost)
AFTER AFTER
PRIMARY PRIMARY
TERM CASUALTY TERM CASUALTY
PAYMENT NO. VALUE PAYMENT NO. VALUE
----------- -------- ----------- --------
Prior to 1 112.00
1 111.34 31 86.32
2 110.66 32 85.29
3 109.98 33 84.25
4 109.28 34 83.19
5 108.58 35 82.12
6 107.86 36 81.03
7 107.14 37 79.93
8 106.41 38 78.82
9 105.66 39 77.68
10 104.90 40 76.54
11 104.14 41 75.37
12 103.36 42 74.19
13 102.57 43 73.00
14 101.77 44 71.78
15 100.96 45 70.55
16 100.14 46 69.31
17 99.31 47 68.04
18 98.46 48 66.76
19 97.60 49 65.46
20 96.73 50 64.15
21 95.85 51 62.81
22 94.96 52 61.46
23 94.05 53 60.09
24 93.13 54 58.70
25 92.20 55 57.29
26 91.25 56 55.86
27 90.29 57 54.41
28 89.32 58 52.94
29 88.33 59 51.46
30 87.33 60 50.00
<PAGE>
ENGINE LEASE AGREEMENT
between
INVESTORS ASSET HOLDING CORP.
Lessor
and
TRANSNET LIMITED
[dba SOUTH AFRICAN AIRWAYS]
Lessee
Dated as of DECEMBER 17, 1996
covering one Pratt & Whitney model JT9D-7J engine
Serial No. 685952
<PAGE>
LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. Definitions .............................................................. 1
SECTION 2. Lease and Delivery of the Engine ......................................... 3
(a) Lease, Obligations, and Conditions Precedent ........................... 3
(i) Execution of Lease ............................................ 3
(ii) Evidence of Legal Authority to Lease and Operate the Engine .. 3
(iii) Evidence of Corporate Authority ............................. 3
(iv) Evidence of Insurance ........................................ 3
(v) Payment of Rent ............................................... 3
(b) Delivery ............................................................... 3
SECTION 3. Term and Rent ............................................................ 4
(a) Term ................................................................... 4
(b) Rent ................................................................... 4
(c) Method of Payment ...................................................... 4
(d) Supplemental Rent ...................................................... 4
SECTION 4. Representations, Warranties and Miscellaneous Covenants .................. 4
(a) The Lessee's Representations and Warranties ............................ 4
(i) Organization and Qualification ................................ 4
(ii) Corporate Authorization ...................................... 5
(iii) Government Approval ......................................... 5
(iv) Valid and Binding Agreements ................................. 5
(v) Litigation .................................................... 5
(vi) Taxes ........................................................ 5
(vii) Financial Condition ......................................... 5
(b) Representations and Warranties of the Lessor ........................... 6
(i) Due Organization .............................................. 6
(ii) Due Authorization; Enforceability ............................ 6
(iii) No Violation ................................................ 6
(iv) Ownership of Engine .......................................... 6
(c) Disclaimer and Acknowledgment of Disclaimer;
Waiver of Consequential Damages ................................... 6
(d) Lessor's Covenant of Quiet Enjoyment ................................... 7
SECTION 5. Title, Use, Operation, Maintenance, Possession ........................... 8
(a) Title .................................................................. 8
(b) General ................................................................ 8
(c) Use .................................................................... 8
(d) Operation .............................................................. 8
(e) Lessee to Pay All Costs ................................................ 8
(f) Reports ................................................................ 8
(g) Right to Inspect ....................................................... 8
(h) Engine Documents ....................................................... 9
(i) Possession ............................................................. 9
(j) Insignia ............................................................... 9
(k) Repair and Maintenance Obligations ..................................... 9
<PAGE>
SECTION 6. Return of the Engine ..................................................... 10
(a) Return ................................................................. 10
(b) Lease Continues ........................................................ 10
(c) Condition of Engine .................................................... 10
(d) Inspections ............................................................ 10
(e) Acceptance ............................................................. 10
(f) Engine Documents ....................................................... 11
(g) Ownership .............................................................. 11
(h) Disputes ............................................................... 11
SECTION 7. Liens .................................................................... 11
SECTION 8. Taxes .................................................................... 11
(a) Tax Indemnity .......................................................... 11
(b) Withholding ............................................................ 12
(c) After-tax Payment ...................................................... 12
SECTION 9. Risk of Loss; Event of Loss; Requisition for Use ......................... 12
(a) Risk of Loss ........................................................... 12
(b) Event of Loss .......................................................... 13
SECTION 10. Insurance ............................................................... 13
(a) All-Risk Insurance ..................................................... 13
(b) War Risk Insurance ..................................................... 13
(c) Liability Insurance .................................................... 14
(d) Deductibles and Self Insurance ......................................... 14
(e) Additional Requirements; Loss Payment .................................. 14
(f) No Set-Off ............................................................. 15
(g) Notice of Material Alteration of Cancellation .......................... 15
(h) Renewal ................................................................ 15
(i) Application of Hull Insurance Proceeds ................................. 15
(j) Insurance for Own Account .............................................. 15
(k) Reports Certificates ................................................... 16
SECTION 11. The Lessor's Right to Perform for the Lessee ............................ 16
SECTION 12. Further Assurances ...................................................... 16
SECTION 13. Events of Default ....................................................... 16
(a) Failure to Pay Rent .................................................... 16
(b) Failure to Pay Supplemental Rent ....................................... 16
(c) Failure to Maintain Insurance .......................................... 16
(d) Misrepresentation or Breach of Warranty ................................ 16
(e) Bankruptcy, Etc. ....................................................... 17
(f) General Default ........................................................ 17
(g) Loss of Airline or Corporate Authority ................................. 17
(h) Other Obligations ...................................................... 17
<PAGE>
SECTION 14. Remedies ................................................................ 17
(a) Return and Repossession ................................................ 17
(b) Sale, Use, Etc. ........................................................ 17
(c) Liquidated Damages, Fair Market Rental ................................. 17
(e) Cancellation, Termination, and Rescission .............................. 18
(f) Other Remedies ......................................................... 18
SECTION 15. General Indemnity and Expenses .......................................... 18
(a) General Indemnity ...................................................... 18
(b) Legal Fees and Expenses ................................................ 19
SECTION 16. Assignment and Alienation ............................................... 19
SECTION 17. Notices ................................................................. 20
SECTION 18. No Set-Off, Counterclaim, Etc. .......................................... 20
SECTION 19. Governing Law ........................................................... 21
(a) Consent to Jurisdiction ................................................ 21
(b) Choice of Law .......................................................... 21
SECTION 20. Miscellaneous ........................................................... 21
EXHIBIT A: FORM OF LEASE SUPPLEMENT AND RECEIPT ..................................... 23
EXHIBIT B: FORM OF ENGINE RETURN RECEIPT AND LEASE TERMINATION ...................... 28
</TABLE>
<PAGE>
ENGINE LEASE AGREEMENT
This ENGINE LEASE AGREEMENT dated as of December 17, 1996 between
INVESTORS ASSET HOLDING CORP., a Massachusetts corporation with its principal
place of business and registered office at 98 North Washington Street, Boston,
Massachusetts 02114 ("Lessor") and TRANSNET LIMITED, a public company
(registration number 90/00900/06) with limited liability and duly incorporated
under The Company Laws of the Republic of South Africa and trading as SOUTH
AFRICAN AIRWAYS (hereinafter referred to as "Lessee"), at Johannesburg
International Airport, 1627, Republic of South Africa,
WHEREAS, the Lessee desires to lease from the Lessor and the Lessor
is willing to lease to the Lessee the engine described and referred to 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:
"Business Day" means a day of the year in which banks are not authorized
or required to close in Boston, Massachusetts, or __________________________.
"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(b) hereof.
"Delivery Location" has the meaning given such term in Section 2(b)
hereof.
"Engine" means one Pratt & Whitney model JT9D-7J engine, serial number
685952, together with any and all parts so long as the same shall be either
incorporated or installed in or attached to the Engine. The Engine shall remain
leased hereunder whether or not from time to time attached to any airframe or on
the ground.
"Engine Documents" has the meaning given such term in Section 5(h) 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 or of the use thereof due to theft,
disappearance, destruction, damage beyond economic repair or rendition of
such property permanently unfit for normal use for any reason; or
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of an actual,
constructive or compromised total loss; or
(iii) the condemnation, confiscation or seizure of, or requisition
of title to or use of, such property by private persons or by any
governmental or purported governmental authority.
<PAGE>
"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.
"FAA" means the Federal Aviation Administration of the United States
Department of Transportation or any successor agency.
"Indemnitee" means the Lessor, each partner comprising the Lessor,
Lessor's affiliates, and their respective successors, assigns, representatives,
employees, officers, directors and agents, and each of them.
"Lease" shall mean this Engine 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.
"Lessor Liens" means Liens which result from or constitute claims against
or affecting the Lessor not related to the transactions contemplated by this
Lease.
"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 or engine interchange or pooling agreement.
"Overdue Payment Rate" means one and one-half percent per month.
"Return Date" has the meaning given to such term in Section 6(a) hereof.
"Return Location" has the meaning given to such term in Section 6(a)
hereof.
"Stipulated Loss Value" has the meaning given to such term in Section
10(a) hereof.
"Supplemental Rent" means all amounts, liabilities, indemnifications and
obligations of any kind whatsoever 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(a) hereof.
"Term" has the meaning given to such word in Section 3(a) hereof.
2
<PAGE>
SECTION 2. Lease and Delivery of the Engine
(a) Lease, Obligations, and Conditions Precedent.
The Lessor agrees to lease to the Lessee, and the Lessee agrees to lease
from the Lessor, the Engine, on the terms and conditions of this Lease. The
Lessor's obligation to lease the Engine shall be conditioned upon the absence of
any Default hereunder, the absence of any materially adverse change in the
Lessee's financial or operating condition or prospects from the date of this
Lease to the Delivery Date, 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:
(i) Execution of Lease. The Lessee shall have executed and delivered
this Lease, and the Lease Supplement and Receipt (dated the Delivery
Date);
(ii) Evidence of Legal Authority to Lease and Operate the Engine.
The Lessee shall have obtained all licenses, permits and approvals
required with respect to the Engine by the FAA for the lease of the Engine
and for the commercial operation thereof by the Lessee, and Lessee shall
provide Lessor with certified copies of such;
(iii) Evidence of Corporate Authority. The Lessee shall have
delivered to the Lessor certified resolutions of the Board of Directors of
the Lessee duly authorizing the execution, delivery and performance of
this Lease, and other satisfactory evidence as may be requested by Lessor
that the Lessee has taken all corporate action necessary to authorize this
Lease and the transactions contemplated hereby, together with an
incumbency certificate as to the person or persons authorized to execute
and deliver the same;
(iv) Evidence of Insurance. The Lessee shall have delivered to the
Lessor reports and certificates of insurance in compliance with the
requirements of the FAA and Section 10 hereof;
(v) Payment of Rent. Lessee shall have received payment of monthly
rent for the first 30 days of the Term, covering the 30 day period
commencing on the Delivery Date.
(b) Delivery. The Engine 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 SECTIONS 4(c) HEREOF. The Engine shall delivered and accepted at
JFK International Airport, Jamaica, New York, or such other place as may be
mutually agreed upon in writing by the Lessor and Lessee (the "Delivery
Location") and on December , 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 tender of delivery
hereunder by the Lessor, Lessee shall immediately inspect the Engine accept
delivery of the Engine. Upon acceptance of the Engine, the Lessee shall execute
and deliver the Lease Supplement and Receipt to the Lessor, which shall
constitute, without further act, unconditional and irrevocable acceptance by the
Lessee of the Engine under, and for all purposes of, this Lease and as being
serviceable, in accordance with specifications, in good working order and repair
and without defect or inherent vice in title condition, design, operation or
fitness for use, whether or not discoverable by the Lessee on the Delivery Date.
3
<PAGE>
SECTION 3. Term and Rent.
(a) Term. The term for which the Engine is leased hereunder (the "Term")
shall be not less than thirty days, commencing on the Delivery Date, and
continuing thereafter until terminated by either party by providing the other
party with ten days' prior written notice, unless Expiry occurs sooner pursuant
to the express provisions of this Lease.
(b) Rent. The Lessee shall pay to the Lessor Monthly rental for the Engine
in the amount equal to the daily equivalent of Nineteen Hundred United States
Dollars (US$1,900.00) plus hourly rental for the Engine in the amount of two
hundred United States Dollars (US$200.00) per flight hour. Monthly rental shall
by payable monthly in advance of 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. Hourly rental shall by payable monthly in arrears on the
tenth day of each calendar month and on the Return Date.
(c) Method of Payment. All rent hereunder shall be paid by the Lessee not
later than 12:00 noon, New York time, on the date due thereof by wire transfer
in U.S. Dollars and in immediately available funds to the Lessor by deposit to:
National Westminster Bank
80 Pine Street
New York, New York 10005
ABA # 021 200 339
Acct. # 2181 01 7572
or to such other 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.
(d) 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 or otherwise in the case of nonpayment of 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.
SECTION 4. Representations, Warranties and Miscellaneous Covenants.
(a) The Lessee's Representations and Warranties. The Lessee represents and
warrants as follows:
(i) Organization and Qualification. The Lessee is a corporation duly
incorporated in and validly existing under the laws of South Africa,
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 is duly qualified to
do business in good standing wherever the nature of its business makes
such qualification necessary.
4
<PAGE>
(ii) Corporate Authorization. The execution, delivery, and
performance by the Lessee of this Lease (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) do not contravene any existing law to which the Lessee
is subject, (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 imposition of or oblige Lessee to
create any Lien on or over the Engine.
(iii) Government Approval. 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 or the performance by it of any of its
obligations under this Lease 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 and charter flights for the carriage of
passengers and cargo and (b) the Engine on such flights; the Lessee is not
exempt from the obtaining of any such certificates or licenses usually
required by commercial airline operators.
(iv) Valid and Binding Agreements. This Lease constitutes the legal,
valid and binding obligations of the Lessee enforceable against the Lessee
in accordance with their respective terms.
(v) Litigation. There are no unsatisfied judgments 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 may materially adversely
affect the financial condition or operations of the Lessee or the ability
of the Lessee to perform its obligations under the Lease.
(vi) Taxes. The Lessee has filed all material tax returns which are
required to be filed by it, and has paid all Taxes shown to be due or
payable on said returns or any assessment received by the Lessee unless
protected by appropriate proceedings.
(vii) Financial Condition. The Lessee is not in default in the
performance of any of its obligations (A) for the payment of indebtedness
for borrowed money or any interest or premium thereon or (B) for the
payment of rent under any lease or agreement to lease real, personal or
mixed property. The Lessee has not taken nor proposes to take any
corporate action nor have any other steps or administrative or legal
proceedings been taken or started or threatened against it for the
winding-up, dissolution, reorganization or amalgamation of the Lessee or
for the appointment of a liquidator, administrator, receiver,
administrative receiver, trustee or similar officer of the Lessee or all
or any of its revenues or assets nor has the Lessee sought any other
relief under any applicable insolvency or bankruptcy law.
5
<PAGE>
(b) Representations and Warranties of the Lessor. The Lessor makes the
following representations and warranties:
(i) Due Organization. The Lessor is a corporation duly organized and
validly existing in good standing under the laws of Massachusetts and has
the power and authority to enter into and perform its obligations under
this Lease and the Lease Supplement and Receipt.
(ii) Due Authorization; Enforceability. This Lease has been, and the
Lease Supplement and Receipt 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 in
accordance with their respective terms.
(iii) 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 will not be, and the performance by the Lessor of
its obligations under each of the foregoing documents will not be,
inconsistent with its articles 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.
(iv) Ownership of Engine. On the Delivery Date, the Lessor shall
have full legal and beneficial title to the Engine, free and clear of all
Liens except any Lien which Lessor caused to be placed on the Engine as
permitted herein.
(c) Disclaimer and Acknowledgment of Disclaimer; Waiver of Consequential
Damages. The Engine is being leased by the Lessor to the Lessee hereunder ON A
COMPLETELY "AS IS," "WHERE IS," BASIS, WHICH IS ACKNOWLEDGED AND AGREED TO BY
THE LESSEE. THE WARRANTIES AND REPRESENTATIONS SET FORTH IN (b) ABOVE ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER,
EXPRESS OR IMPLIED, AND LESSOR HAS NOT MADE AND SHALL NOT BE CONSIDERED OR
DEEMED TO HAVE MADE (WHETHER BY VIRTUE OF HAVING LEASED THE ENGINE UNDER THIS
LEASE, OR HAVING ACQUIRED THE ENGINE, OR HAVING DONE OR FAILED TO DO ANY ACT, OR
HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS
LEASE OR OTHERWISE) ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE ENGINE OR TO ANY PART THEREOF, AND SPECIFICALLY,
WITHOUT LIMITATION, IN THIS RESPECT DISCLAIMS AS TO THE TITLE, AIRWORTHINESS,
VALUE, CONDITION, DESIGN, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS,
CONSTRUCTION AND CONDITION OF THE ENGINE OPERATION, OR FITNESS FOR A PARTICULAR
USE OF THE ENGINE AND AS TO THE ABSENCE OF LATENT AND OTHER DEFECTS, WHETHER OR
NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OR THE LIKE, HEREUNDER
OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON
STRICT LIABILITY IN TORT, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF
THE ENGINE OR ANY PART THEREOF OR ANY
6
<PAGE>
OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY
IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF
TRADE), WITH RESPECT TO THE ENGINE OR ANY PART THEREOF.
THE LESSEE HEREBY WAIVES, RELEASES, DISCLAIMS AND RENOUNCES ALL
EXPECTATION OF OR RELIANCE UPON ANY SUCH AND OTHER WARRANTIES, OBLIGATIONS AND
LIABILITIES OF LESSOR AND RIGHTS, CLAIMS AND REMEDIES OF THE LESSEE AGAINST
LESSOR, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING BUT NOT
LIMITED TO (i) ANY IMPLIED WARRANTY OF MERCHANTABILITY OF FITNESS FOR ANY
PARTICULAR USE, (ii) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE, (iii) ANY OBLIGATION, LIABILITY, RIGHT,
CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF LESSOR,
ACTUAL OR IMPUTED, AND (iv) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY
FOR LOSS OF OR DAMAGE TO THE ENGINE, FOR LOSS OF USE, REVENUE OR PROFIT WITH
RESPECT TO THE ENGINE, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
THE LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO THE LESSEE OR
ANY OTHER PERSON 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
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY
OR INDIRECTLY BY THE ENGINE OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR
DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION
THEREWITH AND THIS LEASE,
(ii) THE USE, OPERATION OR PERFORMANCE OF THE ENGINE OR ANY RISKS RELATING
THERETO,
(iii) ANY CONSEQUENTIAL DAMAGES, INCLUDING THOSE FOR INTERRUPTION OF
SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS, HEREUNDER FOR
CONSEQUENTIAL DAMAGES AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY THE
LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATION, OR WARRANTIES OF THE
LESSOR CONTAINED IN THIS LEASE, OR
(iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT
OR REPLACEMENT OF THE ENGINE.
(d) Lessor's Covenant of Quiet Enjoyment. The Lessor agrees that, so long
as no Event of Default shall have occurred and be continuing, the Lessor will
not take or knowingly fail to take any action, which causes interference with
the Lessee's peaceful and quiet use, operation and possession of the Engine
under this Lease.
7
<PAGE>
SECTION 5. Title, Use, Operation, Maintenance, Possession
(a) Title. Lessee acknowledges that title to the Engine shall remain
vested in Lessor, and the Lessee undertakes to do all such further acts, deeds,
assurances or things as may, in the opinion of the Lessor, be necessary or
desirable in order to protect or preserve Lessor's title to the Engine.
(b) General. Lessee, at its own cost and expense, shall (i) maintain the
Engine Documents in the English language in accordance with FAA regulations; and
(ii) at a minimum, give the Engine the same level of attention and maintenance
as the Lessee affords to the other engines in its fleet.
(c) Use. Lessee agrees not to operate or locate the Engine, or suffer the
Engine to be operated or located, in any area (i) excluded from coverage by any
insurance policy in effect or required to be maintained hereunder with respect
to the Engine or (ii) in any war zone or in any recognized or, in Lessor's
reasonable judgment, threatened area of hostilities unless fully covered by war
risk insurance meeting the terms of Section 10 hereof. Lessee agrees not to
operate the Engine, or suffer the Engine to be operated during the Term (1)
unless the Engine is covered by insurance as required by the provisions of
Section 10 hereof or (2) contrary to the terms of such insurance.
(d) Operation. Lessee agrees not to (i) operate the Engine or permit the
Engine to be operated during the Term except in commercial or other operations
for which Lessee is duly authorized by the FAA; or (ii) use or permit the Engine
to be used for a purpose for which the Engine is not designed or reasonably
suitable. Lessee will not permit the Engine to be maintained, used or operated
during the Term in violation of any law, or contrary to any manufacturer's
operating manuals or instructions.
(e) Lessee to Pay All Costs. Lessee shall pay all costs incurred in the
operation of the Engine, including but not limited to fuel, oil, lubricants,
line maintenance, insurance, landing and navigation fees, airport charges, and
any and all expenses of any kind or nature, arising directly or indirectly in
connection with or related to the use, movement and operation of the Engine by
Lessee during the Term. The obligations of Lessee under this provision shall
survive the end of the Term.
(f) Reports. Lessee shall furnish to Lessor the following reports on a
monthly basis (i) the hours and cycles operated by the Engine; (ii) monthly
Engine maintenance planning sheet; (iii) monthly deferred items carried forward;
(iv) damage reports; (v) a list of those service bulletins, airworthiness
directives and engineering modifications issued during such month and applicable
to the Engine, whether or not incorporated in the Engine; (vi) monitoring
reports containing performance data for the prior month; and (vii) any flight
crew or maintenance crew log-book entries relating to condition or performance
of the Engine. In addition, Lessee shall notify Lessor of all accidents, cases
of significant theft or vandalism, extended periods of Engine grounding for
cause, and insured occurrences as promptly as practicable.
(g) Right to Inspect. Lessor and its agents shall have the right to
inspect the Engine or the Engine Documents at any reasonable time, upon giving
Lessee reasonable notice, to ascertain the condition of the Engine and to
satisfy Lessor that the Engine is being properly repaired and maintained in
accordance with the requirements of this Lease.
8
<PAGE>
(h) Engine Documents. Lessee, at its expense, will at all times maintain
and preserve, in the English language, all flight records, manuals, and logbooks
required or recommended by the Engine manufacturer, or required from time to
time by the FAA with respect to the Engine, 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 "Engine 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. Engine Documents
pertaining to maintenance shall contain verification of accomplishment and
quality assurance by actual identifiable signature. Engine Documents for Life
Limited Components shall establish total service, origin, and authenticity
"back-to-birth." All Engine Documents shall be the property of the Lessor. All
Engine 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
Engine Documents will be at all times kept current and up to date in order to
facilitate Lessor's ability to inspect periodically the Engine, monitor the
maintenance of the Engine during the Term and to facilitate Lessor's ability to
inspect periodically the Engine, monitor the maintenance of the Engine during
the Term and to facilitate the sale or re-lease of the Engine to a third party
at the end of the Term.
(i) Possession. The Lessee will not, without the prior written consent of
the Lessor, which may be withheld in the sole and absolute discretion of the
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 Engine (whether through
pooling or interchange agreements or otherwise) or install the Engine, or permit
any Engine to be installed, provided that the Lessee may, without the prior
written consent of the Lessor:
(i) install the Engine on an airframe owned by the Lessee free and
clear of all Liens; and
(ii) install the Engine 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 (B) such lessor or secured party agrees in writing that it
shall not acquire any right, title or interest in such Engine.
(j) Insignia. The Lessee agrees to maintain on the Engine a metal
nameplate bearing the manufacturer serial number, stating that such Engine is
leased from "INVESTORS ASSET HOLDING CORP., LESSOR" and bearing such other
information as from time to time may be required by law or otherwise necessary
in order to protect the title of the Lessor to such Engine and the rights of the
Lessor under this Lease. The Lessee will replace promptly any such nameplate
which may be removed, defaced or destroyed.
(k) Repair and Maintenance Obligations. Lessee shall be responsible for
all expenses for line maintenance and for maintenance and repairs arising from
foreign object damage, insured occurrences, Lessee's negligence, or operational
mishandling, including but not limited to incorrect or unauthorized setting or
overspeed. Lessor shall be responsible for all expenses for all other
maintenance and repairs. Lessee shall not remove parts from the Engine or
perform any maintenance other than line maintenance without the prior consent of
the Lessor.
9
<PAGE>
SECTION 6. Return of the Engine.
(a) Return. On the last Business 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 Engine to the Lessor by delivering the same, at the Lessee's
own risk and expense, to Kennedy Airport, New York, or such other place as may
be mutually agreed upon in writing by the Lessor and Lessee (the "Return
Location"), fully equipped. The Engine 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. At the time of acceptance of return of the Engine to
Lessor, Lessor and Lessee shall execute an Engine Return Receipt and Lease
Termination in the form attached hereto as Exhibit B.
(b) Lease Continues. In the event Lessee does not return the Engine or any
part thereof to Lessor on the last Business Day of the Term or earlier Expiry in
condition required hereunder, for any cause, 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 for each day until the engine 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 upon presentation of Lessor's invoice
and any failure to pay shall constitute an Event of Default of Lessee. Any
discrepancies found during the inspections hereinafter described that were not
corrected by Lessee prior to return of the Engine to Lessor may be corrected by
Lessor or its designee after return of the Engine and Lessee shall reimburse
Lessor for expenses incurred by Lessor or its designee for accomplishing such
discrepancy corrections. Lessee shall pay Lessor for such expenses incurred upon
presentation of Lessor's invoice therefor. Any late payments shall be subject to
interest at the Overdue Payment Rate.
(c) Condition of Engine. The Engine at the time of its return to Lessor
shall be in as good operating condition as on the Delivery Date, ordinary wear
and tear from normal airline operations excepted, with all of the Engine
equipment, components and systems functioning in accordance with their intended
use. The Engine shall be returned 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 as specifically otherwise set forth in this Section 6. The Engine
shall be on the same stand as when delivered, covered, sealed with plastic and
otherwise "preserved" for long-term out-of-service storage as provided in the
manufacturer's maintenance manual. Lessee shall provide Lessor with all
reliability reports for the Engine provided to the FAA.
(d) Inspections. A full, videotaped borescope inspection of all Engine
sections, a full test cell run, and an oil spectrum analysis shall be performed
under the surveillance of Lessor at Lessee's expense at the time of the Engine's
return to Lessor. One purpose of such inspections shall be to determine whether
during the Term there was unusual degradation to Engine condition, performance,
or exhaust gas temperature margin for which Lessee is responsible for the cost
of any maintenance or repairs in accordance with Section 5(k), above, and
Section 6(h), below.
(e) 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 Engine shall be accepted by Lessor's representatives at the
Return Location.
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(f) Engine Documents. Lessee shall return to Lessor, at the time the
Engine is returned to Lessor, all of the Engine Documents, updated and
maintained by Lessee through the date of return of the Engine.
(g) Ownership. Any documents, equipment and any other items returned to
Lessor pursuant to this Section 6 which are not already owned by Lessor shall
thereupon become the property of Lessor.
(h) Disputes. Any dispute between Lessee and Lessor regarding the
condition of the Engine arising under this Lease shall be referred to and be
determined by the Engine manufacturer, and such determination shall be final and
binding upon the parties.
SECTION 7. Liens. The Lessee will not create or suffer to exist any
Lien upon or with respect to the Engine, except for the rights of the Lessor and
the Lessee hereunder.
SECTION 8. Taxes.
(a) 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 transaction or activity described in or
resulting from this Lease, including (without limitation) Taxes imposed on or
with respect to, or measured by, any of the following:
(i) The Engine or any part thereof or any interest therein;
(ii) The acceptance, possession, ownership, delivery, use,
operation, location, leasing, subleasing, condition, maintenance, repair,
modification, overhaul, testing, storage, abandonment, repossession, or
return of the Engine or any part thereof or any interest therein;
(iii) The rentals, receipts or earnings arising from the Engine or
any part thereof or any interest therein;
(iv) This Lease; 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
(v) Any payment made pursuant to this Lease;
provided, however, that the Lessee shall not be required by this paragraph (a)
to indemnify an Indemnitee for any of the following Taxes:
(x) Taxes which are imposed by any government, governmental
subdivision or other taxing authority of or in the United States and which
are based on or measured by the net income, capital or net worth of an
Indemnitee; provided, however, that the exclusion set forth in this
subdivision (x) shall not apply to any of the following Taxes:
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(1) Taxes in the nature of sales, use, rental or value-added
Taxes,
(2) Taxes which would not have been imposed but for, or are
increased as a result of any of the following:
(A) the use or location of the Engine in the
jurisdiction imposing the Tax,
(B) any place of business or the activities of the
Lessee in the jurisdiction imposing the Tax;
provided, however, that this subdivision (x) shall not be interpreted to
limit the Lessee's obligations under paragraph (c) of this Section 8; or
(y) Sales, value-added or other transfer Taxes which are imposed on
or with respect to a transfer by the Indemnitee of (1) any interest in the
Engine or (2) any interest in another Indemnitee other than a transfer
that occurs pursuant to an Event of Loss while an Event of Default is
continuing.
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.
(b) Withholding. If the Lessee is required by 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, 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 document reasonably satisfactory to the Indemnitee evidencing the
withholding and the payment of the amount withheld to the relevant governmental
authority.
(c) 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 (determined by assuming that each
indemnity received or accrued by an Indemnitee will be subject to Tax at the
highest marginal rates of Tax applicable to the Indemnitee when such indemnity
is received or accrued), 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.
(a) 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 Engine from any cause during the period commencing when the Lease
Supplement and Receipt is executed and delivered by Lessee and ending when the
Engine Return Receipt and Lease Termination is executed and delivered by Lessor.
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(b) Event of Loss. If an Event of Loss shall occur with respect to the
Engine, 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 Engine; 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 rent for the Engine 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
rent for the Engine 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(b), (i) the Lessee shall have no further obligation to
pay rent for such Engine due thereafter, (ii) upon payment in full of any
Supplemental Rent then owing this Lease shall terminate with respect to the
Engine and (iii) upon request of the insurers of the Engine, the Lessor will
transfer to such insurers title to the Engine, without any recourse,
representation or warranty on the part of the Lessor except that the Engine is
free and clear of Lessor Liens.
SECTION 10. Insurance. The Lessee represents, warrants and agrees to
allow the Engine to be operated only in areas and only in a manner for which
each policy of insurance required by the provisions of this Section 10 shall be
in full force and effect. On or before the Delivery Date and throughout the
Term, Lessee shall without cost or expense to Lessor obtain, maintain and keep
in full force and effect the following insurance with respect to the Engine,
carried with insurers satisfactory to Lessor:
(a) All-Risk Insurance. All-risk hull insurance on the Engine (with
flight, taxiing and ingestion coverages) in an amount not less than Two Million
Five Hundred Thousand Dollars (US$2,500,000) (the "Stipulated Loss Value"), or
such greater amounts as Lessee may carry from time to time on other similar
engines in its fleet. Such hull insurance shall cover the Engine in an amount
not less than its replacement cost. Such insurance shall provide that while the
Engine is installed on an aircraft, the agreed value payable for and Event of
Loss for such aircraft shall be not less than the aggregate of all amounts
payable to the loss payees of such aircraft and the Stipulated Loss Value of the
Engine; and, shall include a loss payable clause that provides that all
insurance proceeds in respect of the Engine up to the Stipulated Loss Value
shall be paid to Lessor.
(b) War Risk Insurance. War risk and allied perils insurance on the Engine
to the broadest extent available in the market in an amount not less than the
Stipulated Loss Value or such greater amounts as Lessee may carry from time to
time on other similar aircraft in its fleet and covering the perils of:
(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 therefrom is accidental or intentional;
(iv) any malicious act or act of sabotage;
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(v) confiscation, nationalization, seizure, restraint, detention,
appropriation, requisition for time or use by or under the order of any
government (whether civil, military or de facto) or public or local
authority expressly including without limitation the government or any
public or local authority of the country of registration; and
(vi) hijacking or any unlawful seizure or wrongful seizure or
wrongful exercise of control of the Engine or crew in flight (including
any attempt at such seizure or control) made by any person or persons
acting without the consent of Lessee.
(c) Liability Insurance. Throughout the Term, Lessee shall also, without
cost or expense to the Lessor, obtain, maintain and keep in full force and
effect liability insurance with respect to the Engine carried with insurers
satisfactory to Lessor for a combined single limit of not less than Five Hundred
Million Dollars (US$500,000,000) per occurrence or such greater amounts as
Lessee may carry from time to time on its fleet, which shall:
(i) include public liability insurance, passenger liability
insurance and property damage liability; and
(ii) provide that all the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate
policy covering each such insured.
(d) Deductibles and Self Insurance. Lessee may from time to time
self-insure, by way of deductible or premium adjustment provisions in insurance
policies, the risks required to be insured against pursuant to Section 10(a),
but in no case shall such self-insurance exceed US$500,000. No deductible shall
apply in the event of an Event of Loss.
(e) Additional Requirements; Loss Payment. The insurance shall be provided
on an agreed value basis, and the policies shall:
(i) name the Indemnitees as additional insureds as their respective
interests may appear;
(ii) provide that the insurance shall not be invalidated by any
action or inaction by Lessee and insure the interest of the Indemnitees
regardless of any breach or violation by Lessee or any other named insured
of any warranty, declaration or condition contained in such policies;
(iii) provide that the insurers shall waive any right of subrogation
to any right of any Indemnitee or against any Indemnitee;
(iv) provide that in the event of separate insurance being arranged
to cover the all-risk hull insurance and the war risk and allied perils
insurance, the underwriters subscribing to such insurance agree to a 50/50
claim funding arrangement in the event of any dispute as to which
insurance is applicable;
(v) provide that the liability of the insurers shall not be affected
by any other insurance which may be available to any Indemnitee so as to
reduce the amount payable to any Indemnitee;
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(vi) extend to, and the underwriters thereof have agreed to, insure
the indemnification provided in Section 15 hereof;
(vii) be of the type usually carried by corporations engaged in the
same or a similar business, similarly situated with Lessee and owning and
operating similar aircraft and engines, and covering risks of the kind
customarily insured against by such corporations;
(viii) be primary without right of contribution from other insurance
which may be available to any Indemnitee;
(ix) provide that the Indemnitees shall have no liability for
premiums, commissions, calls or assessments with respect to such
policies;
(x) provide in the case of the insurance required by Sections 10(a)
and 10(b) hereof that any proceeds, regardless of the amount, shall be
payable to Lessor.
(f) No Set-Off. Each insurance policy shall contain a waiver of any right
of the insurers to any set-off or counter-claim or any other deduction against
any Indemnitee.
(g) Notice of Material Alteration of Cancellation. Each insurance policy
shall provide that no cancellation or lapse of coverage for nonpayment of
premium or otherwise, and no substantial change of coverage which adversely
affects the Indemnitees shall be effective as to the Indemnitees until not less
than 30 days (7 days in the case of war risk policies, subject to exceptions
uniformly applied in war risk policies then available in commercially reasonable
terms) after receipt by Lessor of written notice from the insurers of such
cancellation, lapse or change.
(h) Renewal. Each insurance policy shall provide that the insurers or
Lessee's insurance broker shall promptly notify Lessor if any insurance is not
renewed.
(i) Application of Hull Insurance Proceeds. As between Lessor and Lessee,
any payments received under policies of insurance shall be applied as follows:
(i) If such payments are received with respect to loss or damage not
constituting an Event of Loss with respect to the Engine, such payments
shall be paid over to or retained by Lessee upon Lessee's performance of
its repair or replacement obligations under this Lease pursuant to Section
5 hereof, and
(ii) if such payments are received with respect to an Event of Loss
with respect to the Engine, so much of such payments as shall not exceed
the amount required to be paid by Lessee pursuant to Section 9 hereof
shall be applied in reduction of Lessee's obligation to pay such amount if
not already paid by Lessee, and to reimburse Lessee if it shall have paid
all or part of such amount, and the balance, if any, of such payments
shall be paid over to or retained by Lessee.
(j) Insurance for Own Account. Nothing in this Section 10 shall prohibit
any Indemnitee or Lessee from obtaining insurance for its own account and any
proceeds payable thereunder shall be payable as provided in the insurance policy
relating thereto, provided that no such insurance may be obtained which would
limited or otherwise adversely affect the coverage or payment of any insurance.
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(k) Reports Certificates. Lessee shall furnish to Lessor not later than
five (5) Business Days prior to the Delivery Date a report signed by a firm of
independent insurance brokers satisfactory to Lessor stating the opinion of such
firm that the insurance then carried and maintained on the Engine complies with
the terms hereof. Lessee will during the Term furnish to Lessor evidence of
renewal of the insurance policies required pursuant to this Section 10 prior to
the cancellation, lapse or expiration of such insurance policies and, on the
renewal dates thereof, a report signed by a firm of independent aircraft
insurance brokers, satisfactory to Lessor stating the opinion of such firm that
the insurance then carried and maintained on the Engine complies with the terms
hereof. Lessee will cause such firm to advise Lessor in writing promptly of any
default in the payment of any premium and of any other act of omission on the
part of Lessee of which they have knowledge and which would in such firm's
opinion invalidate or render unenforceable, in whole or in any material part,
any insurance on the Engine. Lessee will also cause such firm to advise Lessor
in writing at least 30 days prior to the termination or cancellation of, or
material adverse change in such insurance carried and maintained on the Engine.
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 Lessee at its expense will
promptly and duly execute and deliver such documents and assurances and take
such action as may be necessary or desirable, or as the Lessor may from time to
time reasonably request, in order to more effectively carry out the intent and
purpose of this Lease and to establish and protect the Lessor's title to the
Engine and its rights and remedies created or intended to be created under this
Lease.
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):
(a) Failure to Pay Rent. The Lessee shall fail to make any payment of rent
or Stipulated Loss Value within three days after such payment shall become due;
or
(b) Failure to Pay Supplemental Rent. The Lessee shall fail to make any
other payment of Supplemental 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
(c) Failure to Maintain Insurance. The Lessee shall fail to maintain
insurance in accordance with Section 10 hereof;
(d) Misrepresentation or Breach of Warranty. Any representation or
warranty made by the Lessee in this Lease 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
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(e) 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 or unstayed for a period of 45 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 (e); or
(f) 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 ten (10) calendar days after delivery of written
notice specifying the same from Lessor, including without limitation failure to
maintain the Engine as required by this Lease or the FAA or failure to protect
or preserve Lessor's title to the Engine; or
(g) 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
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 with respect to the Engine, as the Lessor in its sole discretion shall
elect, to the extent permitted by law then in effect:
(a) Return and Repossession. Lessor may in writing demand the prompt
return, and the Lessee hereby agrees that it shall return promptly, the Engine
to the Lessor in the manner and condition required by, and otherwise in
accordance with all the provisions of, Section 6 as if the Engine 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 Engine is located and take immediate possession of and
remove the same by summary proceedings or otherwise;
(b) Sale, Use, Etc. Lessor may sell the Engine at public or private sale,
as the Lessor may determine, or otherwise dispose of, hold, use, operate, lease
to others or keep idle the Engine 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;
(c) Liquidated Damages; Fair Market Rental. The Lessor 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.
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damages for loss of a bargain and not as a penalty any unpaid rent for the
Engine 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 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 (c) 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 proceed to exercise its best efforts to lease the
Engine 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;
(d) Cancellation, Termination, and Rescission. The Lessor may cancel,
terminate, or rescind the Lease, or may exercise any other right or remedy which
may be available to it under 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 Engine for the Term and to pay rent.
(e) 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
reasonable costs and expenses incurred in connection with any retaking of the
Engine or in placing the Engine in the condition required by Sections 5 and 6.
At any sale of the Engine 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 applicable Uniform Commercial Code, 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 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 Engine 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
(a) General Indemnity. The Lessee agrees to indemnify, reimburse, and hold
harmless each Indemnitee, on an after-tax basis, 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
reasonably 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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(i) This Lease or the breach of any representation, warranty, or
covenant made by the Lessee under this Lease;
(ii) Manufacture, purchase, lease, delivery, non-delivery,
acceptance, rejection, ownership, possession, use, operation,
return, or disposition of the Engine;
(iii) The Engine's condition or any discoverable or nondiscoverable
defect in it arising from its design, testing, or construction; any
article used in the Engine; or any maintenance, service or repair,
whether or not the Engine is in the Lessee's possession and
regardless of where the Engine is located; or
(iv) Any transaction, approval, or document contemplated by this
Lease.
The Lessee waives and releases each Indemnitee from any existing or future
Claims in any way connected with injury to or death of the Lessee's personnel,
loss or damage of the Lessee's property, or loss of use of any property, which
may;
(v) Result from or arise in any manner out of the ownership,
leasing, condition, use or operation of the Engine; or
(vi) Be caused by any defect in the Engine; its design, testing, or
construction; any article used in the Engine; or any maintenance,
service, or repair, whether or not the Engine is in the Lessee's
possession and regardless of where the Engine is located.
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.
(b) Legal Fees and Expenses. The Lessee agrees to pay all reasonable costs
and expenses, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement of this Lease, 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 Engine 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 increase the aggregate
financial exposure under the indemnity obligations of Lessee under this Lease as
compared to what such obligations would have been had such assignment, sale or
encumbrance occurred. In the event this Lease is assigned, sold or encumbered by
Lessor, any assignee, transferee or mortgagee shall agree as a condition
precedent thereto not to disturb or otherwise interfere with the quiet enjoyment
of Lessee of the Engine so long as not Event or Default shall have occurred and
be continuing.
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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, or, if in the form of a
telegram, telex or telecopy, upon confirmation of receipt thereof, in each case
addressed (i) if to the Lessee:
South African Airways
Johannesburg International Airport
1627
Republic of South Africa
Attention: Andre Dippenaar
Telephone: 27 11 978-3500
Telecopier: 27 11 978-6057
with a copy to:
Manager (contract Legal Services)
R212 Administration Building
SAA Technical Area JIA
Tel: 27 11 978-3042
Fax: 27 11 978-5404
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, in care of:
Investors Asset Holding Corp.
c/o American Finance Group, Inc.
98 North Washington Street
Boston, Massachusetts 02114
Attention: Aircraft Management
Telephone: 617 854 5800
Telecopier: 617 523 1410
or to such other address as the Lessor shall from time to time designate in
writing to Lessee.
SECTION 18. No Set-Off, Counterclaim, Etc. The Lessee's obligation
to pay all rent and Supplemental 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 Engine 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 title, airworthiness,
condition, design, operation, or fitness for use of, or any damage to or loss or
destruction of, or any Lien upon, the Engine, or any interruption or cessation
in the use or possession thereof by the Lessee for any reason whatsoever,
whether arising out of or related to an act or omission of the Lessee, (iii) any
insolvency, bankruptcy, reorganization or similar proceedings by or against the
Lessee or the Lessor, (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 as to the Engine in whole or in part by operation
of law, or otherwise, the Lessee nonetheless agrees to pay to the Lessor an
amount equal to each rent payment for the Engine 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 law, any and all rights which it may now have or which at
any time hereafter may be conferred upon it, by law or otherwise, to terminate,
cancel, quit or surrender
20
<PAGE>
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 for
breach of any representation, warranty, covenant or duty hereunder.
SECTION 19. Governing Law.
(a) 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 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 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.
(b) Choice of Law. THIS LEASE HAS BEEN NEGOTIATED AND DELIVERED IN THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, 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. To the extent permitted by law, each of Lessor and the
Lessee hereby waives any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.
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 Engine 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 successors
and, to the extent permitted hereby, assigns. The section and subsection
headings in this Lease and 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.
21
<PAGE>
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.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed as of the date and year first above written.
INVESTORS ASSET HOLDING CORP.,
the Lessor
By: /s/ James F. Livesey
-------------------------
Name: James F. Livesey
-------------------------
Title: Vice President
-------------------------
SOUTH AFRICAN AIRWAYS,
the Lessee
By: /s/ A N Dippenaar
-------------------------
Name: A N Dippenaar
-------------------------
Title: Senior Manager
-------------------------
22
<PAGE>
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.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed as of the date and year first above written.
INVESTORS ASSET HOLDING CORP.,
the Lessor
By: /s/ James F. Livesey
-------------------------
Name: James F. Livesey
-------------------------
Title: Vice President
-------------------------
SOUTH AFRICAN AIRWAYS,
the Lessee
By: /s/ A N Dippenaar
-------------------------
Name: A N Dippenaar
-------------------------
Title: Senior Manager
-------------------------
22
<PAGE>
EXHIBIT A: FORM OF LEASE SUPPLEMENT AND RECEIPT
LEASE SUPPLEMENT AND RECEIPT dated December 16, 1996 INVESTORS ASSET
HOLDING CORP. (the "Lessor"), and TRANSNET LIMITED, d/b/a SOUTH AFRICAN AIRWAYS
(the "Lessee").
The Lessor and the Lessee have heretofore entered into that certain
Engine Lease Agreement, dated as of December 17, 1996 (herein called the "Lease"
and the defined terms therein being hereinafter used with the same meanings),
relating to one Pratt & Whitney model JT9D-7J engine, manufacturer serial number
685952. 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 has been duly authorized, executed and
delivered by Lessee and constitute valid, legal and binding agreements,
enforceable in accordance with their terms. 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 ENGINE. The Lessee hereby certifies that the Engine described
Schedule 1 hereto, consisting of one page (including attachments) and made a
part hereof, and the Engine Documents described in Schedule 2 hereto, consisting
of one page (including attachments) and made a part hereof, have been delivered
to the Lessee, inspected by the Lessee, found to be in good order 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 Engine "AS IS,"
"WHERE IS," AND SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND
REPRESENTATION AS SET FORTH IN SECTIONS 4(c) 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 thereof.
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.
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 Engine as are required to be
obtained under the terms of this Lease.
23
<PAGE>
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.
INVESTORS ASSET HOLDING CORP.,
the Lessor
By: /s/ James F. Livesey
-------------------------
Name: James F. Livesey
-------------------------
Title: Vice President
-------------------------
SOUTH AFRICAN AIRWAYS,
the Lessee
By: /s/ [Illegible]
-------------------------
Name: [Illegible]
-------------------------
Title: For Senior Manager
-------------------------
24
<PAGE>
SCHEDULE 1 TO LEASE SUPPLEMENT AND RECEIPT: ENGINE DESCRIPTION
Engine: Pratt & Whitney model JT9D-7J engine, manufacturer serial number 685952.
Total hours: 39,369:49 Total cycles: 6,759
Time remaining on limiter: #2 air seal (hours) 6,809 (cycles)
Time since last shop visit: 1869 (hours) 342 (cycles)
Time since last hot section inspection 1869 (hours) 342 (cycles)
Life Limited Components:
[LIST BY PART NUMBER, SERIAL NUMBER,
REPLACEMENT INTERVAL, AND LIFE REMAINING]
SEE ATTACHED -- NOTE, SUBTRACT 1,068 HRS AND 173 CYCLES TO BRING DATA TO CURRENT
TOTALS.
Quick Engine Change Components: SEE ATTACHED
[LIST BY AIRFRAME OR ENGINE PART NUMBER]
Stand:
31
<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 Engine shall be qualifications to the return conditions set forth in
Section 6 of the Lease.
Condition as per video borescope by Lufthansa Technik. No significant
defect on 5, 8&9th HPC, Combustion Chamber, 1&2nd HPT.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Schedule 3
to the Lease Supplement and Receipt to be duly executed as of December 16, 1996.
INVESTORS ASSET HOLDING CORP.,
the Lessor
By: /s/ James F. Livesey
-------------------------
Name: James F. Livesey
-------------------------
Title: Vice President
-------------------------
SOUTH AFRICAN AIRWAYS
the Lessee
By: /s/ [Illegible]
-------------------------
Name: [Illegible]
-------------------------
Title: Manager
-------------------------
MANAGER
TECH OPS CENTRE
27
<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> 2,772,762
<SECURITIES> 0
<RECEIVABLES> 74,937
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,847,699
<PP&E> 3,514,295
<DEPRECIATION> 2,918,957
<TOTAL-ASSETS> 3,443,037
<CURRENT-LIABILITIES> 79,331
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,363,706
<TOTAL-LIABILITY-AND-EQUITY> 3,443,037
<SALES> 0
<TOTAL-REVENUES> 1,173,599
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 434,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,835
<INCOME-PRETAX> 720,339
<INCOME-TAX> 0
<INCOME-CONTINUING> 720,339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 720,339
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
