<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 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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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 33-35148-01
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American Income Fund I-A, a Massachusetts Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3097216
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 N. Washington St., Fifth Floor, Boston, MA 02114
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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:
286,274 Units Representing Limited Partnership Interest
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
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State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1996 (Part I and II)
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
<TABLE>
<CAPTION>
<S> <C> <C>
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 6
Related Security Holder Matters
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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<PAGE>
PART I
Item 1. Business.
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(a) General Development of Business
AMERICAN INCOME FUND I-A, a Massachusetts Limited Partnership, (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on March 6, 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 VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On December 31, 1990, the
Partnership issued 286,274 units of limited partnership interest (the "Units")
to 359 investors. The Partnership has one General Partner, AFG Leasing VI
Incorporated, a Massachusetts corporation formed in 1990 and an affiliate of
Equis Financial Group Limited Partnership (formerly American Finance Group), a
Massachusetts limited partnership ("EFG" or the "Manager"). 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 equal or 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 Partnership 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 December
31, 1990. Significant operations commenced coincident with the Partnership's
initial purchase of equipment and the associated lease commitments on December
31, 1990. The acquisition of the equipment and its associated leases is
described in detail in Note 3 to the financial statements included in Item 14,
herein. The Partnership is expected to terminate no later than December 31,
2001; however, the General Partner is evaluating winding-up the business of the
Partnership in 1997 or 1998.
The Partnership has no employees; however, it entered into a Management
Agreement with 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.
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
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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.
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 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.
In accordance with the Partnership's stated investment objective and policies,
the General Partner is evaluating winding-up the Partnership's operations,
including the liquidation of its entire portfolio.
Revenue from individual lessees which accounted for 10% or more of lease
revenue during the years ended December 31, 1996, 1995 and 1994 is incorporated
herein by reference to Note 2 to the financial statements in the 1996 Annual
Report. Refer to Item 14(a)(3) for lease agreements filed with the Securities
and Exchange Commission.
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 and significantly weaken the
Partnership's ability to repay related debt.
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 Equipment 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 (the "Buyer"). AFG changed its name
to Equis Financial Group Limited Partnership after the sale was concluded.
Pursuant to terms of the sale agreements, EFG agreed not to compete with the
Buyer's lease origination business for a period of five years; however, EFG is
permitted to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale agreements specifically
reserved to EFG 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
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assets owned by the Partnership and the Other Investment Programs, including the
right to satisfy all required equipment acquisitions utilizing either brokers or
the Buyer. Geoffrey A. MacDonald, Chairman of Equis Corporation and Gary D.
Engle agreed not to compete with the sold business on terms and conditions
similar to those for the Company.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not applicable.
Item 2. Properties.
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Incorporated herein by reference to Note 3 to the financial statements in
the 1996 Annual Report.
Item 3. Legal Proceedings.
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Incorporated herein by reference to Note 6 to the financial statements in
the 1996 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
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<PAGE>
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder
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Matters.
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(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, 1996, there were 361 Limited Partners 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 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
General Limited
Total Partner Partners
----------- -------- -----------
<S> <C> <C> <C>
Total 1996 distributions $ 414,344 $20,717 $ 393,627
Total 1995 distributions 678,017 33,901 644,116
---------- ------- ----------
Total $1,092,361 $54,618 $1,037,743
========== ======= ==========
</TABLE>
Distributions payable were $75,335 and $113,003 at December 31, 1996 and
1995, 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 equipment or
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<PAGE>
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) general expenses and current liabilities of
the Partnership (other than any portion of the Equipment Management Fee which is
required to be accrued and the Subordinated Remarketing Fee) and (c) 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
Limited Partners and 5% to the General Partner.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Limited Partners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Limited Partners' original capital contributions plus a cumulative annual
distribution 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 Limited Partners exceed the amount required to
satisfy the cumulative annual distribution of 11% (compounded quarterly) on the
Limited Partners' 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 30 days after the
completion of each quarter, beginning with the first full fiscal quarter
following the Partnership's Closing. Each Distribution is described in a
statement sent to the Limited Partners.
Item 6. Selected Financial Data.
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Incorporated herein by reference to the section entitled "Selected Financial
Data" in the 1996 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
- --------------
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1996 Annual Report.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
Incorporated herein by reference to the financial statements and
supplementary data included in the 1996 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.
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(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 VI 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
Limited Partners 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, 1997 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (See Item 13)
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<TABLE>
<CAPTION>
Name Title Age Term
- --------------------------- ------------------------------------ ------- ----
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the General Partner 48 elected
and
qualified
Gary D. Engle President and Chief Executive
Officer and member of the
Executive Committee of EFG 48
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG
and Clerk of the General
Partner 37
James A. Coyne Senior Vice President of EFG 36
Michael J. Butterfield Vice President, Finance and
Treasurer of EFG and Treasurer of
the General Partner 37
James F. Livesey Vice President, Aircraft and Vessels 47
of EFG
Sandra L. Simonsen Senior Vice President, Information 46
Systems of EFG
Gail D. Ofgant Vice President, Lease Operations of 31
EFG
</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 48, 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 Vice President of
American Finance Group Securities Corp. and a limited partner in Atlantic
Acquisition Limited Partnership ("AALP"). 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 48, 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 also a limited partner in AALP. 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 37, 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 36, is Senior Vice President of EFG. Mr. Coyne joined
EFG in 1989, remained until May 1993, and rejoined EFG in November 1994. 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 37, joined EFG in June 1992 and was appointed 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 accounting and industry positions
in New Zealand and London (U.K.) prior to coming to the United States in 1987.
Mr. Butterfield attained his Associate Chartered Accountant (A.C.A.)
professional qualification in New Zealand and has completed his C.P.A.
requirements in the United States. He holds a Bachelor of Commerce degree from
the University of Otago, Dunedin, New Zealand.
Mr. Livesey, age 47, 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 46, 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 31, 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
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was appointed Vice President, Lease Operations. Prior to joining EFG, Ms. Ofgant
was employed by Security Pacific National Trust Company. Ms. Ofgant holds a B.S.
degree in Finance from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
Item 11. Executive Compensation.
- ---------------------------------
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of
the Restated Agreement, as amended, the Partnership is obligated to pay all
costs of personnel employed full or part-time by the Partnership, including
officers or employees of the General Partner or its Affiliates. There is no
plan at the present time to make any officers or employees of the General
Partner or its Affiliates employees of the Partnership. The Partnership has not
paid and does not propose to pay any options, warrants or rights to the officers
or employees of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to Section 9.4(c) 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 the
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
outstanding no securities possessing traditional voting rights. However, as
provided in Section 10.2(a) of the Restated Agreement, as amended (subject to
Sections 10.2(b) and 10.3), a majority interest of the Limited Partners have
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
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<PAGE>
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).
No person or group is known by the General Partner to own beneficially more
than 5% of the Partnership's 286,274 outstanding Units as of March 1, 1997.
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 VI 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,
1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equipment management fees $ 30,670 $ 33,736 $ 69,641
Administrative charges 32,428 12,552 12,000
Reimbursable operating expenses
due to third parties 158,169 82,823 30,210
-------- -------- --------
Total $221,267 $129,111 $111,851
======== ======== ========
</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
9.4(c) 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 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
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<PAGE>
Partnership. At December 31, 1996, the Partnership was owed $61,144 by EFG for
such funds and the interest thereon. These funds were paid to the Partnership in
January 1997.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
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<PAGE>
PART IV
Item 14. Exhibits and Reports on Form 8-K.
- -------------------------------------------
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors............................*
Statement of Financial Position
at December 31, 1996 and 1995.............................*
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994......*
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994......*
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994......*
Notes to the Financial Statements.........................*
(2) Financial Statements 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 1996 Annual Report to security holders, a copy of which is
furnished for the information of the Securities and Exchange
Commission. Such Report, except for those portions thereof which
are incorporated herein by reference, is not deemed "filed" with
the Commission.
23 Consent of Independent Auditors.
99(a) Lease agreement with Northwest Airlines, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 as Exhibit 28 (a) and is incorporated herein by
reference.
* Incorporated herein by reference to the appropriate portion of the 1996 Annual
Report to security holders for the year ended December 31, 1996. (See Part II)
-13-
<PAGE>
Exhibit
Number
-------
99(b) Lease agreement with Roses Stores, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 as Exhibit 28 (b) and is incorporated herein by
reference.
99(c) Lease agreement with American National Can Company was filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 as Exhibit 28 (d) and is incorporated herein by
reference.
99(d) Lease agreement with Ford Motor Company was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 as Exhibit 99 (d) and is incorporated herein by
reference.
99(e) Lease agreement with Durr Medical is filed in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
and is included herein.
99(f) Lease agreement with Sunworld International Airlines, Inc. is
filed in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and is included herein.
(b) Reports on Form 8-K
None.
-14-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-
K) of American Income Fund I-A, a Massachusetts Limited Partnership of our
report dated March 14, 1997, included in the 1996 Annual Report to Partners of
American Income Fund I-A.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
-15-
<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 FUND I-A, a Massachusetts Limited Partnership
By: AFG Leasing VI 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
General Partner (Principal Executive Officer)
Date: March 31, 1997 Date: March 31, 1997
----------------------------- ---------------------------
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, 1997 Date: March 31, 1997
--------------------------- -------------------------
-16-
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report has been sent to the Limited Partners. A report will be
furnished to the Limited Partners subsequent to the date hereof.
No proxy statement has been or will be sent to the Limited Partners.
-17-
<PAGE>
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Annual Report to the Partners, December 31, 1996
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts 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, 1996 and 1995 8
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994 9
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994 10
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 11
Notes to the Financial Statements 12-18
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 19
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 20
Schedule of Costs Reimbursed to the General
Partner and its Affiliates as Required by
Section 9.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 21
</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, 1996:
<TABLE>
<CAPTION>
Summary of
Operations 1996 1995 1994 1993 1992
- ----------------------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 585,768 $ 813,318 $1,940,468 $ 2,515,703 $2,765,279
Net income (loss) $ 197,908 $ 385,102 $ 405,161 $(1,021,539) $ 304,783
Per Unit:
Net income (loss) $ 0.66 $ 1.28 $ 1.34 $ (3.39) $ 1.01
Cash distributions $ 1.38 $ 2.25 $ 3.00 $ 3.00 $ 3.00
Financial Position
- -----------------------------
Total assets $2,341,360 $2,583,424 $3,169,981 $ 4,675,380 $8,184,475
Total long-term
obligations $ -- $ 5,186 $ 195,032 $ 1,185,453 $2,687,853
Partners' capital $2,205,765 $2,422,201 $2,715,116 $ 3,213,978 $5,139,540
</TABLE>
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to the year
ended December 31, 1995 and the year ended December 31, 1995
compared to the year ended December 31, 1994
Overview
- --------
American Income Fund I-A, a Massachusetts Limited Partnership (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 Partnership's stated investment objectives
and policies contemplated that the Partnership would wind-up its operations
within approximately seven years of its inception. 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. As a result of
the Partnership's age and a declining equipment portfolio, the General Partner
is evaluating a variety of transactions that will reduce the Partnership's
prospective costs to operate as a publicly registered limited partnership and,
therefore, enhance overall cash distributions to the limited partners. Such a
transaction may involve the sale of the Partnership's remaining equipment or a
transaction that would allow for the consolidation of the Partnership's expenses
with other similarly-organized equipment leasing programs.
Results of Operations
- ---------------------
For the year ended December 31, 1996, the Partnership recognized lease revenue
of $585,768 compared to $813,318 and $1,940,468 for the years ended December
31, 1995 and 1994, respectively. Lease revenue in 1996 includes the receipt of
$64,140 of lease termination rents received in connection with the sale of the
Partnership's interest in two Boeing 727-Advanced aircraft in July 1996 (see
below). The decrease in lease revenue between 1994 and 1996 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 Equis Financial Group Limited Partnership (formerly American
Finance Group), a Massachusetts limited partnership ("EFG"). Proportionate
equipment ownership enables the Partnership to further diversify its equipment
portfolio by participating in the ownership of selected assets, thereby reducing
the general levels of risk which could result from a concentration in any single
equipment type, industry or lessee. The Partnership and each affiliate
individually report, in proportion to their respective ownership interests,
their respective shares of assets, liabilities, revenues, and expenses
associated with the equipment.
In 1996, the Partnership sold equipment having a net book value of $143,569 to
existing lessees and third parties. These sales resulted in a net gain, for
financial purposes, of $82,889 compared to a net gain in 1995 of $144,671 on
equipment having a net book value of $169,894, and a net loss in 1994 of $36,392
on equipment having a net book value of $1,204,082. The equipment sales in 1996
included the sale of the Partnership's interest in two Boeing 727-Advanced jet
aircraft with an original cost and net book value of $557,072 and $106,544,
respectively, which the Partnership sold to the existing lessee in July 1996.
In connection with these sales, the Partnership realized sale proceeds of
$148,460, which resulted in a net gain, for financial statement purposes, of
$41,916. In addition, the Partnership received lease termination rents,
discussed above, as this equipment was sold prior to the expiration of the
related lease term.
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
-3-
<PAGE>
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 $329,827, $520,164 and $1,362,557
for the years ended December 31, 1996, 1995 and 1994, 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 $7,462 or less than 1% of lease revenue in 1995 and
$61,401 or 3.2% of lease revenue during 1994. No interest expense was incurred
in 1996. Management fees were approximately 5.2%, 4.2% and 3.6% of lease
revenue during the years ended December 31, 1996, 1995 and 1994, respectively.
Management fees during the year ended December 31, 1996 include $2,088 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.
The overall increase in operating expenses from 1994 to 1996 is due primarily to
heavy maintenance and airframe overhaul costs incurred or accrued in connection
with certain of the Partnership's interests in Boeing 727 aircraft. During the
year ended December 31, 1996, the Partnership received $40,816 from the former
lessee of these aircraft, representing a partial reimbursement of such costs.
In 1996, the Partnership entered into a new 36-month lease agreement with
Sunworld International Airlines, Inc. to re-lease one of the aircraft at a base
rent to the Partnership of $7,540 per month (see discussion below relating to
the second aircraft). The amount of future operating expenses cannot be
predicted with certainty; however, such expenses are usually higher during the
acquisition and liquidation phases of a partnership. Other fluctuations
typically occur in relation to the volume and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was established
for specific purposes described in the preceding "Overview". As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These
cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $484,140, $802,351 and $1,834,261 in
1996, 1995 and 1994, 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
-4-
<PAGE>
management fees, and net cash flow from operating activities will also continue
to decline as the Partnership experiences a higher frequency of remarketing
events.
Ultimately, the Partnership will dispose of all assets under lease. This will
occur principally through sale transactions whereby each asset will be sold to
the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection
of stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. During the year ended December 31, 1996, the
Partnership expended $127,020 to replace certain aircraft engines to facilitate
the re-lease of an aircraft, in which it has an ownership interest, to
Transmeridian Airlines (see below). There were no equipment acquisitions during
the same periods in 1995 and 1994. During the year ended December 31, 1996, the
Partnership realized $226,458 in equipment sale proceeds compared to $314,565
and $1,167,690 in 1995 and 1994, 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.
On November 30, 1995, upon the expiration of its lease term, Northwest
Airlines, Inc. returned a Boeing 727-251 Advanced aircraft (the "Aircraft") in
which the Partnership has an 11.6% ownership interest. The Partnership's
interest in the Aircraft had a cost and net book value of $1,207,637 and
$264,187, respectively, at December 31, 1996. The Aircraft is currently
undergoing heavy maintenance expected to cost the Partnership approximately
$65,000, all of which was accrued or incurred during the year ended December 31,
1996. The Partnership had entered into a 28-month lease agreement with
Transmeridian Airlines effective upon completion of the heavy maintenance.
However, as a result of delays in completing the heavy maintenance, the Aircraft
could not be delivered to the lessee on the stipulated date, resulting in the
cancellation of the agreement. The General Partner is currently negotiating a
new lease agreement for the Aircraft.
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, 1996.
Cash distributions to the General and Limited Partners 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, 1996, the Partnership declared
total cash distributions of Distributable Cash from Operations and Distributable
Cash From Sales and Refinancings of $414,344. In accordance with the Amended
and Restated Agreement and Certificate of Limited Partnership, the Limited
Partners were allocated 95% of these distributions, or $393,627, and the General
Partner was allocated 5%, or $20,717. The fourth quarter 1996 cash distribution
was paid on January 13, 1997.
Cash distributions paid to the Limited Partners 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
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the
-5-
<PAGE>
amount of cash available for distribution in future periods will fluctuate.
Equipment lease expirations and asset disposals will cause the Partnership's net
cash from operating activities to diminish over time; and equipment sale
proceeds will vary in amount and period of realization. In addition, the
Partnership may be required to incur asset refurbishment or upgrade costs in
connection with future remarketing activities. Accordingly, fluctuations in the
level of quarterly cash distributions will occur during the life of the
Partnership.
-6-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Partners of American Income Fund I-A,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Fund I-A, a Massachusetts Limited Partnership as of December 31,
1996 and 1995, 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, 1996. 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 Fund I-A, a
Massachusetts Limited Partnership at December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, 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 14, 1997
-7-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $1,721,388 $1,595,008
Rents receivable 27,902 75,152
Accounts receivable - affiliate 61,144 35,962
Equipment at cost, net of accumulated
depreciation of $3,836,846 and
$4,245,887 at December 31, 1996
and 1995, respectively 530,926 877,302
---------- ----------
Total assets $2,341,360 $2,583,424
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ -- $ 5,186
Accrued interest -- 135
Accrued liabilities 30,870 25,830
Accrued liabilities - affiliate 22,945 7,685
Deferred rental income 6,445 9,384
Cash distributions payable to partners 75,335 113,003
---------- ----------
Total liabilities 135,595 161,223
---------- ----------
Partners' capital (deficit):
General Partner (206,597) (195,775)
Limited Partnership Interests
(286,274 Units; initial purchase 2,412,362 2,617,976
price of $25 each) ---------- ----------
Total partners' capital 2,205,765 2,422,201
---------- ----------
Total liabilities and partners'
capital $2,341,360 $2,583,424
========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-8-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ------------
<S> <C> <C> <C>
Income:
Lease revenue $585,768 $ 813,318 $1,940,468
Interest income 80,345 83,850 36,894
Gain (loss) on sale of equipment 82,889 144,671 (36,392)
-------- ---------- ----------
Total income 749,002 1,041,839 1,940,970
-------- ---------- ----------
Expenses:
Depreciation and amortization 329,827 520,164 1,362,557
Interest expense -- 7,462 61,401
Equipment management fees
- affiliate 30,670 33,736 69,641
Operating expenses - affiliate 190,597 95,375 42,210
-------- ---------- ----------
Total expenses 551,094 656,737 1,535,809
-------- ---------- ----------
Net income $197,908 $ 385,102 $ 405,161
======== ========== ==========
Net income
per limited partnership unit $ 0.66 $ 1.28 $ 1.34
======== ========== ==========
Cash distributions declared
per limited partnership unit $ 1.38 $ 2.25 $ 3.00
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-9-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited Partners
Partner ---------------------
Amount Units Amount Total
----------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $(156,186) 286,274 $3,370,164 $3,213,978
Net income - 1994 20,258 -- 384,903 405,161
Cash distributions declared (45,201) -- (858,822) (904,023)
--------- ------- ---------- ----------
Balance at December 31, 1994 (181,129) 286,274 2,896,245 2,715,116
Net income - 1995 19,255 -- 365,847 385,102
Cash distributions declared (33,901) -- (644,116) (678,017)
--------- ------- ---------- ----------
Balance at December 31, 1995 (195,775) 286,274 2,617,976 2,422,201
Net income - 1996 9,895 -- 188,013 197,908
Cash distributions declared (20,717) -- (393,627) (414,344)
--------- ------- ---------- ----------
Balance at December 31, 1996 $(206,597) 286,274 $2,412,362 $2,205,765
========= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-10-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from (used in)
operating activities:
Net income $ 197,908 $ 385,102 $ 405,161
Adjustments to reconcile net
income
to net cash from operating
activities:
Depreciation and 329,827 520,164 1,362,557
amortization
(Gain) loss on sale of (82,889) (144,671) 36,392
equipment
Changes in assets and
liabilities:
Decrease (increase) in:
Rents receivable 47,250 332 (5,649)
Accounts receivable -
affiliate (25,182) 32,217 51,916
Increase (decrease) in:
Accrued interest (135) (1,796) (14,763)
Accrued liabilities 5,040 5,560 4,560
Accrued liabilities -
affiliate 15,260 7,685 (3,125)
Deferred rental income (2,939) (2,242) (2,788)
---------- ---------- -----------
Net cash from operating
activities 484,140 802,351 1,834,261
---------- ---------- -----------
Cash flows from (used in)
investing activities
Purchase of equipment (127,020) -- --
Proceeds from equipment
sales 226,458 314,565 1,167,690
Net cash from investing ---------- ---------- -----------
activities 99,438 314,565 1,167,690
---------- ---------- -----------
Cash flows used in financing
activities:
Principal payments - notes
payable (5,186) (189,846) (990,421)
Cash distributions paid (452,012) (791,020) (904,023)
---------- ---------- -----------
Net cash used in
financing activities (457,198) (980,866) (1,894,444)
---------- ---------- -----------
Net increase in cash and cash
equivalents 126,380 136,050 1,107,507
Cash and cash equivalents at
beginning of year 1,595,008 1,458,958 351,451
---------- ---------- -----------
Cash and cash equivalents at
end of year $1,721,388 $1,595,008 $ 1,458,958
========== ========== ===========
Supplemental disclosure of
cash flow information:
Cash paid during year for
interest $ 135 $ 9,258 $ 76,164
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-11-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
December 31, 1996
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
- ---------------------------------------------
The Partnership was organized as a limited partnership under the
Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on March 6,
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 VI Incorporated)
and $100 from the Initial Limited Partner (AFG Assignor Corporation). On
December 31, 1990, the Partnership issued 286,274 units of limited partnership
interest (the "Units") to 359 investors. The Partnership's General Partner, AFG
Leasing VI Incorporated, is a Massachusetts corporation formed in 1990 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 ("Restated Agreement, as
amended").
Significant operations commenced December 31, 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 Limited Partners and 5%
to the General Partner.
Under the terms of a Management Agreement between the Partnership and
EFG, management services are provided by EFG to the Partnership at fees which
the General Partner believes to be competitive for similar services. (Also 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 Equipment 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 (the "Buyer"). AFG changed its
name to Equis Financial Group Limited Partnership after the sale was concluded.
Pursuant to terms of the sale agreements, EFG agreed not to compete with the
Buyer's lease origination business for a period of five years; however, EFG is
permitted to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale agreements specifically
reserved to EFG 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, including the right to satisfy all required equipment
acquisitions utilizing either brokers or the Buyer. Geoffrey A. MacDonald,
Chairman of Equis Corporation and Gary D. Engle agreed not to compete with the
sold business on terms and conditions similar to those for the Company.
-12-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Statement of Cash Flows
- -----------------------
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Partnership. The
securities underlying the agreements are book entry securities. At December 31,
1996, the Partnership had $1,620,000 invested in reverse repurchase agreements
secured by U.S. Treasury Bills or interests in U.S. Government securities.
Revenue Recognition
- -------------------
Rents are payable to the Partnership monthly 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 $228,981 are due
as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1997 $ 128,906
1998 100,075
----------
Total $ 228,981
==========
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1996, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
American National Can Company $ 134,169 $ 172,558 $ 242,648
Northwest Airlines, Inc. $ 116,306 $ 248,359 $ 436,678
Sunworld International Airlines, Inc. $ 85,805 -- --
Durr Medical $ 75,742 -- --
Ford Motor Company -- $ 93,458 --
Roses Stores, Inc. -- -- $ 222,031
</TABLE>
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
- ------------------
All equipment was acquired from EFG, one of its Affiliates 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
-13-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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. 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.
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 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 Limited
Partners and 5% to the General Partner). See Note 5 for allocation of income or
loss for income tax purposes.
Net Income and Cash Distributions Per Unit
- ------------------------------------------
Net income and cash distributions per Unit are based on 286,274 Units
outstanding during each of the three years in the period ended
December 31, 1996 and computed after allocation of the General Partner's 5%
share of net income and cash distributions.
-14-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Provision for Income Taxes
- --------------------------
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership adopted Statement 121 in the first quarter of 1996. The adoption of
Statement 121 did not have a material effect on the financial statements of the
Partnership.
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at December
31, 1996. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Lease Term Equipment
Equipment Type (Months) at Cost Location
- -------------------------------------- ----------- ------------ -------------------------------
<S> <C> <C> <C>
Aircraft 10-36 $ 2,288,254 KY/MN
Materials handling 2-60 1,331,734 CA/DE/IL/IN/KY/MI/MN NC/NJ/NV
OH/WI/Foreign
Communications 23-60 383,676 AL
Computers and peripherals 1-51 239,322 AL/CT/GA/KY/MS/NC/SC/TN/TX/VAWI
Retail store fixtures 12-47 63,750 GA/NC/SC/VA
Tractors/heavy duty trucks 78 61,036 CA
-----------
Total equipment cost 4,367,772
Accumulated depreciation (3,836,846)
-----------
Equipment, net of accumulated depreciation $ 530,926
===========
</TABLE>
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, 1996, the Partnership's
equipment portfolio included equipment having a proportionate original cost of
$2,478,971, representing approximately 57% of total equipment cost.
-15-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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. At December 31, 1996, the cost and net
book value of equipment held for sale or re-lease was approximately $1,311,000
and $264,000, respectively. This equipment includes the Partnership's
proportionate interest in a Boeing 727 Advanced aircraft, formerly leased to
Northwest Airlines, Inc. ("Northwest"), having a cost and net book value of
$1,207,637 and $264,187, respectively. This aircraft was returned upon
expiration of its lease term on November 30, 1995 and is currently undergoing
heavy maintenance expected to cost the Partnership approximately $65,000, all of
which was accrued or incurred during the year ended December 31, 1996. The
Partnership had entered into a 28-month lease agreement with Transmeridian
Airlines effective upon completion of the heavy maintenance. However, as a
result of delays in completing the heavy maintenance, the Aircraft could not be
delivered to the lessee on the stipulated date, resulting in the cancellation of
the agreement. The General Partner is currently negotiating a new lease
agreement for the Aircraft.
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,
1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equipment management fees $ 30,670 $ 33,736 $ 69,641
Administrative charges 32,428 12,552 12,000
Reimbursable operating
expenses due to third parties 158,169 82,823 30,210
-------- -------- --------
Total $221,267 $129,111 $111,851
======== ======== ========
</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.
-16-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) 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 or from third-
party sellers. The Partnership's Purchase Price was determined by the method
described in Note 2.
All rents and proceeds from the sale of equipment are paid directly to
either 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, 1996, the Partnership was owed $61,144 by EFG for such funds and
the interest thereon. These funds were paid to the Partnership in January 1997.
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 Limited Partners 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, 1996, 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, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ------------
<S> <C> <C> <C>
Net income $197,908 $385,102 $ 405,161
Financial statement depreciation
in excess of (less than) tax 85,805 (29,715) 523,537
depreciation
Prepaid rental income (2,939) (2,242) (2,788)
Other (38,306) 117,824 286,304
-------- -------- ----------
Net income for federal income tax
reporting purposes $242,468 $470,969 $1,212,214
======== ======== ==========
</TABLE>
The principal component of "Other" consists of the difference between the
tax gain on equipment disposals and the financial statement gain (loss) on
disposals.
-17-
<PAGE>
AMERICAN INCOME FUND I-A
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Partners' capital $2,205,765 $2,422,201
Add back selling commissions and
organization and offering costs 800,146 800,146
Financial statement distributions in
excess of tax distributions 3,767 5,651
Cumulative difference between
federal income tax and financial
statement income (loss) 337,685 293,125
---------- ----------
Partners' capital for federal income
tax reporting purposes $3,347,363 $3,521,123
</TABLE> ========== ==========
NOTE 6 - LEGAL PROCEEDINGS
- --------------------------
On September 22, 1995, Investors Asset Holding Corp. and First Security
Bank, N.A., trustees of the Partnership and various other affiliated investment
programs, filed an action in the United States District Court for the District
of Massachusetts against Northwest, a lessee of the Partnership. The trustees
are seeking damages from Northwest and a declaratory judgment concerning
Northwest's maintenance and return obligations for certain aircraft interests
owned by the Partnership. In addition to filing its Answer to the Plaintiffs'
Complaint, Northwest also filed a motion to transfer venue of this proceeding to
Minnesota. The Court denied such motion. The parties have completed the
initial phase of discovery, and motions for partial summary judgment are due on
March 28, 1997. At present, it is not possible to determine the ultimate
outcome of this matter.
-18-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1996, 1995 and 1994
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, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Rents earned prior to disposal of $ 836,280 $ 819,974 $3,159,449
equipment, net of interest charges
Sale proceeds realized upon disposition
of equipment 226,458 314,565 1,167,690
---------- ---------- ----------
Total cash generated from rents
and equipment sale proceeds 1,062,738 1,134,539 4,327,139
Original acquisition cost of equipment
disposed 882,437 896,799 3,933,822
---------- ---------- ----------
Excess of total cash generated to cost
of equipment disposed $ 180,301 $ 237,740 $ 393,317
========== ========== ==========
</TABLE>
-19-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
-------------- ------------- --------------
<S> <C> <C> <C>
Net income $ 115,019 $ 82,889 $ 197,908
Add:
Depreciation 329,827 -- 329,827
Management fees 30,670 -- 30,670
Book value of disposed equipment -- 143,569 143,569
Less:
Principal reduction of notes
payable (5,186) -- (5,186)
---------- ------------ ----------
Cash from operations, sales
and refinancings 470,330 226,458 696,788
Less:
Management fees (30,670) -- (30,670)
---------- ------------ ----------
Distributable cash from
operations, sales and
refinancings 439,660 226,458 666,118
Other sources and uses of cash:
Cash at beginning of year 1,595,008 -- 1,595,008
Purchase of equipment (127,020) -- (127,020)
Net change in receivables and
accruals 39,294 -- 39,294
Less:
Cash distributions paid (225,554) (226,458) (452,012)
---------- ------------ ----------
Cash at end of year $1,721,388 -- $1,721,388
========== ============ ==========
</TABLE>
-20-
<PAGE>
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 9.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1996
For the year ended December 31, 1996, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
Operating expenses $173,837
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,721,388
<SECURITIES> 0
<RECEIVABLES> 89,046
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,810,434
<PP&E> 4,367,772
<DEPRECIATION> 3,836,846
<TOTAL-ASSETS> 2,341,360
<CURRENT-LIABILITIES> 135,595
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,205,765
<TOTAL-LIABILITY-AND-EQUITY> 2,341,360
<SALES> 585,768
<TOTAL-REVENUES> 749,002
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 551,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 197,908
<INCOME-TAX> 0
<INCOME-CONTINUING> 197,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197,908
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT NO. 9006ALG419, dated as of June 20, 1990, between
AMERICAN FINANCE GROUP, a Massachusetts general partnership having a principal
place of business and address for purposes of notice hereunder at Exchange
Place, Boston, Massachusetts 02109, Attention: Manager, Lease Financing Group,
as Lessor, and DURR-FILLAUER MEDICAL, INC., a Delaware corporation having a
principal place of business and address for purposes of notice hereunder at 218
Commerce Street, Montgomery, Alabama 36104, Attention: Charles T. Gross, Vice
President and Treasurer, as Lessee.
1. MASTER LEASE.
-------------
This Master Lease Agreement sets forth the terms and conditions that govern
the lease by Lessor to Lessee of items of Equipment specified on Rental
Schedules executed and delivered by the parties from time to time. Each Rental
Schedule incorporates by reference this Master Lease Agreement and specifies the
Lease Term, the amount of Basic Rent, the Payment Dates on which Basic Rent is
due, and such other information and provisions as Lessor and Lessee may agree.
Each Rental Schedule constitutes a separate and independent lease.
2. LEASE TERM. LESSEE'S RIGHT TO QUIET ENJOYMENT.
----------------------------------------------
Each Rental Schedule is for a non-cancellable Lease Term commencing on the
date of acceptance of the Equipment for lease and ending on the Expiration Date
specified on such Rental Schedule. Lessee cannot, for any reason, terminate the
Rental Schedule or suspend payment or performance of any of its obligations
thereunder. Subject to there being no Event of Default under the Rental
Schedule, Lessee will have quiet possession and use of the Equipment throughout
the Lease Term, and Lessor shall defend and protect such quiet possession and
use against all persons claiming by, through or under Lessor.
3. BASIC RENT. NET LEASE. LESSEE'S INDEMNITY. MO WARRANTIES BY LESSOR.
-------------------------------------------------------------------
Basic Rent is payable in the amount specified on the Rental Schedule. All
payments of Basic Rent shall be made to Lessor in good funds on the Payment
Dates specified in the Rental Schedule. If payment is to be made by check, the
Lessee will mail the check at least four (4) days before the Payment Date.
Lessor will exercise its best efforts to invoice Lessee thirty (30) days prior
to each Payment Date. Failure to provide timely invoices will not relieve
Lessee of its obligation to pay Basic Rent on the Payment Date. Basic 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 (including claims
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. Lessee
agrees to defend all claims through counsel acceptable to Lessor. The Rental
Schedule is a triple net lease. Provided that Lessor has not breached Lessee's
right of quiet possession and use of the Equipment set forth above as
incorporated by reference into a Rental Schedule, and in any case after Lessor
has assigned the Rental Schedule, Lessee's
<PAGE>
obligations under a Rental Schedule are not subject to defense, counterclaim,
set-off, abatement or recoupment, and Lessee waives all rights to terminate or
surrender the Rental Schedule, 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 Rental Schedule. Without limiting the availability of any
vendor or manufacturer warranties with respect to the Equipment, LESSOR IN ITS
OWN BEHALF 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, including, at Lessee's expense, asserting such claims in
Lessor's name on behalf of Lessee.
Lessee acknowledges that this Master Lease Agreement has been entered into
on the basis that Lessor shall be entitled for federal and state income tax
purposes (i) to claim the deductions for depreciation on the total original cost
of the Equipment pursuant to the Modified Accelerated Cost Recovery System under
Section 168 of the Internal Revenue Code of 1986, as amended ("Code") or for
state income tax purposes, any other depreciation deduction method that is
permitted by certain state law; and (ii) to claim under Section 163 of the Code
a tax deduction for the full amount of any interest paid by Lessor or accrued
under Lessor's method of tax accounting on any indebtedness secured by the
Equipment (hereinafter referred to collectively as the "Tax Benefits"). Lessee
agrees to fully indemnify Lessor for any loss, disallowance, unavailability or
recapture of the Tax Benefits as a result of any of the following acts or
omissions by Lessee, any sublessee, or any other person authorized by the Lessee
to use or maintain the Equipment: (a) any untrue or misleading statement
contained in the Rental Schedule or in the Master Lease Agreement or any other
document furnished hereunder with respect to the Equipment, the Lease, the
Lessee or any sublessee; (b) any predominant use of the Equipment outside the
United States within the meaning of Section 48(a) of the Code; (c) any attempt
by Lessee to sublease the Equipment to a tax exempt entity or other conversion
of the Equipment to "tax-exempt use property" within the meaning of Section
168(h) of the Code; (d) any conversion of the Equipment to personal use or other
use of the Equipment that would cause it to cease to qualify as "section 38
property" within the meaning of Section 48(a) of the Code; or (e) any attempt by
Lessee to claim the Tax Benefits as if it were the owner of the Equipment. If
Lessor shall lose, shall not have the right to claim, or if there shall be
disallowed or recaptured, all or any portion of such Tax Benefits as a result of
the foregoing enumerated acts or omissions by Lessee, any sublessee, or any
other person authorized by Lessee to use or maintain the Equipment, Lessee shall
pay to Lessor as additional rent (a) an amount equal to the value, determined at
the highest marginal tax rate on a present value basis discounted at the
Lessor's then current cost of funds, of the Tax Benefits so disallowed or made
unavailable plus (b) all interest, penalties, or additions to tax resulting from
such loss, disallowance, unavailability or recapture of any of the foregoing,
plus (c) all taxes required to by paid by the Lessor or its successors and
assigns under any federal, state and local law upon receipt of any of the
indemnifications set forth in this paragraph.
4. USE AND LOCATION OF EQUIPMENT. MAINTENANCE AND REPAIRS. NO LIENS.
-----------------------------------------------------------------
NO ASSIGNMENT BY LESSEE. LESSEE'S RIGHT TO SUBLEASE.
----------------------------------------------------
The Equipment is to be used exclusively by Lessee in the conduct of its
business, only for the purposes for which it was designed and in compliance with
all applicable laws, rules and regulations. Lessee will obtain and
<PAGE>
maintain all necessary licenses, permits and approvals. The Equipment is not to
be removed from the location specified on the Rental Schedule except upon prior
written notice to Lessor, and in no event may the Equipment be moved to a
location outside the continental United States. 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. Lessee will keep the Equipment
and its interest therein free and clear 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. The Rental Schedule may not be assigned
by Lessee. Lessee may sublease the Equipment only upon prior written notice to
Lessor, in which notice Lessee represents and warrants to Lessor that such
sublease is for a term not longer than the related Lease Term, is not made to a
tax-exempt entity or governmental agency, is specifically made subject to the
prior rights of Lessor and its assignees under the Rental Schedule, does not
create any obligation on the part of Lessor in favor of such sublessee and does
not relieve Lessee of any of its obligations under the Rental Schedule
including, without limitation, Lessee's obligations with respect to (a) the
payment of Basic Rent and other sums due or to become due, (b) use and
maintenance of the Equipment and (c) provisions for the return of the Equipment
at the expiration of the Lease Term.
5. LOSS, DAMAGE OR DESTRUCTION OF EQUIPMENT.
-----------------------------------------
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 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 Rental Schedule. The Rental
Schedule, 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.
6. TAXES AND FEES.
---------------
Lessee agrees to prepare and file all required returns or reports required
to be filed by Lessee and to pay all sales, gross receipts, personal property
and other taxes (including highway use and vehicle excise taxes, where
applicable), fees, interest, fines or penalties imposed upon Lessee by any
governmental authority relating in any way to Lessee's rental, possession or use
of the Equipment, and to pay as additional rental to Lessor any such taxes or
fees, including taxes on Lessor's acquisition and leasing of the Equipment (but
not interest or penalties except to the extent resulting from acts or omissions
on the part of Lessor), required to be paid by Lessor,
<PAGE>
excepting only taxes imposed upon the net income of Lessor, franchise taxes or
permit fees required to be paid by Lessor for the privilege of doing business in
any Jurisdiction in which such Equipment is located or used, and the taxes
erroneously paid by Lessor. Notwithstanding the foregoing, Lessor will prepare
and file use and rental tax filings, and report and pay all rental and use
taxes, and Lessee will pay to Lessor, on each Basic Rent Payment Date, as
additional rent, an amount equal to the use or rental taxes attributable to that
payment of Basic Rent.
7. INSURANCE.
----------
Lessee agrees 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 greater of the Casualty Value set forth on the Rental Schedule or
the fair market value of the 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 Basic
Rent and other sums then due and unpaid under the Rental Schedule and will pay
such proceeds over to Lessee only upon receipt of satisfactory evidence thereof.
8. FINANCIAL STATEMENTS. INSPECTION. REPORTS.
------------------------------------------
Lessee will provide to Lessor copies of Lessee's annual audited balance
sheet, profit and loss statement and statement of changes in financial
condition, and, if generally available to Lessee's Lenders, quarterly unaudited
balance sheet and profit and loss statement, all prepared in accordance with
generally accepted accounting principles, consistently applied. 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 reasonably requested but only to the extent that Lessee
maintains the same in the ordinary course of its business, provide a report on
the condition of the Equipment, a record of its maintenance and repair, a
summary of all items suffering a Casualty, or such other information or evidence
of compliance with Lessee's obligations under the Rental Schedule as Lessor may
reasonably request.
9. AGREEMENT FOR LEASE ONLY. IDENTIFICATION MARKS. FINANCING STATEMENTS.
---------------------------------------------------------------------
FURTHER ASSURANCES.
-------------------
Each Rental Schedule is intended to be a true lease and not a lease in the
nature of a security agreement. Lessee will affix to the Equipment all
<PAGE>
notices of Lessor's ownership of the Equipment furnished by Lessor. Lessee will
execute and deliver and Lessor may file Uniform Commercial Code financing
statements or other similar documents notifying the public of Lessor's ownership
of the Equipment and Lessee hereby appoints Lessor as its agent and attorney-in-
fact to execute and file the same on its behalf. Lessee agrees to promptly
execute and deliver to Lessor such further documents or other assurances, and to
take such further action, including obtaining landlord and mortgagee waivers, as
Lessor may from time to time reasonably request in order to establish and
protect the rights and remedies created by the Rental Schedule.
10. LATE PAYMENT CHARGES. LESSOR'S RIGHT TO PERFORM FOR LESSEE.
-----------------------------------------------------------
A Late Payment Charge equal to (A) the greater of 2% per annum above the
debt rate charged to 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, or (B) if less, the
highest rate not prohibited by law, will accrue on any sum not paid when due for
each day not paid. If Lessee falls 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.
11. 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
Rental Schedules having the same Expiration Date, (i) to return the Equipment to
Lessor, (ii) to renew the Rental Schedule 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 the
Equipment or renew the Rental Schedule not less than 120 days prior to the
Expiration Date. If Lessee fails to give Lessor 120 days written notice, the
Lease Term may, at Lessor's option, be extended and continue until 120 days from
the date Lessor receives written notice of Lessee's decision to return the
Equipment or renew the Rental Schedule. 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 appraiser selected by Lessor
and reasonably acceptable to Lessee. The cost of an appraisal will be shared
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. 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
<PAGE>
the condition of any item of Equipment does not conform to the minimum
requirements, 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 Rental Schedule 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.
12. LESSEE'S REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Lessee represents, warrants and certifies as of the date of execution and
delivery of each Rental Schedule 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 Rental Schedule and this
Master Lease Agreement as incorporated therein by reference, and is duly
qualified 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 enforceability of the Rental
Schedule;
(b) the Rental Schedule, this Master Lease Agreement and all related documents
have been duly authorized, executed and delivered by Lessee, are
enforceable against Lessee in accordance with their terms assuming Lessor
has obtained all required Certificates of Authority, licenses and permits
required to be obtained by it, if any, 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 generally applicable to such arrangements (but not
including any law, regulation or order relating to Lessor's legal or
organizational status, its requirement to qualify to do business in any
jurisdiction or its requirement to obtain any business license, permit or
authority from any such Jurisdiction);
(c) Lessor's right, title and interest in and to the Rental Schedule, this
Master Lease Agreement and 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 Rental Schedule or this Master
Lease Agreement as incorporated therein by reference;
(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 Rental
Schedule or this Master Lease Agreement as incorporated therein by
reference; and
<PAGE>
(f) there has been no material adverse change to Lessee's financial condition
since the date of its most recent audited financial statement.
13. EVENTS OF DEFAULT. LESSOR'S REMEDIES ON DEFAULT.
-----------------------------------------------
Each of the following events constitutes an Event of Default:
(a) default in the payment of any amount when due under the Rental Schedule
continuing for a period of ten days;
(b) default in the observance or performance of any other covenant,
condition or agreement to be observed or performed by Lessee under the
Rental Schedule and this Master Lease Agreement as incorporated therein by
reference, continuing for more than 30 days after written notice thereof,
unless Lessee shall be diligently proceeding to cure such default and such
default does not subject the Equipment to forfeiture, in which event,
Lessee shall have 60 days from the date of notice in which to cure such
default;
(c) any representation or warranty made by Lessee herein or in the Rental
Schedule or this Master Lease Agreement as incorporated therein by
reference or in any document or certificate furnished in connection
herewith shall at any time prove to have been materially incorrect when
made and which either (a) shall have resulted in the reasonable prospect of
(i) subjecting the Equipment to risk of loss by forfeiture or (ii) causing
Lessor to suffer any irremediable loss, injury or damage, or (b) shall not
have been cured by Lessee within 60 days from the date of notice of such
failure of representation or warranty;
(d) any attempt by Lessee, without Lessor's prior written consent, to
assign the Rental Schedule, to make any unauthorized sublease of the
Equipment or to transfer possession of the Equipment;
(e) Lessee or, if Lessee's obligations are guaranteed by any other party,
any Guarantor (A) ceases doing business as a going concern; (B) makes an
assignment for the benefit of creditors, admits in writing its inability to
pay its debts as they mature or generally fails to pay its debts as they
become due; (C) initiates any voluntary bankruptcy or insolvency
proceeding; (D) fails to obtain the discharge of any bankruptcy or
insolvency proceeding initiated against it by others within 60 days of the
date such proceedings were initiated; (E) requests or consents to the
appointment of a trustee or receiver; or (F) a trustee or receiver is
appointed for Lessee or any Guarantor or for a substantial part of Lessee's
or any Guarantor's property; or
(f) Lessee shall not return the Equipment or shall not return the Equipment
in the required condition at the expiration of the Rental Schedule or any
extension or renewal thereof.
Upon the occurrence of an Event of Default, Lessor may, without notice to
Lessee, declare the applicable Rental Schedule in default and may exercise any
of the following remedies:
I. at Lessor's option, and in its sole discretion either:
<PAGE>
(a) declare all Basic Rent and other sums due or to become due under the
Rental Schedule immediately due and payable, and sue to enforce the
payment thereof; or
(b) 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
Rental Schedule, an amount equal to the Casualty Value set forth on the
Rental Schedule calculated after the last payment of Basic Rent actually
received 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 Rental Schedule 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 take any of the following actions, unless such action
when taken in addition to any of the following actions would result in a
recovery which in any manner duplicates the remedies provided in subsection
I:
(a) proceed by appropriate court action either at law or in equity to
enforce performance by Lessee of the covenants and terms of the Rental
Schedule; and
(b) terminate the Rental Schedule 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
(c) 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 repossession
of the Equipment; and
(d) 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.
Lessor's remedies are, except as indicated herein, cumulative and not exclusive,
and are in addition to all remedies at law or in equity. No failure by Lessor
to declare a default shall constitute a waiver of such default or restrict
Lessor's ability to declare a default at a later date.
14. ASSIGNMENT BY LESSOR.
---------------------
Lessor may at any time and from time to time sell, transfer or grant
<PAGE>
liens on the Equipment, and assign, as collateral security or otherwise, its
rights in the Rental Schedule and this Master Lease Agreement as incorporated
therein by reference, in each case subject and subordinate to Lessee's rights
thereunder, without notice to or consent by Lessee. Lessee acknowledges that
Lessor may assign the Rental Schedule to a Lender in connection with the
financing of its purchase of the Equipment and agrees, in the event of such
assignment, to execute and deliver a Rent Assignment Letter acknowledging that
the Lender has (and may exercise either in its own name or in the name of
Lessor) all of the rights, privileges and remedies, but none of the obligations,
of Lessor under the Rental Schedule; waiving for the benefit of the Lender (but
not Lessor) any defense, counterclaim, set-off, abatement, reduction or
recoupment that Lessee may have against Lessor; and agreeing to make all
payments of Basic Rent and other sums due under the Rental Schedule to the
Lender or as the Lender may direct. Lessee also agrees to deliver opinions of
counsel in standard and customary form, insurance certificates and such other
documents as Lessor may reasonably prepare and submit to Lessee for execution
for the benefit of the Lender in connection with the collateral assignment of
the Rental Schedule.
15. NOTICE. GOVERNING LAW. EXECUTION IN COUNTERPARTS.
-------------------------------------------------
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 Master Lease Agreement and the Rental
Schedule shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts. This Master Lease Agreement and the Rental
Schedule may be executed in multiple counterparts all of which together shall
constitute one and the same instrument.
16. MERGERS, CONSOLIDATIONS, LEVERAGED BUY-OUTS INVOLVING LESSEE.
------------------------------------------------------------
Lessee acknowledges and agrees that Lessor has entered into this Master
Lease Agreement and each Rental Schedule on the basis of Lessee's
creditworthiness. In the event that Lessee, without Lessor's prior written
consent, which consent shall not be unreasonably withheld or delayed, (i) is a
party to a merger or consolidation, (ii) sells or transfers, singly or in a
series of related transactions, all or substantially all of its assets other
than its rights and obligations under the Rental Schedule, or (iii) purchases,
singly or in a series of related transactions, a substantial portion of its
stock, and Lessee's creditworthiness suffers a material decline as a result of
any of the foregoing transactions, then Lessor may, in its reasonable
discretion, demand in writing that Lessee purchase all of the Equipment subject
to the Rental Schedule on the next Rent Payment Date for an amount equal to the
applicable Casualty Value of the Equipment and, upon receipt by Lessor in good
funds of an amount equal to such Casualty Value and all other sums due and
payable under the Rental Schedule through the date of such receipt (provided
that no Event of Default has occurred and is continuing under the Rental
Schedule), Lessor shall deliver to Lessee a bill of sale conveying title to the
Equipment free and clear of any liens and encumbrances created by Lessor but
otherwise on an as-is, where-is basis, with all faults. For purposes of the
foregoing sentence, a "material decline" in Lessee's creditworthiness shall mean
a downgrading of the public debt rating assigned to Lessee by Moody's Investors
Services, Inc., Standard & Poors Corporation or
<PAGE>
another reputable rating agency acceptable to Lessor or, if Lessee has no such
credit rating, a material decline in Lessee's creditworthiness objectively and
reasonably determined by Lessor.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Master Lease
Agreement to be executed and delivered by their duly authorized representatives
as of the date first above written.
AMERICAN FINANCE GROUP DURR-FILLAUER MEDICAL, INC.
By: /s/ By: /s/
---------------------------- ----------------------------
Title: Manager Title: VP, Information Systems
Date: 7/11/90 Date: 6/28/90
0674F
<PAGE>
================================================================================
AIRCRAFT LEASE AGREEMENT
between
FIRST SECURITY BANK OF UTAH, N.A.
as Owner Trustee,
Lessor
and
SUNWORLD INTERNATIONAL AIRLINES, INC.,
Lessee
Dated as of January 1, 1996
covering one Boeing model 727-251A Aircraft
equipped with Pratt & Whitney model JT8D-15A Engines
Serial No. 21161
================================================================================
<PAGE>
LEASE AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SECTION 1. Definitions............................................................................ 1
-----------
SECTION 2. Lease and Delivery of the Aircraft..................................................... 5
----------------------------------
2.1. Lease. Lessee's Obligations and Conditions Precedent................................. 5
----------------------------------------------------
2.1.1. Execution of Operative Documents............................................ 5
--------------------------------
2.1.2. Evidence of Legal Authority to Lease and Operate the Aircraft............... 6
-------------------------------------------------------------
2.1.3. Evidence of Corporate Authority............................................. 6
-------------------------------
2.1.4. Evidence of Insurance....................................................... 7
---------------------
2.1.5. Opinion of Counsel.......................................................... 7
------------------
2.1.6. Payment of Basic Rent and Security Deposit.................................. 7
------------------------------------------
2.2. Delivery............................................................................. 7
--------
2.3. Lessor Authority: Ancillary Documents................................................ 8
-------------------------------------
SECTION 3. Term, Rent, and Purchase Option........................................................ 8
-------------------------------
3.1. Term: Option to Extend............................................................... 8
----------------------
3.2. Basic Rent........................................................................... 8
----------
3.3. Method of Payment.................................................................... 8
-----------------
3.4. Supplemental Rent.................................................................... 9
-----------------
3.5. Security Deposit..................................................................... 9
----------------
3.6. Reserves............................................................................. 9
--------
3.7 Purchase Option...................................................................... 11
---------------
SECTION 4. Representations, Warranties and Miscellaneous Covenants................................ 11
-------------------------------------------------------
4.1. The Lessee's Representations and Warranties.......................................... 11
-------------------------------------------
4.1.1. Organization and Qualification.............................................. 11
------------------------------
4.1.2. Corporate Authorization..................................................... 11
-----------------------
4.1.3. Government Approval......................................................... 11
-------------------
4.1.4. Valid and Binding Agreements................................................ 12
----------------------------
4.1.5. Litigation.................................................................. 12
----------
4.1.6. Financial Condition......................................................... 12
-------------------
4.1.7. Accuracy and Disclosure of Information...................................... 12
--------------------------------------
4.2. Representations and Warranties of the Lessor......................................... 12
--------------------------------------------
4.2.1. Due Organization............................................................ 12
----------------
4.2.2. Due Authorization: Enforceability........................................... 12
---------------------------------
4.2.3. No Violation................................................................ 13
------------
4.2.4. Ownership of Aircraft....................................................... 13
---------------------
4.2.5. No Consents or Approvals.................................................... 13
------------------------
4.2.6. Citizenship................................................................. 13
-----------
4.2.7. Discharge of FSBU Liens..................................................... 13
-----------------------
4.2.8. Litigation.................................................................. 13
----------
4.2.9. FSBU Litigation............................................................. 13
----------------
4.3. Disclaimer and Acknowledgment of Disclaimer: Waiver of Consequential Damages......... 14
----------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.4. Lessees Miscellaneous Covenants...................................................... 15
-------------------------------
4.4.1. Maintenance of Corporate Status: No Merger or Consolidation.................. 15
-----------------------------------------------------------
4.4.2. Notice of Default or Adverse Occurrence...................................... 15
---------------------------------------
4.4.3. Maintenance of Consents and Approvals........................................ 15
-------------------------------------
4.4.4. Change of Locale............................................................. 15
-----------------
4.4.5. Financial Information and Reports............................................ 15
----------------------------------
4.5. Lessors Covenant of Quiet Enjoyment.................................................. 16
-----------------------------------
SECTION 5. Operation. Maintenance. Possession..................................................... 16
----------------------------------
5.1. Title................................................................................ 16
-----
5.2. Operation............................................................................ 16
---------
5.3. Maintenance in General............................................................... 16
----------------------
5.4. Parts................................................................................ 17
-----
5.5. Airworthiness Directives............................................................. 18
------------------------
5.6. Service Bulletins.................................................................... 18
---------------
5.7. Modifications........................................................................ 18
-------------
5.8. Reports.............................................................................. 19
-------
5.9. Right to Inspect..................................................................... 20
----------------
5.10. Damage and Repairs................................................................... 20
------------------
5.11. Aircraft Documents................................................................... 20
------------------
5.11.1. Airworthiness Directives................................................... 21
------------------------
5.11.2. Life Limited Components.................................................... 21
-----------------------
5.11.3. Damage and Repairs......................................................... 21
------------------
5.12. Possession........................................................................... 21
----------
5.13. Insignia............................................................................. 23
--------
SECTION 6. Return of the Aircraft................................................................. 23
----------------------
6.1. Return............................................................................... 23
------
6.2. Lease Continues...................................................................... 23
---------------
6.3. Return of Engines.................................................................... 23
-----------------
6.4. Condition of Aircraft................................................................ 24
---------------------
6.4.1. Operating Condition......................................................... 24
-------------------
6.4.2. Cleanliness Standards....................................................... 24
---------------------
6.4.3. Certificate of Airworthiness................................................ 24
----------------------------
6.4.4. Compliance with Governmental Requirements................................... 24
-----------------------------------------
6.4.5. Deferred Maintenance........................................................ 25
--------------------
6.4.6. Corrosion Treatment......................................................... 25
-------------------
6.4.7. Configuration and Condition................................................. 25
---------------------------
6.5. Condition of Airframe................................................................ 25
---------------------
6.5.1. C Check..................................................................... 25
-------
6.5.2. D Check..................................................................... 25
-------
6.5.3. Parts....................................................................... 25
-----
6.6. Condition of Landing Gear............................................................ 26
-------------------------
6.7. Condition of Auxiliary Power Unit ("APU")............................................ 26
----------------------------------------
6.8. Condition of Engines................................................................. 26
--------------------
6.9. Historical Records: Trend Monitoring Data............................................ 26
-----------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.10. Inspections.......................................................................... 27
-----------
6.11. Acceptance........................................................................... 27
----------
6.12. Discrepancy Correction: Financial Settlement......................................... 27
--------------------------------------------
6.13. Aircraft Documents................................................................... 28
------------------
6.14. Service Bulletin Kits................................................................ 28
---------------------
6.15. Lessee's Special Exterior Markings................................................... 28
----------------------------------
6.16. Disputes............................................................................. 28
--------
SECTION 7. Liens.................................................................................. 29
-----
SECTION 8. Taxes.................................................................................. 29
-----
8.1. Tax Indemnity........................................................................ 29
------------
8.2. Withholding.......................................................................... 31
-----------
8.3. After-tax Payment.................................................................... 32
-----------------
SECTION 9. Risk of Loss: Event of Loss: Requisition for Use...................................... 32
-------------------------------------------------
9.1. Risk of Loss......................................................................... 32
------------
9.2. Airframe Event of Loss............................................................... 32
----------------------
9.3. Engine Event of Loss................................................................. 33
--------------------
9.4. Requisition.......................................................................... 33
-----------
SECTION 10. Insurance.............................................................................. 34
---------
10.1. Reports.............................................................................. 34
-------
10.2. Lessor Maintaining Insurances........................................................ 34
----------------------------
10.3. Insurance Proceeds................................................................... 34
------------------
10.4. Property Insurance................................................................... 35
------------------
10.5. Liability Insurance.................................................................. 35
-------------------
10.6. Provisions Relating To All Insurances................................................ 36
-------------------------------------
SECTION 12. Further Assurances..................................................................... 37
------------------
SECTION 13. Events of Default...................................................................... 37
-----------------
13.1. Failure to Pay Basic Rent............................................................ 37
-------------------------
13.2. Failure to Pay Supplemental Rent..................................................... 37
--------------------------------
13.3. Failure to Maintain Insurance........................................................ 37
-----------------------------
13.4. Misrepresentation or Breach of Warranty.............................................. 37
---------------------------------------
13.5. Bankruptcy, Etc...................................................................... 37
----------------
13.6. General Default...................................................................... 38
---------------
13.7. Loss of Airline or Corporate Authority............................................... 38
--------------------------------------
13.8. Other Obligations.................................................................... 38
-----------------
13.9. Guarantor Default.................................................................... 38
-----------------
SECTION 14. Remedies............................................................................... 38
--------
14.1. Return and Repossession.............................................................. 39
-----------------------
14.2. Sale, Use, Etc....................................................................... 39
---------------
14.3. Liquidated Damages: Fair Market Rental................................................ 39
--------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
14.4. Cancellation, Termination, and Rescission............................................. 39
-----------------------------------------
14.5. Other Remedies....................................................................... 40
--------------
SECTION 15. General Indemnity and Expenses......................................................... 40
------------------------------
15.1. General Indemnity.................................................................... 40
-----------------
15.2. Legal Fees and Expenses.............................................................. 41
-----------------------
SECTION 16. Assignment and Alienation.............................................................. 41
-------------------------
SECTION 17. Notices................................................................................ 42
-------
SECTION 18. No Set-Off, Counterclaim Etc........................................................... 43
-----------------------------
SECTION 19. Governing Law.......................................................................... 44
-------------
19.1. Consent to Jurisdiction.............................................................. 44
-----------------------
19.2. Choice of Law........................................................................ 44
-------------
SECTION 20. Miscellaneous.......................................................................... 44
-------------
SECTION 21. Truth-In-Leasing....................................................................... 45
----------------
EXHIBIT A: FORM OF LEASE SUPPLEMENT AND RECEIPT.................................................... 47
- -----------------------------------------------
EXHIBIT B: FORM OF AIRCRAFT RETURN RECEIPT AND LEASE
- -----------------------------------------------------
TERMINATION.................................................................................. 53
-----------
EXHIBIT C: FORM OF GUARANTEE....................................................................... 56
- ----------------------------
</TABLE>
<PAGE>
AIRCRAFT LEASE AGREEMENT
This AIRCRAFT LEASE AGREEMENT dated as of January 1, 1996 between
FIRST SECURITY BANK OF UTAH, N.A., a national banking association organized and
existing under the laws of the United States, not in its individual capacity but
solely as owner trustee under that certain Trust Agreement 1989-4 dated as of
December 13, 1989, and amended as of March 1,1990, by and among the Lessor and
the Beneficiaries (defined below), with its principal place of business at 79
South Main Street, Salt Lake City, Utah 84111 ("Lessor"), and SUNWORLD
INTERNATIONAL AIRLINES, INC., a Kentucky corporation with its principal place of
business at 207 Grandview Drive, Fort Mitchell, Kentucky 41017-2799 ("Lessee"),
WHEREAS, the Lessee desires to lease from the Lessor and the Lessor is
willing to lease to the Lessee the aircraft described herein upon and subject to
the terms and conditions of this Lease;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Lessee and Lessor agree as follows:
SECTION 1. Definitions. The following terms shall have the following
-----------
meanings for all purposes of this Lease:
"Aircraft" means the Airframe, Engines, Appliances, and the Aircraft
---------
Documents. Engines and Appliances shall be deemed part of the "Aircraft" whether
or not from time to time attached to the Airframe or to another airframe or on
the ground.
"Aircraft Documents" has the meaning given such term in Section 5.11
-------------------
hereof.
"Airframe" means the Boeing model 727-251 airframe, manufacturer serial
----------
number 21161, registration mark N282US, and component Parts thereof (including
landing gear) so long as such Parts shall be either incorporated or installed in
or attached to the Airframe or required to be subject to this Lease as provided
in Section 5 hereof.
"Airworthiness Directive" means any airworthiness directive or other
------------------------
mandatory regulation, directive or instruction that the Aviation Authority may
from time to time issue and that is required to be carried out on airframes,
engines or appliances of the same type as the Airframe, Engines, or Appliances
in order to meet the requirements of Aviation Law for the commercial
transportation of passengers or cargo.
"Appliance" means any instrument, mechanism, equipment, apparatus,
----------
appurtenance, or accessory, including communications equipment and auxiliary
power units, that is used or intended to be used in operating or controlling the
Aircraft in flight, and is installed in or attached to the Aircraft, but is not
part of the Airframe or Engines, and component Parts thereof, so long as the
same shall be either incorporated or installed in or attached to such Appliance
or required to be subject to this Lease as provided in Section 5 hereof.
<PAGE>
"Applicable Law" means, without limitation, all applicable laws, treaties,
---------------
international agreements, decisions and orders of any court, arbitration or
governmental agency or authority and rules, regulations, orders, directives,
licenses and permits of any governmental body, instrumentality, agency or
authority, including, without Limitation, the law of the Commonwealth of
Massachusetts, and such laws of the United States which prohibit trade with
enemies of the United States.
"Approved Maintenance Program" means a maintenance program applicable to
-----------------------------
the Aircraft encompassing scheduled maintenance, condition monitored
maintenance, and on-condition maintenance of Airframe, Engines and Appliances,
including, but not limited to, servicing, testing, preventive maintenance,
repairs, structural inspections, systems checks, approved modifications, service
bulletins, engineering orders, Airworthiness Directives, corrosion control
inspections and treatments, and which meets the Aviation Law requirements for
commercial airline passenger operations and is approved by the appropriate
Aviation Authority officer having responsibility for Lessee's operations and
maintenance of the Aircraft.
"Aviation Authority" means the Federal Aviation Administration of the
-------------------
United States Department of Transportation or any successor agency, or any such
other governmental authorities from time to time vested with the control and
supervision of the Aviation Law, or having jurisdiction over the registration,
airworthiness, operation of or other matters relating to the Aircraft or civil
aviation in the United States.
"Aviation Law" means the Applicable Law of the United States including all
-------------
regulations promulgated by the Aviation Authority pursuant to Aviation Law, as
amended from time to time, respecting the ownership and operation of aircraft
registered or operated in the United States.
"Basic Rent" means the rent payable for the Aircraft pursuant to Section
-----------
3.2 hereof.
"Beneficiaries" means American Income Partners V-A Limited Partnership, a
--------------
Massachusetts limited partnership, American Income Partners V-B Limited
Partnership, a Massachusetts limited partnership, American Income Partners V-C
Limited Partnership, a Massachusetts limited partnership, and American Income
Fund I-A, a Massachusetts Limited Partnership, a Massachusetts limited
partnership, each with its principal place of business at 98 North Washington
Street, Boston, Massachusetts 02114.
"Business Day" means any day other than a Saturday, a Sunday or a day on
-------------
which commercial banking institutions are authorized to be closed by Applicable
Law in Boston, Massachusetts, or Fort Mitchell, Kentucky.
"C Check" means the inspection, overhaul, repair, preservation and
--------
replacement of Parts of the Aircraft, including preventive maintenance,
identified as a full block C Check under the Airframe manufacturer's maintenance
planning documents, or equivalent. Such full block C Check shall include all
structural inspections, corrosion control and other work normally completed in
conjunction with each block C Check.
Page 2 of 56
<PAGE>
"Default" means an event which with the passage of time or the giving of
--------
notice, or both, would constitute an Event of Default.
"Delivery Date" has the meaning given such term in Section 2.2 hereof.
--------------
"Delivery Location" has the meaning given such term in Section 2.2 hereof.
------------------
"Engine" means each of three (3) Pratt & Whitney model JT8D-1SA engines,
-------
serial numbers 696253, 696529 and 695260, or any other engine which may from
time to time replace an Engine leased hereunder in accordance with the terms
hereof, and component Parts thereof, so long as the same shall be either
incorporated or installed in or attached to such Engine or required to be
subject to this Lease as provided in Section 5 hereof.
"Event of Default" has the meaning given such term in Section 13 hereof.
-----------------
"Event of Loss" shall mean any of the following events with respect to any
property:
(i) loss of such property due to theft, disappearance, destruction,
damage beyond economic repair or rendition of such property permanently
unfit for normal use for any reason;
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of an actual,
constructive, agreed, arranged, or compromised total loss; or
(iii) the condemnation, confiscation or seizure of, or requisition of
title to such property by private persons or by any governmental or
purported governmental authority (1)but excluding requisition for use or
hire not involving requisition of tide, provided such requisition for use
or hire does not continue beyond the end of the Term, and excluding
confiscation by the United States of America).
"Expiry" shall mean any of the following: (i) expiration of the Term
-------
through the passage of time in accordance with the terms of this Lease, or (ii)
termination, cancellation, or rescission of the Lease in accordance with its
terms and in accordance with Applicable Law.
"FSBU" means First Security Bank of Utah, N.A., in its individual capacity.
----
"Guarantor" means Columbia Sussex Corporation, a Kentucky corporation with
---------
its principal place of business at 207 Grandview Drive, Fort Mitchell, Kentucky
41017-2799.
"Guaranty" means the Guaranty made by the Guarantor in favor of the Lessor
--------
and in the form attached hereto as Exhibit C.
Page 3 of 56
<PAGE>
"Indemnitee" means (i) the Lessor; (U) the Beneficiaries; (iii) any Lender;
-----------
(iv) American Finance Group, a Massachusetts general partnership, and (iv) their
respective successors, assigns, employees, officers, directors and agents, and
each of them.
"Lease" shall mean this Aircraft Lease Agreement, as supplemented by the
------
Lease Supplement and Receipt, and as may be amended in accordance with Section
20 hereof.
"Lease Supplement and Receipt" shall mean a Lease Supplement and Receipt,
-----------------------------
substantially in the form of Exhibit A hereto.
"Lender" shall mean any holder of a security interest in the Aircraft
-------
and/or assignee of this Lease (or any interest therein), which security interest
and/or assignment was acquired in exchange for financing provided to Lessor to
acquire the Aircraft or to refinance Lessor's acquisition of the Aircraft.
"Lessor Liens" means Liens which result from claims against or affecting
-------------
the Lessor not related to the transactions contemplated by this Lease, or any
Lien which Lessor has caused to be placed on the Aircraft as permitted pursuant
to Section 19 hereof, or any Lien for Taxes imposed on any Indemnitee for which
the Lessee is not required to indemnify hereunder.
"Lien" means any mortgage, security interest, lease or other charge or
----
encumbrance or claim or right of others, including, without limitation, rights
of others under any airframe, appliance or engine interchange or pooling
agreement.
"Life Limited Component" means any Part that is required either by the
----------------------
Airframe, Engine, Appliance, or, Part manufacturer or by the Aviation Authority
or by the Approved Maintenance Program to be overhauled or replaced after a
certain number of hours, calendar time, cycles, or landings, including without
limitation life-limited parts, notables, and discard items.
"Maintenance Provider" means Triad International Maintenance Corp.,
--------------------
Greensboro, North Carolina, or other internationally recognized service,
overhaul and repair agency fully qualified to service, repair and overhaul the
Airframe, Engines and Appliances approved by the Aviation Authority, as selected
by Lessee and approved in writing by Lessor, such approval not to be
unreasonably withheld.
"Operative Documents" means this Lease (including a Lease Supplement and
-------------------
Receipt), the Guaranty, and any ancillary documents executed in connection
therewith.
"Overdue Payment Rate" means 12% per annum.
--------------------
"Parts" means all components, parts, instruments, appurtenances,
-----
accessories, furnishings or other equipment of whatever nature (other than
complete engines or appliances) which may
Page 4 of 56
<PAGE>
from time to time be incorporated or installed in or attached to the Airframe or
any Engine or any Appliance, including replacement parts.
"Permitted Liens" means: (i) Lessor Liens; (ii) Liens for Taxes; (iii)
---------------
materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising in the ordinary course of business, including (without limitation)
Liens in respect of airport user and en route charges; and (iv) Liens arising
out of judgments or awards; provided, however, that with respect to foregoing
clauses (ii), (iii), and (iv), the payments associated with the Liens described
therein are either not yet due or being contested in good faith (and for the
payment of which adequate reserves have been provided) by appropriate
proceedings so long as such proceedings do not involve any material danger of
the sale, forfeiture, confiscation, seizure or loss of the Airframe or any
Engine or interest therein.
"Rent" means Basic Rent, Reserves, and Supplemental Rent.
----
"Rent Payment Date" means the Delivery Date and the day of each calendar
-----------------
month following the Delivery Date which corresponds to the Delivery Date (or, if
any such month does not have such a corresponding day then the last day of such
month) during the Term.
"Reserves" has the meaning given to such term in Section 3.6 hereof.
--------
"Reserve Tasks" has the meaning given to such term in Section 3.6 hereof.
-------------
"Return Date" has the meaning given to such term in Section 6.1 hereof.
-----------
"Return Location" has the meaning given to such term in Section 6.1 hereof.
---------------
"Security Deposit" has the meaning given to such term in Section 3.5
----------------
hereof.
"Stipulated Loss Value" has the meaning given to such term in Section
---------------------
10.4.1 hereof.
"Supplemental Rent" means all amounts, liabilities, indemnifications and
-----------------
obligations of any kind whatsoever (other than Basic Rent but including any
payment of Stipulated Loss Value) which the Lessee is obligated to pay in
accordance with the terms of this Lease.
"Tax" has the meaning given to such word in Section 8.1 hereof.
---
"Term" has the meaning given to such word in Section 3.1 hereof.
----
"US$ and Dollars" means the lawful currency of the United States.
---------------
Page 5 of 56
<PAGE>
SECTION 2. Lease and Delivery of the Aircraft
----------------------------------
2.1. Lease. Lessees Obligations. and Conditions Precedent.
-----------------------------------------------------
The Lessor agrees to lease to the Lessee, and the Lessee agrees to lease
from the Lessor, the Aircraft, on the terms and conditions of this Lease. The
Lessees obligation to lease the Aircraft shall be conditioned upon the Aircraft
not having suffered an Event of Loss prior to the Delivery Date, and being in
the following condition (the "Conditions Precedent to Lessee's Acceptance"): (1)
registered in the United States in the name of the Lessor (Lessor shall provide
a copy of a certificate of registration to Lessee); (2) with a current and valid
certificate of airworthiness (Lessor shall provide a copy of such certificate to
Lessee); (3) in compliance with all Aviation Authority regulations, including
without limitation, with all Airworthiness Directives (including twenty-year
aging aircraft Airworthiness Directives) completed on a terminating action
basis, qualified under Aviation Authority Part 121 for commercial passenger
operations, and accompanied by all Aircraft Documents required by the Aviation
Authority (Aircraft Documents for life-limited parts shall be "back-to-birth");
(4) fully equipped to Lessee's satisfaction; (5) configured with a minimum of
166 economy-class seats; (6) with Engines having an average of 3,000
hours/cycles across the wing, but no less than 2,000 hours/cycles on any one
Engine before next scheduled removal; (7) with all life-limited parts and
Aircraft time-controlled components having at least 2,000 hours/cycles remaining
based on the Northwest Airlines maintenance program; (8) zero time since a full
C Check and that segment of a D check necessary to bridge the Aircraft to the
Approved Maintenance Program; (9) with windshear detector installed; (10) with
MTOW increased to 186,500 pounds; (11) stripped or painted white; (12) clean by
commercial airlines standards; and with the auxiliary power unit in serviceable
condition and functioning satisfactorily. The Lessee shall be entitled to a
predelivery inspection of the Aircraft that shall include a full borescope and
power assurance check on all Engines and the auxiliary power unit and a test
flight, all at Lessor's expense. At any such predelivery inspection and flight
Lessee's representatives may be accompanied by an Aviation Authority Designated
Airworthiness Representative. Furthermore, the Lessee's obligation to lease the
Aircraft shall be conditioned upon provision, on the Delivery Date, to Lessee of
written confirmation in a form provided by Lessee and reasonably satisfactory to
Lessor from each Lender and Beneficiary that such Lender and Beneficiary is
aware of the covenant contained in Section 4.5 hereof and agrees that, provided
no Event of Default has occurred and continuing, such Lender or Beneficiary will
not interfere with Lessee's rights hereunder or its peaceful and quiet use,
operation and possession of the Aircraft hereunder. The Lessor's obligation to
lease the Aircraft shall be conditioned upon the absence of any Default
hereunder, and the performance by Lessee of each of the following obligations on
or before the Delivery Date (unless a sooner date is specified), all in form and
substance satisfactory to Lessor and its counsel:
2.1.1. Execution of Operative Documents. The Lessee shall have
--------------------------------
executed and delivered this Lease, the Lease Supplement and Receipt (dated
the Delivery Date), and each other Operative Document to which it is a
party, and the Guarantor shall have executed and delivered the Guaranty:
Page 6 of 56
<PAGE>
2.1 2. Evidence of Legal Authority to Lease and Operate the Aircraft.
--------------------------------------------------------------
[INTENTIONALLY OMITTED]
-----------------------
2.1.3. Evidence of Corporate Authority. The Lessee shall have
-------------------------------
delivered to the Lessor certified resolutions of the board of directors of
the Lessee and the Guarantor, duly authorizing the execution, delivery and
performance of this Lease, the other Operative Documents to which the
Lessee or the Guarantor is a party, and other satisfactory evidence as may
be requested by Lessor that the Lessee and the Guarantor have taken all
corporate action necessary to authorize the Operative Documents and the
transactions contemplated hereby, together with an incumbency certificate
as to the person or persons authorized to execute and deliver the same;
2.1.4. Evidence of Insurance. The Lessee shall have delivered to the
---------------------
Lessor reports and certificates of insurance iii compliance with the
requirements of Section 10 hereof;
2.1.5. Opinion of Counsel. At Lessee's expense, the Lessor shall have
------------------
received a favorable opinion addressed to Lessor from counsel to Lessee,
dated the Delivery Date, confirming (subject to standard exceptions) that
(i) Lessee is a corporation duly incorporated, validly existing, in good
standing, and is qualified to do business under the laws of the State of
Kentucky; (iii) the execution, delivery and performance by Lessee of this
Lease have been duly authorized by all necessary corporate action on the
part of the Lessee, are not inconsistent with its Certificate of
Incorporation or By-Laws, and do not violate any United States or Kentucky
law, regulation or order applicable to Lessee; (iii) this Lease is the
legal, valid, binding and enforceable agreement of Lessee; and (iv) no
consent or approval by any United States or Kentucky authority or agency is
required with respect to the execution, delivery and performance by Lessee
of this Lease other than licenses, permits and approvals required of the
Aviation Authority for the operation and maintenance of the Aircraft by
Lessee.
2.1.6. Payment of Basic Rent and Security Deposit. Lessor shall have
------------------------------------------
received payment of Basic Rent for the first month of the Term, and payment
of the Security Deposit.
2.2. Delivery. The Aircraft shall be delivered to the Lessee "AS IS,"
--------
"WHERE IS," AND SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND
REPRESENTATION AS SET FORTH IN SECTION 4.3 HEREOF. Lessee shall accept delivery
of the Aircraft at Smyrna Airport, Smyrna, Tennessee, or such other place as may
be mutually agreed upon in writing by the Lessor and Lessee (the "Delivery
Location") and on January 19, 1996, or such other date as may be mutually agreed
upon in writing by the Lessor and Lessee (the "Delivery Date", which date shall
be the date of the Lease Supplement and Receipt). Upon acceptance of the
Aircraft, the Lessee shall execute and deliver the Lease Supplement and Receipt
to the Lessor, which shall constitute, without further act, unconditional and
irrevocable acceptance, as between Lessor and Lessee, by the Lessee of the
Aircraft under,
Page 7 of 56
<PAGE>
and for all purposes of, this Lease and as being airworthy, in good working
order and repair and without defect or inherent vice in condition, design,
operation or fitness for use, whether or not discoverable by the Lessee on the
Delivery Date. There shall be attached to the Lease Supplement and Receipt
Schedule 3, signed by both parties, setting forth qualifications affecting the
return conditions set forth in Section 6 hereof.
2.3. Lessor Authority: Ancillary Documents. On the Delivery Date, the
-------------------------------------
Lessor shall furnish to the Lessee (i) satisfactory evidence that the Lessor has
taken all corporate action necessary to authorize this Lease and the
transactions contemplated hereby; (ii) an incumbency certificate as to the
person or persons authorized to execute and deliver the same, in each case in
form and substance satisfactory to the Lessee; (iii) an assignment of such
rights as the Lessor may have under any warranty (express or implied) or
otherwise with respect to the Aircraft, made by the manufacturer of the Aircraft
or by any subcontractor or supplier of such manufacturer, as the case may be, or
made by a repair station or supplier in respect to repair or overhaul of the
Aircraft to the extent that the same exists in favor of the Lessor and is
capable of being assigned or otherwise made available; and (iv) a favorable
opinion addressed to Lessee from counsel to Lessor, dated the Delivery Date and
in form and substance reasonably satisfactory to the Lessee.
2.4. Failure of Condition Precedent to Lessee's Acceptance. In the event
-----------------------------------------------------
that the Aircraft does not meet the Conditions Precedent to Lessee's Acceptance
on the Delivery Date, then Lessee shall have the right to terminate this
agreement by written notice to Lessor. Upon such termination, Lessee shall be
entitled to the immediate return of the Security Deposit, and thereafter neither
party shall have any further liability or obligation to the other. In no event
shall Lessor be liable to Lessee for breach of contract or consequential damages
if the Aircraft does not meet the Conditions Precedent to Lessee's Acceptance.
SECTION 3. Term. Rent. and Purchase Option.
--------------------------------
3.1. Term: Option to Extend. The term for which the Aircraft is leased
----------------------
hereunder (the "Term") shall be thirty-six (36) months, commencing on the
Delivery Date, unless Expire occurs sooner pursuant to the express provisions of
this Lease. Provided no Default has occurred and is continuing, the Lessee may
extend the Term on the same terms for one year by providing Lessor with written
notice of its irrevocable election to extend the Term no less than ninety days
prior to the expiration of the original thirty-six-month Term.
3.2. Basic Rent. The Lessee shall pay to the Lessor monthly rental for the
----------
Aircraft (the "Basic Rent"), payable in advance on each Rent Payment Date during
the Term, in the amount of Sixty-Five Thousand United States Dollars (US
$65,000).
3.3. Method of Payment. All Rent hereunder shall be paid by the Lessee
-----------------
not later than 2:00 P.M., New York time, on the date due thereof in U.S. Dollars
and in immediately available funds to the Lessor by deposit to:
Page 8 of 56
<PAGE>
National Westminster Bank
80 Pine Street
New York, New York 10005
ABA#021-000-322
Acct.#2181-01-7585
Acct. Name: American Finance Group
Reference: AFG Sunworld
or to such other United States bank account as the Lessor shall specify to the
Lessee in writing. Any Rent due on a day which is not a Business Day shall be
due on the next Business Day.
3.4. Supplemental Rent. The Lessee also agrees to pay to the Lessor any and
-----------------
all Supplemental Rent promptly as the same shall become due and owing. In the
event of any failure on the part of the Lessee to pay any Supplemental Rent, the
Lessor shall have all rights, powers and remedies provided for herein or by law
or equity in the case of nonpayment of Basic Rent. The Lessee will also pay, on
demand, as Supplemental Rent, an amount equal to interest at the Overdue Payment
Rate on any part of any payment of Rent not paid on the date it becomes due for
any period for which the same shall be overdue.
3.5. Security Deposit. Upon the execution of this Lease, Lessee shall make
----------------
a deposit, in cash, with Lessor in an amount equal to One Hundred Thirty
Thousand United States Dollars (US $130,000) to serve as security for Lessee's
full and faithful performance of all of its obligations under this Lease (the
"Security Deposit"). If Lessee fails to pay Rent or any other sums due or fails
to perform any of the other terms or provisions of this Lease or is otherwise in
Default hereunder, in addition to all other rights Lessor shall have, Lessor may
use, apply or retain all or any portion of the Security Deposit in partial
payment for any sums it may in its discretion advance to cure such Default by
the Lessee. If Lessor uses or applies all or any portion of the Security
Deposit, such application shall not be deemed a cure of any Default, and Lessee
shall within five Business Days after receipt of written demand from Lessor pay
an amount necessary to restore the Security Deposit to its required amount, and
the failure to do so shall be an Event of Default without further notice. Except
as otherwise expressly provided herein, the Security Deposit shall remain in
effect until the Aircraft is returned in the condition required by this Lease
and an Aircraft Return Receipt and Lease Termination in the form of Exhibit B is
executed. Lessee shall not be entitled to off-set any Rent against the Security
Deposit. At the return of the Aircraft in the condition required by this Lease,
Lessor shall return the Security Deposit, without interest, provided that Lessee
has otherwise fulfilled all its obligations hereunder. Lessor shall be under no
obligation to segregate the Security Deposit, and may mingle the Security
Deposit with other funds. Lessee hereby grants Lessor a security interest in the
Security Deposit, and Lessee shall deliver to Lessor any financing statement or
other documentation necessary or advisable to perfect Lessor's security interest
in the Security Deposit.
3.6. Reserves. D Checks (whether phased or block, as defined in the
--------
Approved Maintenance Manual), C Checks, Engine heavy maintenance requiring shop
repair, landing gear
Page 9 of 56
<PAGE>
overhauls, and auxiliary power unit overhauls are collectively and individually
referred to as "Reserve Tasks." In addition to monthly installments of Basic
Rent, Lessee shall pay to Lessor an hourly payment to be reserved for Reserve
Tasks as follows:
3.6.1. The Lessee shall, on or before the 10th day of each calendar
month during the Term of this Lease, submit to Lessor a true summary of the
Aircraft usage for the preceding month, specifying the number of hours the
Aircraft shall have flown in such month. Such usage shall be determined by
Lessee by reference to the Aircraft operating logs, subject to audit and
verification by Lessor. On or before the 15th day of each month, Lessee
shall pay to Lessor for each flight hour the Aircraft was operated during
the immediately preceding month the following amounts applicable to the
specified Reserve Tasks: for D Check, US $50; for C Checks, US $50; for
Engine heavy maintenance (including overhaul, hot section inspection,
replacement of internal Life Limited Components that have reached their
applicable hour or cycle limits, disassembly, assembly and testing required
thereof) requiring shop repair US 60 per Engine, and applicable per
specific Engine (a separate Engine Reserve shall be established and
maintained for each Engine); for complete landing gear overhaul, US $12,
combined for all landing gear; and for auxiliary power unit overhaul in
accordance with the Approved Maintenance Program, US $3. The foregoing
amounts shall be collectively or individually referred to as "Reserves."
3.6.2. Upon submission by Lessee to Lessor of invoices or receipts
evidencing the performance of a Reserve Task in accordance with the
provisions hereof, Lessor shall, provided that an Event of Default shall
not have occurred and be continuing, reimburse Lessee from Reserves
corresponding to the Reserve Task, but not in an amount to exceed the
actual invoices or receipts, and not in excess of Reserves actually
received for the corresponding Reserve Task, and not for repairs arising as
a result of foreign object damage, an insured occurrence, or operational
mishandling. Except as expressly set forth below in subsection 3.6.5, if,
on any occasion, Reserves actually received are insufficient to pay for the
corresponding Reserve Task, the shortfall shall be for the account of the
Lessee and may not be carried forward or made the subject of any further
claim for payment.
3.6.3. [INTENTIONALLY OMITTED]
3.6.4. Reserves shall be and remain the property of the Lessor until
disbursed. Except as expressly set forth in Section 3.7 below, all
undisbursed Reserves, upon Expire, shall be retained by Lessor as
additional Rent for the Aircraft. Lessor shall be under no obligation to
segregate Reserves, and may mingle Reserves with other funds.
3.6.5. Lessor Contribution for Reserve Tasks. Only for the first
-------------------------------------
scheduled overhaul for each Engine during the Term provided the build
standard for such Engine overhaul does not exceed 6,000 hours/cycles), for
the first auxiliary power unit overhaul
Page 10 of 56
<PAGE>
during the Term, and for the first landing gear overhaul during the Term,
the Lessor shall reimburse Lessee for a fraction of the cost to Lessee for
each such Reserve Task, the numerator of which fraction shall be the time
since such overhaul on the Delivery Date and the denominator of which
fraction shall be the time since overhaul when such Reserve Task is
occasioned.
3.7 Purchase Option. Provided no Default has occurred and is continuing,
---------------
the Lessee may purchase (i) the Aircraft, together with (ii) any undisbursed
Reserves less any Lessor contribution for Reserve Tasks pursuant to Section
3.6.5 above (the "Sold Reserves") on the following terms and conditions. The
Lessee may purchase the Aircraft together with the Sold Reserves at the end of
the twenty-fourth month of the Term for a purchase price of US$2,750,000, or at
the end of the thirty-sixth month of the Term for a purchase price of
US$2,450,000. To purchase the Aircraft together with the Sold Reserves at either
time, the Lessee must first provide the Lessor with written notice of its
irrevocable election to purchase no less than ninety days prior to the purchase
date. Any sale shall be "AS-IS," and Lessee shall be responsible for and
indemnify Lessor from any sales or use taxes. Upon such sale, the Lease shall
terminate, and Lessor shall return to Lessee the Security Deposit.
SECTION 4. Representations, Warranties and Miscellaneous Covenants.
--------------------------------------------------------
4.1. The Lessee's Representations and Warranties. The Lessee represents and
-------------------------------------------
warrants as follows:
4.1.1. Organization and Qualification. The Lessee is a corporation
------------------------------
duly incorporated in and validly existing under the laws of Kentucky,
possessing perpetual corporate existence, having the capacity to sue and be
sued in its own name, has full power, legal right and authority (corporate
and otherwise) to carry on its business as currently conducted, to own and
hold under lease its properties and to execute, deliver and perform and
observe the provisions of this Lease and other Operative Documents to which
it is a party, and is duly qualified to do business in good standing
wherever the nature of its business makes such qualification necessary.
4.1.2. Corporate Authorization. The execution, delivery, and
-----------------------
performance by the Lessee of this Lease and each of the other Operative
Documents to which it is or will be a party (A) have been duly authorized
by all necessary corporate action on behalf of the Lessee, (B) do not
require the consent or approval of the Lessee's stockholders or of any
trustee or the holders of any indebtedness or obligations of the Lessee
(except such as have been obtained, and certified copies of which have been
furnished to the Lessor), (C) [INTENTIONALLY OMITTED], (D) do not
conflict with or result in any breach of any of the terms or constitute a
default under any document, instrument, or agreement to which the Lessee is
a party or is subject or by which it or any of its assets are bound, (E) do
not contravene the Lessee's charter or by-laws, or any other provisions of
Lessee's constitutive documents, and (F) do not and will not result in the
creation or
Page 11 of 56
<PAGE>
imposition of or oblige Lessee to create any Lien on or over the Aircraft
other than any Permitted Lien.
4.1.3. Government Approval. Excepting only requirements covered in
-------------------
Section 4.4.6 below, every consent, authorization, and approval required by
the Lessee to enable it to carry on its business or required by it to
authorize or in connection with the execution, delivery, legality,
validity, priority, enforceability, admissibility in evidence, or
effectiveness of this Lease and the other Operative Documents to which
Lessee is or will be a party or the performance by it of any of its
obligations under this Lease and each of the other Operative Documents to
which it is or will be a party has been duly obtained or made and is in
full force and effect and there has been no default in observance or
performance of any of the conditions, restrictions (if any), imposed on or
in connection with any such consent or approval or sanction. At Delivery,
the Lessee will have and will thereafter maintain valid all necessary
certificates and licenses for the operation of (a) its business as an
airline operating scheduled or charter flights for the carriage of
passengers and cargo and (1))the Aircraft on such flights; the Lessee is
not exempt from the obtaining of any such certificates or licenses usually
required by commercial airline operators.
4.1.4. Valid and Binding Agreements. This Lease constitutes the
----------------------------
legal, valid and binding obligations of the Lessee enforceable against the
Lessee.
4.1.5. Litigation. There are no unsatisfied 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 if adversely determined
would materially adversely affect the financial condition or operations of
the Lessee or the ability of the Lessee to perform its obligations under
the Lease.
4.1.6. Financial Condition. [INTENTIONALLY OMITTED]
-------------------
4.1.7. Accuracy and Disclosure of Information. [INTENTIONALLY OMITTED]
--------------------------------------
4.2. Representations and Warranties of the Lessor and FSBU. The Lessor and,
-----------------------------------------------------
with respect to Sections 4.2.5, 4.2.6, 4.2.7, and 4.2.9., FSBU, make the
following representations and warranties:
4.2.1. Due Organization. The Lessor is a national banking association
----------------
duly organized and validly existing if good standing under the laws of the
United States, and has the power and authority to enter into and perform
its obligations under this Lease and the Lease Supplement and Receipt, and
any other documents delivered by lessor in connection therewith;
Page 12 of 56
<PAGE>
4.2.2. Due Authorization: Enforceability. This Lease has been, and
---------------------------------
the Lease Supplement and Receipt, and each other document delivered by
Lessor in connection herewith to which the Lessor is a party will be, duly
authorized, executed and delivered by the Lessor, and, assuming due
authorization, execution and delivery thereof by the other parties hereto
and thereto, are, or in the case of the Lease Supplement and Receipt will
be, legal, valid and binding obligations of the Lessor, enforceable against
Lessor.
4.2.3. No Violation. The execution and delivery by the Lessor of this
------------
Lease are not, and the execution and delivery by the Lessor of the Lease
Supplement and Receipt and each other document to with Lessor is a party
will not be, and the performance by the Lessor of its obligations under
each of the foregoing documents will not be, inconsistent with its
partnership agreement or by-laws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to it, and do
not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which the
Lessor is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration with or the taking
of any action in respect of or by, any Federal, state or local governmental
authority or agency, except such as have been obtained, given or
accomplished.
4.2.4. Ownership of Aircraft. On the Delivery Date, the Lessor shall
---------------------
have full legal title to the Aircraft, free and clear of all Liens except
any Lien which Lessor caused to be placed on the Aircraft as permitted
pursuant to Section 16 hereof.
4.2.5 No Consents or Approvals. Neither the execution and delivery by
------------------------
Lessor of this Agreement or any other document delivered by it in
connection herewith nor the consummation of any of the transactions
contemplated thereby requires the consent or approval of, the giving of
notice to, or the registration with, any Utah state governmental authority
or agency or any United States federal governmental authority or agency
governing the banking or trust powers of FSBU.
4.2.6 Citizenship. FSBU is a "citizen of the United States" as
-----------
defined in Aviation Law, and Lessor hereby agrees, promptly upon an officer
in its Corporate Trust Department obtaining actual knowledge of its failure
to maintain its status as a citizen of the United States, to give notice to
the Lessee and to resign as owner trustee promptly upon its ceasing to be a
citizen of the United States.
4.2.7. Discharge of FSBU Liens. There are no Liens on the Aircraft
-----------------------
attributable to FSBU and FSBU agrees that it will, in its individual
capacity and at its own cost and expense, promptly take such action as may
be necessary to duly discharge and satisfy in full any such Liens.
4.2.8. Litigation. There are no unsatisfied judgements against Lessor,
----------
and there is no pending or, to the best of the Lessor's knowledge,
threatened action or proceeding affecting the Lessor before any court,
tribunal, governmental agency or arbitrator which
Page 13 of 56
<PAGE>
if adversely determined would materially adversely affect the financial
condition or operations of the Lessor or the ability of the Lessor to
perform its obligations under the Lease.
4.2.9. FSBU Litigation. There are no pending or, to the actual
---------------
knowledge of an official in FSBU's Corporate Trust Department, threatened
actions or proceedings before any court or administrative agency to which
FSBU is a party, or any other actions or proceedings before any court or
administrative agency which relate to FSBU's banking or trust powers which,
if determined adversely to FSBU, would materially and adversely affect its
right, power, and authority to perform its obligations under this Agreement
or any document delivered by it in accordance herewith.
4.3. Disclaimer and Acknowledgement of Disclaimer: Waiver of Consequential
---------------------------------------------------------------------
Damages. THE AIRCRAFT SHALL BE LEASED BY THE LESSOR TO THE LESSEE "AS IS"
-------
AND "WHERE IS," WHICH IS ACKNOWLEDGED AND AGREED TO BY THE LESSEE. THE
WARRANTIES AND REPRESENTATIONS SET FORTH IN 4.2 ABOVE ARE EXCLUSIVE AND IN LIEU
OF ALL OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND
LESSOR HAS NOT MADE, SHALL NOT BE CONSIDERED TO HAVE MADE, AND SPECIFICALLY
DISCLAIMS (1) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO
THE AIRCRAFT, REGARDING CONDITION, DESIGN, OPERATION, MERCHANTABILITY, FREEDOM
FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR USE FOR A PARTICULAR
PURPOSE, QUALITY OF MATERIALS OR WORKMANSHIP, OR ABSENCE OF DISCOVERABLE OR
NONDISCOVERABLE DEFECTS; (2) ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY WITH RESPECT TO THE AIRCRAFT (INCLUDING ANY IMPLIED WARRANTY ARISING
FROM A COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE); AND (3) ANY
EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO CONDITIONS
PRECEDENT TO LESSEE'S ACCEPTANCE.
THE LESSEE HEREBY WAIVES, RELEASES, DISCLAIMS AND RENOUNCES ALL
EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR WARRANTIES.
THE LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO THE LESSEE
WHETHER ARISING IN CONTRACT OR TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF
LESSOR OR OTHERWISE, AND LESSEE HEREBY DISCLAIMS AND WAIVES ANY RIGHT IT WOULD
OTHERWISE HAVE TO RECOVER FOR (1) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR
ALLEGED TO BE CAUSED DURING THE TERM DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR
BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN; (2) THE USE,
OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING TO IT; OR (3) ANY
CONSEQUENTIAL DAMAGES, INCLUDING THOSE FOR INTERRUPTION OF SERVICE, LOSS OF
BUSINESS OR ANTICIPATED PROFITS, OR FOR CONSEQUENTIAL DAMAGES AS A RESULT OF ANY
BREACH OR ALLEGED BREACH BY THE LESSOR
Page 14 0f 56
<PAGE>
OF ANY OF THE AGREEMENTS, REPRESENTATION, OR WARRANTIES OF THE LESSOR CONTAINED
IN THIS LEASE; PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL RELIEVE LESSOR OF
ANY RESPONSIBILITY OR LIABILITY TO LESSEE FOR, OR CONSTITUTE A WAIVER BY LESSEE
OF RIGHTS WITH RESPECT TO (a) ANY BREACH BY LESSOR OF THE COVENANT SET FORTH IN
SECTION 4.5 HEREOF, OR (b) LESSOR'S OBLIGATIONS PURSUANT TO SECTIONS 3.6.5 AND
5.5 HEREOF.
4.4. Lessee's Miscellaneous Covenants.
--------------------------------
4.4.1. Maintenance of Corporate Status: No Merger or Consolidation.
------------------------------------------------------------
Lessee will preserve and maintain its corporate existence and such of its
licenses and franchises in any jurisdiction where failure to obtain such
licensing or qualification would have a material adverse effect upon
Lessee. The Lessee shall not consolidate or merge with or into any other
corporation or sell, convey, transfer, lease or otherwise dispose of,
whether in one transaction or a series of related transactions, all or
substantially all of its assets. Lessee shall not (A) voluntarily suspend
its operations; or (B) voluntarily or involuntarily permit to be revoked,
canceled or otherwise terminated all or substantially all of the
franchises, concessions, or permits required for the conduct of business
and operations of Lessee or the free and continued use and exercise
thereof.
4.4.2. Notice of Default or Adverse Occurrence. The Lessee shall
---------------------------------------
promptly inform the Lessor of the occurrence of or the existence of a
Default forthwith upon becoming aware of such Default.
4.4.3. Maintenance of Consents and Approvals. The Lessee shall obtain
-------------------------------------
or cause to be obtained, maintain in full force and effect and comply in
all material respects with the conditions and restrictions (if any) imposed
on, or in connection with, every consent, license, authorization, approval,
filing and registration obtained or effected in connection with this Lease
and the Operative Documents, or which may from time to time be necessary
under Applicable Law for the continued due performance of all obligations
of the Lessee under this Lease, including without limitation qualifications
to operate the Aircraft in accordance with Aviation Law, and under the
other Operative Documents. Where it is required of Lessee under Applicable
Law with respect to this Lease or under any Operative Document, consent,
approval, sanction, to stamp, file, register or attend to any act, matter
or thing, Lessee will do so promptly and within any applicable prescribed
time period in respect thereof.
4.4.4. Change of Locale. Lessee will promptly advise Lessor of any
----------------
change in its principal place of business or chief executive office if
there is more than one place of business.
4.4.5. Financial Information and Reports. The Lessee shall provide
---------------------------------
the Lessor (i) as soon as available and in any event within 120 days after
the end of each fiscal year
Page 15 of 56
<PAGE>
of each of the Lessee and the Guarantor, the Lessee's and the Guarantor's
respective audited annual financial statements in a form consistent with
generally accepted accounting principles certified as to their correctness
by independent public auditors, and (ii) within 45 days after the end
thereof their respective quarterly financial statements certified as to
their correctness by their respective duly authorized chief financial
officer, together with a certificate signed by the Lessee's duly authorized
chief executive officer to the effect that, based upon due inquiry and
investigation, during such financial quarter no Event of Default occurred.
The Lessee's fiscal year ends December 31. The Guarantor's fiscal year ends
December 31.
4.4.6. Evidence of Legal Authority to Lease and Operate the Aircraft.
--------------------------------------------------------------
No later than January 31, 1996, the Lessee shall have obtained all
licenses, permits and approvals required with respect to the Aircraft by
the Aviation Authority or Applicable Law for the lease of the Aircraft, and
for the commercial operation thereof by the Lessee, and Lessee shall
provide Lessor with certified copies of such; provided, however, that if
Lessee is unable to obtain the requisite approvals by such date despite its
diligent efforts to do so, such date shall be extended, subject to Lessor's
consent not to be unreasonably withheld.
4.5. Lessor's Covenant of Quiet Enjoyment. The Lessor agrees that, so long
------------------------------------
as no Event of Default shall have occurred and be continuing, neither the
Lessor, any Lender, the Beneficiaries, nor anyone validly claiming through or
under any of them will take (or fail to take) any action, the taking (or failure
to take) of which causes interference with the Lessee's rights hereunder or its
peaceful and quiet use, operation and possession of the Aircraft under this
Lease. Should such interference occur, Lessor shall promptly eliminate the cause
thereof, upon written notice from Lessee.
SECTION 5. Operation, Maintenance, Possession
----------------------------------
5.1. Title. Title to the Aircraft shall remain vested in Lessor.
-----
5.2. Operation. Lessee agrees not to operate the Aircraft unless the
---------
Aircraft is covered by insurance as required by the provisions of Section 10
hereof or contrary to the terms of such insurance. Lessee agrees not to operate
the Aircraft except in a passenger configuration, in commercial or other
operations for which Lessee is duly authorized by the Aviation Authority. Lessee
will not permit the Airframe, an Engine or Appliance to be maintained, used or
operated during the Term in violation of any Applicable Law, or contrary to any
manufacturer's operating manuals or instructions, provided that Lessee will not
knowingly allow passengers or cargo customers to transport illegal drugs on the
Aircraft. Lessee shall pay all costs incurred in the operation of the Aircraft,
including but not limited to flight crews, cabin personnel, fuel, oil,
lubricants, maintenance, insurance, landing and navigation fees, airport
charges, passenger service and any and all other expenses of any kind or nature,
arising directly or indirectly in connection with or related to the use,
movement and operation of the Aircraft by Lessee during the Term. The
obligations of Lessee under this provision shall survive the end of the Term.
Page 16 0f 56
<PAGE>
5.3. Maintenance in General. Lessee, at its own cost and expense (except
----------------------
as expressly otherwise provided in Sections 3.6.5 and 5.5), shall (i) service,
repair, maintain and overhaul the Airframe, each Engine, and each Appliance so
as to keep the same in as good operating condition as when delivered to Lessee
hereunder, and in such operating condition as may be necessary to enable the
airworthiness certification of the Aircraft to be maintained in good standing at
all times under Aviation Law, and (ii) at a minimum, give the Aircraft the same
level of attention and maintenance as the Lessee affords to the other Boeing
727-200 aircraft in its fleet, including Airworthiness Directive compliance and
level of incorporation, repairs, cleanliness, and correction of items of a
cosmetic nature (such as hail damage), except where the terms of this Lease
dictate other standards (provided, however, that lessee shall not be required to
hushkit the Aircraft); and (iii) maintain the Aircraft in compliance with the
requirements of the Airframe manufacturer's aging aircraft and corrosion control
program document and supplemental inspection document as periodically revised.
Included within the obligation of maintenance and repair is the obligation and
affirmative undertaking by Lessee to replace from time to time all worn or
defective Parts, to the extent required to cause the Aircraft to be in an
airworthy condition in all respects, and covered by an effective commercial
passenger transport category certificate of airworthiness at all times except
during those periods when the Aircraft is undergoing maintenance or repairs as
required by this Lease. The "build standard" applicable to all Engine shop
visits shall be 6,000 hours with regard to both exhaust gas temperature and Life
Limited Components. Excepting only "AOG" situations, selection of a Maintenance
Provider shall be subject to Lessor's prior written approval, such approval not
to be unreasonably withheld. All maintenance (other than routine flight line
maintenance) shall be performed by the manufacturer or the Maintenance Provider
(excepting "AOG" situations) in accordance with the Approved Maintenance
Program. If any significant changes (including without limitation, time limit
changes) shall be made to such Approved Maintenance Program, a copy of such
proposed changes shall be delivered to Lessor for its prior written approval,
such approval not to be unreasonably withheld, before such change is submitted
to the Aviation Authority for approval.
5.4. Parts.
-----
5.4.1. Unless the Airframe, an Engine or an Appliance has suffered
an Event of Loss, Lessee, at its own cost and expense, will during the Term
promptly replace all Parts that may from time to time become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition,
in the ordinary course of maintenance, service, repair, overhaul or
testing, Lessee may remove any Parts, whether or not worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use, provided that Lessee shall replace such
Parts as promptly as practicable with replacement Parts. All replacement
Parts shall be free and clear of all Liens except Permitted Liens and shall
be in as good operating condition as, and shall have a value and utility at
least equal to, the Parts replaced assuming such replaced Parts were in the
condition and repair required to be maintained by the terms hereof.
Page 17 of 56
<PAGE>
5.4.2. All Parts at any time removed from the Airframe, an Engine or
an Appliance shall remain the property of Lessor and subject to this Lease,
no matter where located, until such time as such Parts shall be replaced by
Parts that have been incorporated or installed in or attached to such
Airframe, Engine, or Appliance and that meet the requirements for
replacement Parts specified in this Section 5. Immediately upon any
replacement Part becoming incorporated or installed in or attached to such
Airframe, Engine, or Appliance, without further act, (i) title to such
replacement Part shall thereupon vest in Lessor; (ii) such replacement Part
shall become subject to this Lease and be deemed part of such Airframe,
Engine, or Appliance, as the case may be, for all purposes hereof to the
same extent as the Parts originally incorporated or installed in or
attached to such Airframe or Engine or Appliance; and (iii) title to the
replaced Part shall thereupon vest in Lessee, free and clear of all rights
of Lessor and shall no longer be deemed a Part hereunder.
5.5. Airworthiness Directives. Except as expressly provided below, Lessee
------------------------
agrees to comply with all Airworthiness Directives which become due during the
Term. All Airworthiness Directives shall be accomplished in strict compliance
with all issuing agency's specific instructions. Lessee shall comply with all
Airworthiness Directives at its sole cost and expense up to US$25,000 per any
one Airworthiness Directive. In the event that the cost of incorporating any
terminating Airworthiness Directive (including parts, labor, and materials, but
excluding any profit to Lessee) exceeds US$25,000 per any one Airworthiness
Directive, the amount of the excess to be borne by the Lessor shall be
calculated in accordance with the following formula:
1 - (N-M) x (C-25,000)
-----
T
where "N" equals the total duration of the Term in months; "M" represents the
month of the Term in which the modification is completed; "C" represents the
total actual cost of labor, parts, and materials for the modification; and "T"
equals the actual useful life of the modification in months, not to extend
beyond December 31, 1999. If the Lessee's cost of complying with any one
Airworthiness Directive that must be accomplished during the Term exceeds One
Hundred Thousand Dollars (US$100,000) in any individual case, then Lessee may,
by written notice to Lessor, elect not to pay any portion of the cost of
complying with such Airworthiness Directive costing in excess of US$100,000, in
which event Lessor shall have the right to comply with the Airworthiness
Directive at its own expense, or by written notice to the Lessee within 15 days
following receipt of such notice from Lessee, may advise Lessee that Lessor
shall not perform such Airworthiness Directive (the "Excepted AD"), in which
case the Lease shall terminate, effective upon the earlier of the end of the
Term or the final compliance date for the Excepted AD, whereupon the Lessee
shall return the Aircraft to the Lessor in accordance with the provisions of
Section 6 hereof, excepting only (i) the Excepted AD, and (ii) the C Check
required by Section 6.5.1.
Page 18 of 56
<PAGE>
5.6. Service Bulletins. Lessee agrees, at its sole cost and expense, to
-----------------
incorporate into the Aircraft all those Airframe, Engine, and Appliance
manufacturer and other vendor service bulletins which Lessee adopts and
incorporates during the Term on the rest of the B727-200 aircraft in its fleet.
The Aircraft, with respect to the rest of the B727-200 aircraft in Lessee's
fleet, shall not be discriminated against in service bulletin compliance or
other maintenance matters.
5.7. Modifications.
-------------
5.7.1. Lessee, at its own expense, shall make such alterations and
modifications in and additions to the Airframe or any Engine or Appliance
as may be required to be made from time to time by Aviation Law during the
Term regardless upon whom such requirements are, by their terms, nominally
imposed, including, without limitation, any modifications required to
enable the Aircraft to comply with environmental, noise, air pollution, and
other standards ("Required Modifications"); provided, however, that Lessee
shall not be required to hushkit the Aircraft.
5.7.2. Lessee shall not, without Lessor's prior written consent, make
any major modifications, alterations or additions (collectively, "Optional
Modifications") to the Aircraft. For purposes of this Section 5, the term
Optional Modifications shall include, but shall not be limited to, (i)
changes to the Aircraft structure or performance, (ii) changes which could
adversely affect spare parts, interchangeability or replaceability, and
shall exclude Required Modifications.
5.7.3. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NO
OPTIONAL MODIFICATION SHALL BE MADE WHICH HAS THE EFFECT OF DECREASING THE
UTILITY OR VALUE OF THE AIRCRAFT OR ADVERSELY AFFECTS ITS AIRWORTHINESS OR
USE FOR TRANSPORTING PASSENGERS IN COMMERCIAL SERVICE.
5.7.4. All Optional Modifications, except as otherwise provided
herein, shall be accomplished by Lessee at its own expense. Lessee shall
provide advance copies of all drawings and data to be used by Lessee in
accomplishing such Optional Modifications for Lessor's approval prior to
such work. In the event Lessor does not consent to certain Optional
Modifications to the Aircraft desired by Lessee, Lessor may give its
qualified consent in writing to Lessee to accomplish such modifications
which are unacceptable to Lessor on the condition that Lessee agrees to
remove all such unacceptable modifications accomplished by Lessee and to
reconstruct the modified areas to their original configuration in a good
and workmanlike manner prior to return of the Aircraft to Lessor. In the
event of Lessor's granting such qualified consent in writing, Lessee shall,
at Lessee's sole expense, accomplish all such Optional Modifications,
removal of such modifications and required reconstruction necessary to
return the Aircraft to Lessor in its original configuration at the end of
the Term. Lessor hereby consents to the following Optional Modifications,
and agrees that such Optional Modifications may be
Page 19 0f 56
<PAGE>
removed from the Aircraft on the Return Date: (1) a global positioning
system, provided that wiring therefor shall become an accession to the
Aircraft owned by Lessor; (2) overwater emergency equipment supplied by
Lessee; (3) an HF radio system supplied by Lessee; and (4) ACARS supplied
by Lessee.
5.8. Reports. Lessee shall furnish to Lessor the following reports on a
-------
monthly basis: (i) the hours and cycles operated by the Airframe; and (ii) the
hours and cycles operated by each of the Engines (noting their location). Lessee
shall furnish to Lessor the following reports on a quarterly basis: (iii)
scheduled and unscheduled Engine and Appliance changes; (iv) damage reports; (v)
a list of those service bulletins, Airworthiness Directives and engineering
modifications issued during such quarter and applicable to the Aircraft, whether
or not incorporated on the Aircraft; (vi) copies of any written communications
with manufacturers with respect to defects or malfunctions of the Aircraft or
such other matters; and (vii) C Check, D Check, and Engine shop visit scheduled
dates. In addition, Lessee shall notify Lessor of all accidents, cases of
significant theft or vandalism, extended periods of Aircraft grounding for
cause, and insured occurrences as promptly as practicable.
5.9. Right to Inspect. Lessor and its agents shall have the right to
----------------
inspect the Aircraft or the Aircraft Documents at any reasonable time, upon
giving Lessee reasonable notice, to ascertain the condition of the Aircraft and
to satisfy Lessor that the Aircraft is being properly repaired and maintained in
accordance with the requirements of this Lease. No such inspection shall
interfere with Lessee's business or operations. The cost of the inspection or
survey shall be paid by Lessee if the Aircraft, or any part thereof, is not in
the condition required by this Lease, but shall otherwise be paid by the Lessor.
All repairs which shall be shown by the inspection or survey to be required
shall be made at Lessee's expense in accordance with the Approved Maintenance
Program. All required repairs shall be performed as soon as practicable after
such inspection. In the event of a dispute between Lessor and Lessee as to the
proper performance by Lessee of the repairs required hereunder, the decision of
the manufacturer of the Airframe, Engines, Appliances, or Part(s) (as
applicable) shall control. Lessor shall have no duty to make any such inspection
and shall not incur any liability or obligation by reason of not making such
inspection.
5.10. Damage and Repairs. All damage to the Aircraft shall be documented
------------------
and any repair to the Aircraft shall be documented and accomplished pursuant to
the applicable manufacturer's structural repair manual instructions and (where
applicable) the Approved Maintenance Program. Such repairs shall be permanent.
Repairs to the skin of the Aircraft shall be flush and not merely patched,
unless otherwise permitted or provided in the Airframe manufacturer structural
repair manual; provided that any such permitted patch shall be permanent and not
temporary. Lessee shall notify Lessor and the manufacturer of any repair to the
structure or skin of the Aircraft or any other repair costing in excess of One
Hundred Thousand Dollars (US$ 100,000) promptly after its being made; provided,
however, that Lessor shall have no liability to Lessee or third parties with
regard to such repair or the quality thereof and Lessee shall indemnify and hold
Lessor harmless with regard thereto. All technical and engineering data,
calculations, drawings, and documentation covering major repairs shall become
Page 20 of 56
<PAGE>
a permanent part of the Aircraft Documents. Any disagreement between Lessor and
Lessee as to what constitutes a "major" repair or a "permanent" repair shall be
referred to the applicable manufacturer and the Aviation Authority.
5.11. Aircraft Documents. Lessee, at its expense, will at all times
------------------
maintain and preserve all flight records, maintenance records, historical
records, modification records, overhaul records, manuals, logbooks,
authorizations, drawings and data required by the Airframe, Engine, Appliance,
or any Part manufacturer, or required from time to time by the Aviation
Authority with respect to the Aircraft, including without limitation shop
records detailing service checks, inspections, tests, repairs, or overhauls. All
documentation of any type referred to in the preceding sentence is herein
individually and collectively referred to as the "Aircraft Documents." Records
produced by electronic data processing or other automated means are not
acceptable, except as summary documents accompanied by original, or manual,
records, unless specifically approved by the Lessor in writing. Aircraft
Documents pertaining to maintenance shall contain verification of accomplishment
and quality assurance by actual identifiable signature. All Aircraft Documents
shall be the property of the Lessor. All Aircraft Documents shall be stored by
Lessee during the Term at a secure facility, and Lessee shall notify Lessor in
writing of the location of such facility. All Aircraft Documents will be at all
times kept current and up to date in order to facilitate Lessor's ability to
inspect periodically the Aircraft, monitor the maintenance of the Aircraft
during the Term and to facilitate the sale or re-lease of the Aircraft to a
third party at the end of the Term. The Lessee shall retain a revision service
for all Airframe, Engine, Appliance and Part manufacturer's manuals and
documentation, and the Aircraft Documents shall at all times contain the latest
issued revisions and reflect the current configuration and status of the
Airframe, Engines, Appliances, and Parts.
5.11.1. Airworthiness Directives. Lessee shall include within the
------------------------
Aircraft Documents all documentation necessary to establish the source
data, method of compliance, verification of accomplishment, quality
assurance, and all schedules of recurring action of any Airworthiness
Directive.
5.11.2. Life Limited Components. AIRCRAFT DOCUMENTS FOR LIFE LIMITED
-----------------------
COMPONENTS INSTALLED DURING THE TERM SHALL ESTABLISH TOTAL SERVICE, ORIGIN,
AND AUTHENTICITY; SHALL BE "BACK-TO-BIRTH" WITH RESPECT TO ENGINE LIFE-
LIMITED PARTS AND BACK TO LAST OVERHAUL WITH RESPECT TO OTHER LIFE-LIMITED
COMPONENTS; AND SHALL ESTABLISH STRICT COMPLIANCE WITH THE AIRCRAFT
AVIATION AUTHORITY TYPE DATA SHEET AND WITH THE APPROVED MAINTENANCE
PROGRAM.
5.11.3. Damage and Repairs. All damage to the Aircraft, whether
------------------
repaired or not, and all repairs to the Aircraft shall be documented in
strict accordance with the manufacturer's structural repair manual.
Page 21 of 56
<PAGE>
5.12. Possession. The Lessee will not, without the prior written consent
----------
of the Lessor, which may be withheld in the sole and absolute discretion of
Lessor, assign any of its rights or obligations under this Lease or sublease or
otherwise in any manner deliver, transfer or relinquish possession or control
of, or transfer any right, title or interest in, the Airframe, any Engine,
Appliance or Part (whether through pooling or interchange agreements or
otherwise) or install any Engine or Appliance, or permit any Engine or Appliance
to be installed, on any airframe other than the Airframe, provided that the
--------
Lessee may, without the prior written consent of the Lessor:
5.12.1. deliver temporary possession and control of the Airframe, an
Engine, and Appliance or Part to the manufacturer or Maintenance Provider
thereof for testing, service, maintenance, overhaul or repair or, to the
extent permitted by this Section 5, for modifications or additions;
5.12.2. install an Engine or Appliance on an airframe owned by the
Lessee free and clear of all Liens except Permitted Liens;
5.12.3. install an Engine or Appliance on an airframe leased to the
Lessee or owned by the Lessee and subject to a security agreement under
which the Lessee is the debtor, provided that (A) such airframe is free and
-------- ----
clear of all Liens except the rights of the parties to such lease or
security agreement and except Permitted Liens, and (B) such lessor or
secured party agrees in writing that it shall not acquire any right, title
or interest in such Engine or Appliance;
5.12.4. in the ordinary course of testing, servicing, maintenance,
repair or overhaul, remove any Part from the Airframe, an Engine, or an
Appliance, provided that the Lessee replaces such Part as promptly as
--------
possible with a Part which has a value and utility at least equal to the
Part being replaced and is owned by the Lessee free and clear of all Liens
except Permitted Liens; and any such replacement Part shall thereby become
subject to this Lease without necessity of further act; provided, however,
--------
that any Part removed from the Airframe, an Engine, or an Appliance for
such purpose shall remain subject to this Lease until replaced by a
replacement Part as provided in this clause;
5.12.5. enter into a wet lease (defined as a lease of the Aircraft
and flight crew, during which Lessee maintains exclusive operational
control of the Aircraft and during which lease Lessee continues to maintain
the Aircraft in accordance with Lessee's Approved Maintenance Program) for
the Aircraft with any third party provided, however, that the term of such
--------
wet lease shall not extend beyond the end of the Term; and
5.12.6. enter into a sublease of the Aircraft with a certificated
United States airline provided (i) the Lessee shall provide not less than
thirty days prior written notice to the Lessor; (ii) no Default or Event of
Default shall have occurred and be continuing; (iii) the term of any such
sublease shall not exceed the Term of this Lease; (iv) the
Page 22 of 56
<PAGE>
aircraft maintenance procedures of any sublessee shall be equivalent to
those of the Lessee; (v) the Lessee shall assign any such sublease to the
Lessor as security for Lessee's obligations under this Lease, provided that
so long as no Event of Default shall have occurred and be continuing, (A)
the Lessee, to the exclusion of the Lessor, may (in the name of the Lessor
or otherwise) exercise all rights and powers, and have all benefits, of the
sublessor under any such sublease, including, without limitation, the right
to collect and retain for the Lessee's own account all rent and other
payments due from the sublessee thereunder, and (B) Lessor shall not,
without the prior written consent of Lessee, amend, modify or terminate
such sublease, (vi) any sublessee shall be solvent and not seeking
protection from its creditors; (vii) any sublessee shall covenant not to
sublease or part with possession of the Aircraft other than for
maintenance, required modifications, or repairs to comply with this Lease;
(viii) any sublessee shall agree in writing that such sublease shall be
subordinate to this Lease and all terms hereof, and shall terminate if this
Lease shall terminate; and (ix) the Lessee shall pay Lessor's reasonable
expenses, including attorney fees, in connection with any such sublease.
No transfer of possession or control or other right afforded the Lessee pursuant
to this Section 5 shall in any manner affect any of the obligations of the
Lessee under this Lease or under the other Operative Documents, which
obligations shall remain primary and shall continue to the same extent as in the
absence of such transfer or other right. In the event that the Lessor shall have
received a written agreement or existing security agreement or lease complying
with the terms of clause 5.12.3, the Lessor hereby agrees for the benefit of the
lessor or secured party furnishing such agreement that the Lessor will not
acquire or claim, as against such lessor or secured party, any right, title or
interest in any engine owned by such lessor or in which such secured party has a
security interest by reason of such engine being installed on the Airframe.
5.13. Insignia. [INTENTIONALLY OMITTED]
--------
SECTION 6. Return of the Aircraft.
----------------------
6.1. Return. Subject to the provisions of Sections 3.7 and 5.5 above,
------
Section 9 below, and subject to any qualifications as may be set forth in a
Schedule 3 signed by both parties and attached to the executed Lease Supplement
and Receipt, on the last day of the Term or earlier Expiry (the "Return Date"),
all of the terms of this Section 6 shall apply and the Lessee shall return the
Aircraft to the Lessor by delivering the same, at the Lessee's own risk and
expense, to Marana, Arizona, or such other place as may be mutually agreed upon
in writing by the Lessor and Lessee (the "Return Location"), fully equipped with
all Engines installed thereon. The Aircraft at the time of its return shall be
in the condition set forth in this Section 6 and shall be free and clear of all
Liens other than Lessor Liens; provided, however that if on the Return Date the
Aircraft is not in Lessee's possession as a result of a breach by Lessor of the
covenant set forth in Section 4.5 hereof, the aircraft shall be deemed
redelivered to Lessor wherever then located and any taxes or other costs and
expenses associated with delivery at such location shall be for the account of
Lessor. At the time of acceptance of return of the Aircraft to Lessor,
Page 23 of 56
<PAGE>
Lessor and Lessee shall execute an Aircraft Return Receipt and Lease Termination
in the form attached hereto as Exhibit B.
6.2. Lease Continues. In the event, for any cause, Lessee does not
---------------
return the Aircraft to Lessor on the last day of the Term or earlier Expiry in
the condition required hereunder, then all of the obligations of Lessee under
this Lease shall continue and such continued use shall not be considered a
renewal of the Term of this Lease or a waiver of any right of Lessee hereunder.
During such continued use, Rent shall continue to be paid by Lessee to Lessor
and the other performance and obligations of Lessee to Lessor shall continue
hereunder and the same shall be prorated at the rate of one thirtieth (1/30) of
the monthly installment of Basic Rent for each day until the Aircraft is
actually delivered to Lessor, and all other terms and conditions of this Lease
shall remain in full force and effect. Payment shall be made within five (5)
Business Days after presentation of Lessor's invoice and any failure to pay
shall constitute an Event of Default of Lessee.
6.3. Return of Engines and Appliances. In the event any engine or
--------------------------------
appliance not owned by Lessor shall be returned with the Airframe, Lessee will,
at its own expense and concurrently with such return, furnish Lessor with a full
warranty bill of sale, in form and substance satisfactory to Lessor, with
respect to each such replacement engine or appliance and shall take such other
action as Lessor may reasonably request in order that such replacement engine or
appliance shall be duly and properly titled in Lessor. Upon passage of title to
Lessor such replacement engine or appliance shall be deemed to be an Engine or
Appliance for all purposes hereof and thereupon Lessor will transfer by bill of
sale to Lessee, without recourse or warranty except a warranty against Lessor's
Liens, all of Lessor's right, title and interest in and to an Engine or
Appliance not installed on such Airframe at the time of the return thereof.
Provided, however, that any replacement engine or appliance shall, in the
opinion of the Lessor, have a value and utility at least equal to (and be in as
good operating condition as) such Engine or Appliance replaced, assuming
compliance by the Lessee with all of the terms of this Lease with respect to
such Engine or Appliance.
6.4. Condition of Aircraft. The Aircraft at the time of its return to
---------------------
Lessor shall have been maintained and repaired in accordance with the Approved
Maintenance Program and this Lease with the same care and consideration for the
technical condition of the Aircraft as if it were to have been kept in continued
regular service by the Lessee, and shall meet the following requirements:
6.4.1. Operating Condition. The Aircraft shall be in as good
-------------------
operating condition as on the Delivery Date, with all of the Aircraft
Engines, Appliances, Parts, equipment, components, and systems functioning
m accordance with their intended use irrespective of deviations or
variations authorized by the minimum equipment list or configuration
deviation list.
Page 24 of 56
<PAGE>
6.4.2. Cleanliness Standards. The Aircraft shall be clean by
---------------------
commercial airline standards and shall have received an exterior and an
interior deep cleaning since its last commercial flight.
6.4.3. Certificate of Airworthiness. The Aircraft shall have; and
----------------------------
be in compliance with (except to the extent that the provisions of Section
5.5 above pertain) a legal and valid transport-category certificate of
airworthiness for commercial passenger operations issued by the Aviation
Authority, and shall be airworthy according to manufacturer's
specifications and Aviation Authority regulations; provided, however, the
Lessee shall not be required to hushkit the Aircraft.
6.4.4. Compliance with Governmental Requirements. Subject only to
-----------------------------------------
the provisions of Section 5.5 above, the Aircraft shall be in compliance
with all Airworthiness Directives affecting the Aircraft which have an
effective date for compliance within the Term. In the event Lessee has
obtained a waiver or deviation from the Aviation Authority from having to
comply with any such Airworthiness Directives, Lessee shall, irrespective
of such waiver or deviation, fully comply with all such Airworthiness
Directives covered by such waiver or deviation prior to the return of the
Aircraft to Lessor as if such waiver or deviation did not exist.
6.4.5. Deferred Maintenance. The Aircraft shall have had
--------------------
accomplished thereon all outstanding deferred maintenance items, carry-over
items, configuration deviation list items and flight discrepancies. Items
deferred because of maintenance concessions (i.e., an exemption to operate
beyond the normal limits by monitoring) shall be brought up-to-date as if
such maintenance concessions or exemptions did not exist. Components whose
time status exceeds the conditions or requirements imposed by this Lease
shall be brought into compliance with such conditions or requirements.
6.4.6. Corrosion Treatment. The Aircraft shall have been maintained
-------------------
by cleaning and treating of all mild corrosion and correcting of all
moderate and severe or exfoliated corrosion in accordance with the
manufacturer's recommended corrosion prevention and control procedures and
the Approved Maintenance Program. Fuel tanks shall be free from
contamination and corrosion and in compliance with an approved tank
treatment program.
6.4.7. Configuration and Condition. The Aircraft shall be returned
---------------------------
in the same configuration and condition with all Parts installed therein as
on the Delivery Date, excepting only modifications, additions, replacements
and substitution of Parts as may have been properly made by Lessee pursuant
to Section 5 and parts permitted to be removed pursuant to Section 5.7.4.
Lessee shall, prior to such return of the Aircraft, furnish Lessor a
listing of all such modifications, additions, or replacements made during
the Term. Lessee shall provide Lessor with all supporting paperwork,
drawings, calculations and approvals associated with all repairs and
modifications to the Aircraft.
Page 25 of 56
<PAGE>
6.5. Condition of Airframe. The Airframe at the time of its return to
---------------------
Lessor shall meet the requirements as set forth below, all at Lessee's expense,
except as otherwise provided herein:
6.5.1. C Check. The Airframe shall be zero (0) hours out of a C
-------
Check immediately prior to its flight to the Return Location which C Check
shall include a corrosion inspection and clean-up under galleys, forward
and aft cargo pit areas and lavatories. Lessee will correct any
deficiencies revealed during such check and all deferred maintenance items.
6.5.2. D Check. [INTENTIONALLY OMITTED]
-------
6.5.3. Parts. All Parts installed in the Aircraft shall be
-----
serviceable in accordance with Aviation Authority standards and have a
value, modification status and condition equivalent to the Parts in the
Aircraft on the Delivery Date, ordinary wear and tear excepted.
6.5.4. Fuselage, Windows and Doors. The fuselage shall be free of
---------------------------
major dents and abrasions, scab patches and loose or pulled or missing
rivets. Paint will be touched up. Windows shall be free of delamination,
blemishes, crazing and shall be properly sealed. Doors shall be free
moving, correctly rigged and be fitted with serviceable seals.
6.5.5. Wings and Empennage. All leading edges shall be free from
-------------------
damage. All paint shall be touched up. Wings shall be free of fuel leaks.
6.5.6. Interior. Ceilings, sidewalls and bulkhead panels shall be
--------
clean and free of cracks and stains. All floor panels shall be firm. All
window shades shall operate properly and be undamaged. All carpets and seat
covers shall be in good condition, clean and stain free and meet all
Aviation Authority fire resistance regulations. All seats shall be
serviceable, in good condition and repainted as necessary. Recline
mechanism and table operation shall be satisfactory, and table condition
level, tight, and undamaged. All signs and decals shall be in the English
language, clean and legible. All emergency equipment having a calendar life
shall have a minimum of one year or one hundred per cent of its total
approved life whichever is less, remaining.
6.5.7. Cockpit. All decals shall be in the English language, clean,
-------
secure and legible. All fairing panels shall be free of stains and cracks,
shall be clean, secure and repainted as necessary. Floor coverings shall be
clean and effectively sealed, and painted as necessary. Seat covers shall
be in good condition, clean and shall conform to all Aviation Authority
fire resistance regulations. Seats shall be fully serviceable and shall be
repainted as necessary. Wear areas will be painted or refurbished as
necessary.
6.5.8. Cargo Compartment. All panels and nets shall be in good
-----------------
condition.
Page 26 of 56
<PAGE>
6.6. Condition of Landing Gear. Each main and nose landing gear component
-------------------------
and each associated actuator and Part shall be clean, free of leaks and repaired
as necessary. All decals shall be in the English language, clean, secure, and
legible.
6.7. Condition of Auxiliary Power Unit ("APU"). Lessee will return the
-----------------------------------------
Aircraft's installed APU in serviceable condition, in accordance with the
manufacturer's specifications. Any operational discrepancies of the APU shall be
corrected at Lessee's expense prior to the return of the Aircraft to Lessor.
6.8. Condition of Engines. Each Engine shall meet both the Engine
--------------------
manufacturer specifications and the Approved Maintenance Program parameters for
acceptable exhaust gas temperature margin, engine pressure ratio, and fuel flow
at maximum certificated rated thrust.
6.9. Historical Records: Trend Monitoring Data. If the Engine historical
-----------------------------------------
and maintenance records and/or trend monitoring data indicate a rate of
acceleration in performance deterioration of any installed Engine which is
higher than normal based on Lessee's maintenance experience in operating such
Engines, or if an Engine is "on watch," Lessee shall, prior to the Aircraft's
return, correct or cause to be corrected such conditions which are determined to
exceed the Engine manufacturer's maintenance manual tolerances or otherwise be
causing such performance deteriorations or "on watch" condition.
6.10. Inspections. The following inspections shall be conducted utilizing
-----------
the standards and specifications of the applicable manufacturer maintenance
manual for the Airframe, Engines, Appliances, and component Parts thereof. Any
item or discrepancy noted during the inspections that is found to be non-
compliant with the tolerances and conditions of the applicable manufacturer
maintenance manual shall be classified as a condition of non-airworthiness and
shall be corrected or rectified by Lessee prior to return of the Aircraft.
6.10.1. The Aircraft (including the Aircraft Documents) shall be
made available to Lessor for ground inspection by Lessor at Lessee's
facilities where and while the C Check required by this Section 6 is being
performed. Lessee shall open the areas of the Aircraft, including without
limitation galleys, lavatories, and cargo pits, as determined by Lessor,
and shall allow Lessor to accomplish its inspection in order to determine
that the Aircraft (including the Aircraft Documents) is in the condition
required by the provisions of this Section 6.
6.10.2. A full, videotaped borescope inspection of all Engine and
APU sections in accordance with manufacturer specifications (including
manufacturer service bulletins) shall be performed under the surveillance
of Lessor at Lessee's expense at the time of the Aircraft's return to
Lessor at the Return Location.
6.10.3. Lessee shall conduct an operational ground check in
accordance with the requirements of the Approved Maintenance Program.
Page 27 of 56
<PAGE>
6.10.4. The Aircraft shall be test flown by Lessee at Lessee's
expense for not less than two (2) hours on a non-commercial flight, for the
purpose of demonstrating to Lessor the airworthiness of the Aircraft and
the proper functioning of all systems, equipment, and Appliances. Five (5)
of Lessor's employees or representatives (or more if consented to by
Lessee) may participate in such flight as observers. Lessee's pilot shall
be in command of the Aircraft. Such flight shall be flown using standard
operational check flight procedures as specified by the Airframe
manufacturer's flight functional acceptance procedure or operational test
flight procedures to demonstrate full certificated performance without
limitation.
6.11. Acceptance. Upon completion of the foregoing inspections and after
----------
Lessee has corrected the discrepancies as required to comply with this Section
6, the return of the Aircraft shall be accepted by Lessor's representatives at
the Return Location. At the time of acceptance of return of the Aircraft to
Lessor, Lessor and Lessee shall execute an Aircraft Return Receipt and Lease
Termination in the form attached hereto as Exhibit B.
6.12. Discrepancy Correction: Financial Settlement. Any discrepancies found
--------------------------------------------
during the inspections set forth in Section 6.10 above which are not corrected
by Lessee prior to return of the Aircraft to Lessor may be corrected by Lessor
or its designee after return of the Aircraft and Lessee shall reimburse Lessor
for all costs and expenses incurred by Lessor or its designee for accomplishing
such discrepancy corrections. Lessee shall pay Lessor for all such costs and
expenses incurred within ten (10) days after presentation of Lessor's invoice
therefor. Any late payments shall be subject to interest at the Overdue Payment
Rate. In the event that the time since overhaul or check for the Airframe, any
Engine, Appliance or component Part thereof on the Return Date is greater than
set forth above, Lessee shall pay Lessor a financial settlement to account for
the difference based upon (1) the then current interval between such overhaul,
check, or inspection prescribed by Lessee's Approved Maintenance Program and (2)
the then current cost to perform such overhaul or check established by averaging
the cost estimates for such overhaul or check by three Aviation Authority-
certified repair stations selected by Lessee and reasonably acceptable to
Lessor. Lessor shall not be obligated to compensate Lessee in the event that the
Aircraft is in better condition on the Return Date than required hereunder.
6.13. Aircraft Documents. Lessee shall return to Lessor, at the time the
------------------
Aircraft is returned to Lessor, all of the Aircraft Documents, updated and
maintained by Lessee through the date of return of the Aircraft. In the event of
missing, incomplete, mutilated, or otherwise unacceptable Aircraft Documents,
the Lessee shall, at its sole cost and expense, re-accomplish the tasks
necessary to produce such Aircraft Documents in accordance with the provisions
of Section 5.11.
6.14. Service Bulletin Kits. All vendors' and manufacturers' service
---------------------
bulletin kits ordered for the Aircraft but not installed therein shall be
returned with the Aircraft, as part of the Aircraft at the time of return, and
shall be loaded by lessee on board the Aircraft as cargo.
Page 28 of 56
<PAGE>
6.15. Lessee's Special Exterior Markings. At the time of the return of the
----------------------------------
Aircraft, Lessee shall either remove or paint over exterior markings painted on
such Aircraft by Lessee and the area where such markings were removed or painted
over shall be refurbished by Lessee as necessary to blend in with the
surrounding surface. In the event that, notwithstanding Lessee's obligation to
do so, Lessee does not remove such markings, Lessor shall have no obligation to
remove such markings prior to the sale, lease, or other disposition of the
Aircraft by Lessor after its return; however, if Lessor elects to remove such
markings, Lessee shall pay Lessor's costs and expenses for such removal within
ten (10) days after presentation of Lessor's invoice therefor. Any late payments
shall be subject to interest at the Overdue Payment Rate.
6.16. Disputes. Any dispute between Lessee and Lessor regarding the
--------
condition of the Aircraft arising under this Lease shall be referred to and be
determined by the Airframe, Engine, or Appliance manufacturer, provided this
subsection shall not be construed as requiring binding arbitration. Anything to
the contrary provided in this Section 6, (i) in the event that at the Return
Date Lessee shall not be in possession by reason of a breach by Lessor of the
covenant set forth in Section 4.5 herein, Lessee shall be deemed to be in full
compliance with the conditions set forth in this Section 6, assuming such
Aircraft was in the condition then required at the time of its removal from
Lessee's possession as a result of such breach; and (ii) Lessee shall not be
required to correct at return conditions existing at delivery and noted in
Schedule 3 to the Lease Supplement and Receipt.
SECTION 7. Liens. The Lessee will not create or suffer to exist any
-----
Lien upon or with respect to the Aircraft, the Airframe, any Engine or any
Appliance, except for the rights of the Lessor and the Lessee hereunder and
Permitted Liens.
SECTION 8. Taxes.
-----
8.1. Tax Indemnity. The Lessee agrees to pay, and to indemnify each
-------------
Indemnitee for all taxes, fees, levies, imposts, duties, charges and
withholdings of any nature (together with any and all fines, penalties,
additions to tax and/or interest thereon or computed by reference thereto)
(individually, a "Tax" and collectively, "Taxes") which are imposed by any
government, governmental subdivision or other taxing authority of or in any
jurisdiction, or by any international organization, and which are imposed with
respect to or in connection with any of the following:
8.1.1. The Aircraft or any Engine or any part thereof or any
interest therein;
8.1.2. The acceptance, possession, ownership, delivery, use,
operation, location, leasing, subleasing, condition, maintenance, repair,
modification, overhaul, testing, storage, abandonment, repossession, or
return of the Aircraft or any Engine or any part thereof or any interest
therein;
8.1.3. The rentals, receipts or earnings arising from the Aircraft
or any Engine or any part thereof or any interest therein;
Page 29 of 56
<PAGE>
8.1.4. This Lease or any other Operative Document; any agreement or
instrument executed in connection with or pursuant to any of the foregoing;
any future amendment, supplement, waiver or consent requested by Lessee
with respect to any thereof, or the execution, delivery, recording or
performance of any thereof; or
8.1.5. Any payment made pursuant to this Lease or any other
Operative Document;
provided, however, that the Lessee shall not be required by this paragraph (a)
- --------
to indemnify an Indemnitee for any of the following:
8.1.6. Taxes in respect of net or gross income, profits, gains,
capital or net worth imposed by the United States or any state or local
governments therein;
8.1.7. Taxes which would not have arisen but for delay or failure by
an Indemnitee in notifying the Lessee or in the filing of Tax Returns or
payment of Taxes assessed on such Indemnitee, which delay or failure shall
not have been consented to, caused by or requested by the Lessee;
8.1.8. Any Tax to the extent it results directly from any act or
omission on the part of the Lessor which constitutes a breach by the Lessor
of its express obligations to the Lessee under this Lease or any Operative
Document or otherwise constitutes wilful misconduct or gross negligence on
the part of the Lessor;
8.1.9. Any Taxes to the extent properly attributable to any time or
period prior to the date of this Lease or after its Expiry;
8.1.10. In the event that the Lessor assigns, transfers or encumbers
in whole or in part its interest in the Aircraft or this Lease and/or the
proceeds thereof, any Taxes if and to the extent that such Taxes exceed
those which would have been imposed and in respect of which the Lessee
would have been liable to indemnify the Lessor under this Lease had the
Lessor not so assigned, transferred, or encumbered its interest;
8.1.11. Any Taxes which are caused by or arise out of or as a
consequence of a Lessor Lien;
8.1.12. Any Taxes in respect of ownership not attributable to
Lessee's acts or omissions under this Lease; or
8.1.12. Any Taxes (including, without limitation, sales, value added
or other transfer Taxes) which arise upon any sale, assignment, transfer or
other disposition of the Aircraft or any interest therein by the Lessor or
any other Indemnitee (or any sale, assignment, transfer or other
disposition by an Indemnitee of any interest in another
Page 30 of 56
<PAGE>
Indemnitee), save where such sale, assignment, transfer or other
disposition is caused by or results from an Event of Default.
If the Lessor becomes aware of any Taxes in respect of which the Lessee may be
required to make an indemnity or other payment pursuant to this Section 8.1, the
Lessor shall promptly notify the Lessee in writing accordingly. If reasonably
requested by the Lessee in writing, the Lessor shall, in good faith, diligently
contest (including pursuing all administrative appeals) in the name of the
Lessor or, if appropriate and requested by the Lessee, in the name of the Lessee
(and will permit the Lessee, if requested by the Lessee, to contest in the name
of the Lessee or the Lessor) the validity, applicability or amount of such Taxes
and shall (i) resist payment thereof if reasonably practicable; (ii) pay the
same only under protest, if protest is necessary or proper; and (iii) if payment
is made, seek a refund thereof in appropriate administrative or judicial
proceedings Provided that (aa) prior to any such action the Lessee shall have
--------
agreed to indemnify the Lessor to the Lessor's reasonable satisfaction for all
costs and expenses which the Lessor may incur in connection with such contest,
including (without limitation) all reasonable legal and accountants' fees and
disbursements, and the amount of any interest or penalties which may be payable
as a result of the contest; and (bb) if the Lessor determines in its reasonable
discretion that such contest is to be initiated by the payment of (and the
claiming of a refund for) such Taxes, the Lessee shall have advanced to the
Lessor sufficient funds (on an interest-free basis and, if such advance
constitutes taxable income in the hands of the Lessor, on an after-tax basis) to
make such payment.
If the Lessor shall obtain a refund, rebate, credit or other relief in respect
of all or any part of any Taxes in respect of which the Lessee shall have made
payment pursuant to this Section 8.1, the Lessor shall, provided no Event of
Default shall have occurred and be continuing, promptly pay to the Lessee an
amount which is equal to the amount of the refund, rebate, credit or other
relief, plus any interest or other addition received on any refund, Provided
--------
always that any such payment by the Lessor shall leave the Lessor in no more and
no less favorable a position that it would have been in had the Lessee not been
required to make any payment in respect of such Taxes.
Lessee will pay all Taxes imposed upon it, or upon its income or profits, or
upon any property belonging to it, prior to the date on which penalties attach
thereto and prior to the date on which any lawful claim, if not paid, would
become a Lien upon any of the material property of Lessee. The Expiry of this
Lease shall not limit or modify the obligations of the Lessee with respect to
any indemnities contained in this Lease.
8.2. Withholding. If the Lessee is required by Applicable Law to make any
-----------
withholding from any amount payable by the Lessee to or for the benefit of an
Indemnitee pursuant to this Lease or any related agreement, then, subject only
to such payee or Indemnitee being a United States person, the Lessee shall (i)
pay such additional amount as may be necessary to make the net amount actually
received by the person entitled to receive the payment, after all withholdings,
equal to the amount such person would have received if no withholding had been
required, and (ii) as soon as practicable thereafter, deliver to the Indemnitee
a receipt or other
Page 31 of 56
<PAGE>
document reasonably satisfactory to the Indemnitee evidencing the withholding
and the payment of the amount withheld to the relevant governmental authority.
8.2.1. If the Lessor receives the benefit of a Tax repayment, set-
off, credit, allowance or deduction resulting from a payment which includes
an additional amount paid by the Lessee under this Section 8.2 (or the
Taxes deducted or withheld from such payment) it shall pay to the Lessee a
sum equal to the value to the Lessor of such benefit (account being taken
also of the value to the Lessor of any tax benefit arising by reason of
such payment) as in the opinion of the Lessor's auditors will leave the
Lessor (after such payment) in no more and no less favorable a position
than it would have been if no additional amount had been required to be
paid Provided always that:
--------
8.2.1.1. The Lessor's auditors shall determine in their sole
discretion (acting in good faith) the amount of any such benefit and
the date on which it is received;
8.2.1.2. The Lessor shall have an absolute discretion as to
the order and manner in which it claims tax credits, allowances and
deductions available to it; and
8.2.1.3. The Lessor shall not be obliged to disclose to the
Lessee any information regarding its Tax affairs or Tax computations.
If and to the extent that the Lessor makes a payment to the Lessee on account of
a tax benefit and it subsequently transpires that the Lessor did not receive
such benefit, the Lessee shall pay to the Lessor such sum as the Lessor's
auditors may certify as being appropriate to restore the after-tax position of
the Lessor to that which it would have been if such tax benefit had been
received.
8.3. After-tax Payment. Each indemnity pursuant to Section 15 or this
-----------------
Section 8 shall be in an amount which, after taking into account all Taxes
required to be paid by the Indemnitee entitled to the indemnity as a result of
the receipt or accrual of the indemnity and any deductions, credits or other
benefits available to such Indemnitee in respect of such indemnity, shall be
equal to the total amount of the indemnity that the Lessee would be required to
pay if the Indemnitee were not subject to Taxes as a result of the receipt or
accrual of the indemnity.
SECTION 9. Risk of Loss: Event of Loss: Requisition for Use.
------------------------------------------------
9.1. Risk of Loss. The Lessee will bear the entire risk of destruction,
------------
loss, theft, requisition of title, or use, confiscation, taking or damage of or
to the Aircraft from any cause, except only if arising during any period when
the Aircraft shall not be in Lessee's possession as a result of a breach by
Lessor of the covenant set forth in Section 4.5 hereof, during the period
commencing when the Lease Supplement and Receipt is executed and delivered by
Lessee
Page 32 of 56
<PAGE>
and ending when the Aircraft Return Receipt and Lease Termination is executed
and delivered by Lessor.
9.2. Airframe Event of Loss. If an Event of Loss shall occur with respect
----------------------
to the Airframe, the Lessee will forthwith notify the Lessor thereof in writing
and will pay to the Lessor, in U.S. Dollars and in immediately available funds
(i) 60 days after the date of the occurrence of such Event of Loss, or (ii) the
date of receipt of insurance proceeds, whichever is earlier, an amount equal to
the Stipulated Loss Value of the Aircraft; provided, however, that if the date
--------
such payment is made by the Lessee is not a Rent Payment Date, there shall be
deducted from the amount payable by the Lessee an amount equal to a pro rata
portion of the Basic Rent for the Aircraft computed on a daily basis from and
including the date such payment is made by the Lessee to but not including the
Rent Payment Date immediately following the date such payment is made by the
Lessee. In addition, the Lessee will pay in full when due, but without
duplication, the Basic Rent for the Aircraft payable on each Rent Payment Date
occurring prior to the date payment is made by the Lessee pursuant to the
immediately preceding sentence hereof. Upon payment in full by the Lessee of all
amounts referred to above in this Section 9.2, this Lease shall terminate and
the Lessor will transfer to Lessee or its insurers, as appropriate, title to the
Airframe and each Engine, without any recourse, representation or warranty on
the part of the Lessor except that the Airframe and Engines are free and clear
of Lessor Liens.
9.3. Engine Event of Loss. If an Event of Loss shall occur with respect to
--------------------
an Engine when not installed on the Airframe, the Lessee will forthwith notify
the Lessor thereof in writing and will, as soon as reasonably practicable after
the occurrence of such Event of Loss, duly convey to the Lessor (or cause to be
conveyed to the Lessor), as replacement for such Engine, title to another engine
of the same make and model which shall be owned by the Lessee free of all Liens
other than Permitted Liens and shall have a value and utility at least equal to
(and be in as good operating condition as) such Engine immediately prior to such
Event of Loss, assuming compliance by the Lessee with all of the terms of this
Lease with respect to such Engine. At the time of such conveyance the Lessee
will (i) cause to be delivered to the Lessor a favorable opinion of counsel for
the Lessee reasonably acceptable to the Lessor to the effect that the Lessor has
acquired full title to such replacement engine free and clear of all Liens
except for Permitted Liens and that such replacement engine is duly subjected to
this Lease; (ii) cause a Lease Supplement and Receipt to be duly executed by
Lessee and to be filed for recording pursuant to the Aviation Law and (iii)
cause to be delivered to the Lessor evidence satisfactory to the Lessor as to
the due compliance by the Lessee with the insurance provisions of Section 10
hereof with respect to such replacement engine. Upon compliance by the Lessee
with the foregoing terms of this subsection, the Lessor will (A) transfer to
Lessee or its insurers title to the Engine so replaced without any recourse,
representation or warranty on the part of the Lessor except that such Engine is
free and clear of any of the Lessor Liens and (B) execute and deliver to the
Lessee a partial release, in recordable form, releasing such Engine from this
Lease. Such replacement engine shall thereupon constitute an "Engine" for all
purposes hereof. Lessee shall be entitled to retain or to be reimbursed by
Lessor the amount of insurance or condemnation proceeds, if any, received by
Lessor with respect to such replaced Engine.
Page 33 of 56
<PAGE>
9.4. Requisition. In the event of the requisition for use by the
-----------
Government of the United States of the Airframe or any Engine during the Term,
Lessee shall promptly notify Lessor of such requisition and all Lessee's
obligations under this Lease with respect to the Airframe or such Engine shall
continue to the same extent as if such requisition had not occurred. If the
Airframe or such Engine shall not be returned by the Government of United States
prior to the end of the Term, Lessee obligations under this Lease shall continue
until the end of such requisition, including without limitation the obligations
to pay Rent and to return the Airframe or such Engine to Lessor in accordance
with the provisions of Section 6 promptly upon its return by the Government of
the United States. Provided no Event of Default has occurred and is continuing,
all payments received by Lessor or Lessee from the Government of the United
States for the use of the Airframe or such Engine during such requisition shall
be paid over to, or retained by, Lessee.
SECTION 10. Insurance. Throughout the Term the Lessee shall cause to
---------
be obtained maintained and kept in full force and effect property and liability
insurance (the "Insurances") with respect to the Aircraft issued through brokers
and with underwriters reasonably satisfactory to the Lessor. Such Insurances
shall name the Lessor as an additional insured and loss payee for its interests
and shall otherwise comply with the insurance requirements set out in this
Section 10.
10.1. Reports. On or before the Delivery Date, and not later than seven (7)
-------
days prior to each renewal of the Insurances, the Lessee shall provide the
Lessor with evidence satisfactory to the Lessor that the Insurances are and will
continue in full force after the Delivery Date or the renewal date of the
Insurances (as the case may be) for such period as shall then be stipulated and
the Lessee shall produce to the Lessor upon request receipts in respect of
payment of the premiums required by the policies relating to the Insurances (or
installments thereof) or other evidence reasonably acceptable to the Lessor of
the payment thereof. In addition, the Lessee shall furnish or cause to be
furnished to the Lessor, as and when reasonably required by the Lessor, (i)
insurance certificates, and (ii) an opinion of a firm of independent insurance
brokers satisfactory to Lessor (the "Approved Broker") stating the opinion of
the Approved Broker that the insurance then carried and maintained on the
Aircraft complies with the terms hereof. If any material variation is made to
the terms of the Insurances, the Lessee shall forthwith give notice to the
Lessor of such variation and shall provide such further details in relation
thereto (excluding details relating to premiums) as the Lessor may reasonably
require. The Lessee shall pay or cause to be paid all additional premiums or
surcharges necessary in order to maintain in full force and effect the
Insurances.
10.2 Lessor Maintaining Insurances. If the Insurances are not kept in full
-----------------------------
force and effect the Lessor, without prejudice to any other rights it may have
on the occurrence of an Event of Default, shall be entitled (but not bound) to
pay the premiums due to or to take out and maintain new insurances of the types
and in the amounts herein provided and any sums so expended by the Lessor shall
become immediately due and payable to the Lessor by the Lessee together with
interest thereon from the date of expenditure by the Lessor until the date of
reimbursement thereof by the Lessee at the Overdue Rate. In addition, the Lessor
may at any
Page 34 of 56
<PAGE>
time while the Insurances are not maintained in full force and effect and if
such Insurances cannot be procured by the Lessor, as the case may be, require
the Aircraft to be grounded or, subject to the Aircraft being adequately
insured, require the Aircraft to proceed to and remain at an airport designated
by the Lessor until the provisions of this Section shall be fully complied with.
10.3 Insurance Proceeds. Until such time as the insurers are notified of
------------------
an Event of Default hereunder, all insurance proceeds in respect of repairable
damage to the Aircraft not amounting to an Event of Loss shall be payable by the
insurers directly to such party or parties as may be necessary to repair the
Aircraft unless otherwise agreed between the Lessor, the Lessee and the insurers
in accordance with Lloyd's Endorsement AVN67B and shall be applied to the cost
of restoration, repair or replacement of the Aircraft hereunder. To the extent
that such insurance proceeds may be insufficient to pay the cost or the
estimated cost of completing such restoration, repair or replacement, the Lessee
will pay or procure the payment of such deficiency. All insurance proceeds in
circumstances resulting from an Event of Loss or if the insurers have been
notified in writing of an Event of Default hereunder shall be payable by the
insurers directly to the Lessor unless and until such insurers shall be notified
in writing that such Event of Default is no longer continuing.
10.4 Property Insurance. The Lessee shall ensure that there is obtained
------------------
and maintained with respect to the Aircraft:
10.4.1. "All Risks" hull insurance on the Aircraft (including all
flight and ground risks and ingestion coverages) in an amount not less than
Three Million Five Hundred Thousand Dollars (US$3,500,000) (the "Stipulated
Loss Value").
10.4.2. "All Risks" insurance on the Engines while not installed on
any Airframe in an amount not less than replacement cost thereof.
10.4.3. "War Risks" and related insurance covering the following
perils on the Aircraft in an amount not less than the Stipulated Loss
Value: (i) war, invasion, acts of foreign enemies, hostilities (whether war
be declared or not), civil war, rebellion, revolution, insurrection,
martial law, military or usurped power, or attempts at usurpation of power;
(ii) strikes, riots, civil commotions or labor disturbances; (iii) any act
of one or more persons, whether or not agents of a sovereign power, for
political or terrorist purposes and whether the loss or damage resulting
therefrom is accidental or intentional; (iv) any malicious act or act of
sabotage; (v) confiscation, nationalization, deprivation, seizure,
restraint, detention, appropriation, requisition for title or use by or
under the order of any government (whether civil, military or de facto)
and/or public or local authority other than the government of the United
States or a state thereof; and (vi) hijacking or any unlawful seizure or
wrongful exercise of control of such Aircraft or crew in flight (including
any attempt at such seizure or control) made by any person or persons on
board such Aircraft acting without consent of the Lessee.
Page 35 of 56
<PAGE>
10.4.4 The Insurances required under this Subsection 10.4 shall
(except for the insurance referenced in paragraph 10.4.2) be provided on an
agreed value basis and shall: (i) include, in the event of separate
insurances being arranged to cover the "All Risk" hull insurance and the
"War Risk" and related insurance, a 50/50 claims funding arrangement in the
event of any dispute as to whether a claim is covered by the "All Risks" or
"War Risks" policy; and (ii) be subject to a deductible no greater than
Five Hundred Thousand Dollars (US$500,000).
10.5. Liability Insurance. The Lessee shall obtain and maintain or procure
-------------------
that there is obtained and maintained a policy or policies of insurance covering
third party liability, bodily injury and property damage, passenger legal
liability and cargo legal liability for a combined single limit of not less than
Two Hundred Fifty Million Dollars (US$250,000,000) for any one occurrence. The
policies evidencing the Insurances required under this Section 10.5 shall: (i)
include the Indemnitees as additional insureds; (ii) provide that all the
provisions thereof, except the limits of liability, shall operate to give each
insured the same protection as if there were a separate policy covering each
such person; (iii) be primary and without right of contribution from other
insurance which may be available to the Indemnitees; and (iv) not provide
coverage to the Indemnitees with respect to claims arising out of their legal
liability as manufacturer, repairer or servicing agent of the Aircraft or any
Part thereof.
10.6. Provisions Relating To All Insurances. The policies evidencing the
-------------------------------------
Insurances with respect to the Aircraft required under Subsection 10.4 and 10.5
shall:
10.6.1. specifically reference this Agreement and shall provide that
the insurers agree that the coverage under the policies is extended (to the
extent of the risks covered by the policies) to insure such Aircraft in
accordance with the terms of this Agreement;
10.6.2. provide for worldwide coverage (subject only to such
exceptions in the War Risks and related insurance as are imposed by the
insurers, provided that full war risks and related insurance must be in
effect at all times for all areas into or over which the Aircraft may
operate);
10.6.3. provide that the Lessor has no operational interest in the
Aircraft;
10.6.4. provide that the Insurances shall not be invalidated, so far
as concerns the Indemnitees by any act or omission (including
misrepresentation and non-disclosure) by the Lessee or any other person
which results in a breach of any term, condition or warranty of such
Insurances provided that the Indemnitees have not caused, contributed to or
knowingly condoned such act or omission;
10.6.5. provide that the Lessor shall not be liable for any premiums
in respect thereof, and that the insurers waive any right of set-off or
counterclaim against the Lessor except in respect of outstanding premiums
in respect of the Aircraft;
Page 36 of 56
<PAGE>
10.6.6. provide that upon payment of any loss or claim to or on
behalf of an Indemnitee, the insurers shall to the extent and in respect of
such payment be thereupon subrogated to all legal and equitable rights of
the Indemnitees. At the expense of the insurers, such persons shall do all
things reasonably necessary to assist the insurers to exercise such
subrogated rights; and
10.6.7. provide that the Insurances provided under such policy may
only be cancelled or materially altered in a manner adverse to the
interests of the Lessor by the giving of not less than thirty (30) days'
notice in writing to the Lessor except that in the case of War Risks
insurance for which seven (7) days' notice (or such lesser period as may be
customarily available in respect of war risks or allied perils insurance)
will be given or in the case of war between any of the five (5) great
powers or nuclear peril for which termination is automatic. Lessee will
cause the Approved Broker to advise Lessor in writing promptly of any
default in the payment of any premium and of any other act of omission on
the part of Lessee of which they have knowledge and which would in the
Approved Broker's opinion invalidate or render unenforceable, in whole or
in any material part, any insurance on the Aircraft.
SECTION 11. The Lessor's Right to Perform for the Lessee. If the
--------------------------------------------
Lessee fails to make any payment required hereunder or fails to perform or
comply with any of its other agreements contained herein, the Lessor may make
such payment or perform or comply with such agreement, including, but not
limited to, the placement of insurance required by this Lease, and the amount of
such payment and the amount of its out-of-pocket costs and expenses incurred in
connection with the performance of or compliance with such agreement (together
with interest thereon at the Overdue Payment Rate) shall be payable by the
Lessee on demand as Supplemental Rent.
SECTION 12. Further Assurances. The Lessor and Lessee will each
------------------
promptly and duly execute and deliver such documents and assurances and take
such action as may be necessary or desirable, or as either party may from time
to time reasonably request, in order to more effectively carry out the intent
and purpose of this Lease and the other Operative Documents and to establish and
protect the Lessor's title to the Aircraft and its rights and remedies created
or intended to be created under this Lease and the other Operative Documents.
SECTION 13. Events of Default. The following events shall constitute
-----------------
Events of Default (whether any such event shall be voluntary or involuntary or
arise by operation of law or pursuant to or in compliance with any judgment,
decree, order, rule or regulation of any court or any administrative or
governmental body):
13.1. Failure to Pay Basic Rent. The Lessee shall fail to make any payment
-------------------------
of Basic Rent or Stipulated Loss Value within three days after receipt of notice
from Lessor that such payment was not received when due; or
Page 37 of 56
<PAGE>
13.2. Failure to Pay Supplemental Rent. The Lessee shall fail to make any
--------------------------------
other payment of Rent of any kind and such failure shall continue unremedied for
a period of ten days after written demand therefor by the Lessor to the Lessee;
or
13.3. Failure to Maintain Insurance. The Lessee shall fail to maintain
-----------------------------
insurance in accordance with Section 10 hereof;
13.4. Misrepresentation or Breach of Warranty. Any representation or
---------------------------------------
warranty made by the Lessee in this Lease or in any other Operative Document or
in any document or certificate furnished by the Lessee in connection herewith or
therewith shall have been incorrect in any material respect at the time made; or
13.5. Bankruptcy, Etc. The Lessee shall generally not pay its debts as such
---------------
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Lessee under the laws of
any country seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law of any country relating
to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and either
such proceeding shall remain undismissed, unbonded or unstayed for a period of
60 days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur; or the Lessee shall take any
corporate action to authorize any of the actions set forth above in this
subsection 13.5; or
13.6. General Default. The Lessee fails to duly observe or perform any of
---------------
its other obligations under this Lease and such failure shall not have been
remedied within a period of thirty (30) calendar days after delivery of written
notice specifying the same from Lessor, including without limitation failure to
maintain the Aircraft as required by this Lease or the Aviation Authority or
failure to protect or preserve Lessor's title to the Aircraft and, if
applicable, the Lien of any Lender thereon; or
13.7. Loss of Airline or Corporate Authority. Lessee shall cease to be a
--------------------------------------
commercial airline, or the franchises, concessions, permits, rights or
privileges required for the conduct of the business and operations of Lessee
shall be revoked, canceled or otherwise terminated or the free and continued use
and exercise thereof curtailed or prevented, and as a result thereof the
preponderant business activity of Lessee shall cease to be that of a commercial
airline; or
13.8. Other Obligations. Lessee shall fail to pay any indebtedness or
-----------------
other obligation of Lessee due and payable in excess of the value of US$100,000,
or there shall occur a declaration of default, an acceleration or any exercise
of remedies with respect to any
Page 38 of 56
<PAGE>
obligation or liability of Lessee in or relating to an amount in excess of the
value of US$100,000; or
13.9. Guarantor Default. An "Event of Default," as defined therein, shall
-----------------
have occurred under the Guaranty.
SECTION 14. Remedies. Upon the occurrence of any Event of Default and
--------
at any time thereafter so long as the same shall be continuing, the Lessor may,
at its option, declare in writing to the Lessee that this Lease is in default;
and at any time thereafter, so long as the Lessee shall not have remedied all
outstanding Events of Default, the Lessor may do one or more of the following as
the Lessor in its sole discretion shall elect, to the extent permitted by
Applicable Law then in effect:
14.1. Return and Repossession. Lessor may in writing demand the prompt
-----------------------
return, and the Lessee hereby agrees that it shall return promptly, the Aircraft
to the Lessor in the manner and condition required by, and otherwise in
accordance with all the provisions of, Section 6 as if the Aircraft were being
returned at the end of the Term, or the Lessor or the Lessor's agent, at its
option, may, but shall be under no obligation to, enter upon the premises where
all or any part of the Airframe or any Engine or Appliance is located and take
immediate possession of and remove the same by summary proceedings or otherwise,
all without liability accruing to the Lessor or the Lessor's agent for or by
reason of such entry or taking of possession or removal whether for the
restoration of damage to property caused by such action or otherwise.
14.2. Sale, Use, Etc. Lessor may sell the Aircraft at public or private
---------------
sale, as the Lessor may determine, or otherwise dispose of, hold, use, operate,
lease to others or keep idle the Aircraft as the Lessor may determine, all free
and clear of any rights or claims of the Lessee and without any duty to account
to the Lessee with respect to such action or inaction or for any proceeds with
respect thereto.
14.3. Liquidated Damages: Fair Market Rental. The Lessor, by written
--------------------------------------
notice to the Lessee specifying a payment date which shall be a Rent Payment
Date not earlier than ten days from the date of such notice, may cause the
Lessee to pay to the Lessor, and the Lessee shall pay to the Lessor, on the
payment date specified in such notice, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the Basic Rent for the Aircraft due on
Rent Payment Dates occurring on and after the payment date specified for payment
in such notice), any unpaid Basic Rent for the Aircraft due (or which would have
been due in the absence of the Expiry) prior to the payment date specified in
such notice, plus an amount equal to the present value (computed as of the
payment date specified in such notice and using 6%) of the total Basic Rents due
for what would have been the remainder of the Term in the absence of the Expiry
("Liquidated Rental") (together with interest on all amounts payable by the
Lessee under this subsection 14.3 at the Overdue Payment Rate from such
specified payment date until the date of actual payment); and upon such payment
of Liquidated Rental and the payment of all other Rent then due hereunder,
Lessor shall
Page 39 of 56
<PAGE>
proceed to exercise its best efforts to lease the Aircraft for what would have
been the remainder of the Term in the absence of Expiry and shall pay over to
Lessee an amount equal to the present value of the rents due for the remainder
of the term under the new lease agreement (after deducting from such rents, all
costs and expenses whatsoever incurred by Lessor in connection therewith and all
other amounts which may become payable to Lessor) up to the amount of Liquidated
Rental actually paid.
14.4. Cancellation, Termination, and Rescission. The Lessor may cancel,
-----------------------------------------
terminate, or rescind this Lease, or may exercise any other right or remedy
which may be available to it under Applicable Law or proceed by court action to
enforce the terms hereof or to recover damage for the breach hereof, including
without limitation Lessee's agreement to lease the Aircraft for the Term and to
pay Rent.
14.5. Other Remedies. In addition, the Lessee shall be liable, except as
--------------
otherwise provided above, for any and all unpaid Rent due hereunder before,
after or during the exercise of any of the foregoing remedies and for all legal
fees and other costs and expenses incurred by reason of the occurrence of any
Event of Default or the exercise of remedies with respect thereto, including all
costs and expenses incurred in connection with any retaking of the Aircraft or
in placing the Aircraft in the condition and airworthiness required by Sections
5 and 6. At any sale of the Aircraft pursuant to this Section 14 the Lessee may
bid for and purchase such property. No remedy referred to in this Section 14 is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to the Lessor at law or in
equity, including without limitation the Uniform Commercial Code of the
Commonwealth of Massachusetts; and the exercise or beginning of exercise by the
Lessor of any one or more of such remedies shall not preclude the simultaneous
or later exercise by the Lessor of any or all of such other remedies. No express
or implied waiver by the Lessor of any Event of Default or Default shall in any
way be, or be construed to be, a waiver of any future or subsequent Event of
Default or Default. To the extent permitted by Applicable Law, the Lessee hereby
waives any rights now or hereafter conferred by statute or otherwise which may
require the Lessor to sell, lease or otherwise use the Aircraft in mitigation of
the Lessor's damages except as set forth in this Section 14 or which may
otherwise limit or modify any of the Lessor's rights or remedies under this
Section 14.
SECTION 15. General Indemnity and Expenses.
------------------------------
15.1. General Indemnity.
-----------------
15.1.1. The Lessee agrees to indemnify, reimburse, and hold harmless each
Indemnitee from and against all claims, damages, losses, liabilities, demands,
suits, judgments, causes of action, civil and criminal legal proceedings,
penalties, fines, and other sanctions, and any attorney fees and other
reasonable costs and expenses, arising or imposed with or without the Lessor's
fault or negligence or under the doctrine of strict liability (collectively,
"Claims"), relating to or arising in any manner out of:
Page 40 of 56
<PAGE>
15.1.1.1. This Lease, any misrepresentation made by the Lessee under
this Lease, or the breach of any representation, warranty, or covenant made
by the Lessee under this Lease;
15.1.1.2. The manufacture, lease, delivery, nondelivery, acceptance,
rejection, ownership (to the extent attributable to Lessee's acts or
omissions), possession, use, operation, or return of the Aircraft;
15.1.1.3. The Aircraft's condition or any discoverable or
nondiscoverable defect in it arising from its design, testing, or
construction; any article used in the Aircraft; or any maintenance, service
or repair, whether or not the Aircraft is in the Lessee's possession and
regardless of where the Aircraft is located; or
15.1.1.4. Any transaction, approval, or document contemplated by this
Lease.
15.1.1.5. The foregoing indemnity shall not apply to (i) any Claim
that constitutes a Permitted Lien, (ii) Claims for Taxes, it being agreed
that Section 8 hereof represents Lessee's entire obligation with respect to
Taxes, (iii) Claims attributable to the wilful misconduct of an
Indemnitee; (iv) Claims attributable to any misrepresentation made by the
Lessor under this Lease, or the breach of any representation, warranty, or
covenant made by the Lessor under this Lease; or (v) Claims arising prior
to the Delivery Date or subsequent to the Return Date; provided, however,
that this Subsection 15.1.1.5 shall be construed only as a limitation on
the indemnity set forth in this Section 15, and shall not be deemed a
waiver by Lessor of any Claims available to Lessor at law or in equity.
15.1.2. The Lessee waives and releases each Indemnitee from any Claims in
any way connected with injury to or death of the Lessee's personnel, loss or
damage of the Lessee's property, which may:
15.1.2.1. Result from or arise during the Term in any manner out of
the leasing, condition, use or operation of the Aircraft; or
15.1.2.2. Be caused during the Term by any defect in the Aircraft;
its design, testing, or construction; any article used in the Aircraft; or
any maintenance, service, or repair, whether or not the Aircraft is in the
Lessee's possession and regardless of where the Aircraft is located, except
to the extent that such Claim arises out of the breach by any Indemnitee of
its obligations hereunder. The foregoing waiver and release shall not apply
to any Claim arising out of the wilful misconduct of any Indemnitee.
15.1.3. The indemnities described in this Section will continue in full
force and effect notwithstanding the expiration or other termination of this
Lease and are expressly made for the benefit of and will be enforceable by each
Indemnitee.
Page 41 0f 56
<PAGE>
15.2. Legal Fees and Expenses. The Lessee agrees to pay the reasonable
-----------------------
legal fees and expenses of Lessor's counsel in connection with the enforcement
against Lessee of this Lease, any other Operative Document and the other
documents to be delivered hereunder or thereunder.
SECTION 16. Assignment and Alienation. Lessor shall have the right to
-------------------------
assign, sell or encumber any interest of Lessor in the Aircraft or this Lease
and/or the proceeds hereof subject to the rights of Lessee under the provisions
of this Lease. To effect or facilitate any such assignment, sale or encumbrance,
Lessee agrees to provide such agreements, consents, conveyances or documents as
may be reasonably requested by Lessor, which shall include, without limitation,
a commercially standard estoppel certificate. The agreements, covenants,
obligations and liabilities contained herein including, but not limited to, all
obligations to pay Rent and indemnify each Indemnitee are made for the benefit
of each Indemnitee and their respective successors and assigns; provided,
however, that no assignment, sale or encumbrance shall in any manner adversely
affect Lessee's rights or increase the aggregate financial exposure under the
indemnity obligations of Lessee under this Lease or unreasonably increase any
other obligation, liability, cost, or expense, as compared to what such
indemnity obligations, or any other obligation, liability, cost or expense would
have been had such assignment, sale or encumbrance not occurred; provided,
however, that as a minimum level cooperation Lessee at its expense shall, if
requested by Lessor, (i) execute documents naming any Lender as an Indemnitee
hereunder; (ii) cause the Insurances to designate any Lender as a loss payee and
additional insured; (iv) provide notices to any Lender pursuant to Section 17
hereof; and (v) execute a reasonable consent to an assignment of this Lease to
such Lender. In the event any interest of the Lessor in the Aircraft or this
Lease and/or the proceeds therefrom is assigned, sold or encumbered by Lessor,
any assignee, transferee, mortgagee, or other secured party shall agree as a
condition precedent thereto, and shall furnish written evidence of such
agreement to Lessee, not to disturb or otherwise interfere with the rights of
Lessee under this Lease or the quiet enjoyment of Lessee of the Aircraft so long
as no Event or Default shall have occurred and be continuing; and provided,
further, that no such assignment, sale or encumbrance shall be to other than an
entity which shall be a United States citizen in accordance with Aviation Law.
SECTION 17. Notices. All notices required under the terms and
-------
provisions hereof shall be in writing in the English language, and any such
notice shall become effective when received by the other party, by hand, by
registered mail with proper postage for airmail prepaid, by overnight courier
service, or, if in the form of a telecopy, upon confirmation of receipt thereof,
in each case addressed (i) if to the Lessee:
Sunworld International Airlines, Inc.
207 Grandview Drive
Fort Mitchell, Kentucky 41017-2799
Attention: Treasurer
Page 42 of 56
<PAGE>
Telecopier: (606) 331 6383
with copies to:
Winthrop, Stimson, Putnam & Roberts
1 Battery Park Plaza
New York, New York 10004
Attention: Ruth J. Weinstein
Telecopier: (212) 858-1500
or to such other address as the Lessee shall from time to time designate in
writing to the Lessor, or (ii) if to the Lessor:
First Security Bank of Utah, N.A.
79 South Main Street
Salt Like City, Utah 84111
Attention: Corporate Trust Department
Telecopier: (801) 246-5053
with copy to:
American Finance Group
98 North Washington Street
Boston, Massachusetts 02114
Attention: Manager
Telecopier: (617) 523-1410
and:
American Finance Group, Inc.
One Market Plaza, Steuart Street Tower, Suite 900
San Francisco, CA 94105 U.S.A.
Attention: General Counsel
Telecopier: (415) 905-7256
or to such other address as the Lessor shall from time to time designate in
writing to Lessee.
Page 43 of 56
<PAGE>
SECTION 18. No Set-Off, Counterclaim, Etc. Subject only to the
-----------------------------
Lessor's compliance with its obligations under Sections 3.6.5, 4.5, and 5.5, the
Lessee's obligation to pay all Rent payable hereunder shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which the Lessee may have against the Lessor, any partner comprising the Lessor,
the manufacturer of the Airframe or of any Engine or Appliance or anyone else
for any reason whatsoever (whether in connection with the transactions
contemplated hereby or in connection with any unrelated transaction), (ii) any
defect in the airworthiness, eligibility for registration, condition, design,
operation, or fitness for use of, or any damage to or loss or destruction of, or
any Lien upon, the Aircraft, or any interruption or cessation in the use or
possession thereof by the Lessee (iii) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Lessee, the Lessor or
any other person, (iv) the invalidity or unenforceability of this Lease or any
absence of right, power, or authority of the Lessor or Lessee to enter into this
Lease, or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing. If for any reason whatsoever this Lease
shall be terminated in whole or in part by operation of Applicable Law the
Lessee nonetheless agrees to pay to the Lessor an amount equal to each Basic
Rent payment for the Aircraft at the time such payment would have become due and
payable in accordance with the terms hereof had this Lease not been so
terminated in whole or in part. The Lessee hereby waives, to the extent
permitted by Applicable Law, any and all rights which it may now have or which
at any time hereafter may be conferred upon it, by Applicable Law to terminate,
cancel, quit or surrender this Lease, or any obligation imposed on the Lessee by
this Lease. Nothing in this Section 18 shall be construed to preclude the
Lessee from bringing any suit at law or in equity against any person which it
would otherwise be entitled to bring for breach of any representation, warranty,
covenant or duty hereunder.
SECTION 19. Governing Law.
-------------
19.1. Consent to Jurisdiction. Each of the Lessor and the Lessee
-----------------------
irrevocably agrees that any legal suit, action or proceeding arising out of or
relating solely to this Lease or any other Operative Document, or any of the
transactions contemplated hereby or thereby or any document referred to herein
or therein, may be instituted in the state or Federal courts in the Commonwealth
of Massachusetts, and it hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may have now or hereafter to the laying
of the venue or the jurisdiction or the convenience of the forum of any such
legal suit, action or proceeding and irrevocably submits generally and
unconditionally to the jurisdiction of any such court but only in any such suit,
action or proceeding. Final judgment against the Lessee or the Lessor in any
suit shall be conclusive, and may be enforced in other jurisdictions by suit on
the judgment, a certified or true copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness or liability of the Lessee or the
Lessor, as the case may be, therein described; provided always that the
plaintiff may at its option bring suit, or institute other judicial proceedings,
against the Lessee or the Lessor, as
Page 44 of 56
<PAGE>
the case may be, or any of its assets in the courts of any country or place
where the Lessee or the Lessor, as the case may be, or such assets may be found.
19.2. Choice of Law. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
SECTION 20. Miscellaneous. This Lease constitutes the entire
-------------
agreement of the parties. Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibitions or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
This Lease shall constitute an agreement of lease, and nothing herein
shall be construed as conveying to the Lessee any right, title or interest in
the Aircraft except as a lessee only.
This Lease, including all agreements, covenants, representations and
warranties, shall be binding upon and inure to the benefit of, and may be
enforced by, (1) Lessor and its agents, servants and personal representatives
and, to the extent permitted hereby, assigns and (2) Lessee and its agents,
servants, and personal representatives and, to the extent permitted hereby,
assigns. The section and subsection headings in this Lease are for convenience
of reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof. This Lease may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument. No term or provision of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which the enforcement of the change, waiver, discharge or
termination is sought.
Page 45 of 56
<PAGE>
SECTION 21. Truth-In-Leasing. FOR PURPOSES OF 14 CRF SECTION 91.23
----------------
ONLY, LESSOR CERTIFIES THAT DURING THE TWELVE MONTHS PRECEDING THE EXECUTION OF
THIS LEASE THE AIRCRAFT WAS MAINTAINED AND INSPECTED UNDER PART 121 OF THE
FEDERAL AVIATION REGULATIONS.
THE LESSEE CERTIFIES THAT THE LESSEE, AND NOT THE LESSOR, IS RESPONSIBLE
FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF,
THE LESSEE FURTHER CERTIFIES THAT THE LESSEE UNDERSTANDS ITS RESPONSIBILITIES
FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. THE LESSEE FURTHER
CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 121 OF
THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO BE CONDUCTED UNDER THIS
LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FAA REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT
OFFICE.
IN WITNESS WHEREOF, the Lessor the Lessee have each caused this Lease
to be duly executed as of the date and year first above written.
FIRST SECURITY BANK OF UTAH, National Association,
not in its individual capacity but solely as owner
trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and amended as of March 1, 1990,
the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence O. Dennison
By: Terence O. Dennison
Title: Executive Vice President
Page 46 of 56
<PAGE>
EXHIBIT A: FORM OF LEASE SUPPLEMENT AND RECEIPT
-----------------------------------------------
LEASE SUPPLEMENT AND RECEIPT dated January 19 , 1996 between FIRST
--
SECURITY BANK OF UTAH, N.A., not in its individual capacity but solely as owner
trustee under that certain Trust Agreement 1989-4 dated as of December 13, 1989,
and amended as of March 1, 1990 (the "Lessor"), and Sunworld International
Airlines, Inc. (the "Lessee").
The Lessor and the Lessee have heretofore entered into that certain
Aircraft Lease Agreement. dated as of January 1, 1996 (herein called the "Lease"
and the defined terms therein being hereinafter used with the same meanings),
relating to one Boeing model 727-25lA aircraft, manufacturer serial number
21161. The Lease provides for the execution and delivery of a Lease Supplement
and Receipt.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, the Lessor and the Lessee hereby agree as follows:
A. THE LEASE. The Lease and all related Operative Documents to be
---------
executed by the Lessee have been duly authorized, executed and delivered by
Lessee and constitute valid, legal, binding, and enforceable agreements of
Lessee. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement and Receipt to the same extent as if fully
set forth herein. The parties confirm that the Delivery Date is the date of this
Lease Supplement and Receipt.
B. THE AIRCRAFT. The Lessee hereby certifies that the Aircraft
------------
described Schedule 1 hereto, consisting of 5 pages (including attachments) and
---
made a part hereof, and the Aircraft Documents described in Schedule 2 hereto,
consisting of 1 pages (including attachments) and made a part hereof, have been
---
delivered to the Lessee, inspected by the Lessee, and accepted under, and for
all purposes of, the Lease, all on the date hereof. Any qualifications to the
return conditions set forth in Lease Section 6 are attached hereto in Schedule
3. Lessee accepts delivery of the Aircraft "AS IS," "WHERE IS," AND SUBJECT TO
EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET FORTH IN SECTION
4.3 OF THE LEASE.
C. REPRESENTATIONS BY THE LESSEE. The Lessee hereby represents and
-----------------------------
warrants to the Lessor that on the date hereof:
1. The representations and warranties of the Lessee set forth in
the Lease are true and correct in all material respects as though made on
and as of the date hereof.
2. The Lessee has satisfied or complied with all requirements set
forth in the Lease to be satisfied or complied with on or prior to the date
thereof.
Page 47 of 56
<PAGE>
3. No default or Event of Default under the Lease has occurred and is
continuing on the date hereof.
4. The Lessee has obtained, and there are in full force and effect,
such insurance policies with respect to the Aircraft as are required to be
obtained under the terms of the Lease.
This Lease Supplement and Receipt may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Lease Supplement and Receipt to be duly executed as of the date and year first
above written.
FIRST SECURITY BANK OF UTAH, National Association,
not in its individual capacity but solely
as Owner Trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and amended as of March 1, 1990,
the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence O. Dennison
By: Terence O. Dennison
Title: Executive Vice President
Page 48 of 56
<PAGE>
SCHEDULE 1 TO LEASE SUPPLEMENT AND RECEIPT: AIRCRAFT DESCRIPTION
- -------- - -- ----- ---------- --- ------- -------- -----------
Airframe: Boeing model 727-251A, serial number 21161, US
registration N282US
Total hours: 50598:33 Total cycles: 35609
Time since C check: 0 Time since D check: 0
Engine No.1: Pratt & Whitney model JT8D-15A engine,
manufacturer serial number 696253.
See. Attached disk sheet dated 9/15/95, 1995
- ---
Engine No. 2: Pratt & Whitney model JT8D-15-A engine,
manufacturer serial number 696520.
See. Attached disk sheet dated 10/10/95, 1995
- ---
Engine No. 3: Pratt & Whitney model JT8D-15-A engine,
manufacturer serial number 695260.
See. Attached disk sheet dated 10/10/95, 1995
Landing gear time since overhaul: L9309 hours, R6 hours, N17779 hours.
Auxiliary power unit: manufacturer Garrett serial number P36543.
Time since hot section inspection: 0
Avionics (specified by manufacturer): see attachment consisting of 3 pages. see
attachment A.
Interior configuration: 164 seats coach
Loose equipment: [SPECIFY GALLEY EQUIPMENT, EXTRA SEATS,
ETC.] see attachment B.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*1 *2
----- -----
Operating weights: Maximum ramp weight: 177,500 187,500
Maximum gross take-off weight: 176,500 186,500
Maximum landing weight: 150,000 150,000
Zero fuel weight: 138,000 141,000
</TABLE>
*1 As delivered
*2 Weight per lease, awaiting FAA Engineering approval.
Page 49 of 56
<PAGE>
SCHEDULE 2 TO LEASE SUPPLEMENT AND RECEIPT: AIRCRAFT DOCUMENTS
- -------- - -- ----- ---------- --- ------- -------- ---------
AIRCRAFT DOCUMENTS CHECKLIST
1. Avionics Installation List
2. Original Manufacturers Inventory List
3. Current Component Inventory List (Northwest)
4. Service Bulletin (SB) Accomplishment List (Northwest)
5. Record of last Compass Swing
6. List of Oils and Fluids
7. FAA Approved Airplane Flight Manual (AFM)
8. Manufacturer's Flight Crew Operating Manual (FCOM) (Northwest)
9. Releasing Operator's Flight Crew Operating Manual (Northwest)
10. Weight and Balance Manual; last weighing
11. Minimum Equipment List (MEL) (Northwest)
12. MEL Procedures manual (Northwest)
13. Maintenance Manuals (Northwest)
14. Wiring Diagram Manual; Termination and Equipment Lists (Northwest)
15. Structural Repair Manual (SRM) (Northwest)
16. Illustrated Parts Catalog (IPC) (Northwest)
17. Aircraft/Cockpit Log Books (Northwest)
18. Engine Log Books (Northwest)
19. Auxiliary Power Unit (APU) Log Book (Northwest)
20. Current, or last, Airworthiness Certificate
21. Current, or last, Registration
22. Current, or last, Radio License
23. Supplemental Type Certificates (STC)
24. Certificate of Sanitary Construction, Galleys
25. Modification Records
26. Form 337, major Repair and Alteration
27. Major and Minor Repair Records
28. Airworthiness Directive (AD) Accomplishment List
29. Airworthiness Directive (AD) Records and Documentation
30. Time Controlled Component (TCC) List, history and status (Northwest)
31. Life Limited Part (LLP) List, history and status (Northwest)
32. Scheduled Maintenance Check Status
33. Total Time and Cycle Justification
34. Maintenance Records
35. Performance Manual (Northwest)
36. Quick Reference Manual (Northwest)
Page 50 of 56
<PAGE>
SCHEDULE 3 TO LEASE SUPPLEMENT AND RECEIPT;
-------------------------------------------
QUALIFICATIONS TO RETURN CONDITIONS
-----------------------------------
Lessor and Lessee hereby agree that the following particulars of the
condition of the Aircraft shall be qualifications to the return conditions set
forth in Section 6 of the Lease.
See Attachment C
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Schedule 3 to Lease Supplement and Receipt to be duly executed as of January
- ---, 1996.
FIRST SECURITY BANK OF UTAH, National Association,
not in its individual capacity but solely
as Owner Trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and amended as of March 1, 1990,
the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence O. Dennison
By: Terence O. Dennison
Title: Executive Vice President
Page 51 of 56
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
ATTACHMENT A
AVIONICS LISTING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Lower Yew Damper Computer Sperry 4030952-901 77090124
- --------------------------------------------------------------------------------------------------
Audio Accessory Unit Bac 65-5280438 R00032
- --------------------------------------------------------------------------------------------------
GPW Computer Bendix 2041033-8313 1043
- --------------------------------------------------------------------------------------------------
Passenger Address Collins 522-4538-002 6376
- --------------------------------------------------------------------------------------------------
ADF Receiver Bendix 2087786-7302 4214
- --------------------------------------------------------------------------------------------------
VHF Transceiver #1 Collins 618M-3 8416
- --------------------------------------------------------------------------------------------------
VHF Transceiver #2 Collins 618M-3 6921
- --------------------------------------------------------------------------------------------------
Radio Altimeter Bendix 2067631-5315 5431
- --------------------------------------------------------------------------------------------------
Autopilot Access. Bac 65-24917-72 R00010S
- --------------------------------------------------------------------------------------------------
Pitch Control Channel (SP-50) Sperry 2585804-4 0191616
- --------------------------------------------------------------------------------------------------
Static Inverter Bendix 39B168 B 1099
- --------------------------------------------------------------------------------------------------
Upper Yaw Damper Coupler Sperry 2588880-901 0190872
- --------------------------------------------------------------------------------------------------
ATC Transponder Mode C Collins 787-6211-003 2078
- --------------------------------------------------------------------------------------------------
Roll Control Channel (SP-150) Sperry 4030951-901 67C-859
- --------------------------------------------------------------------------------------------------
Anti-skid Control Unit Bac 10-61853-11 217C
- --------------------------------------------------------------------------------------------------
Air Data Computer Sperry HG180U255 A-892/70
- --------------------------------------------------------------------------------------------------
Vertical Gyro Aux. Sperry 2587335-12 9024865
- --------------------------------------------------------------------------------------------------
Transformer Rectifier APU Elden Dl0-60011-2 740
- --------------------------------------------------------------------------------------------------
General Protection Panel APU Westinghouse 904F242-5 UB7895M
- --------------------------------------------------------------------------------------------------
Voltage Regulator APU Westinghouse 939D150-2 XA5009
- --------------------------------------------------------------------------------------------------
Bus Protection Panel Westinghouse 902F283-2 ZW1108A
- --------------------------------------------------------------------------------------------------
Transformer Rectifier Ext Power Elden D10-600l1-2 7447530
- --------------------------------------------------------------------------------------------------
Frequency and Load Controller #2 G.E. 700662A 2709
- --------------------------------------------------------------------------------------------------
Frequency and Load Controller #3 G.E. 700662A 3380
- --------------------------------------------------------------------------------------------------
Directional Gyro #2 Sperry 2588302-2 78032190
- --------------------------------------------------------------------------------------------------
Vertical Gyro #2 Sperry 2587335-11 6088944
- --------------------------------------------------------------------------------------------------
Vertical Gyro #1 Sperry 2587335-11 7052215
- --------------------------------------------------------------------------------------------------
GPW Pressure Rate Sensor ColIins 66-3444-9-00l 01215
- --------------------------------------------------------------------------------------------------
Battery Charger Ledec 2-301-3 3736
- --------------------------------------------------------------------------------------------------
Autospeed Brake Controller Bac 65-8409-l M00019
- --------------------------------------------------------------------------------------------------
VHF Transceiver Aux Bendix 2070945-4301 1965
- --------------------------------------------------------------------------------------------------
Marker Receiver Bendix MKA-280 1679
- --------------------------------------------------------------------------------------------------
ILS Receiver #2 Collins 522-4280-102 4793
- --------------------------------------------------------------------------------------------------
ILS Receiver #1 Collins 522-4280-102 B1794
- --------------------------------------------------------------------------------------------------
DME #1 Collins 622-2920-001 6497
- --------------------------------------------------------------------------------------------------
DME #2 Collins 622-2920-001 6503
- --------------------------------------------------------------------------------------------------
Comparator Warning Monitor Collins 522-3948-002 322
- --------------------------------------------------------------------------------------------------
Flight Instrument Accessory Unit Bac 65-60214-36 R00149
- --------------------------------------------------------------------------------------------------
Steering Computer #1 Collins 562A-5F4 1104
- --------------------------------------------------------------------------------------------------
Steering Computer #2 Collins 562A-5F4 1403
- --------------------------------------------------------------------------------------------------
Instrument AMP #1 Collins 522-3120-005 2757
- --------------------------------------------------------------------------------------------------
Instrument AMP #2 Collins 522-3120-004 791
- --------------------------------------------------------------------------------------------------
Window Heat Control R1 Pacific 231-2 2678
- --------------------------------------------------------------------------------------------------
Window Heat Control R2 Pacific 65-52803-5 R02557
- --------------------------------------------------------------------------------------------------
</TABLE>
Page 52 of 56
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
ATTACHMENT A
AVIONICS LISTING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Window Heat Control L1 Pacific 231-2 3570
- --------------------------------------------------------------------------------------------------
Window Heat Control L2 Pacific 231-2 4412
- --------------------------------------------------------------------------------------------------
Landing Gear Accessory Unit Bac 65-60211-32 00095
- --------------------------------------------------------------------------------------------------
Compass System Rack #2 Sperry 614937-101 8057427A
- --------------------------------------------------------------------------------------------------
Compass System Rack #1 Sperry 614937-101 5040270A
- --------------------------------------------------------------------------------------------------
LILS Receiver Aux Collins 522-4280-105 B638
- --------------------------------------------------------------------------------------------------
Flight Director Indicator F/O Collins 522-3752-001 140
- --------------------------------------------------------------------------------------------------
Course Director Indicator F/O Collins 522-3342-001 27
- --------------------------------------------------------------------------------------------------
Servo Altimeter F/O Smith WL708AMFAZ AE151
- --------------------------------------------------------------------------------------------------
Radio Altimeter F/O Bendix INA-51A 7409
- --------------------------------------------------------------------------------------------------
VSI/TRA Indicator F/O Honeywell 4067241-860 42046
- --------------------------------------------------------------------------------------------------
VSI Pressure Transducer F/O Honeywell 4067487-901 91020508
- --------------------------------------------------------------------------------------------------
Pressure Ration Indicator #1 G.E. JG298A4 E-256
- --------------------------------------------------------------------------------------------------
Pressure Ration Indicator #2 G.E. JG298A4 D-351
- --------------------------------------------------------------------------------------------------
Pressure Ration Indicator #3 G.E. JG298A4 E-195
- --------------------------------------------------------------------------------------------------
N1 Indicator #1 G.E. 8DJ8I-WAG4 V0087
- --------------------------------------------------------------------------------------------------
N1 Indicator #2 G.E. 8DJ8I-WAG4 S0177
- --------------------------------------------------------------------------------------------------
N1 Indicator #3 G.E. 8DJ81-WAG4 S3930
- --------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #1 Lewis 152BL801E 62
- --------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #2 Lewis 152BL801E 624
- --------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #3 Lewis 152BL801E 656
- --------------------------------------------------------------------------------------------------
N2 Indicator #1 G.E. 8DJ81-LXHU L3766
- --------------------------------------------------------------------------------------------------
N2 Indicator #2 G.E. 8DJ81-LYV4 R629l
- --------------------------------------------------------------------------------------------------
N2 Indicator #3 G.E. 8DJ81-LYV4 R5893
- --------------------------------------------------------------------------------------------------
Fuel Flow Indicator #1 G.E. 8DJ88-LWC B987
- --------------------------------------------------------------------------------------------------
Fuel Flow Indicator #2 G.E. 8DJ88-LWC 00265
- --------------------------------------------------------------------------------------------------
Fuel Flow Indicator #3 G.E. 8DJ88-LWC M0350
- --------------------------------------------------------------------------------------------------
Outboard Flap Position Indicator Memoor 18-1299-3 0574AN
- --------------------------------------------------------------------------------------------------
Inboard Flap Position Indicator Memoor 18-1299-2 16299
- --------------------------------------------------------------------------------------------------
Autopilot Capture Indicator F/O Bac 75-0149-77 2367
- --------------------------------------------------------------------------------------------------
Airspeed Indicator F/O Kollsman A3615910057 1392
- --------------------------------------------------------------------------------------------------
Clock Indicator F/O Wakemann 651-12-24-15 1222
- --------------------------------------------------------------------------------------------------
Machmeter F/O Bac 10-60713-1 NT989
- --------------------------------------------------------------------------------------------------
ADF/VOR Compass RMI F/O Sperry CI-800 3070877
- --------------------------------------------------------------------------------------------------
Pneumatic Brake Pressure Indicator US Gage SRL-07AM 5739
- --------------------------------------------------------------------------------------------------
Hydraulic Brake Pressure Indicator US Gage SRL-07CA 5830
- --------------------------------------------------------------------------------------------------
DME Indicator F/O ColIins 522-1859-033 4018
- --------------------------------------------------------------------------------------------------
Airspeed Indicator Capt Kollsman A3615910057 1360
- --------------------------------------------------------------------------------------------------
Compass ADF/VOR RMI Capt Sperry CI-600 24
- --------------------------------------------------------------------------------------------------
Clock Indicator Capt Wakemann 651-12-24-15 1219
- --------------------------------------------------------------------------------------------------
Machmeter Capt Bac 10-60713-1 NT1156
- --------------------------------------------------------------------------------------------------
DME Indicator Capt Collins 522-1859-033 C8002
- --------------------------------------------------------------------------------------------------
Flight Director Indicator Capt Collins 522-3752-001 135
- --------------------------------------------------------------------------------------------------
Course Director Indicator Capt Collins 522-3342-001 446
- --------------------------------------------------------------------------------------------------
Autopilot Capture Indicator Capt Bac 75-0149-77 2371
- --------------------------------------------------------------------------------------------------
Rad/Alt Indicator Capt Bendix INA-51A 01988
- --------------------------------------------------------------------------------------------------
</TABLE>
Revision:IR Setion: Avionics List
Revision Date 11/1/95 Page 2 of 3
Page 52a of 56
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Baro-Altimeter Capt Kollsman A3811910008 l752
- --------------------------------------------------------------------------------------------------
Total Air Indicator Capt Lewis 161BL501 B545
- --------------------------------------------------------------------------------------------------
Servo Altimeter Capt Smith WL1152AM8 AE968
- --------------------------------------------------------------------------------------------------
VSI/TRA Indicator Capt Honeywell 4057241-850 11532
- --------------------------------------------------------------------------------------------------
VSI Pressure Transducer Capt Honeywell 4067487-901 91010491
- --------------------------------------------------------------------------------------------------
Standby Horizon Indicator Stena 705-7V9 19728
- --------------------------------------------------------------------------------------------------
Altitude Alert Honeywell JG1052AAO3 U-12
- --------------------------------------------------------------------------------------------------
Elevator & Rudder Position Indicator Sperry 248541 00286
- --------------------------------------------------------------------------------------------------
Radar Indicator Bendix 66-3442-9-0002 03141
- --------------------------------------------------------------------------------------------------
VOR/DME Control Panel Capt Gables G-4578 138
- --------------------------------------------------------------------------------------------------
ADF Control Panel Capt Bendix 2087780-7308 3141
- --------------------------------------------------------------------------------------------------
Radar Control Panel Gables G-4104 96
- --------------------------------------------------------------------------------------------------
Flight Director Control Panel Capt Collins 777-1253-001 102
- --------------------------------------------------------------------------------------------------
Instrument Warning Capt Gables G-2662 27
- --------------------------------------------------------------------------------------------------
Transponder Control Panel F/O Gables G-6993-03 00214
- --------------------------------------------------------------------------------------------------
Lighted Flight Counter Dexter-Wilson 600 4275
- --------------------------------------------------------------------------------------------------
Flight Director Control Panel F/O Collins 777-1253-001 47
- --------------------------------------------------------------------------------------------------
VOR/DME Control Panel F/O Gables G-4578 86
- --------------------------------------------------------------------------------------------------
Frequency and Load Controller #1 G.E. 700662B 3798
- --------------------------------------------------------------------------------------------------
Voltage Regulator #1 Westinghouse 939D150-2 UW3601M
- --------------------------------------------------------------------------------------------------
Voltage Regulator #2 Westinghouse 939D150-2 SB5430
- --------------------------------------------------------------------------------------------------
Voltage Regulator #3 Westinghouse 939D150-2 PY3961M
- --------------------------------------------------------------------------------------------------
Transformer/Rectifier #1 Bac 10-3257-3 5474
- --------------------------------------------------------------------------------------------------
Transformer/Rectifier #2 Bac 10-3257-3 5205
- --------------------------------------------------------------------------------------------------
Transformer/ Rectifier #3 Bac 10-3257-3 5256
- --------------------------------------------------------------------------------------------------
General Protection Panel #3 Westinghouse 902F242-5 OB7667
- --------------------------------------------------------------------------------------------------
General Protection Panel #2 Westinghouse 902F242-5 UJ599M
- --------------------------------------------------------------------------------------------------
General Protection Panel #1 Westinghouse 902F242-5 RO3532
- --------------------------------------------------------------------------------------------------
TCAS Processor Honeywell 4066010-904 91020299
- --------------------------------------------------------------------------------------------------
Transponder Mode S Collins TPR-720 1741
- --------------------------------------------------------------------------------------------------
Radar Transceiver Bendix 66-3442-9-0004 02329
- --------------------------------------------------------------------------------------------------
Main Battery Sonotone CA-727-3 120406
- --------------------------------------------------------------------------------------------------
Flight Data Recorder Sundstrand 980-4100-GQUS 8378
- --------------------------------------------------------------------------------------------------
Accelerometer Sundstrand 3001-01-101-2 9510-2132
- --------------------------------------------------------------------------------------------------
Windshear Computer Honeywell 4061048-904 90040242
- --------------------------------------------------------------------------------------------------
Windshear Switching Unit ASM 103006-001-01 134
- --------------------------------------------------------------------------------------------------
Windshear Switching Unit ASM 103006-001-01 109
- --------------------------------------------------------------------------------------------------
Selcal Encoder Motorola NA135PH5O Unk
- --------------------------------------------------------------------------------------------------
Selcal Control Panel Gables G1402 85
- --------------------------------------------------------------------------------------------------
</TABLE>
Page 52b of 56
<PAGE>
ATTACHMENT B
------------
LOOSE EQUIPMENT:
- ---------------
l EACH RIGHT HAND COAT CLOSET
1 EACH LEFT HAND MOVABLE BULKHEAD
1 EACH LEFT HAND TRIPLE SEAT ASSY
6 EACH FIRST CLASS SEAT ASSYS
2 EACH GALLEY CARTS
9 EACH OVEN TRAY CARRIERS WITH 54 TRAYS
12 EACH LARGE CARRIERS
6 EACH SMALL CARRIERS
6 EACH COFFEE POTS
4 EACH TRASH CANS
Page 52c of 56
<PAGE>
ATTACHMENT C
---------- -
1. External doubler at Left cockpit sliding window
2. External doubler at Left windshield
3. External doubler at Right cockpit sliding window
4. Dent in fuselage above #3 Left cockpit window
5. Minor dents in fuselage AFT of Left main door
6. 7 each external doublers inside #2 engine S duct
7. External doubler station 440 lower Left side fuselage skin
8. Deep scratch station 650 lower Left Side fuselage skin
9. Latches for external air conditioning connection damaged
10. External repair #1 Left leading edge flap
11. Dent in #1 Left leading edge flap center
12. External repair #2 Left leading edge flap
13. External repair #3 Left leading edge flap
14. External repair inboard of Left wing fuel vent box on inspection plate
15. External repair outboard flap jack screw cover
16. Dent in left outboard trailing edge flap 18 inches from inboard bottom end
17. Left inboard flap has dent bottom side 12 inches from outboard end - Also
dents between flap fairings
18. External repair on fuselage at Left rear service door at station 1030
19. External repair at Left rear service door station 1070
20. #1 Engine Thrust Reverser does not have speed kit instal
-led
21. Right leading edge inboard flap has 3 external repairs
22. Right leading edge outboard flap has external repair
23. #7 leading edge slat Right wing has external repair
24. Right wing outboard flap has dent bottom of flap 18 inches from outboard
end. Also dent between flap fairings
25. External doubler on top Right wing middle ground spoiler
26. Several dents on inboard flap top trailing edge inboard end
27. External doubler Right side fuselage at 3rd window behind rear emergency
window
28. External doubler Right side fuselage at 5th window behind rear emergency
window
29. Several dents on inboard flap bottom side trailing edge inboard end and
between flap fairings
30. Two external repairs on bottom of AFT stair
31. Overhead panel row 8 center retension is broken out and covered with metal
peace
32. Seats 29F, 30D & E do not have tray tables
Page 52d of 56
<PAGE>
EXHIBIT B: FORM OF AIRCRAFT RETURN RECEIPT AND LEASE TERMINATION
- ----------------------------------------------------------------
The undersigned FIRST SECURITY BANK OF UTAH, N.A., not in its individual
capacity but solely as owner trustee under that certain Trust Agreement 1989-4
dated as of December 13,1989, and amended as of March 1,1990 ("Lessor") has
inspected the following described Aircraft in conjunction with its return to the
Lessor under the Aircraft Lease Agreement dated as of January l, 1996 (the
"Lease") by and between Lessor and SUNWORLD INTERNATIONAL AIRLINES, INC.
("Lessee") Lessor hereby certifies that said Aircraft has been found to be in
the condition required by the Lease, except for the discrepancies agreed to by
the parties, listed below. Lessor hereby accepts return of the Aircraft from
Lessee and acknowledges receipt thereof.
Airframe: Boeing model 727-251A, serial number 21161, US registration N282U5
Total hours: _____ Total cycles: _____
Time since C check: _____ Time since D check: _____
Engine No. 1: Pratt & Whitney model JT8D-l5A engine, manufacturer serial number
696523.
SEE ATTACHED DISK SHEET DATED _______, 199_
- ---
Engine No. 2: Pratt & Whitney model JT8D-1SA engine, manufacturer serial number
696520.
SEE ATTACHED DISK SHEET DATED ________ 199_
- ---
Engine No. 3: Pratt & Whitney model JT8D-1SA engine, manufacturer serial number
695260.
SEE ATTACHED DISK SHEET DATED _______, 199_
- ---
Landing gear time remaining until next scheduled overhaul: L ___ hours, R ___
hours, N ___ hours
Auxiliary power unit: manufacturer ____ serial number ____
Time since hot section inspection: ____
Avionics (specified by manufacturer): see attachment consisting of _____ pages
Interior configuration:
Loose equipment: [SPECIFY GALLEY EQUIPMENT, EXTRA SEATS, ETC.)
Operating weights: Maximum ramp weight:
Maximum gross take-off weight:
Maximum landing weight:
Page 53 of 56
<PAGE>
Zero fuel weight
Discrepancies in components returned (see Schedule l to Lease Supplement and
Receipt):
Discrepancies in Aircraft Documents (see Schedule 2 to Lease Supplement and
Receipt):
Discrepancies in Aircraft return condition (see Lease Section 6):
Lessor and Lessee each agree with the other in respect to said Aircraft:
l. The parties shall execute and deliver an FAA Aircraft Registry Lease
Termination in the form attached hereto as Schedule l.
2. Without waiver or release of (i) the foregoing discrepancies, or (ii)
all indemnities of Lessee under the Lease which, by the terms of the
Lease, survive Expiry of the Lease, the Lease is hereby terminated.
Executed this _____ day of _____, 1998, at _______________.
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity but solely
as owner trustee under that certain
Trust Agreement 1989-4 dated as of December 13, 1989,
and amended as of March 1, 1990,
the Lessor
By:
Title:
SUNWORLD INTERNATIONAL AIRLINES, INC.,
the Lessee
By:
Title:
Page 54 of 56
<PAGE>
EXHIBIT B SCHEDULE 1
FAA AIRCRAFT REGISTRY
TERMINATION OF LEASE
The undersigned FIRST SECURITY BANK OF UTAH, N.A., not in its individual
capacity but solely as owner trustee under that certain Trust Agreement 1989-4
dated as of December 13, 1989, and amended as of March 1, 1990 ("Lessor") and
SUNWORLD INTERNATIONAL AIRLINES, INC. ("Lessee") are parties to that certain
Aircraft Lease Agreement dated as of January 1, 1996 (as amended, the "Lease")
by and between Lessor and Lessee, which Lease was recorded by the FAA Aircraft
Registry on ____________ as conveyance number ____________, and which Lease
covers Boeing model 727-25lA airframe, serial number 21161, registration mark
N282US, equipped with three Pratt & Whitney model JT8D-15A engines, serial
numbers 696529, 696520 and 695260 (collectively, the "Aircraft")
The Lease has been terminated on _________, 199__, and the Aircraft is no
longer subject to the terms and provisions thereof.
FIRST SECURITY BANK OF UTAH, N.A.,
not in its individual capacity but solely
as owner trustee under that certain
Trust Agreement 1989-4 dated as of December 13, 1989,
and amended as of March 1, 1990,
the Lessor
By:
Title:
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
By:
Title:
Page 55 of 56
<PAGE>
EXHIBIT C: FORM OF GUARANTY
---------------------------
GUARANTY AGREEMENT
This Guaranty Agreement ("Guaranty") dated as of January 19, 1996, is made
by Columbia Sussex Corporation, a corporation organized under the laws of
Kentucky ("Guarantor").
WITNESSETH:
WHEREAS, FIRST SECURITY BANK OF UTAH, National Association, ("Lessor"), a
national banking association organized and existing under the laws of the United
States, not in its individual capacity but solely as owner trustee under that
certain Trust Agreement "AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and Amended as of March 1, 1990, has agreed to enter into
that certain Aircraft Lease Agreement dated as of January 19, 1996 (the "Lease")
pursuant to which it is to lease the Aircraft defined therein to SUNWORLD
INTERNATIONAL AIRLINES, INC., a Kentucky corporation ("Lessee"), and
WHEREAS, Lessor has agreed to enter into the Lease with Lessee but only if
Lessee's obligations under the Lease are guaranteed by Guarantor.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lessor, as requested by Guarantor, to enter into the Lease, Guarantor does
hereby represent, covenant and agree with Lessor as follows:
I. GUARANTY OBLIGATIONS
1.1 Guarantor hereby absolutely and unconditionally guarantees to Lessor,
the punctual and faithful payment and performance of all of the Liabilities (as
hereinafter defined) of Lessee to Lessor under the Lease (whether such
Liabilities are now existing or arise hereafter); and the strict performance and
observance by Lessee of all of the terms, covenants and conditions contained in
the Lease. As used herein, the term "Liabilities" includes, without limitation,
any and all Basic Rent, Supplemental Rent and undertakings of Lessee to Lessor
of every kind and description under the Lease (including, also, without
limitation, reasonable costs and expenses incurred by the Lessor in attempting
to collect or enforce any of the foregoing including reasonable attorneys' fees)
including interest on any such amounts accrued in each case from the due date
thereof to the date payment is received by Lessor provided, however, interest
--------- -------
due Lessor hereunder as Supplemental Rent shall not also be payable to Lessor a
second time because of the provisions of this sentence.
-56-
<PAGE>
1.2 This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance by Lessee of the Liabilities and
not of their collectibility only The liabilities and obligations of Guarantor
hereunder may be enforced without any suit or action against Lessee or any other
guarantor of any of the Liabilities, without regard or resort to any security or
other means of obtaining payment of the Liabilities which Lessor may now or
hereafter have or hold, and without the performance or occurrence of any other
condition or contingency whatsoever; provided, however, that the exercise or
attempted exercise, at any time or times, of any or all of such rights and
remedies as Lessor may have against Lessee, or with respect to any security for
liabilities or under any other guaranty of Liabilities shall not affect, reduce,
modify or impair, in any manner whatsoever, the liabilities and obligations of
the Guarantor hereunder, except and to the extent Lessor has received payment or
performance of such Liabilities of Lessee. Guarantor hereby unconditionally
waives to the fullest extent permitted by law (except to the extent specifically
provided in this Guaranty) demand, or notice of any nature. Payments by
Guarantor hereunder shall be unlimited in amount with respect to its guaranty of
the Liabilities, as defined above.
1.3 Guarantor hereby waives any and all suretyship defenses and defenses
in the nature thereof; and agrees that enforcement of this Guaranty shall not be
affected, reduced, modified or impaired by any dealing by Lessor with Lessee or
anyone else who may now or hereafter become liable in any manner for any of the
Liabilities, in such manner as Lessor, in its sole discretion, may deem fit,
except to the extent that Lessor has waived or released in writing any
Liabilities and except and to the extent Lessor has received payment or
performance of such Liabilities by Lessee. If for any reason, Lessee has no
legal existence or is under no legal obligation to discharge any of the
Liabilities; or if, by operation of law or for any other reason, moneys included
in the Liabilities have become irrecoverable from Lessee, or if any security for
any of the Liabilities or if any other guaranty thereof is invalid, defective or
unenforceable, this Guaranty shall be binding upon Guarantor to the same extent
as if Guarantor were at all time primarily obligated on the Liabilities .
1.4 No setoff, counterclaim, reduction or diminution of any Liabilities,
or any defense of any kind or nature, which Guarantor has or may have against
Lessee, shall be available hereunder to Guarantor against Lessor.
1.5 This Guaranty shall remain in full force and effect regardless of any
payment hereunder or of any reduction in, or modification or alteration of the
Liabilities, until such time as
-57-
<PAGE>
all Liabilities not waived or released by Lessor in writing and all liabilities
and obligations of Guarantor hereunder have been paid and performed in full.
Guarantor's obligations under this Guaranty shall be immediately extinguished
upon the full, complete and faithful performance by Lessee of all of its
Liabilities. So long as this Guaranty remains in force, as aforesaid, Guarantor
will not, (x) by paying any sum recoverable hereunder (whether or not demanded
by the Lessor) or by any means or on any other ground, claim any set-off or
counterclaim against Lessee in respect of any liability of Guarantor to Lessee
or, (y) in bankruptcy or insolvency proceedings of any nature, prove in
competition with Lessor in respect of any payment hereunder or in any such
proceeding be entitled to have the benefit of any counterclaim or proof of claim
or dividend or payment by or on behalf of Lessee or the benefit of any other
security for any of the Liabilities which, now or hereafter, Lessor may hold or
in which it may have any share. All payments by Guarantor hereunder shall be
made in lawful money of the United States of America in immediately available
funds and, so long as the person or entity entitled thereto is a United States
person within the meaning of the Internal Revenue Code, without any deduction or
withholding of any kind.
1.6 Guarantor hereby confirms that this Guaranty shall remain in full
force and effect notwithstanding that:
(a) the obligations of the Lessee under the Lease are discharged,
extinguished, terminated, rescinded, avoided or suspended
(whether pursuant to any provision of the Lease or otherwise) by
virtue of any breach on the part of the Lessee, under the
doctrine of frustration, as a result of the liquidation of the
Lessee or any action taken in such liquidation (for example, a
disclaimer), except by payment or performance thereof; or
(b) subject to the provisions of the Lease, performance of the Lease
by the Lessee becomes impossible or illegal,
and, in particular, the Lessor shall be entitled to recover under this Guaranty
in respect of any payment or obligation (including any obligation of paying
interest) which the Lessor would have received under the Lease but for the
occurrence of any of the circumstances described in subsections (a) or (b)
above.
1.7 If the Lease is disclaimed in a liquidation of the Lessee:
(a) so long as any amounts or obligations then due from the Guarantor
under this Guaranty remain unpaid or unperformed, as the case may
be, the
-58-
<PAGE>
Guarantor shall not, in respect of any payment which it makes or
any liability which it has, under this Guaranty or the Lease,
claim any amount from the Lessee, make or enforce any security
against any asset of the Lessee, or claim any set off against any
sum from it to the Lessee; and
(b) the Guarantor shall not, in respect of such payment or liability,
prove in the liquidation of the Lessee, except that, if the
Guarantor shall have paid and/or performed all of its obligations
then due hereunder, it shall be subrogated to all rights of
Lessor against Lessee, and the Guarantor may, by exercise of that
statutory right, prove for any loss or damage suffered by the
Lessor, and otherwise as its interests may appear.
II. REPRESENTATIONS AND WARRANTIES
Guarantor hereby represents and warrants to Lessor as follows:
2.1 (a) Guarantor is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Kentucky, is duly qualified
to do business and in good standing in each jurisdiction where the character of
its business and the ownership of its property, as now conducted or owned or as
proposed to be conducted or owned, requires such qualification;
(b) The execution, delivery and performance by Guarantor of this
Guaranty have been duly authorized by all necessary corporate action on the part
of the Guarantor, are not inconsistent with its Certificate of Incorporation or
By-Laws, do not violate any law or governmental rule, regulation or order
applicable to Guarantor, do not and will not contravene any provision of, or
constitute a material default under, any indenture, mortgage, contract or other
instrument to which it is bound and, upon execution and delivery hereof, will
constitute a legal, valid and binding agreement of Guarantor, enforceable in
accordance with its terms;
(c) No consent or approval by governmental authority or agency is
required with respect to the execution, delivery and performance by Guarantor of
this Guaranty;
(d) There are no litigations or proceedings pending against it not
covered by insurance which, if adversely determined, would have a materially
adverse effect on Guarantor or would prevent or hinder the performance by it of
its obligations hereunder;
-59-
<PAGE>
2.2 Guarantor will provide an opinion of its counsel confirming (subject
to standard exceptions) that:
(a) Guarantor is a corporation duly incorporated, validly existing,
in good standing and is duly qualified to do business under the laws of the
Commonwealth of Kentucky,
(b) The execution, delivery and performance of Guarantor of this
Guaranty have been duly authorized by all necessary corporate action on the part
of Guarantor, are not inconsistent with its Certificate of Incorporation or By-
Laws, do not violate any law or governmental rule, regulation or order
applicable to Guarantor and this Guaranty is the legal, valid and binding
agreement of the Guarantor, enforceable in accordance with its terms;
(c) No consent or approval by any governmental authority or agency of
the United States or the Commonwealth of Kentucky is required with respect to
the execution, delivery and performance by Guarantor of this Guaranty.
III. DEFAULT
3.1 The following described events shall constitute "Events of Default"
hereunder:
3.1.1 An "Event of Default" as defined in Section 13.3 of the
Lease shall occur and remain unremedied.
3.1.2 An "Event of Default" as defined in Sections 13.1 and 13.2
of the Lease shall occur and remain unremedied for a period of three Business
Days after written notice thereof to Guarantor;
3.1.3 An "Event of Default" as defined in Section 13.4, 13.5,
13.6, 13.7 and 13.8 of the Lease shall occur and remain unremedied for 10 days
following notice thereof from Lessor to Guarantor or such longer period of time
as is reasonably required to cure such Event of Default provided the Guarantor
is diligently attempting such cure and such default does not result in a
material risk to the Aircraft or Lessor's title thereto.
3.1.4 The Guarantor shall:
(a) admit its inability to pay its debts generally as they become due
or otherwise acknowledging its insolvency;
-60-
<PAGE>
(b) file a petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the Bankruptcy Code (or similar laws of the
United States of America, or any other jurisdiction which relates to the
liquidation or reorganization of companies or the modification or alteration of
the rights of creditors, each such law, as from time to time in effect, being
sometimes referred to as a "bankruptcy act", each as now or in the future
amended) or an answer or other pleading admitting or failing to deny the
material allegations of such a petition or seeking, consenting to or acquiescing
in the relief therein provided; or
(c) make an assignment, or so-called trust mortgage or the like, for
the benefit of its creditors or by its making a proposal to its creditors under
the bankruptcy act; or
(d) consent to the appointment of a receiver or trustee (or other
persons performing a similar function) for the Aircraft or for all or a
substantial part of its property; or
(e) be adjudicated a bankrupt; or
(f) suffer the entry of, or be the subject of, a court order for all
or a substantial part of its property which order shall not be vacated, set
aside, bonded, or stayed within 60 days from the date of entry; (i) appointing a
receiver or a trustee for all or a substantial part of its property, or (ii)
approving a petition filed or application made against it for, or effecting an
arrangement in bankruptcy or for a reorganization or other relief pursuant to
any bankruptcy act or for any other judicial modification or alteration of the
rights of creditors; or
(g) have all or a substantial part of its property taken into custody
or be sequestrated by a court of competent jurisdiction, which custody or
sequestration shall not be suspended or terminated within 60 days (or such
longer period as the Lessor may agree in writing) from it inception.
3.1.5 Any representation or warranty made in writing by the
Guarantor in this Guaranty, or in any certificate or written disclosure
delivered in connection with this Guaranty shall prove to have been false or
incorrect in any material respect on the date of such representation or
warranty.
3.1.6 Twenty-five percent (25%) (calculated excluding current
maturities of long-term debt) or more of Guarantor's current liabilities, less
any disputed amounts and other than current maturities of long-term debt, shall
remain unpaid for 45 days or more beyond the due date;
-61-
<PAGE>
3.1.7 Guarantor shall be in default in the observance or
performance of any other covenant, condition or agreement to be observed or
performed by Guarantor hereunder and such default shall continue for a period of
30 days after written notice from Lessor.
IV. MISCELLANEOUS
4.1 No provision of this Guaranty can be changed, waived, discharged or
terminated except by an instrument in writing by Lessor and Guarantor expressly
referring to the provision of this Guaranty to which such instrument is related,
and no such waiver shall extend to, affect or impair any right with respect to
any liability or obligation which is not expressly dealt with therein. No
course of dealing or delay or omission on the part of Lessor in exercising any
right or remedy hereunder, shall operate as a waiver thereof or otherwise be
prejudicial thereto. The rights and remedies of Lessor hereunder are cumulative
and not exclusive of any other rights and remedies under any other guaranty by
Guarantor or under applicable law, and all such rights and remedies may be
exercised singly or concurrently.
4.2 The Guarantor shall provide financial reports as required by Section
4.4.5 of the Lease.
4.3 This Guaranty shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts and shall be binding upon
Guarantor and its successors and assigns, and shall inure to the benefit of
Lessor and its successors and assigns.
4.4 This Guaranty can be assigned by Lessor if the Lease is assigned
pursuant to its terms and shall be fully enforceable to the same extent as if
made to Lessor's assignee. This Guaranty cannot be assigned by Guarantor without
the prior written consent of Lessor.
4.5 All capitalized terms not otherwise defined herein shall have the
meaning given to such terms in the Lease.
4.6 Guarantor agrees that the federal and state courts located in the
Commonwealth of Massachusetts shall have non-exclusive jurisdiction to settle
any disputes which may arise out of or in connection with this Guaranty.
4.6.1 Guarantor hereby waives any objection on the grounds of
inconvenient forum to any proceedings which relate to this Guaranty being
brought in the courts located in the Commonwealth of Massachusetts.
4.7 All demands, notices and other communications pursuant to or relating
to this Guaranty shall be in writing and shall be
-62-
<PAGE>
delivered in hand by courier or other means, or sent by registered air mail with
postage prepaid, or by telex or telefax with receipt confirmed by answerback or
other means, addressed as follows:
(a) If to Lessor:
First Security Bank of Utah, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier: (801) ( 246-5799
with copies to:
American Finance Group
98 North Washington Street
Boston, Massachusetts 02114
Attention: President
Telecopier: (617) 523-1410
(b) If to Guarantor:
Columbia Sussex Corporation
207 Grandview Drive
Fort Mitchell, Kentucky 41017
Attention: Joseph E. Marquet
Telecopier: (606) 331-6383
with copies to:
Winthrop, Stimson, Putnum & Roberts
1 Battery Park Plaza
New York, New York 10004
Attention: Ruth J. Weinstein
Telecopier: (212) 858-1500
or such other address as either party shall designate in a written notice to the
other party hereto. Any notice provided for herein shall be deemed to have been
effected when delivered in hand to an officer of the addressee, or if sent by
registered air mail or by courier or other similar means and if properly
addressed, either when received or on the seventh day following
-63-
<PAGE>
the day of dispatch, which shall occur earlier. Notices sent by telex or
telefax shall be deemed to have been received when receipt is confirmed.
IN WITNESS WHEREOF Guarantor has executed this Guaranty by its duly
authorized representative as of the date first above written.
GUARANTOR:
COLUMBIA SUSSEX CORPORATION
By: [SIGNATURE NOT LEGIBLE]
---------------------------
Title: Vice President Finance
-------------------------
ACKNOWLEDGED AND ACCEPTED BY:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION, not in
its individual capacity but
solely as Trustee of the
AFG/Northwest Airlines 1989-4
Trust"
By: [SIGNATURE NOT LEGIBLE]
--------------------------
Title: Asst. Vice President
------------------------
-64-
<PAGE>
LEASE SUPPLEMENT AND RECEIPT dated January 19, 1996 between FIRST
SECURITY BANK OF UTAH, N A., not in its individual capacity but solely as owner
trustee under that certain Trust Agreement 1989-4 dated as of December 13, 1989,
and amended as of March 1, 1990 (the "Lessor"), and Sunworld International
Airlines, Inc. (the "Lessee").
The Lessor and the Lessee have heretofore entered into that certain
Aircraft Lease Agreement dated as of January 1, 1996 (herein called the "Lease"
and the defined terms therein being hereinafter used with the same meanings),
relating to one Boeing model 727-251A aircraft, manufacturer serial number
21161. The Lease provides for the execution and delivery of a Lease Supplement
and Receipt.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, the Lessor and the Lessee hereby agree as follows:
A. THE LEASE. The Lease and all related Operative Documents to be
---------
executed by the Lessee have been duly authorized, executed and delivered by
Lessee and constitute valid, legal, binding, and enforceable agreements of
Lessee. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement and Receipt to the same extent as if fully
set forth herein. The parties confirm that the Delivery Date is the date of this
Lease Supplement and Receipt.
B. THE AIRCRAFT. The Lessee hereby certifies that the Aircraft
------------
described Schedule 1 hereto, consisting of 5 pages (including attachments) and
made a part hereof, and the Aircraft Documents described in Schedule 2 hereto,
consisting of 1 pages (including attachments) and made a part hereof, have been
delivered to the Lessee, inspected by the Lessee, and accepted under, and for
all purposes of, the Lease, all on the date hereof. Any qualifications to the
return conditions set forth in Lease Section 6 are attached hereto in Schedule
3. Lessee accepts delivery of the Aircraft WAS IS," "WHERE IS," AND SUBJECT TO
EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET FORTH IN SECTION
4.3 OF THE LEASE.
C. REPRESENTATIONS BY THE LESSEE. The Lessee hereby represents and
-----------------------------
warrants to the Lessor that on the date hereof:
1. The representations and warranties of the Lessee set forth in the
Lease are true and correct in all material respects as though made on and
as of the date hereof.
2. The Lessee has satisfied or complied with all requirements set
forth in the Lease to be satisfied or complied with on or prior to the date
thereof.
<PAGE>
3. No default or Event of Default under the Lease has occurred and is
continuing on the date hereof.
4. The Lessee has obtained, and there are in full force and effect, such
insurance policies with respect to the Aircraft as are required to be obtained
under the terms of the Lease.
This Lease Supplement and Receipt may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
Supplement and Receipt to be duly executed as of the date and year first above
written.
FIRST SECURITY BANK OF UTAH, National Association,
not in its individual capacity but solely
as Owner Trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and amended as of March 1, 1990, the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence O. Dennison
By: Terence O. Dennison
Title:Executive Vice President
Page 48 of 56
<PAGE>
SCHEDULE 1 TO LEASE SUPPLEMENT AND RECEIPT: AIRCRAFT DESCRIPTION
- ----------------------------------------------------------------
Airframe: Boeing model 727-25lA, serial number 21161, Us
registration N282US
Total hours: 50598:33 Total cycles: 35609
Time since C check: 0 Time since D check: 0
Engine No.1: Pratt & Whitney model JT8D-15A engine, manufacturer
serial number 696253.
See. Attached disk sheet dated 9/15/95, 1995
- ---
Engine No. 2: Pratt & Whitney model JT8D-15-A engine, manufacturer
serial number 696520.
See. Attached disk sheet dated 10/10/95, 1995
- ---
Engine No. 3: Pratt & Whitney model JT8D-15-A engine, manufacturer
serial number 695260.
See. Attached disk sheet dated 10/10/95, 1995
Landing gear time since overhaul: L9309 hours, R6 hours, N17779 hours.
Auxiliary power unit: manufacturer Garrett serial number P36543. Time since hot
section inspection: 0
Avionics (specified by manufacturer): see attachment consisting of 3 pages. See
attachment A.
Interior configuration: 164 seats coach
Loose equipment: [SPECIFY GALLEY EQUIPMENT, EXTRA SEATS, ETC.] see
attachment B.
<TABLE>
<CAPTION>
*1 *2
------- -------
<S> <C> <C> <C>
operating weights: Maximum ramp weight: 177,500 187,500
Maximum gross take-off weight: 176,500 186,500
Maximum landing weight: 150,000 150,000
Zero fuel weight: 138,000 141,000
</TABLE>
*1 As delivered
*2 Weight per lease, awaiting FAA Engineering approval.
<PAGE>
SCHEDULE 2 TO LEASE SUPPLEMENT AND RECEIPT: AIRCRAFT DOCUMENTS
- --------------------------------------------------------------
AIRCRAFT DOCUMENTS CHECKLIST
1. Avionics Installation List
2. Original Manufacturer's Inventory List
3. Current Component Inventory List (Northwest)
4. Service Bulletin (SB) Accomplishment List (Northwest)
5. Record of last Compass Swing
6. List of Oils and Fluids
7. FAA Approved Airplane Flight Manual (AFM)
8. Manufacturer's Flight Crew Operating Manual (FCOM) (Northwest)
9. Releasing Operator's Flight Crew Operating Manual (Northwest)
10. Weight and Balance Manual; last weighing
11. Minimum Equipment List (MEL) (Northwest)
12. MEL Procedures manual (Northwest)
13. Maintenance Manuals (Northwest)
14. Wiring Diagram Manual; Termination and Equipment Lists (Northwest)
15. Structural Repair Manual (SRM) (Northwest)
16. Illustrated Parts Catalog (IPC) (Northwest)
17. Aircraft/Cockpit Log Books (Northwest)
18. Engine Log Books (Northwest)
19. Auxiliary Power Unit (APU) Log Book (Northwest)
20. Current, or last, Airworthiness Certificate
21. Current, or last, Registration
22. Current, or last, Radio License
23. Supplemental Type Certificates (STC)
24. Certificate of Sanitary Construction, Galleys
25. Modification Records
26. Form 337, major Repair and Alteration
27. Major and Minor Repair Records
28. Airworthiness Directive (AD) Accomplishment List
29. Airworthiness Directive (AD) Records and Documentation
30. Time Controlled Component (TCC) List, history and status (Northwest)
31. Life Limited Part (LLP) List, history and status (Northwest)
32. Scheduled Maintenance Check Status
33. Total Time and Cycle Justification
34. Maintenance Records
35. Performance Manual (Northwest)
36. Quick Reference Manual (Northwest)
<PAGE>
SCHEDULE 3 TO LEASE SUPPLEMENT AND RECEIPT;
-------------------------------------------
QUALIFICATIONS TO RETURN CONDITIONS
-----------------------------------
Lessor and Lessee hereby agree that the following particulars of the
condition of the Aircraft shall be qualification s to the return conditions set
forth in Section 6 of the Lease.
See Attachment C
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Schedule 3 to Lease Supplement and Receipt to be duly executed as of January __,
1996.
FIRST SECURITY BANK OF UTAH, National Association,
not in its individual capacity but solely
as Owner Trustee under that certain Trust Agreement
"AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and amended as of March 1, 1990, the Lessor
/s/ Greg A. Hawley
By: Greg A. Hawley
Title: Assistant Vice President
SUNWORLD INTERNATIONAL AIRLINES, INC.
the Lessee
/s/ Terence O. Dennison
By: Terence O. Dennison
Title: Executive Vice President
Page 51 of 56
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Lower Yew Damper Computer Sperry 4030952-901 77090124
- -------------------------------------------------------------------------------------------------------------
Audio Accessory Unit Bac 65-5280438 R00032
- -------------------------------------------------------------------------------------------------------------
GPW Computer Bendix 2041033-8313 1043
- -------------------------------------------------------------------------------------------------------------
Passenger Address Collins 522-4538-002 6376
- -------------------------------------------------------------------------------------------------------------
ADF Receiver Bendix 2087786-7302 4214
- -------------------------------------------------------------------------------------------------------------
VHF Transceiver #1 Collins 618M-3 8416
- -------------------------------------------------------------------------------------------------------------
VHF Transceiver #2 Collins 618M-3 6921
- -------------------------------------------------------------------------------------------------------------
Radio Altimeter Bendix 2067631-5315 5431
- -------------------------------------------------------------------------------------------------------------
Autopilot Access. Bac 65-24917-72 R00010S
- -------------------------------------------------------------------------------------------------------------
Pitch Control Channel (SP-50) Sperry 2585804-4 0191616
- -------------------------------------------------------------------------------------------------------------
Static Inverter Bendix 39B168 B 1099
- -------------------------------------------------------------------------------------------------------------
Upper Yaw Damper Coupler Sperry 2588880-901 0190872
- -------------------------------------------------------------------------------------------------------------
ATC Transponder Mode C Collins 787-6211-003 2078
- -------------------------------------------------------------------------------------------------------------
Roll Control Channel (SP-150) Sperry 4030951-901 80040705
- -------------------------------------------------------------------------------------------------------------
Fire & Overheat Detection Unit Bac 65-24920-3 R00601
- -------------------------------------------------------------------------------------------------------------
Temperature Controller Sundstrand 1548376-5 67C-859
- -------------------------------------------------------------------------------------------------------------
Anti-skid Control Unit Bac 10-61853-11 217C
- -------------------------------------------------------------------------------------------------------------
Air Data Computer Sperry HG180U255 A-892/70
- -------------------------------------------------------------------------------------------------------------
Vertical Gyro Aux. Sperry 2587335-12 9024865
- -------------------------------------------------------------------------------------------------------------
Transformer Rectifier APU Elden Dl0-60011-2 740
- -------------------------------------------------------------------------------------------------------------
General Protection Panel APU Westinghouse 904F242-5 UB7895M
- -------------------------------------------------------------------------------------------------------------
Voltage Regulator APU Westinghouse 939D150-2 XA5009
- -------------------------------------------------------------------------------------------------------------
Bus Protection Panel Westinghouse 902F283-2 ZW1108A
- -------------------------------------------------------------------------------------------------------------
Transformer Rectifier Ext Power Elden D10-600l1-2 7447530
- -------------------------------------------------------------------------------------------------------------
Frequency and Load Controller #2 G.E. 700662A 2709
- -------------------------------------------------------------------------------------------------------------
Frequency and Load Controller #3 G.E. 700662A 3380
- -------------------------------------------------------------------------------------------------------------
Directional Gyro #2 Sperry 2588302-2 78032190
- -------------------------------------------------------------------------------------------------------------
Vertical Gyro #2 Sperry 2587335-11 6088944
- -------------------------------------------------------------------------------------------------------------
Vertical Gyro #1 Sperry 2587335-11 7052215
- -------------------------------------------------------------------------------------------------------------
GPW Pressure Rate Sensor Collins 66-3444-9-00l 01215
- -------------------------------------------------------------------------------------------------------------
Battery Charger Ledec 2-301-3 3736
- -------------------------------------------------------------------------------------------------------------
Autospeed Brake Controller Bac 65-8409-1 M00019
- -------------------------------------------------------------------------------------------------------------
VHF Transceiver Aux Bendix 2070945-4301 1965
- -------------------------------------------------------------------------------------------------------------
Marker Receiver Bendix MKA-280 1679
- -------------------------------------------------------------------------------------------------------------
ILS Receiver #2 Collins 522-4280-102 4793
- -------------------------------------------------------------------------------------------------------------
ILS Receiver #1 Collins 522-4280-102 B1794
- -------------------------------------------------------------------------------------------------------------
DME #1 Collins 622-2920-001 6497
- -------------------------------------------------------------------------------------------------------------
DME #2 Collins 622-2920-001 6503
- -------------------------------------------------------------------------------------------------------------
Comparator Warning Monitor Collins 522-3948-002 322
- -------------------------------------------------------------------------------------------------------------
Flight Instrument Accessory Unit Bac 65-60214-36 R00149
- -------------------------------------------------------------------------------------------------------------
Steering Computer #1 Collins 562A-5F4 1104
- -------------------------------------------------------------------------------------------------------------
Steering Computer #2 Collins 562A-5F4 1403
- -------------------------------------------------------------------------------------------------------------
Instrument AMP #1 Collins 522-3120-005 2757
- -------------------------------------------------------------------------------------------------------------
Instrument AMP #2 Collins 522-3120-004 791
- -------------------------------------------------------------------------------------------------------------
Window Heat Control R1 Pacific 231-2 2678
- -------------------------------------------------------------------------------------------------------------
Window Heat Control R2 Pacific 65-52803-8 R02557
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 1 of 3
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Window Heat Control L1 Pacific 231-2 3670
- --------------------------------------------------------------------------------------------------------------
Window Heat Control L2 Pacific 231-2 4412
- --------------------------------------------------------------------------------------------------------------
Landing Gear Accessory Unit Bac 65-60211-32 00095
- --------------------------------------------------------------------------------------------------------------
Compass System Rack #2 Sperry 614937-1C1 8057427A
- --------------------------------------------------------------------------------------------------------------
Compass System Rack #1 Sperry 614937-1CI 5040270A
- --------------------------------------------------------------------------------------------------------------
LILS Receiver Aux Collins 522-4280-105 B638
- --------------------------------------------------------------------------------------------------------------
Flight Director Indicator F/O Collins 522-3752-001 140
- --------------------------------------------------------------------------------------------------------------
Course Director Indicator F/O Collins 522-3342-001 27
- --------------------------------------------------------------------------------------------------------------
Servo Altimeter F/O Smith WL708AMFAZ AE151
- --------------------------------------------------------------------------------------------------------------
Radio Altimeter F/O Bendix INA-51A 7409
- --------------------------------------------------------------------------------------------------------------
VSI/TRA Indicator F/O Honeywell 4067241-860 42046
- --------------------------------------------------------------------------------------------------------------
VSI Pressure Transducer F/O Honeywell 4067487-901 91020508
- --------------------------------------------------------------------------------------------------------------
Pressure Ration Indicator #1 G.E. JG298A4 E-256
- --------------------------------------------------------------------------------------------------------------
Pressure Ration Indicator #2 G.E. JG298A4 D-351
- --------------------------------------------------------------------------------------------------------------
Pressure Ration Indicator #3 G.E. JG298A4 E-195
- --------------------------------------------------------------------------------------------------------------
N1 Indicator #1 G.E. DJ8I-WAG4 V0087
- --------------------------------------------------------------------------------------------------------------
N1 Indicator #2 G.E. 8DJ8I-WAG4 S0177
- --------------------------------------------------------------------------------------------------------------
N1 Indicator #3 G.E. 8DJ81-WAG4 S3930
- --------------------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #1 Lewis 152BL801E 62
- --------------------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #2 Lewis 152BL801E 624
- --------------------------------------------------------------------------------------------------------------
Exhaust Gas Temperature #3 Lewis 152BL801E 656
- --------------------------------------------------------------------------------------------------------------
N2 Indicator #1 G.E. 8DJ81-LXHU L3766
- --------------------------------------------------------------------------------------------------------------
N2 Indicator #2 G.E. 8DJ81-LYV4 R629l
- --------------------------------------------------------------------------------------------------------------
N2 Indicator #3 G.E. 8DJ81-LYV4 R5893
- --------------------------------------------------------------------------------------------------------------
Fuel Flow Indicator #1 G.E. 8DJ88-LWC B987
- --------------------------------------------------------------------------------------------------------------
Fuel Flow Indicator #2 G.E. 8DJ88-LWC 00265
- --------------------------------------------------------------------------------------------------------------
Fuel Flow Indicator #3 G.E. 8DJ88-LWC M0350
- --------------------------------------------------------------------------------------------------------------
Outboard Flap Position Indicator Memoor 18-1299-3 0574AN
- --------------------------------------------------------------------------------------------------------------
Inboard Flap Position Indicator Memoor 18-1299-21 6299
- --------------------------------------------------------------------------------------------------------------
Autopilot Capture Indicator F/O Bac 75-0149-77 2367
- --------------------------------------------------------------------------------------------------------------
Airspeed Indicator F/O Kollsman A3615910057 1392
- --------------------------------------------------------------------------------------------------------------
Clock Indicator F/O Wakemann 651-12-24-15 1222
- --------------------------------------------------------------------------------------------------------------
Machmeter F/O Bac 10-60713-1 NT989
- --------------------------------------------------------------------------------------------------------------
ADF/VOR Compass RMI F/O Sperry CI-600 3070877
- --------------------------------------------------------------------------------------------------------------
Pneumatic Brake Pressure Indicator US Gage SRL-07AM 5739
- --------------------------------------------------------------------------------------------------------------
Hydraulic Brake Pressure Indicator US Gage SRL-07CA 5830
- --------------------------------------------------------------------------------------------------------------
DME Indicator F/O Collins 522-1859-033 4018
- --------------------------------------------------------------------------------------------------------------
Airspeed Indicator Capt Kollsman A3615910057 1360
- --------------------------------------------------------------------------------------------------------------
Compass ADF/VOR RMI Capt Sperry CI-600 24
- --------------------------------------------------------------------------------------------------------------
Clock Indicator Capt Wakerman 651-12-24-15 1219
- --------------------------------------------------------------------------------------------------------------
Machmeter Capt Bac 10-60713-1 NT1156
- --------------------------------------------------------------------------------------------------------------
DME Indicator Capt Collins 522-1559-033 C8002
- --------------------------------------------------------------------------------------------------------------
Flight Director Indicator Capt Collins 522-3752-001 135
- --------------------------------------------------------------------------------------------------------------
Course Director Indicator Capt Collins 522-3342-001 446
- --------------------------------------------------------------------------------------------------------------
Autopilot Capture Indicator Capt Bac 75-0149-77 2371
- --------------------------------------------------------------------------------------------------------------
Rad/Alt Indicator Capt Bendix INA-51A 01988
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 2 of 3
<PAGE>
SUNWORLD INTERNATIONAL AIRLINES
Attachment A
AVIONICS LISTING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NOMENCLATURE POS MANUFACTURER PART NUMBER SERIAL NUMBER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Baro-Altimeter Capt Kollsman A3811910008 1752
- --------------------------------------------------------------------------------------------------------------
Total Air Indicator Capt Lewis 161BL501 B545
- --------------------------------------------------------------------------------------------------------------
Servo Altimeter Capt Smith WL1152AM8 AE968
- --------------------------------------------------------------------------------------------------------------
VSI/TRA Indicator Capt Honeywell 4067241-860 11532
- --------------------------------------------------------------------------------------------------------------
VSI Pressure Transducer Capt Honeywell 4067487-901 91010491
- --------------------------------------------------------------------------------------------------------------
Standby Horizon Indicator Stena 705-7V9 19728
- --------------------------------------------------------------------------------------------------------------
Altitude Alert Honeywell JG1052AAO3 U-12
- --------------------------------------------------------------------------------------------------------------
Elevator & Rudder Position Indicator Sperry 248541 00286
- --------------------------------------------------------------------------------------------------------------
Radar Indicator Bendix 66-3442-9-0002 03141
- --------------------------------------------------------------------------------------------------------------
VOR/DME Control Panel Capt Gables G-4578 138
- --------------------------------------------------------------------------------------------------------------
ADF Control Panel Capt Bendix 2087780-7308 3141
- --------------------------------------------------------------------------------------------------------------
Radar Control Panel Gables G-4104 96
- --------------------------------------------------------------------------------------------------------------
Flight Director Control Panel Capt Collins 777-1253-001 102
- --------------------------------------------------------------------------------------------------------------
Instrument Warning Capt Gables G-2662 27
- --------------------------------------------------------------------------------------------------------------
Transponder Control Panel F/O Gables G-6993-03 00214
- --------------------------------------------------------------------------------------------------------------
Lighted Flight Counter Dexter-Wilson 600 4275
- --------------------------------------------------------------------------------------------------------------
Flight Director Control Panel F/O Collins 777-1253-001 47
- --------------------------------------------------------------------------------------------------------------
VOR/DME Control Panel F/O Gables G-4578 86
- --------------------------------------------------------------------------------------------------------------
Frequency and Load Controller #1 G.E. 700662B 3798
- --------------------------------------------------------------------------------------------------------------
Voltage Regulator #1 Westinghouse 939D150-2 UW3601M
- --------------------------------------------------------------------------------------------------------------
Voltage Regulator #2 Westinghouse 939D150-2 SB5430
- --------------------------------------------------------------------------------------------------------------
Voltage Regulator #3 Westinghouse 939D150-2 PY3961M
- --------------------------------------------------------------------------------------------------------------
Transformer/Rectifier #1 Bac 10-3257-3 5474
- --------------------------------------------------------------------------------------------------------------
Transformer/Rectifier #2 Bac 10-3257-3 5205
- --------------------------------------------------------------------------------------------------------------
Transformer/ Rectifier #3 Bac 10-3257-3 5256
- --------------------------------------------------------------------------------------------------------------
General Protection Panel #3 Westinghouse 902F242-5 OB7667
- --------------------------------------------------------------------------------------------------------------
General Protection Panel #2 Westinghouse 902F242-5 UJ599M
- --------------------------------------------------------------------------------------------------------------
General Protection Panel #1 Westinghouse 902F242-5 RO3532
- --------------------------------------------------------------------------------------------------------------
TCAS Processor Honeywell 4066010-904 91020299
- --------------------------------------------------------------------------------------------------------------
Transponder Mode S Collins TPR-720 1741
- --------------------------------------------------------------------------------------------------------------
Radar Transceiver Bendix 66-3442-9-0004 02329
- --------------------------------------------------------------------------------------------------------------
Main Battery Sonotone CA-727-3 120406
- --------------------------------------------------------------------------------------------------------------
Flight Data Recorder Sundstrand 980-4100-GQUS 8378
- --------------------------------------------------------------------------------------------------------------
Accelerometer Sundstrand 3001-01-101-2 9510-2132
- --------------------------------------------------------------------------------------------------------------
Windshear Computer Honeywell 4061048-904 90040242
- --------------------------------------------------------------------------------------------------------------
Windshear Switching Unit ASM 103006-001-01 134
- --------------------------------------------------------------------------------------------------------------
Windshear Switching Unit ASM 103006-001-01 109
- --------------------------------------------------------------------------------------------------------------
Selcal Encoder Motorola NA135PH50 Unk
- --------------------------------------------------------------------------------------------------------------
Selcal Control Panel Gables G1402 85
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Revision: IR Section: Avionics Listing
Revision Date: 11/1/95 Page 3 of 3
<PAGE>
ATTACHMENT B
------------
Loose Equipment:
- ---------------
1 each Right Hand Coat Closet
1 each Left Hand Movable Bulkhead
1 each Left Hand Triple Seat Assy
6 each First Class Seat Assys
2 each Galley Carts
9 each Oven Tray Carriers with 54 Trays
12 each Large Carriers
6 each Small Carriers
6 each Coffee Pots
4 each Trash Cans
<PAGE>
ATTACHMENT C
------------
1. External doubler at Left cockpit sliding window
2. External doubler at Left windshield
3. External doubler at Right cockpit sliding window
4. Dent in fuselage above #3 Left cockpit window
5. Minor dents in fuselage AFT of Left main door
6. 7 each external doublers inside #2 engine S duct
7. External doubler station 440 lower Left side fuselage skin
8. Deep scratch station 650 lower Left Side fuselage skin
9. Latches for external air conditioning connection damaged
10. External repair #1 Left leading edge flap
11. Dent in #1 Left leading edge flap center
12. External repair #2 Left leading edge flap
13. External repair #3 Left leading edge flap
14. External repair inboard of Left wing fuel vent box on inspection plate
15. External repair outboard flap jack screw cover
16. Dent in left outboard trailing edge flap 18 inches
from inboard bottom end
17. Left inboard flap has dent bottom side 12 inches from outboard end -
Also dents between flap fairings
18. External repair on fuselage at Left rear service door at station 1030
19. External repair at Left rear service door station 1070
20. #1 Engine Thrust Reverser does not have speed kit installed
21. Right leading edge inboard flap has 3 external repairs
22. Right leading edge outboard flap has external repair
23. #7 leading edge slat Right wing has external repair
24. Right wing outboard flap has dent bottom of flap 18 inches from outboard
end. Also dent between flap fairings
25. External doubler on top Right wing middle ground spoiler
26. Several dents on inboard flap top trailing edge inboard end
27. External doubler Right side fuselage at 3rd window behind rear emergency
window
28. External doubler Right side fuselage at 5th window behind rear emergency
window
29. Several dents on inboard flap bottom side trailing edge inboard end and
between flap fairings
30. Two external repairs on bottom of AFT stair
31. Overhead panel row 8 center retension is broken out
and covered with metal peace
32. Seats 29F, 30D & E do not have tray tables
<PAGE>
GUARANTY AGREEMENT
This Guaranty Agreement ("Guaranty) dated as of January 19, 1996, is made
--
by Columbia Sussex Corporation a corporation organized under the laws of
Kentucky ("Guarantor").
WITNESSETH :
WHEREAS, FIRST SECURITY BANK OF UTAH, National Association, ("Lessor"), a
national banking association organized and existing under the laws of the United
States, not in its individual capacity but solely as owner trustee under that
certain Trust Agreement "AFG/Northwest Airlines 1989-4 Trust" dated as of
December 13, 1989, and Amended as of March 1, 1990, has agreed to enter into
that certain Aircraft Lease Agreement dated as of January 19, 1996 (the "Lease")
--
pursuant to which it is to lease the Aircraft defined therein to SUNWORLD
INTERNATIONAL AIRLINES, INC., a Kentucky corporation ("Lessee"), and
WHEREAS, Lessor has agreed to enter into the Lease with Lessee but only if
Lessee's obligations under the Lease are guaranteed by Guarantor.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lessor, as requested by Guarantor, to enter into the Lease, Guarantor does
hereby represent, covenant and agree with Lessor as follows:
I. GUARANTY OBLIGATIONS
1.1 Guarantor hereby absolutely and unconditionally guarantees to Lessor,
the punctual and faithful payment and performance of all of the Liabilities (as
hereinafter defined) of Lessee to Lessor under the Lease (whether such
Liabilities are now existing or arise hereafter); and the strict performance and
observance by Lessee of all of the terms, covenants and conditions contained in
the Lease. As used herein, the term "Liabilities" includes, without limitation,
any and all Basic Rent, Supplemental Rent and undertakings of Lessee to Lessor
of every kind and description under the Lease (including, also, without
limitation, reasonable costs and expenses incurred by the Lessor in attempting
to collect or enforce any of the foregoing including reasonable attorneys' fees)
including interest on any such amounts accrued in each case from the due date
thereof to the date payment is received by Lessor provided, however, interest
--------- -------
due Lessor hereunder as Supplemental Rent shall not also be payable to Lessor a
second time because of the provisions of this sentence.
<PAGE>
1.2 This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance by Lessee of the Liabilities and
not of their collectibility only. The liabilities and obligations of Guarantor
hereunder may be enforced without any suit or action against Lessee or any other
guarantor of any of the Liabilities, without regard or resort to any security or
other means of obtaining payment of the Liabilities which Lessor may now or
hereafter have or hold, and without the performance or occurrence of any other
condition or contingency whatsoever; provided, however, that the exercise or
attempted exercise, at any time or times, of any or all of such rights and
remedies as Lessor may have against Lessee, or with respect to any security for
liabilities or under any other guaranty of Liabilities shall not affect, reduce,
modify or impair, in any manner whatsoever, the liabilities and obligations of
the Guarantor hereunder, except and to the extent Lessor has received payment or
performance of such Liabilities of Lessee. Guarantor hereby unconditionally
waives to the fullest extent permitted by law (except to the extent specifically
provided in this Guaranty) demand, or notice of any nature. Payments by
Guarantor hereunder shall be unlimited in amount with respect to its guaranty of
the Liabilities, as defined above.
1.3 Guarantor hereby waives any and all suretyship defenses and defenses
in the nature thereof; and agrees that enforcement of this Guaranty shall not be
affected, reduced, modified or impaired by any dealing by Lessor with Lessee or
anyone else who may now or hereafter become liable in any manner for any of the
Liabilities, in such manner as Lessor, in its sole discretion, may deem fit,
except to the extent that Lessor has waived or released in writing any
Liabilities and except and to the extent Lessor has received payment or
performance of such Liabilities by Lessee. If for any reason, Lessee has no
legal existence or is under no legal obligation to discharge any of the
Liabilities; or if, by operation of law or for any other reason, moneys included
in the Liabilities have become irrecoverable from Lessee, or if any security for
any of the Liabilities or if any other guaranty thereof is invalid, defective or
unenforceable, this Guaranty shall be binding upon Guarantor to the same extent
as if Guarantor were at all time primarily obligated on the Liabilities.
1.4 No setoff, counterclaim, reduction or diminution of any Liabilities,
or any defense of any kind or nature, which Guarantor has or may have against
Lessee, shall be available hereunder to Guarantor against Lessor.
1.5 This Guaranty shall remain in full force and effect regardless of any
payment hereunder or of any reduction in, or modification or alteration of the
Liabilities, until such time as
-2-
<PAGE>
all Liabilities not waived or released by Lessor in writing and all liabilities
and obligations of Guarantor hereunder have been paid and performed in full.
Guarantor's obligations under this Guaranty shall be immediately extinguished
upon the full, complete and faithful performance by Lessee of all of its
Liabilities. So long as this Guaranty remains in force, as aforesaid, Guarantor
will not, (x) by paying any sum recoverable hereunder (whether or not demanded
by the Lessor) or by any means or on any other ground, claim any set-off or
counterclaim against Lessee in respect of any liability of Guarantor to Lessee
or, (y) in bankruptcy or insolvency proceedings of any nature, prove in
competition with Lessor in respect of any payment hereunder or in any such
proceeding be entitled to have the benefit of any counterclaim or proof of claim
or dividend or payment by or on behalf of Lessee or the benefit of any other
security for any of the Liabilities which, now or hereafter, Lessor may hold or
in which it may have any share. All payments by Guarantor hereunder shall be
made in lawful money of the United States of America in immediately available
funds and, so long as the person or entity entitled thereto is a United States
person within the meaning of the Internal Revenue Code, without any deduction or
withholding of any kind.
1.6 Guarantor hereby confirms that this Guaranty shall remain in full
force and effect notwithstanding that:
(a) the obligations of the Lessee under the Lease are discharged,
extinguished, terminated, rescinded, avoided or suspended
(whether pursuant to any provision of the Lease or otherwise) by
virtue of any breach on the part of the Lessee, under the
doctrine of frustration, as a result of the liquidation of the
Lessee or any action taken in such liquidation (for example, a
disclaimer), except by payment or performance thereof; or
(b) subject to the provisions of the Lease, performance of the Lease
by the Lessee becomes impossible or illegal;
and, in particular, the Lessor shall be entitled to recover under this Guaranty
in respect of any payment or obligation (including any obligation of paying
interest) which the Lessor would have received under the Lease but for the
occurrence of any of the circumstances described in subsections (a) or (b)
above.
1.7 If the Lease is disclaimed in a liquidation of the
Lessee :
(a) so long as any amounts or obligations then due from the Guarantor
under this Guaranty remain unpaid or unperformed, as the case may
be, the
-3-
<PAGE>
Guarantor shall not, in respect of any payment which it makes or
any liability which it has, under this Guaranty or the Lease,
claim any amount from the Lessee, make or enforce any security
against any asset of the Lessee, or claim any set off against any
sum from it to the Lessee; and
(b) the Guarantor shall not, in respect of such payment or liability,
prove in the liquidation of the Lessee, except that, if the
Guarantor shall have paid and/or performed all of its obligations
then due hereunder, it shall be subrogated to all rights of
Lessor against Lessee, and the Guarantor may, by exercise of that
statutory right, prove for any loss or damage suffered by the
Lessor, and otherwise as its interests may appear.
II. REPRESENTATIONS AND WARRANTIES
Guarantor hereby represents and warrants to Lessor as follows :
2.1 (a) Guarantor is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Kentucky, is duly qualified
to do business and in good standing in each jurisdiction where the character of
its business and the ownership of its property, as now conducted or owned or as
proposed to be conducted or owned, requires such qualification;
(b) The execution, delivery and performance by Guarantor of this
Guaranty have been duly authorized by all necessary corporate action on the part
of the Guarantor, are not inconsistent with its Certificate of Incorporation or
By-Laws, do not violate any law or governmental rule, regulation or order
applicable to Guarantor, do not and will not contravene any provision of, or
constitute a material default under, any indenture, mortgage, contract or other
instrument to which it is bound and, upon execution and delivery hereof, will
constitute a legal, valid and binding agreement of Guarantor, enforceable in
accordance with its terms;
(c) No consent or approval by governmental authority or agency is
required with respect to the execution, delivery and performance by Guarantor of
this Guaranty;
(d) There are no litigations or proceedings pending against it not
covered by insurance which, if adversely determined, would have a materially
adverse effect on Guarantor or would prevent or hinder the performance by it of
its obligations hereunder;
-4-
<PAGE>
2.2 Guarantor will provide an opinion of its counsel confirming (subject
to standard exceptions) that:
(a) Guarantor is a corporation duly incorporated, validly existing,
in good standing and is duly qualified to do business under the laws of the
Commonwealth of Kentucky,
(b) The execution, delivery and performance of Guarantor of this
Guaranty have been duly authorized by all necessary corporate action on the part
of Guarantor, are not inconsistent with its Certificate of Incorporation or By-
Laws, do not violate any law or governmental rule, regulation or order
applicable to Guarantor and this Guaranty is the legal, valid and binding
agreement of the Guarantor, enforceable in accordance with its terms;
(c) No consent or approval by any governmental authority or agency of
the United States or the Commonwealth of Kentucky is required with respect to
the execution, delivery and performance by Guarantor of this Guaranty.
III. DEFAULT
3.1 The following described events shall constitute "Events of Default"
hereunder:
3.1.1 An "Event of Default" as defined in Section 13.3 of the
Lease shall occur and remain unremedied.
3.1.2 An "Event of Default" as defined in Sections 13.1 and 13.2
of the Lease shall occur and remain unremedied for a period of three Business
Days after written notice thereof to Guarantor;
3.1.3 An "Event of Default" as defined in Section 13.4, 13.5,
13.6, 13.7 and 13.8 of the Lease shall occur and remain unremedied for 10 days
following notice thereof from Lessor to Guarantor or such longer period of time
as is reasonably required to cure such Event of Default provided the Guarantor
is diligently attempting such cure and such default does not result in a
material risk to the Aircraft or Lessor's title thereto.
3.1.4 The Guarantor shall:
(a) admit its inability to pay its debts generally as they become due
or otherwise acknowledging its insolvency;
-5-
<PAGE>
(b) file a petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the Bankruptcy Code (or similar laws of the
United States of America, or any other jurisdiction which relates to the
liquidation or reorganization of companies or the modification or alteration of
the rights of creditors, each such law, as from time to time in effect, being
sometimes referred to as a "bankruptcy act", each as now or in the future
amended) or an answer or other pleading admitting or failing to deny the
material allegations of such a petition or seeking, consenting to or acquiescing
in the relief therein provided; or
(c) make an assignment, or so-called trust mortgage or the like, for
the benefit of its creditors or by its making a proposal to its creditors under
the bankruptcy act; or
(d) consent to the appointment of a receiver or trustee (or other
persons performing a similar function) for the Aircraft or for all or a
substantial part of its property; or
(e) be adjudicated a bankrupt; or
(f) suffer the entry of, or be the subject of, a court order for all
or a substantial part of its property which order shall not be vacated, set
aside, bonded, or stayed within 60 days from the date of entry; (i) appointing a
receiver or a trustee for all or a substantial part of its property, or (ii)
approving a petition filed or application made against it for, or effecting an
arrangement in bankruptcy or for a reorganization or other relief pursuant to
any bankruptcy act or for any other judicial modification or alteration of the
rights of creditors; or
(g) have all or a substantial part of its property taken into custody
or be sequestrated by a court of competent jurisdiction, which custody or
sequestration shall not be suspended or terminated within 60 days (or such
longer period as the Lessor may agree in writing) from it inception.
3.1.5 Any representation or warranty made in writing by the
Guarantor in this Guaranty, or in any certificate or written disclosure
delivered in connection with this Guaranty shall prove to have been false or
incorrect in any material respect on the date of such representation or
warranty.
3.1.6 Twenty-five percent (25%) (calculated excluding current
maturities of long-term debt) or more of Guarantor's current liabilities, less
any disputed amounts and other than current maturities of long-term debt, shall
remain unpaid for 45 days or more beyond the due date;
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3.1.7 Guarantor shall be in default in the observance or
performance of any other covenant, condition or agreement to be observed or
performed by Guarantor hereunder and such default shall continue for a period of
30 days after written notice from Lessor.
IV. MISCELLANEOUS
4.1 No provision of this Guaranty can be changed, waived, discharged or
terminated except by an instrument in writing by Lessor and Guarantor expressly
referring to the provision of this Guaranty to which such instrument is related,
and no such waiver shall extend to, affect or impair any right with respect to
any liability or obligation which is not expressly dealt with therein. No
course of dealing or delay or omission on the part of Lessor in exercising any
right or remedy hereunder, shall operate as a waiver thereof or otherwise be
prejudicial thereto. The rights and remedies of Lessor hereunder are cumulative
and not exclusive of any other rights and remedies under any other guaranty by
Guarantor or under applicable law, and all such rights and remedies may be
exercised singly or concurrently.
4.2 The Guarantor shall provide financial reports as required by Section
4.4.5 of the Lease.
4.3 This Guaranty shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts and shall be binding upon
Guarantor and its successors and assigns, and shall inure to the benefit of
Lessor and its successors and assigns.
4.4 This Guaranty can be assigned by Lessor if the Lease is assigned
pursuant to its terms and shall be fully enforceable to the same extent as if
made to Lessor's assignee. This Guaranty cannot be assigned by Guarantor without
the prior written consent of Lessor.
4.5 All capitalized terms not otherwise defined herein shall have the
meaning given to such terms in the Lease.
4.6 Guarantor agrees that the federal and state courts located in the
Commonwealth of Massachusetts shall have non-exclusive jurisdiction to settle
any disputes which may arise out of or in connection with this Guaranty.
4.6.1 Guarantor hereby waives any objection on the grounds of
inconvenient forum to any proceedings which relate to this Guaranty being
brought in the courts located in the Commonwealth of Massachusetts.
4.7 All demands, notices and other communications pursuant to or relating
to this Guaranty shall be in writing and shall be
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delivered in hand by courier or other means, or sent by registered air mail with
postage prepaid, or by telex or telefax with receipt confirmed by answerback or
other means, addressed as follows:
(a) If to Lessor:
First Security Bank of Utah, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier: (801) ( 246-5799
with copies to:
American Finance Group
98 North Washington Street
Boston, Massachusetts 02114
Attention: President
Telecopier: (617) 523-1410
(b) If to Guarantor:
Columbia Sussex Corporation
207 Grandview Drive
Fort Mitchell, Kentucky 41017
Attention: Joseph E. Marquet
Telecopier: (606) 331-6383
with copies to:
Winthrop, Stimson, Putnum & Roberts
1 Battery Park Plaza
New York, New York 10004
Attention: Ruth J. Weinstein
Telecopier: (212) 858-1500
or such other address as either party shall designate in a written notice to the
other party hereto. Any notice provided for herein shall be deemed to have been
effected when delivered in hand to an officer of the addressee, or if sent by
registered air mail or by courier or other similar means and if properly
addressed, either when received or on the seventh day following
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the day of dispatch, which shall occur earlier. Notices sent by telex or telefax
shall be deemed to have been received when receipt is confirmed.
IN WITNESS WHEREOF Guarantor has executed this Guaranty by its duly
authorized representative as of the date first above written.
GUARANTOR :
COLUMBIA SUSSEX CORPORATION
By: /s/ Joseph E, Marquet
-------------------------------
Title: Vice President-Finance
----------------------------
ACKNOWLEDGED AND ACCEPTED BY:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION, not in
its individual capacity but
solely as Trustee of the "AFG/Northwest
Airlines 1989-4 Trust"
By: /s/[SIGNATURE ILLEGABLE]
-------------------------------------
Title: Asst. Vice President
----------------------------------
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