<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|XX| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-21444
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AFG Investment Trust C
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3157232
- ----------------------------------------- -------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street, Sixth Floor, Boston, MA 02110
- ----------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
-----------------------------
Securities registered pursuant to Section 12(b) of the Act NONE
---------------------
Title of each class Name of each exchange on which registered
- ------------------------------- ----------------------------------------------
- ------------------------------- ----------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
2,011,014 Class A Trust Beneficiary Interests
- --------------------------------------------------------------------------------
(Title of class)
3,024,740 Class B Trust Beneficiary Interests
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
---- ----
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1998 (Part I and II)
<PAGE>
AFG Investment Trust C
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Trust's Securities and Related Security
Holder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of the Trust 9
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 15-16
2
<PAGE>
PART I
Item 1. Business.
(a) General Development of Business
AFG Investment Trust C (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust Act (the "Act") on August
31, 1992 for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. Participants' capital initially consisted of
contributions of $1,000 from the Managing Trustee, AFG ASIT Corporation, $1,000
from the Special Beneficiary, Equis Financial Group Limited Partnership
(formerly known as American Finance Group), a Massachusetts limited partnership
("EFG"), and $100 from the Initial Beneficiary, AFG Assignor Corporation, a
wholly-owned affiliate of EFG or the "Advisor". The Trust issued an aggregate of
2,011,014 Beneficiary Interests (hereinafter referred to as Class A Interests)
at a subscription price of $25.00 each ($50,275,350 in total) to 2,477 investors
through 9 serial closings commencing December 15, 1992 and ending September 2,
1993. On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00
each ($15,123,700 in total), of which (i) 3,019,220 interests are held by Equis
II Corporation, an affiliate of EFG, and (ii) 5,520 interests are held by 10
other Class A investors. The Trust repurchased 218,661 Class A Interests on
October 10, 1997 using proceeds from the issuance of Class B Interests. On April
28, 1998, the Trust repurchased 5,200 additional Class A Interests. Accordingly,
there are 1,787,153 Class A Interests currently outstanding.
The Trust has one Managing Trustee, AFG ASIT Corporation, a Massachusetts
corporation, and one Special Beneficiary, EFG. The Managing Trustee is
responsible for the general management and business affairs of the Trust. EFG
acts as Advisor to the Trust and provides services in connection with the
acquisition and remarketing of the Trust's assets. AFG ASIT Corporation is a
wholly-owned subsidiary of Equis II Corporation and an affiliate of EFG. Class A
Interests and Class B Interests basically have identical voting rights and,
therefore, Equis II Corporation has control over the Trust on all matters on
which the Beneficiaries may vote. The Managing Trustee and the Special
Beneficiary are not required to make any other capital contributions except as
may be required under the Second Amended and Restated Declaration of Trust, as
amended (the "Trust Agreement").
(b) Financial Information About Industry Segments
Historically, the Trust has been 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 undiscounted, noncancellable rents equal or
exceed the Purchase Price of the leased equipment. Operating leases are those in
which the aggregate undiscounted, noncancellable rental payments are less than
the Purchase Price of the leased equipment. In connection with the Solicitation
Statement and consent of Beneficiaries (see Note 9 to the financial statements
included in Item 14, herein), the prior Trust Agreement was modified to permit
the Trust to invest in assets other than equipment. In the future, the Managing
Trustee anticipates that the Trust will make new investments that have the
potential to enhance the Trust's overall economic performance for the benefit of
all of the Beneficiaries (see Note 12 to the financial statements included in
Item 14, herein). Industry segment data is not applicable.
(c) Narrative Description of Business
The Trust 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 Trust's primary investment objectives are to acquire and lease equipment
which will:
1. Generate monthly cash distributions;
2. Preserve and protect Trust capital; and
3. Maximize residual value for ultimate sale.
3
<PAGE>
The Trust has the additional objective of providing certain federal income
tax benefits.
Significant operations commenced coincident with the Trust's initial
purchase of equipment and associated lease commitments on December 15, 1992. 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. Pursuant to the
Trust Agreement, the Trust is scheduled to be dissolved by December 31, 2004.
The Trust is a Nominal Defendant in a Class Action Lawsuit, the resolution of
which remains pending. See Note 11 to the accompanying financial statements.
The Trust has no employees; however, it entered into a Advisory Agreement
with EFG. EFG'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 Advisor is compensated for such services as described in the
Trust Agreement, Item 13 herein, and in Note 4 to the financial statements
included in Item 14, herein.
The Trust's investment in equipment is, and will continue to be, subject
to various risks, including physical deterioration, technological obsolescence
and defaults by lessees. A principal business risk of owning and leasing
equipment is the possibility that aggregate lease revenues and equipment sale
proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
In addition, the leasing industry is very competitive. The Trust is subject to
considerable competition when equipment is re-leased or sold at the expiration
of primary lease terms. The Trust must compete with lease programs offered
directly by manufacturers and other equipment leasing companies, including
business trusts and limited partnerships organized and managed similarly to the
Trust 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 Trust. Many competitors have greater financial resources and more
experience than the Trust, the Managing Trustee and the Advisor. In addition,
default by a lessee under a lease agreement may cause equipment to be returned
to the Trust at a time when the Managing Trustee or the Advisor is unable to
arrange the sale or re-lease of such equipment. This could result in the loss of
a portion of potential lease revenues and weaken the Trust's ability to repay
related indebtedness.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is
incorporated herein by reference to Note 2 to the financial statements in the
1998 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
The Trust Agreement originally provided for the reinvestment of Cash From
Sales or Refinancings in additional equipment until September 2, 1997, a period
of four years following the Final Closing. In connection with the Solicitation
Statement and consent of Beneficiaries (see Note 9 to the financial statements
included in Item 14 herein), the Trust's reinvestment provisions were reinstated
until December 31, 2002 (see Note 4 to the financial statements included in Item
14 herein). In addition, the Trust is now permitted to invest in assets other
than equipment (see Note 12 to the financial statements included in Item 14,
herein). Upon the expiration of each primary lease term, the Managing Trustee
will determine whether to sell or re-lease the Trust's equipment, depending on
the economic advantages of each alternative. Over time, the Trust will begin to
liquidate its portfolio of equipment.
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Trust and several other
direct-participation equipment leasing programs sponsored or co-sponsored by AFG
(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.
4
<PAGE>
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, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for the
sole purpose of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Trust and the Other Investment Programs and to continue managing all assets
owned by the Trust and the Other Investment Programs.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not applicable.
Item 2. Properties.
Incorporated herein by reference to Note 3 to the financial statements in
the 1998 Annual Report.
Item 3. Legal Proceedings.
Incorporated herein by reference to Note 11 to the financial statements in
the 1998 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
5
<PAGE>
PART II
Item 5. Market for the Trust's Securities and Related Security Holder Matters.
(a) Market Information
There is no public market for the resale of the Interests and it is not
anticipated that a public market for resale of the Interests will develop.
(b) Approximate Number of Security Holders
At December 31, 1998, there were 1,946 record holders (1,935 Class A
Interests and 11 Class B Interests) in the Trust.
(c) Dividend History and Restrictions
Pursuant to Article VIII of the Trust Agreement, the amount of cash
distributions to be declared and paid to the Beneficiaries is determined on a
monthly basis. Each monthly distribution may vary in amount and the Managing
Trustee may, in its sole discretion, restrict or suspend distributions if it
believes such action to be in the best interests of the Trust. Each distribution
is made 90.75% to the Class A and Class B Beneficiaries, 8.25% to the Special
Beneficiary, and 1% to the Managing Trustee. Currently, there are no
restrictions that materially limit the Trust's ability to make distributions or
that the Trust believes are likely to materially limit future distributions. The
Trust expects to continue to make distributions on a monthly basis.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") must be distributed within 45 days after the
completion of each calendar month. Each Distribution is described in a statement
sent to the Beneficiaries.
Distributions, prior to Class B Payout (defined below), are allocated to
the Class A and Class B Beneficiaries as follows: first, 100% to the Class A
Beneficiaries up to $0.41 per Class A Interest; second, 100% to the Class B
Beneficiaries up to $0.164 per Class B Interest, reduced by the Class B
Distribution Reduction Factor (defined later herein); third, 100% to the Class A
Beneficiaries up to an additional $0.215 per Class A Interest; and fourth, until
Class B Payout has been attained, 80% to the Class B Beneficiaries and 20% to
the Class A Beneficiaries. After Class B Payout, all further distributions will
be made to the Class A Beneficiaries and the Class B Beneficiaries in amounts so
that each Class A Beneficiary receives, with respect to each Class A Interest,
an amount equal to 400%, divided by the difference between 100% and the Class B
Distribution Reduction Factor, of the amount so distributed with respect to each
Class B Interest. The Class B Distribution Reduction Factor means the percentage
determined as a fraction, the numerator of which is the aggregate amount of any
cash distributions paid to the Class B Beneficiaries as a return of their
original capital contributions (on a per Class B Subordinated Interest basis),
discounted at 8% per annum (commencing August 1, 1997, the first day of the
month following the Class B Closing) and the denominator of which is $5.00.
Distributions in 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Managing Special
Total Trustee Beneficiary Beneficiaries
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Total 1998 distributions
Class A Interests $ 3,228,082 $ 32,280 $ 266,317 $ 2,929,485
Class B Interests 6,523,016 18,762 154,783 6,349,471
Total 1997 distributions
Class A Interests 6,459,104 34,982 288,605 6,135,517
Class B Interests 993,319 9,933 81,949 901,437
------------- ------------- ------------ ------------
$ 17,203,521 $ 95,957 $ 791,654 $ 16,315,910
============= ============= ============ ============
</TABLE>
6
<PAGE>
Distributions payable at December 31, 1998 and 1997 were $399,296 and
$451,804, respectively.
"Distributable Cash From Operations" means the net cash provided by the
Trust's normal operations after general expenses and current liabilities of the
Trust 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
Managing Trustee, and increased by any portion of such reserves deemed by the
Managing Trustee not to be required for Trust operations and reduced by all
accrued and unpaid 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 reinvested in additional equipment in
accordance with Sections 4.2(b)(v) and 4.2(b)(vi) of the Trust Agreement, or (b)
the proceeds from the sale of an interest in a joint venture which are
reinvested in additional equipment, (ii) any accrued and unpaid Equipment
Management Fee and Acquisition Fees and Acquisition Expenses paid with respect
to additional equipment acquired through reinvestment of Cash From Sales or
Refinancings in accordance with Section 4.2(b)(v) of the Trust Agreement and
(iii) after Payout, any accrued and unpaid Subordinated Resale Fees.
"Cash From Sales or Refinancings" means cash received by the Trust from
sale or refinancing transactions, as reduced by (i)(a) all debts and liabilities
of the Trust 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 Managing Trustee,
but not including any Subordinated Resale Fees whether or not then due and
payable) and (b) general expenses and current liabilities of the Trust and (c)
any reserves for working capital and contingent liabilities funded from such
cash to the extent deemed reasonable by the Managing Trustee and (ii) increased
by any portion of such reserves deemed by the Managing Trustee not to be
required for Trust operations. In the event the Trust accepts a note in
connection with any sale or refinancing transaction, all payments subsequently
received in cash by the Trust with respect to such note shall be included in
Cash From Sales or Refinancings, regardless of the treatment of such payments by
the Trust for tax or accounting purposes. If the Trust 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.
Class A Payout means the first time when the aggregate amount of all
distributions actually made to the Class A Beneficiaries equals $25 per Class A
Interest (minus all uninvested capital contributions returned to the Class A
Beneficiaries) plus a cumulative annual distribution of 10% compounded quarterly
and calculated beginning with the last day of the month of the Trust's initial
Class A Closing.
Class B Payout means the first time when the aggregate amount of all
distributions actually made to the Class B Beneficiaries equals $5 per Class B
Interest plus a cumulative annual return of 8% per annum compounded quarterly
with respect to capital contributions returned to them as a Class B Capital
Distribution and 10% per annum, compounded quarterly, with respect to the
balance of their capital contributions and calculated beginning August 1, 1997,
the first day of the month following the Class B Closing.
Item 6. Selected Financial Data.
Incorporated herein by reference to the section entitled "Selected
Financial Data" in the 1998 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1998 Annual Report.
7
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1998 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
8
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Trust.
(a-b) Identification of Directors and Executive Officers
The Trust has no Directors or Officers. As indicated in Item 1 of this
report, AFG ASIT Corporation is the Managing Trustee of the Trust. Under the
Trust Agreement, the Managing Trustee is solely responsible for the operation of
the Trust's properties and the Beneficiaries have no right to participate in the
control of such operations. The names, titles and ages of the Directors and
Executive Officers of the Managing Trustee as of March 15, 1999 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS
OF THE MANAGING TRUSTEE (See Item 13)
<TABLE>
<CAPTION>
Name Title Age Term
- ----------------------- ------------------------------------- ------- -------
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the Managing Trustee 50 elected
and
Gary D. Engle President and Chief Executive Officer qualified
and a member of the Executive
Committee of EFG and a Director
of the Managing Trustee 50
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the Managing Trustee 39
Michael J. Butterfield Senior Vice President, Finance and
Treasurer of EFG and Treasurer of the
Managing Trustee 39
James A. Coyne Executive Vice President of EFG, Capital
Markets and Senior Vice President of the
Managing Trustee 38
Sandra L. Simonsen Senior Vice President, Information Systems
of EFG 48
Gail D. Ofgant Senior Vice President, Lease Operations
of EFG 33
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Directors or
Executive Officers.
9
<PAGE>
(e) Business Experience
Mr. MacDonald, age 50, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the Managing Trustee.
Mr. MacDonald was also a co-founder, Director, and Senior Vice President of
EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is President of
American Finance Group Securities Corp. and a limited partner in Old North
Capital Limited Partnership ("ONC"). Prior to co-founding EFG's predecessors,
Mr. MacDonald held various executive and management positions in the leasing and
pharmaceutical industries. Mr. MacDonald holds a M.B.A. from Boston College and
a B.A. degree from the University of Massachusetts (Amherst).
Mr. Engle, age 50, is President and Chief Executive Officer of EFG and
sole shareholder and Director of its general partner, Equis Corporation and a
member of the Executive Committee of EFG and President of AFG Realty
Corporation. Mr. Engle joined EFG in 1990 as Executive Vice President and
acquired control of EFG and its subsidiaries in December 1994. Mr. Engle is Vice
President and a Director of certain of EFG's subsidiaries and affiliates, a
limited partner in ONC and controls the general partner of ONC. From 1987 to
1990, Mr. Engle was a principal and co-founder of Cobb Partners Development,
Inc., a real estate and mortgage banking company. From 1980 to 1987, Mr. Engle
was Senior Vice President and Chief Financial Officer of Arvida Disney Company,
a large-scale community development company owned by Walt Disney Company. Prior
to 1980, Mr. Engle served in various management consulting and institutional
brokerage capacities. Mr. Engle has a MBA from Harvard University and a BS
degree from the University of Massachusetts (Amherst).
Mr. Romano, age 39, became Executive Vice President and Chief Operating
Officer of EFG, and Secretary of Equis Corporation in 1996 and is Secretary or
Clerk of several of EFG's subsidiaries and affiliates. Mr. Romano joined EFG in
November 1989, became Vice President and Controller in April 1993 and Chief
Financial Officer in April 1995. Mr. Romano assumed his current position in
April 1996. Prior to joining EFG, Mr. Romano was Assistant Controller for a
privately held real estate development and mortgage origination company that he
joined in 1987. Previously, Mr. Romano was an Audit Manager at Ernst & Whinney
(now Ernst & Young LLP), where he was employed from 1982 to 1986. Mr. Romano is
a Certified Public Accountant and holds a B.S. degree from Boston College.
Mr. Coyne, age 38, is Executive Vice President, Capital Markets of EFG and
President, Chief Operating Officer and a member of the Board of Directors of
Semele. Mr. Coyne joined EFG in 1989, remained until May 1993, and rejoined EFG
in November 1994. In September 1997, Mr. Coyne was appointed Executive Vice
President of EFG. Mr. Coyne is a limited partner in ONC. From May 1993 through
November 1994, he was employed by 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 39, is Senior Vice President, Finance and Treasurer
of EFG and certain of its affiliates and is Treasurer of the Managing Trustee
and Semele. Mr. Butterfield joined EFG in June 1992, became Vice President,
Finance and Treasurer of EFG and certain of it's affiliates in April 1996 and in
July 1998, was promoted to Senior Vice President, Finance and Treasurer of EFG
and certain of its affiliates. 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 (UK) 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 CPA requirements in the United States. He
holds a Bachelor of Commerce degree from the University of Otago, Dunedin, New
Zealand.
Ms. Simonsen, age 48, 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 BA degree from Wilson
College.
10
<PAGE>
Ms. Ofgant, age 33, is Senior Vice President, Lease Operations of EFG and
certain of its affiliates. Ms. Ofgant joined EFG in July 1989, was promoted to
Manager Lease Operations in April 1994, and became Vice President of Lease
Operations in April 1996. In July 1998, Ms. Ofgant was promoted to Senior Vice
President of Lease Operations. Prior to joining EFG, Ms. Ofgant was employed by
Security Pacific National Trust Company. Ms. Ofgant holds a BS 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 Trust has no employees. However, under the terms of the
Trust Agreement, the Trust is obligated to pay all costs of personnel employed
full or part-time by the Trust, including officers or employees of the Managing
Trustee or its Affiliates. There is no plan at the present time to make any
officers or employees of the Managing Trustee or its Affiliates employees of the
Trust. The Trust has not paid and does not propose to pay any options, warrants
or rights to the officers or employees of the Managing Trustee or its
Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Trust has no employees, as discussed in Item 11(a), pursuant
to section 10.4(c) of the Trust Agreement, the Trust incurs a monthly charge for
personnel costs of EFG for persons engaged in providing administrative services
to the Trust. A description of the remuneration paid by the Trust to the
Managing Trustee and its Affiliates for such services is included in Item 13,
herein and in Note 4 to the financial statements included in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the Managing Trustee
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 trust, the Trust has no outstanding
securities possessing traditional voting rights. However, as provided in Section
11.2(a) of the Trust Agreement (subject to Section 11.2(b)), a majority interest
of the Beneficiaries have voting rights with respect to:
1. Amendment of the Trust Agreement;
2. Termination of the Trust;
11
<PAGE>
3. Removal of the Managing Trustee; and
4. Approval or disapproval of the sale of all, or substantially all, of
the assets of the Trust (except in the orderly liquidation of the
Trust upon its termination and dissolution).
As of March 1, 1999, the following person or group owns beneficially more
than 5% of the Trust's outstanding Beneficiary interests:
<TABLE>
<CAPTION>
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
- --------------------------- -------------------------- ----------------------- --------------
<S> <C> <C> <C>
Interests Representing Equis II Corporation
Class B Beneficiary 88 Broad Street 3,019,220 Interests 99.82%
Boston, MA 02110
</TABLE>
No person or group is known by the Managing Trustee to own beneficially
more than 5% of the Trust's 1,787,153 outstanding Class A Interests as of March
1, 1999.
Equis II Corporation is controlled by EFG's President and Chief Executive
Officer, Gary D. Engle.
The ownership and organization of EFG is described in Item 1 of this
report.
Item 13. Certain Relationships and Related Transactions.
The Managing Trustee of the Trust is AFG ASIT Corporation, an affiliate of
EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Trust are paid by EFG on behalf of
the Trust and EFG is reimbursed at its actual cost for such expenditures. Fees
and other costs incurred during the years ended December 31, 1998, 1997 and
1996, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Equipment acquisition fees $ -- $ 1,121,157 $ 69,712
Equipment management fees 659,939 725,116 962,622
Offering costs -- 151,237 --
Administrative charges 90,744 84,834 57,379
Reimbursable operating expenses
due to third parties 702,535 656,425 369,267
------------ ------------- ------------
Total $ 1,453,218 $ 2,738,769 $ 1,458,980
============ ============= ============
</TABLE>
EFG and its Affiliates were reimbursed for their out-of-pocket offering
costs incurred on behalf of the Trust in an amount equal to 1% of the gross
proceeds of the four trusts which sold Class B Interests, pursuant to the
Registration Statement on Form S-1. The amount of reimbursement made by the
Trust was prorated in proportion to the number of Beneficiary Interests sold in
the Trust.
As provided under the terms of the Trust Agreement, EFG is compensated for
its services to the Trust. Such services include all aspects of acquisition,
management and sale of equipment. For acquisition services, EFG was compensated
by an amount equal to .28% of Asset Base Price paid by the Trust for each asset
acquired for the Trust's initial asset portfolio. For acquisition services
during the initial reinvestment period, which expired on September 2, 1997, EFG
was compensated by an amount equal to 3% of Asset Base Price paid by the Trust.
In connection with the Solicitation Statement and consent of Beneficiaries (see
Note 9 to the financial statements
12
<PAGE>
included in Item 14, herein), the Trust's reinvestment provisions were
reinstated through December 31, 2002. In addition, the Trust is now permitted to
invest in assets other than equipment (see Note 12 to the financial statements
included in Item 14, herein). Acquisition fees paid to EFG in connection with
such reinvestment assets are equal to 1% of Asset Base Price paid by the Trust.
For management services, EFG is compensated by an amount equal to (i) 5% of
gross operating lease rental revenue and 2% of gross full payout lease rental
revenue received by the Trust with respect assets acquired on or prior to March
31, 1998. For management services earned in connection with assets acquired on
or after April 1, 1998, EFG is compensated by an amount equal to 2% of gross
lease rental revenue received by the Trust. Both of these fees are subject to
certain limitations defined in the Trust Agreement. For non-equipment
investments other than cash, the Managing Trustee receives an annualized
management fee of 1%. Compensation to EFG for services connected to the
remarketing 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 Trust Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4(c) of the Trust Agreement, for persons employed by EFG who are engaged in
providing administrative services to the Trust. Reimbursable operating expenses
due to third parties represent costs paid by EFG on behalf of the Trust which
are reimbursed to EFG at actual cost.
All equipment was purchased from EFG, one of its Affiliates or directly
from third-party sellers. The Trust's Purchase Price is determined by the method
described in Note 2 to the financial statements included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid by the lessee
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 Trust.
At December 31, 1998, the Trust was owed $678,673 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 1999.
On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00
per interest, thereby generating $15,123,700 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 5,520 Class B Interests,
generating $27,600 of such aggregate capital contributions, and the Special
Beneficiary, EFG, purchased 3,019,220 Class B Interests, generating $15,096,100
of such aggregate capital contributions. The Trust incurred offering costs in
the amount of $151,237 in connection with this offering.
Subsequently, EFG transferred its Class B Interests to a special-purpose
company, Equis II Corporation, a Delaware corporation. EFG also transferred its
ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis
II Corporation. As a result, Equis II Corporation has voting control of the
Trust through its ownership of a majority of all of the Trust's outstanding
voting interests, as well as its ownership of AFG ASIT Corporation. Equis II
Corporation is controlled by EFG's President and Chief Executive Officer, Gary
D. Engle. Accordingly, control of the Managing Trustee did not change as a
result of the foregoing transactions.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 9,210 Class A Interests
or less than 1% of the total outstanding Class A Interests of the Trust. The
general partner of ONC is controlled by Gary D. Engle. In addition, the limited
partnership interests of ONC are owned by Semele Group, Inc. ("Semele"). Gary D.
Engle is Chairman and CEO of Semele.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Trust
None.
13
<PAGE>
(d) Transactions with Promoters
See Item 13(a) above.
14
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors..............................*
Statement of Financial Position
at December 31, 1998 and 1997...............................*
Statement of Operations
for the years ended December 31, 1998, 1997 and 1996........*
Statement of Changes in Participants' Capital
for the years ended December 31, 1998, 1997 and 1996........*
Statement of Cash Flows
for the years ended December 31, 1998, 1997 and 1996........*
Notes to the Financial Statements...........................*
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as set
forth in Item 601 of Regulation S-K, are not applicable.
Exhibit
Number
------
4 Second Amended and Restated Declaration of Trust.
13 The 1998 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 Scandinavian Airlines System is filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 as Exhibit 99 (a) and is included herein.
99(b) Lease agreement with Stena Bulk AB was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 as Exhibit 28 (g) and is incorporated herein
by reference.
* Incorporated herein by reference to the appropriate portion of the 1998
Annual Report to security holders for the year ended December 31, 1998
(see Part II).
15
<PAGE>
(b) Reports on Form 8-K
None.
16
<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.
AFG Investment Trust C
By: AFG ASIT Corporation,
a Massachusetts corporation and the
Managing Trustee of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
------------------------------------ -------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG and a
Managing Trustee Director of the Managing Trustee
(Principal Executive Officer)
Date: March 31, 1999 Date: March 31, 1999
---------------------------------- -----------------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
------------------------------------ -------------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Chief Senior Vice President, Finance and
Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer
of the Managing Trustee of the Managing Trustee
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1999 Date: March 31, 1999
---------------------------------- -----------------------------
17
<PAGE>
AFG INVESTMENT TRUST
AFG Investment Trust C
Annual Report to the Participants, December 31, 1998
<PAGE>
AFG Investment Trust C
INDEX TO ANNUAL REPORT TO THE PARTICIPANTS
Page
----
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-8
FINANCIAL STATEMENTS:
Report of Independent Auditors 9
Statement of Financial Position
at December 31, 1998 and 1997 10
Statement of Operations
for the years ended December 31, 1998, 1997 and 1996 11
Statement of Changes in Participants' Capital
for the years ended December 31, 1998, 1997 and 1996 12
Statement of Cash Flows
for the years ended December 31, 1998, 1997 and 1996 13
Notes to the Financial Statements 14-27
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 28
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 29
Schedule of Costs Reimbursed to the Managing Trustee
and its Affiliates as Required by Section 10.4 of the
Second Amended and Restated Declaration of Trust 30
<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, 1998:
<TABLE>
<CAPTION>
Summary of
Operations 1998 1997 1996 1995 1994
- --------------------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 15,201,411 $16,912,628 $27,695,097 $21,605,260 $ 19,732,736
Net income $ 4,999,220 $ 877,213 $ 85,636 $ 2,916,460 $ 3,566,958
Per Beneficiary Interest:
Net income (loss)
Class A Interests $ 1.17 $ 0.49 $ 0.04 $ 1.32 $ 1.61
Class B Interests $ 0.39 $ (0.12) $ -- $ -- $ --
Cash distributions
Class A Interests $ 1.64 $ 3.11 $ 1.39 $ 2.10 $ 2.52
Class B Interests $ 2.10 $ 0.30 $ -- $ -- $ --
<CAPTION>
Financial Position
- ---------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 72,908,929 $82,036,778 $55,127,347 $68,469,022 $ 76,477,918
Total long-term
obligations $ 35,072,883 $39,928,173 $19,084,751 $29,517,713 $ 35,459,424
Participants' capital $ 36,360,494 $41,159,172 $35,053,486 $38,039,216 $ 39,776,342
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1998 compared to the year
ended December 31, 1997 and the year ended December 31, 1997
compared to the year ended December 31, 1996
Certain statements in this annual report of AFG Investment Trust C (the
"Trust") that are not historical fact constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are subject to a variety of risks and uncertainties. There are a number of
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statements made herein. These factors
include, but are not limited to, the outcome of the Class Action Lawsuit
described in Note 11 to the accompanying financial statements, the collection
all rents due under the Trust's lease agreements and remarketing of the Trust's
equipment.
Year 2000 Issue
The Year 2000 Issue generally refers to the capacity of computer
programming logic to correctly identify the calendar year. Many companies
utilize computer programs or hardware with date sensitive software or embedded
chips that could interpret dates ending in "00" as the year 1900 rather than the
year 2000. In certain cases, such errors could result in system failures or
miscalculations that disrupt the operations of the affected businesses. The
Trust uses information systems provided by Equis Financial Group Limited
Partnership (formerly American Finance Group) ("EFG") and has no information
systems of its own. EFG has adopted a plan to address the Year 2000 Issue that
consists of four phases: assessment, remediation, testing, and implementation
and has elected to utilize principally internal resources to perform all phases.
EFG completed substantially all of its Year 2000 project by December 31, 1998 at
an aggregate cost of less than $50,000 and at a di minimus cost to the Trust.
Remaining items are expected to be minor and be completed by March 31, 1999. All
costs incurred in connection with EFG's Year 2000 project have been expensed as
incurred.
EFG's primary information software was coded by IBM at the point of
original design to use a four digit field to identify calendar year. All of the
Trust's lease billings, cash receipts and equipment remarketing processes are
performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll, depreciation processing,
and electronic banking, have been evaluated for potential programming changes
and have required only minor modifications to function properly with respect to
dates in the year 2000 and thereafter. EFG understands that each of its and the
Trust's significant vendors and third-party servicers are in the process, or
have completed the process, of making their systems Year 2000 compliant.
Substantially all parties queried have indicated that their systems would be
Year 2000 compliant by the end of 1998.
Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Trust's results of operations,
liquidity, or financial position. The Trust's equipment leases were structured
as triple net leases, meaning that the lessees are responsible for, among other
things, (i) maintaining and servicing all equipment during the lease term, (ii)
ensuring that all equipment functions properly and is returned in good
condition, normal wear and tear excepted, and (iii) insuring the assets against
casualty and other events of loss. Non-compliance with lease terms on the part
of a lessee, including failure to address Year 2000 Issues, could result in lost
revenues and impairment of residual values of the Trust's equipment assets under
a worst-case scenario.
EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Trust's business operations. However, EFG has no means of ensuring that all
customers, vendors and third-party servicers will conform ultimately to Year
2000 standards. The effect of this risk to the Trust is not determinable.
3
<PAGE>
Overview
As an equipment leasing trust, the Trust was organized to acquire a
diversified portfolio of capital equipment subject to lease agreements with
third parties. The Trust was designed to progress through three principal
phases: acquisitions, operations, and liquidation. During the operations phase,
a period of approximately six years, all equipment in the Trust's portfolio will
progress through various stages. Initially, all equipment will generate rental
revenues under primary term lease agreements. During the life of the Trust,
these agreements will expire on an intermittent basis and equipment held
pursuant to the related leases will be renewed, re-leased or sold, depending on
prevailing market conditions and the assessment of such conditions by EFG to
obtain the most advantageous economic benefit. Over time, a greater portion of
the Trust's original equipment portfolio will become available for remarketing
and cash generated from operations and from sales or refinancings will
fluctuate. Presently, the Trust is a Nominal Defendant in a Class Action
Lawsuit, the resolution of which remains pending. See Note 11 to the
accompanying financial statements. The Trust's operations commenced in 1992 and
pursuant to the Trust Agreement, the Trust is scheduled to be dissolved by
December 31, 2004.
Results of Operations
For the year ended December 31, 1998, the Trust recognized lease revenue
of $15,201,411 compared to $16,912,628 and $27,695,097 for the years ended
December 31, 1997 and 1996, respectively. The decrease in lease revenue from
1996 to 1997 was due primarily to the sale of the Trust's interest in a vessel
in December 1996 that had generated 1996 lease revenue of approximately
$9,740,000, including early termination rents of $7,304,730 (see discussion
below). The decrease in lease revenue from 1997 to 1998 is due to lease term
expirations and the sale of equipment. The decrease was partially offset by the
acquisition of additional equipment in 1997 pursuant to the reinvestment
provisions of the Trust Agreement. The level of lease revenue to be recognized
by the Trust in the future is expected to be impacted by the amendment to the
Trust Agreement described in Note 9 to the accompanying financial statements;
however the extent of such impact cannot be determined at this time. Over the
long term, the level of lease revenue will decline due to the expiration of the
Trust's primary lease term agreements.
The Trust's equipment portfolio includes certain assets in which the Trust
holds a proportionate ownership interest. In such cases, the remaining interests
are owned by EFG or an affiliated equipment leasing program sponsored by EFG.
Proportionate equipment ownership enables the Trust 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 Trust 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.
Interest income for the year ended December 31, 1998 was $1,096,363
compared to $988,610 and $318,618 for the years ended December 31, 1997 and
1996, respectively. Generally, interest income is generated from the temporary
investment of rental receipts and equipment sale proceeds in short-term
instruments. Interest income in 1998 and 1997 includes interest earned on
proceeds resulting from the issuance of Class B Interests (see below). Future
interest income will fluctuate in relation to prevailing interest rates, the
collection of lease revenue and the proceeds from equipment sales.
During 1998, the Trust sold equipment having a net book value of
$2,355,043 to existing lessees and third parties. These sales resulted in a net
gain, for financial statement purposes, of $2,855,732.
During the year ended December 31, 1997, the Trust sold equipment having a
net book value of $1,059,344, to existing lessees and third parties. These sales
resulted in a net gain, for financial statement purposes, of $15,691. In
addition, during August 1997, the Trust and another EFG-sponsored investment
program exchanged certain locomotives for a proportionate interest in certain
replacement locomotives. The Trust's original locomotives had a cost and net
book value of $4,819,218 and $3,151,503, respectively, and had associated
indebtedness of $1,235,989 at the time of the exchange. The replacement
locomotives were recorded at their estimated fair value of $4,574,485 and the
Trust assumed associated debt of $3,120,127. The exchange resulted in the
recognition of a net loss, for financial statement purposes, of $461,156.
4
<PAGE>
In February 1996, the Trust concluded the sale of its interest in a Boeing
747-SP to the lessee, United Air Lines, Inc., ("United"). The Trust recognized a
net loss of $1,313,122 in connection with this transaction, of which $880,717
was recognized as Write-Down of Equipment in 1995. The remainder of $432,405 was
recognized as a loss on sale of equipment on the accompanying Statement of
Operations for the year ended December 31, 1996. In addition to lease rents, the
Trust received net sale proceeds of $4,048,779 from United for the aircraft. The
Managing Trustee actively pursued the reinvestment of all such proceeds in other
equipment which, during the third quarter of 1997, resulted in the acquisition
of a 50.6% ownership interest in an aircraft (the "SAS Aircraft") at an
aggregate cost to the Trust of $30,895,171. To acquire the interest in the SAS
Aircraft, the Trust obtained long-term financing of $25,654,667 from a
third-party lender and utilized cash of $5,240,504. Certain additional
equipment, having a cost of $7,992,512 was acquired pursuant to the reinvestment
provisions of the Trust Agreement in 1997 using cash of $1,695,923 and
leveraging of $6,296,589. Reinvestment during 1996 included the acquisition of
an 8.86% ownership interest in an aircraft (the "Reno Aircraft") at an aggregate
cost to the Trust of $1,239,741. To acquire its interest in the Reno Aircraft,
the Trust obtained long-term financing of $997,888 from a third-party lender and
utilized cash proceeds of $241,853 from the sale of the United Aircraft. During
the year ended December 31, 1996, the Trust sold other equipment having a net
book value of $9,566,298 to existing lessees and third parties. These sales
resulted in net a loss, for financial statement purposes, of $6,939,466. The
equipment sales in 1996 included the Trust's interest in a vessel with an
original cost and net book value of $13,014,544 and $9,075,095, respectively,
which the Trust sold to an existing lessee in December 1996. In connection with
this sale, the Trust realized aggregate cash proceeds of $9,570,166, consisting
of early termination proceeds of $7,304,730 and sale proceeds of $2,265,436. For
financial statement purposes, the Trust recognized a net loss in 1996 of
$6,809,659 related to the vessel sale, excluding early termination proceeds
recognized as lease revenue on the accompanying Statement of Operations. 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 net loss to the Trust, as such transactions will be dependent upon
the condition and type of equipment being sold and its marketability at the time
of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Trust and to 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 Trust 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 Trust achieved from leasing the equipment.
Depreciation and amortization expense was $9,603,049, $13,217,482 and
$15,219,989 for the years ended December 31, 1998, 1997 and 1996, respectively.
For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Trust 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 Trust
continues to depreciate the remaining net book value of the asset on a
straight-line basis over the asset's remaining economic life.
The Trust recorded a write-down of the carrying value of its interest in a
Boeing 747 aircraft, representing an impairment, during the year ended December
31, 1996. The resulting charge, $2,400,000 ($1.08 per Beneficiary Interest) in
1996 was based on a comparison of the estimated net realizable value and
corresponding net carrying value for the Trust's interest in the aircraft. Net
realizable value was estimated based on (i) third-party appraisals of the
Trust's aircraft and (ii) EFG's assessment of prevailing market conditions for
similar aircraft.
5
<PAGE>
Interest expense was $3,098,019 or 20.4% of lease revenue in 1998 compared
to $1,894,703 or 11.2% and $1,775,651 or 6.4% of lease revenue in 1997 and 1996,
respectively. Interest expense increased due to additional leveraging obtained
to finance the acquisition of reinvestment equipment during 1997. Interest
expense in the near-term may increase due to the financing of any newly acquired
assets. Thereafter, interest expense will decline in amount and as a percentage
of lease revenue as the principal balance of notes payable is reduced through
the application of rent receipts to outstanding indebtedness.
Management fees were 4.3%, 4.3% and 3.5% of lease revenue for the years
ended December 31, 1998, 1997 and 1996, respectively. 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, insurance and legal fees, as well as
printing, distribution and remarketing expenses. Operating expenses were
$793,279, $741,259 and $426,646 for the years ended December 31, 1998, 1997 and
1996, respectively. During 1998, the Trust incurred or accrued approximately
$280,000 for certain legal expenses related to the Class Action Lawsuit
described in Note 11 to the financial statements. Additionally, operating
expenses increased from 1997 to 1998 due to professional service costs incurred
in connection with the Solicitation Statement described in Note 9 to the
financial statements. The increase in operating expenses from 1996 to 1997 was
due primarily to costs incurred in connection with the Solicitation and
Registration Statements described in Note 7 to the accompanying financial
statements.
Liquidity and Capital Resources and Discussion of Cash Flows
The Trust by its nature is a limited life entity. As an equipment leasing
program, the Trust's principal operating activities derive from asset rental
transactions. Accordingly, the Trust'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 $13,029,542 for the year ended December 31, 1998. For the year ended
December 31, 1997, operating activities generated net cash inflows of
$15,138,576, adjusted to reflect (i) equipment sale proceeds of $2,265,436
received in connection with the sale of a vessel and (ii) debt proceeds of
$3,846,898 from leveraging certain rail equipment, both of which amounts were
due from EFG at December 31, 1996 and reflected as cash inflows on the
accompanying 1997 Statement of Cash Flows. Operating activities generated net
cash inflows of $25,623,583 (adjusted for such sale and debt proceeds) for the
year ended December 31, 1996. Cash inflows generated from operating activities
during 1996 included the receipt of early termination proceeds of $7,304,730. In
the future, operating cash flows may increase due to the acquisition of
reinvestment equipment. Subsequently, renewal, re-lease and equipment sale
activities will cause the Trust's primary-term lease revenue and corresponding
sources of operating cash to decline. Overall, expenses associated with rental
activities, such as management fees, and net cash flow from operating activities
will decline as the Trust experiences a higher frequency of remarketing events.
The Trust's equipment is leased by a number of creditworthy,
investment-grade companies and, to date, the Trust has not experienced any
material collection problems and has not considered it necessary to provide an
allowance for doubtful accounts. Notwithstanding a positive collection history,
there is no assurance that all future contracted rents will be collected or that
the credit quality of the Trust's lessees will be maintained. Collection risk
could increase in the future, particularly as the Trust remarkets its equipment
and enters re-lease agreements with different lessees. The Managing Trustee will
continue to evaluate and monitor the Trust's experience in collecting accounts
receivable to determine whether a future allowance for doubtful accounts may
become appropriate.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. The Trust expended $38,887,683 and
$2,396,960 to acquire equipment during the years ended December 31, 1997 and
1996, respectively. All of the equipment acquisitions in 1997 and 1996 were
purchased pursuant to the reinvestment provisions of the Trust Agreement. Such
reinvestment in 1997 included the acquisition of an interest in the SAS Aircraft
discussed previously. The reinvestment equipment was financed through a
combination of leveraging and the sale proceeds available from the aircraft and
vessel transactions, discussed above. During 1998, the Trust realized net sale
proceeds of $5,210,775 compared to $1,075,032 in 1997. In 1996, the Trust
realized equipment sale proceeds of
6
<PAGE>
$6,675,611, including $4,048,779 of proceeds from the United aircraft and
$2,265,436 of proceeds from the vessel transaction. 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. In addition, during August 1997, the Trust and another
EFG-sponsored investment program exchanged certain locomotives for a
proportionate interest in certain replacement locomotives (see Results of
Operations).
The Trust obtained long-term financing in connection with certain
equipment leases. The origination of such indebtedness and the subsequent
repayments of principal are reported as components of financing activities. Cash
inflows of $31,951,256 and $13,324,892 in 1997 and 1996, respectively, resulted
from leveraging a portion of the Trust's equipment portfolio with third-party
lenders (see Results of Operations). Each note payable is recourse only to the
specific equipment financed and to the minimum rental payments contracted to be
received during the debt amortization period (which period generally coincides
with the lease rental term). As rental payments are collected, a portion or all
of the rental payment is used to repay the associated indebtedness. In future
years, the amount of cash used to repay debt obligations will decline as the
principal balance of notes payable is reduced through the collection and
application of rents. Notwithstanding the foregoing, the Trust has balloon
payment obligations of $20,469,318, $2,717,790 and $282,421 at the expiration of
the lease terms related to the SAS Aircraft, certain rail equipment and the Reno
Aircraft, respectively. During 1998, SAS exercised its option to extend the term
of its existing lease for a period of two years at a base rent to the Trust of
$302,536 per month, beginning December 30, 1998. As a result of SAS exercising
the renewal lease option, the balloon payment has been postponed until the
termination of the two-year extension period.
The Trust entered into a 1-year renewal lease agreement with British
Airways PLC for its proportionate interest in a Boeing 747 aircraft at a base
rent to the Trust of $82,500 per month, beginning October 29, 1998.
In accordance with the Trust Agreement, upon the dissolution of the Trust,
the Managing Trustee will be required to contribute to the Trust an amount equal
to any negative balance which may exist in the Managing Trustee's tax capital
account. At December 31, 1998, the Managing Trustee had a negative tax capital
account balance of $70,410.
At December 31, 1998, the Trust was due aggregate future minimum lease
payments of $20,510,564 from contractual lease agreements (see Note 2 to the
financial statements), a portion of which will be used to amortize the principal
balance of notes payable of $35,072,883 (see Note 5 to the financial statements
and discussion above). Additional cash inflows will be realized from future
remarketing activities, such as lease renewals and equipment sales, the timing
and extent of which cannot be predicted with certainty. This is because the
timing and extent of equipment sales is often dependent upon the needs and
interests of the existing lessees. Some lessees may choose to renew their lease
contracts, while others may elect to return the equipment. In the latter
instances, the equipment could be re-leased to another lessee or sold to a third
party. Accordingly, as the Trust matures and a greater level of its equipment
assets becomes available for remarketing, the cash flows of the Trust will
become less predictable. In addition, the Trust will have cash needs to satisfy
interest on indebtedness and to pay management fees and operating expenses.
Ultimately, the Trust is expected to meet its future disbursement obligations
and to distribute any excess of cash inflows over cash outflows to the
Participants in accordance with the Trust Agreement. However, several factors,
including month-to-month lease extensions, lessee defaults, equipment casualty
events, and early lease terminations could alter the Trust's anticipated cash
flows as described herein and in the accompanying financial statements and
result in fluctuations to the Trust's periodic cash distribution payments.
On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00
per interest, thereby generating $15,123,700 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 5,520 Class B Interests,
generating $27,600 of such aggregate capital contributions, and the Special
Beneficiary, EFG, purchased 3,019,220 Class B Interests, generating $15,096,100
of such aggregate capital contributions. The Trust incurred offering costs in
the amount of $151,237 and professional service costs of $153,842 in connection
with this offering. Subsequently, EFG transferred its Class B Interests to a
special-purpose company, Equis II Corporation, a Delaware corporation. EFG also
transferred its ownership of AFG ASIT Corporation, the Managing Trustee of the
Trust, to Equis II Corporation. As a result, Equis II Corporation has voting
control of the Trust through its ownership of the majority of the Trust's
outstanding voting interests, as well as its ownership of AFG ASIT Corporation.
Equis II Corporation is controlled by EFG's President and Chief Executive
Officer, Gary D. Engle.
7
<PAGE>
Accordingly, control of the Managing Trustee did not change as a result of the
foregoing transactions (see also Note 7 to the accompanying financial
statements).
As described in the Prospectus for the offering of the Class B Interests,
the Managing Trustee used a portion of the net cash proceeds realized from the
offering of the Class B Interests to pay a one-time special cash distribution of
approximately $1.47 per Class A Interest to the Class A Beneficiaries of the
Trust. The Managing Trustee declared and paid this special cash distribution,
aggregating $2,960,865, to Class A Beneficiaries on August 15, 1997.
On August 7, 1997, the Trust commenced an offer to purchase up to 45% of
the outstanding Class A Beneficiary Interests of the Trust. On October 10, 1997,
the Trust used $2,291,567 of the net proceeds realized from the issuance of the
Class B Interests to purchase 218,661 of the Class A Interests tendered as a
result of the offer. On July 6, 1998, the Trust used $4,646,862 of such proceeds
to pay a capital distribution to the Class B Beneficiaries. The remaining net
proceeds from the Class B offering of $4,919,327 will be used according to terms
negotiated in connection with settling the Class Action Lawsuit described in
Note 11 (see also Notes 8, 9 and 10 to the accompanying financial statements).
On April 28, 1998, the Trust purchased 5,200 additional Class A Interests at a
cost of $46,800.
Cash distributions paid to the Participants 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 Trust 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 Trust's equipment portfolio.
It is the intention of the Managing Trustee to maintain a cash
distribution level that is consistent with the operating cash flows of the Trust
and to optimize the long-term value of the Trust. A distribution level that is
higher than the Trust's operating cash flows could compromise the Trust's
working capital position, as well as its ability to refurbish or upgrade
equipment in response to lessee requirements or other market circumstances.
Accordingly, in order to better align monthly cash distributions with the
Trust's operating cash flows, the Managing Trustee reduced the level of monthly
cash distributions from an annualized rate of $2.52 per Class A Interest (the
rate established and paid from the Trust's inception through September 1995) to
an annualized rate of $1.26 per Class A Interest commencing in October 1995. In
October 1996, the Managing Trustee increased the annualized distribution rate to
$1.64 per Class A Interest and has sustained this distribution rate throughout
1997 and 1998. For the Class B Beneficiaries, the Managing Trustee established
and paid, from the Trust, an annualized distribution of $0.66 per Class B
Interest commencing July 18, 1997. Future distributions, with respect to Class B
Interests, will be subordinate to certain distributions with respect to Class A
Interests.
Cash distributions to the Managing Trustee, the Special Beneficiary, and
the Beneficiaries are declared and generally paid within fifteen days following
the end of each month. The payment of such distributions is presented as a
component of financing activities. For the year ended December 31, 1998, the
Trust declared total cash distributions of $9,751,098. The Beneficiaries were
allocated $9,278,956 ($2,929,485 for Class A Beneficiaries and $6,349,471 for
Class B Beneficiaries); the Special Beneficiary was allocated $421,100; and the
Managing Trustee was allocated $51,042.
The nature of the Trust's operations and principal cash flows gradually
will shift from rental receipts to equipment sale proceeds as the Trust matures
and change as a result of new investments not consisting of equipment
acquisitions. As this occurs, the Trust's cash flows resulting from equipment
investments may become more volatile in that certain of the Trust's equipment
leases will be renewed and certain of its assets will be sold. In some cases,
the Trust may be required to expend funds to refurbish or otherwise improve the
equipment being remarketed in order to make it more desirable to a potential
lessee or purchaser. The Trust's Advisor, EFG, and the Managing Trustee will
attempt to monitor and manage these events in order to maximize the residual
value of the Trust's equipment and will consider these factors, in addition to
new investment activities and the collection of contractual rents, the
retirement of scheduled indebtedness, and the Trust's future working capital
requirements, in establishing future cash distribution rates.
8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Participants of AFG Investment Trust C:
We have audited the accompanying statements of financial position of AFG
Investment Trust C as of December 31, 1998 and 1997, and the related statements
of operations, changes in participants' capital, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Trust'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 AFG Investment Trust C at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, 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 Participants 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 26, 1999
9
<PAGE>
AFG Investment Trust C
STATEMENT OF FINANCIAL POSITION
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 17,025,123 $ 8,843,640
Restricted cash 4,919,327 9,566,189
Rents receivable 341,111 819,736
Accounts receivable - affiliate 678,673 904,426
Equipment at cost, net of accumulated depreciation
of $42,241,976 and $50,635,609 at December 31, 1998
1997, respectively 49,944,695 61,902,787
----------------- -----------------
Total assets $ 72,908,929 $ 82,036,778
================= =================
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable $ 35,072,883 $ 39,928,173
Accrued interest 229,115 240,434
Accrued liabilities 311,500 11,550
Accrued liabilities - affiliate 54,202 118,703
Deferred rental income 481,439 126,942
Cash distributions payable to participants 399,296 451,804
----------------- -----------------
Total liabilities 36,548,435 40,877,606
----------------- -----------------
Participants' capital (deficit):
Managing Trustee 12,631 (123,674)
Special Beneficiary 104,209 (1,000,794)
Class A Beneficiary Interests (1,787,153 and 1,792,353 Interests
at December 31, 1998 and 1997, respectively,
initial purchase price of $25 each) 30,022,170 30,858,790
Class B Beneficiary Interests (3,024,740 Interests;
initial purchase price of $5 each) 8,559,851 13,716,417
Treasury Interests (223,861 and 218,661 Class A Interests
at December 31, 1998 and 1997,respectively, at Cost) (2,338,367) (2,291,567)
----------------- -----------------
Total participants' capital 36,360,494 41,159,172
----------------- -----------------
Total liabilities and participants' capital $ 72,908,929 $ 82,036,778
================= =================
</TABLE>
The accompanying notes are an integral part of
these financial statements
10
<PAGE>
AFG Investment Trust C
STATEMENT OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Income:
Lease revenue $ 15,201,411 $ 16,912,628 $ 27,695,097
Interest income 1,096,363 988,610 318,618
Other income -- -- 228,700
Gain (loss) on sale/exchange
of equipment 2,855,732 (445,465) (7,371,871)
------------------ ------------------ ------------------
Total income 19,153,506 17,455,773 20,870,544
------------------ ------------------ ------------------
Expenses:
Depreciation and amortization 9,603,049 13,217,482 15,219,989
Write-down of equipment -- -- 2,400,000
Interest expense 3,098,019 1,894,703 1,775,651
Equipment management fees - affiliate 659,939 725,116 962,622
Operating expenses - affiliate 793,279 741,259 426,646
------------------ ------------------ ------------------
Total expenses 14,154,286 16,578,560 20,784,908
------------------ ------------------ ------------------
Net income $ 4,999,220 $ 877,213 $ 85,636
================== ================== ==================
Net income (loss)
per Class A Beneficiary Interest $ 1.17 $ 0.49 $ 0.04
================== ================== ==================
per Class B Beneficiary Interest $ 0.39 $ (0.12) $ --
================== ================== ==================
Cash distributions declared
per Class A Beneficiary Interest $ 1.64 $ 3.11 $ 1.39
================== ================== ==================
per Class B Beneficiary Interest $ 2.10 $ 0.30 $ --
================== ================== ==================
</TABLE>
The accompanying notes are an integral part of
these financial statements
11
<PAGE>
AFG Investment Trust C
STATEMENT OF CHANGES IN PARTICIPANTS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Managing Special Class A Beneficiaries
Trustee Beneficiary ----------------------------
Amount Amount Interests Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ (73,669) $ (615,026) 2,011,014 $ 38,727,911
Net income - 1996 856 7,065 -- 77,715
Cash distributions declared (30,714) (253,387) -- (2,787,265)
------------ ------------ ------------ ------------
Balance at December 31, 1996 (103,527) (861,348) 2,011,014 36,018,361
Class B capital contribution -- -- -- --
Less: Offering costs -- -- -- --
Net income (loss) - 1997 24,768 231,108 -- 975,946
Cash distributions declared (44,915) (370,554) -- (6,135,517)
Acquisition of treasury interests, at cost -- -- (218,661) --
------------ ------------ ------------ ------------
Balance at December 31, 1997 (123,674) (1,000,794) 1,792,353 30,858,790
Net income - 1998 187,347 1,526,103 -- 2,092,865
Cash distributions declared (51,042) (421,100) -- (2,929,485)
Acquisition of treasury interests, at cost -- -- (5,200) --
------------ ------------ ------------ ------------
Balance at December 31, 1998 $ 12,631 $ 104,209 1,787,153 $ 30,022,170
============ ============ ============ ============
<CAPTION>
Class B Beneficiaries
--------------------------- Treasury
Interests Amount Interests Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 -- $ -- $ -- $ 38,039,216
Net income - 1996 -- -- -- 85,636
Cash distributions declared -- -- -- (3,071,366)
------------ ------------ ------------ ------------
Balance at December 31, 1996 -- -- -- 35,053,486
Class B capital contribution 3,024,740 15,123,700 -- 15,123,700
Less: Offering costs -- (151,237) -- (151,237)
Net income (loss) - 1997 -- (354,609) -- 877,213
Cash distributions declared -- (901,437) -- (7,452,423)
Acquisition of treasury interests, at cost -- -- (2,291,567) (2,291,567)
------------ ------------ ------------ ------------
Balance at December 31, 1997 3,024,740 13,716,41 (2,291,567) 41,159,172
Net income - 1998 -- 1,192,905 -- 4,999,220
Cash distributions declared -- (6,349,471) -- (9,751,098)
Acquisition of treasury interests, at cost -- -- (46,800) (46,800)
------------ ------------ ------------ ------------
Balance at December 31, 1998 3,024,740 $ 8,559,851 $ (2,338,367) $ 36,360,494
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
12
<PAGE>
AFG Investment Trust C
STATEMENT OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 4,999,220 $ 877,213 $ 85,636
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 9,603,049 13,217,482 15,219,989
Write-down of equipment -- -- 2,400,000
(Gain) loss on sale/exchange
of equipment (2,855,732) 445,465 7,371,871
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 478,625 1,319,636 809,820
Accounts receivable - affiliate 225,753 5,580,111 (6,383,279)
Increase (decrease) in:
Accrued interest (11,319) 51,451 (165,314)
Accrued liabilities 299,950 (12,435) 3,985
Accrued liabilities - affiliate (64,501) (145,420) 264,123
Deferred rental income 354,497 (82,593) (95,582)
---------------- ---------------- ----------------
Net cash from operating activities 13,029,542 21,250,910 19,511,249
---------------- ---------------- ----------------
Cash flows from (used in) investing activities:
Purchase of equipment -- (38,887,683) (2,396,960)
Proceeds from equipment sales 5,210,775 1,075,032 6,675,611
---------------- ---------------- ----------------
Net cash from (used in) investing activities 5,210,775 (37,812,651) 4,278,651
---------------- ---------------- ----------------
Cash flows from (used in) financing activities:
Proceeds from Class B capital contributions -- 15,123,700 --
Payment of offering costs -- (151,237) --
Purchase of treasury interests (46,800) (2,291,567) --
Restricted cash 4,646,862 (9,566,189) --
Proceeds from notes payable -- 31,951,256 13,324,892
Principal payments - notes payable (4,855,290) (12,991,972) (23,757,854)
Distributions paid (9,803,606) (7,303,103) (3,001,561)
---------------- ---------------- ----------------
Net cash from (used in) financing activities (10,058,834) 14,770,888 (13,434,523)
---------------- ---------------- ----------------
Net (decrease) increase in cash and cash equivalents 8,181,483 (1,790,853) 10,355,377
Cash and cash equivalents at beginning of year 8,843,640 10,634,493 279,116
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 17,025,123 $ 8,843,640 $ 10,634,493
================ ================ ================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 3,109,338 $ 1,843,252 $ 1,940,965
================ ================ ================
Supplemental disclosure of non-cash activity:
See Note 3 to the financial statements.
</TABLE>
The accompanying notes are an integral part of
these financial statements
13
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
December 31, 1998
NOTE 1 - ORGANIZATION AND TRUST MATTERS
AFG Investment Trust C (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust Act (the "Act") on August
31, 1992 for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. Participants' capital initially consisted of
contributions of $1,000 from the Managing Trustee, AFG ASIT Corporation, $1,000
from the Special Beneficiary, Equis Financial Group Limited Partnership
(formerly known as American Finance Group), a Massachusetts limited partnership
("EFG"), and $100 from the Initial Beneficiary, AFG Assignor Corporation, a
wholly-owned affiliate of EFG or the "Advisor". The Trust issued an aggregate of
2,011,014 Beneficiary Interests (hereinafter referred to as Class A Interests)
at a subscription price of $25.00 each ($50,275,350 in total) to 2,477 investors
through 9 serial closings commencing December 15, 1992 and ending September 2,
1993. On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00
each ($15,123,700 in total), of which (i) 3,019,220 interests are held by Equis
II Corporation, an affiliate of EFG, and (ii) 5,520 interests are held by 10
other Class A investors. The Trust repurchased 218,661 Class A Interests on
October 10, 1997 using proceeds from the issuance of Class B Interests. On April
28, 1998, the Trust repurchased 5,200 additional Class A Interests. Accordingly,
there are 1,787,153 Class A Interests currently outstanding.
The Trust has one Managing Trustee, AFG ASIT Corporation, a Massachusetts
corporation, and one Special Beneficiary, EFG. The Managing Trustee is
responsible for the general management and business affairs of the Trust. EFG
acts as Advisor to the Trust and provides services in connection with the
acquisition and remarketing of the Trust's assets. AFG ASIT Corporation is a
wholly-owned subsidiary of Equis II Corporation and an affiliate of EFG. Class A
Interests and Class B Interests basically have identical voting rights and,
therefore, Equis II Corporation has control over the Trust on all matters on
which the Beneficiaries may vote. The Managing Trustee and the Special
Beneficiary are not required to make any other capital contributions except as
may be required under the Second Amended and Restated Declaration of Trust, as
amended (the "Trust Agreement").
Significant operations commenced coincident with the Trusts initial
purchase of equipment and the associated lease commitments on December 15, 1992.
Pursuant to the Trust Agreement, each distribution of Distributable Cash From
Operations and Distributable Cash From Sales or Refinancings of the Trust is
made 90.75% to the Beneficiaries, 8.25% to the Special Beneficiary and 1% to the
Managing Trustee.
Under the terms of a Management Agreement between the Trust and EFG,
management services are provided by EFG to the Trust at fees which the Managing
Trustee believes to be competitive for similar services (see Note 4).
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Trust and several other
direct-participation equipment leasing programs sponsored or co-sponsored by AFG
(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, Chief Executive Officer and sole Director. 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.
14
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Trust and the Other Investment Programs and to continue managing all assets
owned by the Trust and the Other Investment Programs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows and Restricted Cash
The Trust considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Trust invests excess cash with large institutional banks in federal agency
discount notes and reverse repurchase agreements with overnight maturities.
Under the terms of the agreements, title to the underlying securities passes to
the Trust. The securities underlying the agreements are book entry securities.
At December 31, 1998, the Trust had $19,310,000 invested in federal agency
discount notes and reverse repurchase agreements secured by U.S. Treasury Bills
or interests in U.S. Government securities. Such cash includes $4,919,327 which
is classified as Restricted Cash and represents the net proceeds realized from
the offering of the Class B Interests less ( i ) the portion thereof used to pay
a special distribution to the Class A Beneficiaries and to redeem Class A
Interests (see Notes 7 and 8) and ( ii ) the portion used to pay a capital
distribution to the Class B Beneficiaries (see Note 10). The remainder is
expected to be used according to terms negotiated in conjunction with settling
the Class Action Lawsuit described in Note 11.
Revenue Recognition
Rents are payable to the Trust monthly, quarterly or semi-annually and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. In certain instances, the Trust
may enter primary-term, renewal or re-lease agreements which expire beyond the
Trust's anticipated dissolution date. This circumstance is not expected to
prevent the orderly wind-up of the Trust's business activities as the Managing
Trustee and the Advisor would seek to sell the then-remaining equipment assets
either to the lessee or to a third party, taking into consideration the amount
of future non-cancelable rental payments associated with the attendant lease
agreements. Future minimum rents of $20,510,564 are due as follows:
For the year ending December 31, 1999 $ 8,702,273
2000 6,176,778
2001 2,145,367
2002 1,978,315
2003 1,361,022
Thereafter 146,809
-----------
Total $20,510,564
===========
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Stena Bulk AB $ -- $ -- $ 9,742,697
Scandinavian Airlines System $ 4,153,770 $ -- $ --
</TABLE>
15
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
During 1998, Scandinavian Airlines System ("SAS") exercised its option to
extend the term of its existing lease for a period of two years at a base rent
to the Trust of $302,536 per month, beginning December 30, 1998. As a result of
SAS exercising the renewal lease option, the balloon payment (originally due at
the end of the primary lease term) has been postponed until the termination of
the two-year extension period.
The Trust entered into a 1-year renewal lease agreement with British
Airways PLC for its proportionate interest in a Boeing 747 aircraft at a base
rent to the Trust of $82,500 per month, beginning October 29, 1998.
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 means the actual cost paid by the Trust to
acquire the equipment, including acquisition fees. Where equipment was acquired
from EFG or an Affiliate, Equipment Cost reflects the actual price paid for the
equipment by EFG or the Affiliate plus all actual costs incurred by EFG or the
Affiliate while carrying the equipment, including all liens and encumbrances,
less the amount of all primary term rents earned by EFG or the Affiliate prior
to selling the equipment. Where the seller of the equipment was a third party,
Equipment Cost reflects the seller's invoice price.
Depreciation and Amortization
The Trust'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 Trust 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 Trust continues to depreciate the remaining net book value of the
asset on a straight-line basis over the asset's remaining economic life.
Periodically, the Managing Trustee evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. For purposes of
this comparison, "net carrying value" represents, at a given date, the net book
value (equipment cost less accumulated depreciation for financial reporting
purposes) of the Trust's equipment and "net realizable value" represents, at the
same date, the aggregate undiscounted cash flows resulting from future
contracted lease payments plus the estimated residual value of the Trust's
equipment. The Managing Trustee evaluates significant equipment assets, such as
aircraft and vessels, individually. All other assets are evaluated collectively
by equipment type unless the Managing Trustee learns of specific circumstances,
such as a lessee default, technological obsolescence, or other market
developments, which could affect the net realizable value of particular assets.
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. To the extent that such adjustments were recorded, they are
reflected separately on the accompanying Statement of Operations as Write-Down
of Equipment.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time.
Organization costs were amortized using the straight-line method over a
period of five years.
16
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
Accrued Liabilities - Affiliate
Unpaid fees and operating expenses paid by EFG on behalf of the Trust and
accrued but unpaid administrative charges and management fees are reported as
Accrued Liabilities - Affiliate (see Note 4).
Allocation of Net Income or Loss
Net income is allocated quarterly first, to eliminate any Participant's
negative capital account balance and second, 1% to the Managing Trustee, 8.25%
to the Special Beneficiary and 90.75% collectively to the Class A and Class B
Beneficiaries. The latter is allocated proportionately between the Class A and
Class B Beneficiaries based upon the ratio of cash distributions declared and
allocated to the Class A and Class B Beneficiaries during the period (excluding
$4,646,862 Class B capital distributions paid in 1998). Net losses are allocated
quarterly first, to eliminate any positive capital account balance of the
Managing Trustee, the Special Beneficiary and the Class B Beneficiaries; second,
to eliminate any positive capital account balances of the Class A Beneficiaries;
and third, any remainder to the Managing Trustee. Prior to adoption of the
current Trust Agreement on July 15, 1997 (see Note 7), the Trust allocated net
income or loss to the Participants for financial reporting purposes according to
their respective beneficial interests in the Trust (1% to the Managing Trustee,
8.25% to the Special Beneficiary, and 90.75% to the Class A Beneficiaries).
The allocation of net income or loss pursuant to the Trust Agreement
differs from the foregoing and is based upon government rules and regulations
for federal income tax reporting purposes and assumes, for each income tax
reporting period, the liquidation of all of the Trust's assets and the
subsequent distribution of all available cash to the Participants. For income
tax purposes, the Trust adjusts its allocations of income and loss to the
Participants so as to cause their tax capital account balances at the end of the
reporting period to be equal to the amount that would be distributed to them at
such date in the event of a liquidation and dissolution of the Trust. This
methodology does not consider the costs attendant to liquidation or whether the
Trust intends to have future business operations. If the Trust made similar
assumptions and allocations for financial reporting purposes and the Trust was
liquidated at December 31, 1998 for an amount equal to its net carrying value
for financial reporting purposes, the capital accounts of the Managing Trustee,
Special Beneficiary, Class A Beneficiaries, and Class B Beneficiaries would have
reflected ending balances of $363,605, $2,999,741, $20,264,745, and $12,732,403,
respectively. See Note 6 for additional information concerning the allocation of
net income or loss for income tax reporting purposes.
Net Income and Cash Distributions Per Beneficiary Interest
Net income and cash distributions per Class A Interest in 1998 are based
on 1,792,353 Class A Interests outstanding during the period January 1, 1998
through April 27, 1998 and 1,787,153 Class A Interests outstanding during the
period April 28, 1998 through December 31, 1998. Net income and cash
distributions per Class A Interest in 1997 are based on 2,011,014 Class A
Interests outstanding during the period January 1, 1997 through October 9, 1997
and 1,792,353 Class A Interests outstanding during the period October 10, 1997
through December 31, 1997. Net income and cash distributions per Beneficiary
Interest are based on 2,011,014 Class A Interests outstanding during the year
ended December 31, 1996. Net income and cash distributions per Class B
Beneficiary Interest are based on 3,024,740 Class B Interests outstanding during
the year ended December 31, 1998 and the period July 18, 1997 through December
31, 1997. For each of the aforementioned periods, net income and cash
distributions per Beneficiary Interest are computed after allocation of the
Managing Trustee's and Special Beneficiary's shares of net income and cash
distributions.
17
<PAGE>
AFG Investment Trust C
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 Participants are responsible for reporting their
proportionate shares of the Trust's taxable income or loss and other tax
attributes on their tax returns.
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Trust at December 31,
1998. Remaining Lease Term (Months), as used below, represents the number of
months remaining from December 31, 1998 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
- ------------------------------- ----------- --------------- ------------------------------
<S> <C> <C> <C>
Aircraft 0-48 $ 47,400,169 NV/WA/Foreign
Locomotives 18-63 9,179,509 IL/NB
Manufacturing 12-56 9,053,648 CA/MI
Construction and mining 0-24 7,374,943 FL/IL/IN/MI/NV/SC/VA
Materials handling 0-50 6,933,550 AR/CA/FL/GA/IL/IN/IA/KY
MA/MI/MS/NJ/OH/OR
PA/SC/TX/VA/WI/WV/Foreign
AL/CA/CO/FL/GA/IL/IN/KS/
MI/NJ/NY/OH/PA
Computers and peripherals 0-12 5,166,613 SC/TN/TX/UT/VA/WI/WV
Retail store fixtures 0-9 4,741,269 AZ/CO/LA/NM/TX
Research and test 0 1,667,223 CA/FL/IL/MI/MO/NC/NJ/NY/OH/PA
TN/TX/UT
Furniture and fixtures 0 203,261 NJ
Communications 6 151,460 FL
Tractors and heavy duty trucks 0 148,079 IL/MI
Trailers/intermodal containers 0 104,255 FL
Photocopying 0 60,486 CT
Medical 0 2,206 WI
---------------
Total equipment cost 92,186,671
Accumulated depreciation (42,241,976)
---------------
Equipment, net of accumulated depreciation $ 49,944,695
===============
</TABLE>
During August 1997, the Trust and another EFG sponsored investment program
exchanged certain locomotives for a proportionate interest in certain other
locomotives. The Trust's original locomotives had a cost and a net book value of
$4,819,218 and $3,151,503, respectively, and had associated indebtedness of
$1,235,989 at the time of the exchange. The replacement locomotives were
recorded at their estimated fair value of $4,574,485 and the Trust assumed
associated debt of $3,120,127. The exchange resulted in the recognition of a net
loss, for financial statement purposes, of $461,156. In certain cases, the cost
of the Trust's equipment represents a proportionate ownership interest. The
remaining interests are owned by EFG or an affiliated equipment leasing program
sponsored by EFG. The Trust 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 Trust 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,
1998, the Trust's equipment portfolio included equipment having a proportionate
original cost of $58,661,251, representing approximately 64% of total equipment
cost.
18
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately
$52,257,000 and a net book value of approximately $42,622,000 at December 31,
1998 (see Note 5).
Generally, the costs associated with maintaining, insuring and operating
the Trust's equipment are incurred by the respective lessees pursuant to terms
specified in their individual lease agreements with the Trust.
As equipment is sold to third parties, or otherwise disposed of, the Trust
will recognize 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 will be 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, 1998, the cost and net book value of
equipment held for sale or re-lease was approximately $8,965,000 and $4,608,000,
respectively. This equipment includes the Trust's proportionate interest in a
McDonnell Douglas MD-82 aircraft formerly leased to Alaska Airlines, Inc. with a
cost and net book value of $7,333,098 and $4,489,744, respectively (See Note 12
- - Subsequent Events). The Managing Trustee is actively seeking the sale or
re-lease of all equipment not on lease. In addition, the summary above includes
equipment being leased on a month-to-month.
The Trust recorded a write-down of the carrying value of its interest in an
aircraft, representing an impairment, during the year ended December 31, 1996.
The resulting charge, $2,400,000 ($1.08 per Beneficiary Interest) in 1996 was
based on a comparison of the estimated net realizable value and corresponding
carrying value for the Trust's interest in the aircraft.
NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Trust are paid by EFG on behalf of
the Trust and EFG is reimbursed at its actual cost for such expenditures. Fees
and other costs incurred during the years ended December 31, 1998, 1997 and
1996, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Equipment acquisition fees $ -- $ 1,121,157 $ 69,712
Equipment management fees 659,939 725,116 962,622
Offering costs -- 151,237 --
Administrative charges 90,744 84,834 57,379
Reimbursable operating expenses
due to third parties 702,535 656,425 369,267
--------------- --------------- ---------------
Total $ 1,453,218 $ 2,738,769 $ 1,458,980
=============== =============== ===============
</TABLE>
19
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
EFG and its Affiliates were reimbursed for their out-of-pocket offering
costs incurred on behalf of the Trust in an amount equal to 1% of the gross
proceeds of the four trusts which sold Class B Interests, pursuant to the
Registration Statement on Form S-1. The amount of reimbursement made by the
Trust was prorated in proportion to the number of Beneficiary Interests sold in
the Trust.
As provided under the terms of the Trust Agreement, EFG is compensated for
its services to the Trust. Such services include all aspects of acquisition,
management and sale of equipment. For acquisition services, EFG was compensated
by an amount equal to .28% of Asset Base Price paid by the Trust for each asset
acquired for the Trust's initial asset portfolio. For acquisition services
during the initial reinvestment period, which expired on September 2, 1997, EFG
was compensated by an amount equal to 3% of Asset Base Price paid by the Trust.
In connection with the Solicitation Statement and consent of Beneficiaries (See
Note 9), the Trust's reinvestment provisions were reinstated through December
31, 2002. In addition, the Trust is now permitted to invest in assets other than
equipment (See Note 12). Acquisition fees paid to EFG in connection with such
reinvestment assets are equal to 1% of Asset Base Price paid by the Trust. For
management services, EFG is compensated by an amount equal to (i) 5% of gross
operating lease rental revenue and 2% of gross full payout lease rental revenue
received by the Trust with respect assets acquired on or prior to March 31,
1998. For management services earned in connection with assets acquired on or
after April 1, 1998, EFG is compensated by an amount equal to 2% of gross lease
rental revenue received by the Trust. Both of these fees are subject to certain
limitations defined in the Trust Agreement. For non-equipment investments other
than cash, the Managing Trustee receives an annualized management fee of 1%.
Compensation to EFG for services connected to the remarketing 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 Trust Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4(c) of the Trust Agreement, for persons employed by EFG who are engaged in
providing administrative services to the Trust. Reimbursable operating expenses
due to third parties represent costs paid by EFG on behalf of the Trust which
are reimbursed to EFG at actual cost.
All equipment was purchased from EFG, one of its Affiliates or directly
from third-party sellers. The Trust's Purchase Price is determined by the method
described in Note 2, Equipment on Lease.
All rents and proceeds from the sale of equipment are paid by the lessee
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 Trust.
At December 31, 1998, the Trust was owed $678,673 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 1999.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 9,210 Class A Interests
or less than 1% of the total outstanding Class A Interests of the Trust. The
general partner of ONC is controlled by Gary D. Engle. In addition, the limited
partnership interests of ONC are owned by Semele Group, Inc. ("Semele"). Gary D.
Engle is Chairman and CEO of Semele.
Refer to Note 7 regarding the purchase of Class B Interests by an
affiliate, Equis II Corporation and the change in ownership of the Managing
Trustee.
NOTE 5 - NOTES PAYABLE
Notes payable at December 31, 1998 consisted of installment notes of
$35,072,883 payable to banks and institutional lenders. The notes bear interest
rates ranging between 6.1% and 14.46%, except for one note which bears a
fluctuating interest rate based on LIBOR (5.54% at December 31, 1998) plus a
margin. All of the
20
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
installment notes are non-recourse and are collateralized by the equipment and
assignment of the related lease payments. Generally, the installment notes will
be fully amortized by noncancellable rents. However, the Trust has balloon
payment obligations of $20,469,318, $2,717,790 and $282,421 at the expiration of
the lease terms related to the SAS Aircraft, certain rail equipment and the Reno
Aircraft, respectively. During 1998, pursuant to the lease agreement, SAS
exercised its option to extend the term of the existing lease for a period of
two years, beginning December 30, 1998. As a result of SAS exercising the
renewal lease option, the balloon payment has been postponed until the
termination of the two-year extension period. The carrying amount of notes
payable approximates fair value at December 31, 1998.
The annual maturities of the notes payable are as follows:
For the year ending December 31, 1999 $ 4,397,193
2000 25,477,920
2001 1,762,882
2002 1,711,833
2003 1,578,686
Thereafter 144,369
--------------
Total $ 35,072,883
==============
NOTE 6 - INCOME TAXES
The Trust is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Trust.
For financial statement purposes, the Trust allocates net income quarterly
first, to eliminate any Participant's negative capital account balance and
second, 1% to the Managing Trustee, 8.25% to the Special Beneficiary and 90.75%
collectively to the Class A and Class B Beneficiaries. The latter is allocated
proportionately between the Class A and Class B Beneficiaries based upon the
ratio of cash distributions declared and allocated to the Class A and Class B
Beneficiaries during the period (excluding $4,646,862 Class B capital
distributions paid in 1998). Net losses are allocated quarterly first, to
eliminate any positive capital account balance of the Managing Trustee, the
Special Beneficiary and the Class B Beneficiaries; second, to eliminate any
positive capital account balances of the Class A Beneficiaries; and third, any
remainder to the Managing Trustee. This convention differs from the income or
loss allocation requirements for income tax and Dissolution Event purposes as
delineated in the Trust Agreement. For income tax purposes, the Trust allocates
net income or net loss in accordance with the provisions of such agreement.
Pursuant to the Trust Agreement, upon dissolution of the Trust, the Managing
Trustee will be required to contribute to the Trust an amount equal to any
negative balance which may exist in the Managing Trustee's tax capital account.
At December 31, 1998, the Managing Trustee had a negative tax capital account
balance of $70,410.
The following is a reconciliation between net income reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1998, 1997 and 1996:
21
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- -------------
<S> <C> <C> <C>
Net income $ 4,999,220 $ 877,213 $ 85,636
Financial statement depreciation
in excess of (less than) tax depreciation (5,652,952) (1,722,944) 2,880,589
Write-down of equipment -- -- 2,400,000
Tax gain (loss) in excess of
book gain (loss) 139,615 1,015,849 (54,917)
Deferred rental income 354,497 (82,593) (95,582)
Other (46,700) (37,114) 37,114
--------------- --------------- -------------
Net income (loss) for federal income tax
reporting purposes $ (206,320) $ 50,411 $ 5,252,840
=============== =============== =============
</TABLE>
The following is a reconciliation between participants' capital reported
for financial statement and federal income tax reporting purposes for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Participants' capital $ 36,360,494 $ 41,159,172
Add back selling commissions and organization
and offering costs 4,922,397 4,922,397
Financial statement distributions in excess of
tax distributions 16,957 --
Deduct deferred step-down of capital basis (689,869) --
Cumulative difference between federal income tax
and financial statement income (loss) (13,859,944) (8,654,404)
--------------- ---------------
Participants' capital for federal income tax reporting purposes $ 26,750,035 $ 37,427,165
=============== ===============
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 7 - ISSUANCE OF CLASS B INTERESTS
On October 26, 1996, the Trust filed a Solicitation Statement with the
United States Securities and Exchange Commission (the "SEC") which subsequently
was sent to the Beneficiaries pursuant to Regulation 14A of Section 14 of the
Securities Exchange Act. The Solicitation Statement sought the consent of the
Beneficiaries to a proposed amendment (the "Amendment") to the Amended and
Restated Declaration of Trust (the "Trust Agreement") which would (i) amend the
provisions of the Trust Agreement governing the redemption of Beneficiary
Interests to permit the Trust to offer to redeem outstanding Beneficiary
Interests at such times, in such amounts, in such manner and at such prices as
the Managing Trustee might determine from time to time, in accordance with
applicable law; and (ii) add a provision to the Trust Agreement that would
permit the Trust to issue, at the discretion of the Managing Trustee and without
further consent or approval of the Beneficiaries, an
22
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
additional class of security with such designations, preferences and relative,
participating, optional or other special rights, powers and duties as the
Managing Trustee might affix. The funds obtained through the issuance of such a
security were intended to be used by the Trust to (a) expand redemption
opportunities for Beneficiaries without using Trust funds which might otherwise
be available for cash distributions; and (b) make a special one-time cash
distribution to the Beneficiaries.
Pursuant to the Trust Agreement, the adoption of the Amendment required
the consent of the Beneficiaries holding more than 50% in the aggregate of the
Class A Interests held by all Beneficiaries. A majority of the Class A
Interests, representing 1,215,771 Interests or 60.5% of all Class A Interests,
voted in favor of the Amendment; 174,315 Interests or 8.7% of all Class A
Interests voted against the Amendment; and 49,787 Interests or 2.5% of all Class
A Interests abstained. Approximately 72% of all Class A Interests participated
in the vote. Accordingly, the Amendment was adopted.
On February 12, 1997, the Trust filed a Registration Statement on Form S-1
with the SEC, which became effective June 10, 1997. The Registration Statement
covered the issuance and sale of a new class of beneficiary interests in the
Trust (the "Class B Interests"). The characteristics of the Class B Interests,
associated risk factors and other matters of importance to the Beneficiaries and
purchasers of the Class B Interests were set forth in a Prospectus sent to the
Beneficiaries. On July 17, 1997, the offering closed and on July 18, 1997 the
Trust issued 3,024,740 Class B Interests at $5.00 per interest, thereby
generating $15,123,700 in aggregate Class B capital contributions. Class A
Beneficiaries purchased 5,520 Class B Interests, generating $27,600 of aggregate
capital contributions, and the Special Beneficiary, EFG, purchased 3,019,220
Class B Interests, generating $15,096,100 of such aggregate capital
contributions. The Trust incurred offering costs in the amount of $151,237 and
professional service costs of $153,842 in connection with this offering.
Subsequently, EFG transferred its Class B Interests to a special-purpose
company, Equis II Corporation, a Delaware corporation. EFG also transferred its
ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis
II Corporation. As a result, Equis II Corporation has voting control of the
Trust through its ownership of the majority of all of the Trust's outstanding
voting interests, as well as its ownership of AFG ASIT Corporation. Equis II
Corporation is controlled by EFG's President and Chief Executive Officer, Gary
D. Engle. Accordingly, control of the Managing Trustee did not change as a
result of the foregoing transactions.
As described in the Prospectus for the offering of the Class B Interests,
the Managing Trustee used a portion of the net cash proceeds realized from the
offering of the Class B Interests to pay a one-time special cash distribution of
approximately $1.47 per Class A Interest to the Class A Beneficiaries of the
Trust. The Managing Trustee declared and paid this special cash distribution,
aggregating $2,960,865 to the Class A Beneficiaries on August 15, 1997.
NOTE 8 - REDEMPTION OF CLASS A INTERESTS
On August 7, 1997, the Trust commenced an offer to purchase up to 45% of
the outstanding Class A Interests of the Trust by filing a Form 13E-4, Issuer
Tender Offer Statement, with the SEC and distributing to the Class A
Beneficiaries information (the "Tender Documents") concerning the offer. On
October 10, 1997, the Trust used $2,291,567 of the net proceeds realized from
the issuance of the Class B Interests to purchase 218,661 of the Class A
Interests tendered as a result of the offer. On April 28, 1998, the Trust
purchased 5,200 additional Class A Interests at a cost of $46,800.
23
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
NOTE 9 - SOLICITATION STATEMENT
On May 5, 1998, the Trust filed a definitive Solicitation Statement with
the United States Securities and Exchange Commission in connection with the
solicitation by the Trust of the consent of the Beneficiaries to a proposed
amendment (the "Amendment") to the Second Amended and Restated Declaration of
Trust (the "Trust Agreement"). The Solicitation Statement and Consent of
Beneficiary were mailed to all of the Beneficiaries of the Trust on May 6, 1998.
The Beneficiaries were requested to use the Consent of Beneficiary to vote on
seven proposals and return their votes on or before June 5, 1998. Equis II
Corporation, which has voting control of the Trust, agreed to vote all of its
Class B Interests in the same manner in which the majority of the Class A
Interests were actually voted. Accordingly, the Amendment would be adopted or
rejected based upon the voting results of the majority of Class A Interests that
were actually voted (including 9,210 Class A Interests owned by affiliates of
EFG), regardless of how few Class A Interests were actually voted.
The results of the voting reflected that a majority of Class A Interests
voted in favor of each of the proposals. Therefore, the Trust Agreement was
amended to (i) broaden the Trust's stated investment policies and objectives and
permit the Trust to invest in assets other than leased equipment; (ii) modify
the Trust's financing provisions to eliminate any cap on the amount of aggregate
Trust indebtedness and permit the Trust to use cross-collateralized and other
recourse debt structures; (iii) extend the Trust's reinvestment period, which
originally expired on September 2, 1997, until December 31, 2002 and (iv) reduce
acquisition fees paid to EFG in connection with reinvestment assets acquired
after the Amendment date from a maximum of 3% to 1% and management fees earned
in connection with such assets from a maximum of 5% to 2%.
In addition, subject to attaining a settlement in the Class Action Lawsuit
described in Note 11 herein, the Trust Agreement will be modified in the
following principal respects: (i) the Trust will pay a Special Cash Distribution
to the Class A Beneficiaries of record as of September 1, 1997, or to their
successors or assigns, totaling $1,513,639 (or approximately $0.75 per Class A
Beneficiary Interest) using a portion of the Class B capital contributions that
otherwise would be distributed as a Class B Capital Distribution to Equis II
Corporation, the parent company of the Managing Trustee and an affiliate of EFG;
(ii) Equis II Corporation will be required to reduce its prospective Class B
Capital Distributions by $3,405,688 and treat such amount as a long-term equity
investment in the Trust and (iii) certain voting restrictions will be placed
upon the Class B Interests owned by Equis II Corporation.
NOTE 10 - CLASS B CAPITAL DISTRIBUTION
The Managing Trustee and certain of its affiliates were named as
defendants in the Class Action Lawsuit discussed in Note 11 herein. In
connection with this litigation and subject to a settlement being effected, the
Managing Trustee has agreed to adopt certain modifications to the Trust
Agreement as described in the Solicitation Statement referred to in Note 9
herein. One aspect of the proposed settlement would result in using of a portion
of Equis II Corporation's Class B Capital Contribution to the Trust to (i) pay a
second special cash distribution to Class A Beneficiaries totaling $1,513,639,
approximately $.75 per Class A Interest, and (ii) invest $3,405,688 in the
Trust's long-term business activities. The remainder of the Class B Capital
Contributions (not otherwise used to repurchase Class A Interests in the Tender
Offer closed on October 10, 1997 or to pay for offering and related costs
associated with the Class B Interests or to pay the first special cash
distribution), $4,646,862 in total, was returned to Equis II Corporation
($4,629,404) and the other third-party Class B capital contributors ($17,458) on
July 6, 1998.
NOTE 11 - LEGAL PROCEEDINGS
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed
a class and derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the United States District Court
24
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Trust (collectively, the "Nominal Defendants"), against EFG and a number of its
affiliates, including the Managing Trustee, as defendants (collectively, the
"Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had filed
an earlier derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit."
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth terms pursuant to which a settlement of
the Class Action Lawsuit is intended to be achieved and which, among other
things, is expected to reduce the burdens and expenses attendant to continuing
litigation. The Stipulation of Settlement was based upon and superseded a
Memorandum of Understanding between the parties dated March 9, 1998 which
outlined the terms of a possible settlement. The Stipulation of Settlement was
filed with the Court on July 23, 1998 and was preliminarily approved by the
Court on August 20, 1998 when the Court issued its "Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
for Notice of, and Hearing on, the Proposed Settlement" (the "August 20 Order").
Prior to issuing a final order, the Court will hold a fairness hearing that will
be open to all interested parties and permit any party to object to the
settlement. The investors of the Trust and all other plaintiff class members in
the Class Action Lawsuit will receive a Notice of Settlement and other
information pertinent to the settlement of their claims in advance of the
fairness hearing. Since first executing the Stipulation of Settlement, the Court
has scheduled two fairness hearings, the first on December 11, 1998 and the
second on March 19, 1999, each of which was postponed because of delays in
finalizing certain information materials that are subject to regulatory review
prior to being distributed to investors, but none of which involved the Trust's
settlement.
On March 15, 1999, counsel for the Plaintiffs and the Defendants entered
into an amended stipulation of settlement (the "Amended Stipulation") which was
filed with the Court on March 15, 1999. The Amended Stipulation was
preliminarily approved by the Court by its "Modified Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999
(the "March 22 Order"). The Amended Stipulation, among other things, divides the
Class Action Lawsuit into two separate sub-classes that can be settled
individually. This revision is expected to expedite the settlement of the
Trust's claims by the middle of 1999. The second sub-class, which does not
include the Trust, is expected to remain pending for a longer period.
Assuming the proposed settlement is effected according to present terms,
the Trust's share of legal fees and expenses related to the Class Action Lawsuit
is estimated to be approximately $280,000, all of which was accrued and expensed
by the Trust in 1998. There can be no assurance that settlement of either
sub-class of the Class Action Lawsuit will receive final Court approval and be
effected. However, the Managing Trustee and its affiliates, in consultation with
counsel, concur that there is a reasonable basis to believe that final
settlements of each sub-class will be achieved. In the absence of final
settlements approved by the Court, the Defendants intend to defend vigorously
against the claims asserted in the Class Action Lawsuit. Neither the Managing
Trustee nor its affiliates can predict with any degree of certainty the cost of
continuing litigation to the Trust or the ultimate outcome.
In addition to the foregoing, the Trust is a party to other lawsuits that
have arisen out of the conduct of its business, principally involving disputes
or disagreements with lessees over lease terms and conditions. The following
action had not been finally adjudicated at December 31, 1998:
25
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
Action involving National Steel Corporation
EFG, on behalf of the Trust and certain affiliated investment programs
(collectively, the "Plaintiffs"), filed an action in the Commonwealth of
Massachusetts Superior Court, Department of the Trial Court in and for the
County of Suffolk on July 27, 1995, for damages and declaratory relief against a
lessee of the Trust, National Steel Corporation ("National Steel"). The
Complaint seeks reimbursement from National Steel of certain sales and/or use
taxes paid to the State of Illinois in connection with equipment leased by
National Steel from the Plaintiffs and other remedies provided under the Master
Lease Agreement ("MLA"). On August 30, 1995, National Steel filed a Notice of
Removal, which removed the case to United States District Court, District of
Massachusetts. On September 7, 1995, National Steel filed its Answer to the
Plaintiff's Complaint along with Affirmative Defenses and Counterclaims and
sought declaratory relief, alleging breach of contract, implied covenant of good
faith and fair dealing, and specific performance. The Plaintiffs filed an Answer
to National Steel's Counterclaims on September 29, 1995. The parties discussed
settlement with respect to this matter for some time; however, the negotiations
were unsuccessful. The Plaintiffs filed an Amended and Supplemental Complaint
alleging further default under the MLA and filed a motion for Summary Judgment
on all claims and Counterclaims. The Court held a hearing on the Plaintiff's
motion in December 1997 and later entered a decision dismissing certain of
National Steel's Counterclaims, finding in favor of the Plaintiffs on certain
issues and in favor of National Steel on other issues. In March 1999, the
Plaintiffs obtained payment for certain of the disputed items and have resumed
settlement discussions to resolve remaining issues. The Managing Trustee does
not believe that the resolution of the remaining claims will have a material
adverse effect on the Trust's financial position or results of operations.
NOTE 12 - SUBSEQUENT EVENTS
Sale of Aircraft
In January 1999, the Trust sold its 42.83% interest in a McDonnell Douglas
MD-82 aircraft formerly leased to Alaska Airlines, Inc. The Trust received sale
proceeds of $4,997,297. At December 31, 1998, the net carrying value of this
aircraft to the Trust was $4,489,744.
Investment in Kettle Valley Development
On March 1, 1999, the Trust and an affiliated trust (collectively, the
"Buyers") formed EFG/Kettle Development LLC, a Delaware limited liability
company, for the purpose of acquiring a 49.9% indirect ownership interest (the
"Interest") in a real estate development in Kelowna, British Columbia called
Kettle Valley. EFG/Kettle Development LLC, upon receiving the Buyers' equity
investment, purchased the Interest from a special purpose company ("SPC") whose
subsidiaries own a 99.9% limited partnership interest in Kettle Valley
Development Limited Partnership ("KVD LP"). The SPC and its subsidiaries were
established by the seller, in part, for income tax purposes and have no business
interests other than the development of Kettle Valley. KVD LP is a Canadian
Partnership that owns the property, consisting of approximately 280 acres of
land. The project, which is in the early stages of being marketed to home
buyers, is zoned for 1,000 residential units in addition to commercial space
that, currently, is being constructed. The seller is an unaffiliated third-party
company and has retained the remaining 50.1% ownership interest in the SPC. A
newly organized Canadian affiliate of EFG replaced the original general partner
of KVD LP on March 1, 1999.
The Trust's ownership share in EFG/Kettle Development LLC is 50.604% and
had a cost of $4,427,850, which was funded with cash of $3,095,369 and a
non-recourse note for $1,332,481. The note bears interest at an annualized rate
of 7.5% and will be fully amortized over 34 months commencing April 1, 1999. The
note is secured only by the Trust's stock interests in the SPC. In addition, the
seller purchased a residual sharing interest in a Boeing 767-300 owned by the
Buyers and leased to Scandinavian Airlines System. The seller paid $3,013,206 to
the Buyers ($1,524,803, or 50.604% to the Trust) for the residual interest,
which is subordinate to
26
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
certain preferred payments to be made to the Buyers in connection with the
aircraft. Payment of the residual interest is due only to the extent that the
Trust receives net residual proceeds from the aircraft. The residual interest is
non-recourse to the Buyers.
27
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AFG Investment Trust C
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1998, 1997 and 1996
The Trust 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 Trust for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $ 20,592,192 $ 5,772,819 $ 18,461,013
Sale proceeds, including assumption
of debt, realized upon disposition/
exchange of equipment 5,210,775 2,959,170 6,675,611
--------------- --------------- ---------------
Total cash generated from rents
and equipment sale proceeds 25,802,967 8,731,989 25,136,624
Original acquisition cost of equipment
disposed 20,351,725 5,755,478 21,097,744
--------------- --------------- ---------------
Excess of total cash generated to cost
of equipment disposed $ 5,451,242 $ 2,976,511 $ 4,038,880
=============== =============== ===============
</TABLE>
28
<PAGE>
AFG Investment Trust C
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1998
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income $ 2,143,488 $ 2,855,732 $ 4,999,220
Add:
Depreciation 9,603,049 -- 9,603,049
Management fees 659,939 -- 659,939
Book value of disposed equipment -- 2,355,043 2,355,043
Less:
Principal reduction of notes payable (4,855,290) -- (4,855,290)
------------------ ------------------ ------------------
Cash from operations, sales
and refinancings 7,551,186 5,210,775 12,761,961
Less:
Management fees (659,939) -- (659,939)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings 6,891,247 5,210,775 12,102,022
Other sources and uses of cash:
Cash at beginning of year 4,070,542 4,773,098 8,843,640
Purchase of Treasury Interests (46,800) -- (46,800)
Restricted cash 4,646,862 -- 4,646,862
Net change in receivables and
accruals 1,283,005 -- 1,283,005
Less:
Cash distributions paid (9,803,606) -- (9,803,606)
------------------ ------------------ ------------------
Cash at end of year $ 7,041,250 $ 9,983,873 $ 17,025,123
================== ================== ==================
</TABLE>
29
<PAGE>
AFG Investment Trust C
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING TRUSTEE AND ITS AFFILIATES AS
REQUIRED BY SECTION 10.4 OF THE SECOND AMENDED
AND RESTATED DECLARATION OF TRUST
December 31, 1998
For the year ended December 31, 1998, the Trust reimbursed the Managing
Trustee and its Affiliates for the following costs:
Operating expenses $ 517,586
30
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of AFG Investment Trust C of our report dated March 26, 1999, included in
the 1998 Annual Report to the Participants of AFG Investment Trust C.
ERNST & YOUNG LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
Exhibit 99.2
CERTIFICATE OF OFFICER
I, Jean Stein, president of CIT Leasing (Bermuda), Ltd., hereby certify
that attached herewith is a true and complete copy of the Aircraft Lease
Agreement, dated December 29. 1993, between CIT Leasing (Bermuda), Ltd., as
Lessor, Scandinavian Airlines System, Denmark-Norway-Sweden, as Lessee and SAS
Capital, B.V.
CIT LEASING (BERMUDA), LTD.
By: /s/ Jean B. Stein
--------------------------
Name: Jean Stein
Title: President
<PAGE>
Private & Confidential
DATED 29th day of December, 1993
CIT LEASING (BERMUDA), LTD.
(as Lessor) (1)
SCANDINAVIAN AIRLINES SYSTEM
Denmark-Norway-Sweden
(as Lessee) (2)
and
SAS CAPITAL BV (3)
-----------------------------------------
AIRCRAFT LEASE AGREEMENT
for
One Boeing 767-300ER Aircraft
Manufacturer's Serial No. 24475
Norwegian Registration Mark LN-RCG
-----------------------------------------
Norton Rose
London
<PAGE>
CONTENTS
Clause Heading Page
- ------ ------- ----
1 Definitions ........................................................... 1
2 Representations and Warranties ........................................ 10
3 Term of Lease ......................................................... 14
4 Conditions ............................................................ 15
5 Delivery and Acceptance ............................................... 16
6 Lessor's Warranties and Manufacturer's Warranties ..................... 17
7 Rent .................................................................. 18
8 Payments, Interest and Calculations ................................... 20
9 Costs and Indemnities ................................................. 21
10 Taxation .............................................................. 24
11 General Undertakings .................................................. 30
11.1 .................................................................. 30
(a) Notification of Relevant Event ............................. 30
(b) Consents and authorisations ................................ 31
(c) Preparation and Supply of Accounts ......................... 31
(d) Information concerning the Lessee and SAS BV ............... 31
11.2 .................................................................. 31
(a) Status Report .............................................. 31
(b) Inspection ................................................. 31
12 Sub-Leasing ........................................................... 33
13 Operations and Maintenance ............................................ 37
(a) Certificates and Licences .................................. 37
(b) Operation and Use .......................................... 37
(c) Maintenance ................................................ 37
(d) Replacement and Installation of Engines and Parts .......... 38
(e) Removal of Engines and Parts ............................... 39
(f) Non-installed Engines ...................................... 39
(g) Nameplates ................................................. 39
(h) Alterations ................................................ 40
13.2 Temporary Installation of engines and Parts ...................... 40
<PAGE>
13.3 Pooling and Installation of Parts and Engines on other aircraft .. 40
14 Manuals and Technical Records ......................................... 42
15 Title and Registration ................................................ 43
16 Insurance ............................................................. 44
17 Loss and Damage ....................................................... 46
18 Requisition ........................................................... 48
19 Redelivery ............................................................ 49
20 Termination Events .................................................... 55
21 Lessor's Rights Following a Termination Event ......................... 57
22 Notices ............................................................... 58
23 Assignment ............................................................ 60
24 Miscellaneous ......................................................... 62
25 Confidentiality ....................................................... 62
26 Law and Jurisdiction .................................................. 64
Schedule
1 List of Documents and Evidence ........................................ 66
2 Acceptance Certificate ................................................ 71
3 Rent payable during the First Renewal Term and the Second Renewal
Term .................................................................. 73
4 Agreed Value .......................................................... 74
5 Part 1 Permitted Air Carriers ......................................... 75
5 Part 2 Permitted Countries ............................................ 77
6 Form of Letter of Quiet Enjoyment ..................................... 78
<PAGE>
A LEASE AGREEMENT dated 29th of December, 1993, and made BETWEEN:
(1) CIT LEASING (BERMUDA), LTD. a limited liability company organised and
existing under the laws of Bermuda, whose registered office is at
Clarendon House, 2 Church Street, Hamilton, Bermuda (the "Lessor"); and
(2) SCANDINAVIAN AIRLINES SYSTEM Denmark-Norway-Sweden, a consortium organised
and existing under the laws of Denmark, Norway and Sweden with its
principal office at Frosundaviks Alle 1, Solna, 161 87 Stockholm, Sweden
(the "Lessee"); and
(3) SAS CAPITAL BV a company organised and existing under the laws of the
Netherlands, acting for the purpose of this Agreement through its branch
office in Brussels located at Regentlaan 45, 1000, Brussels, Belgium ("SAS
BV").
BY WHICH IT IS AGREED as follows:
1 Definitions
1.1 In this Agreement, unless the context otherwise requires:
"Acceptance Certificate" means a certificate in substantially the form set
out in schedule 2 to be signed by the Lessee as required under clause 5
(Delivery and Acceptance);
"ABA" means Aktiebolaget Aerotransport, a Swedish corporation;
"Affiliate" means, in relation to any person, any other person which,
directly or indirectly, controls or is controlled by or is under common
control with such person and for the purposes of this definition,
"control" when used with respect to any specified person means the power
to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise and the terms "controlling" and "controlled" have
meanings correlative to the foregoing;
"Agreed Value" means an amount calculated in accordance with schedule 4;
"Aircraft" means the Airframe together with the Engines (whether or not
any of the Engines may from time to time be installed on the Airframe);
and, where the context so permits, shall include the Manuals and Technical
Records and, unless otherwise provided herein, shall mean the Aircraft as
a whole and any part thereof;
"Aircraft Purchase Agreement" means the aircraft purchase agreement of
even date herewith between the Lessee, as seller, and the Lessor, as
buyer, relating to the sale by the Lessee to the Lessor of the Aircraft;
1
<PAGE>
"Airframe" means:
(a) the Boeing 767-300ER aircraft with manufacturer's serial number
24475 (excluding the Engines or engines from time to time installed
thereon) and all Parts installed at Delivery (other than galley
inserts, cargo containers, and any audio visual and telephone
equipment installed at Delivery which is leased by the Lessee from
any third party);
(b) any and all Parts which are from time to time incorporated therein
or installed thereon or attached thereto title to which is vested in
the Lessor in accordance with the terms of this Agreement; and
(c) for so long as title thereto shall remain vested in the Lessor in
accordance with the terms of this Agreement any and all Parts which
have been removed from such aircraft and all replacements, renewals
and additions made to the foregoing in accordance with this
Agreement.;
"Appraisal" shall mean an appraisal mutually agreed to by two
internationally recognised independent aircraft appraisers, one of which
shall be chosen by the Lessor, at the Lessor's expense, and one by the
Lessee, at the Lessee's expense, or if such appraisers cannot agree on the
amount of such appraisal, an amount equal to the average of such two
appraisals and a third appraisal arrived at by a third internationally
recognised independent aircraft appraiser chosen by the mutual consent of
such two appraisers, and paid for by the Lessor and the Lessee in equal
shares, provided that, if either party shall fail to appoint an appraiser
within thirty (30) days after a written request to do so by the other
party then the amount of the appraisal shall be determined by the
appraiser selected by the other party; provided however, that in
calculating such average any appraisal which has a greater then ten per
cent. (10%) variance above or below the second highest of the three
appraisals shall be disregarded;
"Approved Maintenance Programme" means the Aviation Authority approved
maintenance programme for aircraft of the same make and model as the
Aircraft based upon the manufacturer's maintenance planning data document
and encompassing scheduled maintenance (including block maintenance),
condition monitored maintenance and on-condition maintenance of Airframe,
Engines and Parts of the Aircraft including, but not limited to,
servicing, testing, preventive maintenance, repairs, structural
inspections, system checks, overhauls, approved modifications, service
bulletins, engineering orders, airworthiness directives, corrosion
control, inspections and treatments;
"Assignment" means the assignment of the Lessor's rights, title and
interest in and under this Agreement granted, or to be granted, by the
Lessor in favour of the Lender as security for the Lessor's obligations to
the Lender in respect of financing of the Aircraft;
"Aviation Authority" means the Aviation Authority of the State of
Registration or any other agency or office in the State of Registration
who shall from time
2
<PAGE>
to time be vested with the control and supervision of, or have
jurisdiction over, the registration, airworthiness and operation of
aircraft or other matters relating to civil aviation in the State of
Registration;
"Banking Day" means a day (other than a Saturday, Sunday or holiday
scheduled by law) on which banks are open for business in Stockholm, Oslo,
Brussels and New York City, and the relevant place of payment under clause
8;
"Compulsory Acquisition" means requisition of title or other compulsory
acquisition, requisition, appropriation, expropriation, deprivation or
confiscation for any reason of the Aircraft by a Government Entity or
other competent authority, whether de jure or de facto, but shall exclude
requisition for use or hire not involving requisition of title;
"Consortium Agreement" means the Consortium Agreement dated 8th February
1951, among DDL, DNL and ABA;
"Cycle" shall mean one take-off and landing of the Aircraft or, in respect
of any Engine or Part temporarily installed on another aircraft, that
other aircraft;
"DDL" means Det Danske Luftfarselskab A/S, a Danish corporation;
"Delivery" means the time when the Lessor shall obtain title to the
Aircraft under the Aircraft Purchase Agreement and shall be deemed to have
delivered the Aircraft to the Lessee pursuant to clause 5, and the Lease
Period shall have commenced, as evidenced by the execution and delivery of
the Acceptance Certificate;
"Delivery Date" means the date on which Delivery shall occur;
"Delivery Location" means Arlanda Airport, Stockholm, Sweden or Copenhagen
Airport, Copenhagen, Denmark, or Fornebu Airport, Oslo, Norway or such
other location as may be mutually agreed by the Lessee and the Lessor;
"Dispensation" means a dispensation issued by the Department of
Transportation of the State of Registration permitting the Aircraft to be
registered in the name of the Lessor;
"DNL" means Det Norske Luftfartselskap A/S, a Norwegian corporation;
"Dollars" and "$" mean the lawful currency of the United States of America
and, in respect of all payments to be made under this Agreement in
Dollars, mean funds which are for same day settlement in the New York
Clearing House Interbank Payments System (or such other U.S. dollar funds
as may at the relevant time be customary for the settlement of
international banking transactions denominated in United States dollars);
3
<PAGE>
"Encumbrance" means any mortgage, charge, pledge, lien, hypothecation
assignment, trust arrangement or security interest of any kind;
"Engine" means:
(a) each of the Pratt & Whitney PW4060 engines specified in the
Acceptance Certificate which are installed on the Airframe at
Delivery and any other engine or engines which become the property
of the Lessor pursuant to the terms of this Agreement whether or not
any of the foregoing have been removed from the Airframe and
installed on the Airframe or any other airframe or aircraft so long
as title thereto shall remain vested in the Lessor in accordance
with the terms of this Agreement;
(b) any Replacement Engine which may replace any of the engines referred
to in paragraph (a) above pursuant to the terms hereof; and
(c) in each case, any and all Parts which are from time to time
incorporated or installed on or in or attached to any such engine
(or Replacement Engine) when delivered and leased hereunder or at
any time thereafter title to which is vested in the Lessor in
accordance with the terms of this Agreement, and any and all parts
which have been removed therefrom provided that title thereto
remains vested in the Lessor in accordance with the terms of this
Agreement.
"Engine Loss" means the occurrence of any of the events referred to in the
definition of "Total Loss" but with reference therein to "Aircraft" being
construed as references to any Engine;
"Expected Delivery Date" means 30th December, 1993 or such other date as
may be mutually agreed by the Lessee and the Lessor in writing;
"Flight Hour" shall mean each hour or fraction thereof elapsing from the
moment at which the wheels of the Aircraft (or other aircraft in the case
of temporarily installed Parts or Engines) leave the ground on the
take-off of such aircraft until the wheels of such aircraft touch the
ground on the landing of such aircraft following such take-off;
"First Renewal Term" shall have the meaning ascribed thereto in clause
3.2;
"Government Entity" means and includes (whether having a distinct legal
personality or not) (a) any national government, political sub-division
thereof, or local jurisdiction therein, (b) any board, commission,
department, division, organ, instrumentality, court or agency of any
entity referred to in (a) above, however constituted, and (c) any
association, organisation or institution (international or otherwise) of
which any entity mentioned in (a) or (b) above is a member or to whose
jurisdiction any thereof is subject or in whose activities any thereof is
a participant;
4
<PAGE>
"ICAO" means the International Civil Aviation Organisation;
"Indebtedness" means any obligation for the payment or repayment of money,
whether as principal or as surety, and whether present or future, actual
or contingent;
"Insurances" means any and all contracts or policies of insurance required
to be effected and maintained under this Agreement;
"Inter-Government Agreement" means the Inter-Government Agreement dated
20th December, 1951 between Sweden, Denmark and Norway concerning
cooperation with respect to air traffic;
"Lease Period" means the period during which the Lessee shall be entitled
to the possession and use of the Aircraft in accordance with this
Agreement;
"Lease Term" means the Primary Lease Term and any permitted extension
thereof pursuant to clause 3.2;
"Lender" means any bank or financial institution which provides to the
Lessor finance in respect of the Aircraft;
"Lessee" includes the successors, permitted assigns and permitted
transferees of the Lessee;
"Lessee Documents" means this Agreement, the Aircraft Purchase Agreement,
the Warranties Assignment, any other agreement executed by the Lessee in
connection with obligations owed to the Lessor under this Agreement and
all notices, consents, certificates and other documents and agreements to
which the Lessee is a party to be issued pursuant to the foregoing;
"Lessor's Liens" means any Encumbrance arising as a result of (i) claims
against the Lessor not related to the Lessee Documents or the transactions
contemplated thereby, (ii) acts of the Lessor not contemplated hereunder
or under the other Lessee Documents or which are in violation of the
Lessee Documents, (iii) Taxes imposed against the Lessor which are not to
be indemnified against by the Lessee pursuant to the Lessee Documents or
other Taxes in respect of which the Lessee has made all indemnity payments
to the Lessor required pursuant to the Lessee Documents, or (iv) claims
against the Lessor arising out of the voluntary transfer by the Lessor
(without the consent of the Lessee) of its interest, at any time, in the
Aircraft, the Airframe or any Engine, other than a transfer or disposition
by the Lessor permitted pursuant to clauses 21 or 23 hereof; provided
however, that any Encumbrance which is attributable solely to the Lessor
and would otherwise constitute Lessor's Liens hereunder shall not
constitute Lessor's Liens hereunder so long as (1) the enforcement of such
Lien would pose no likelihood of the sale, forfeiture or loss of the
Aircraft, the Airframe or any Engine or any interest herein, (2) the
enforcement of such Lien would not interfere in any way with the quiet
5
<PAGE>
enjoyment, use or operation of the Aircraft by the Lessee (or any
permitted sub-lessee), and, if applicable, (3) the Lessor is diligently
contesting such Lien by appropriate proceedings, or (4) such Lessor's Lien
is a Permitted Lien hereunder or (5) the Lessor has procured a Letter of
Quiet Enjoyment from the beneficiary of such Lessor's Lien;
"Letter of Quiet Enjoyment" means a letter executed by the Lender or any
other beneficiary of a Lessor's Lien, in each case in the form of schedule
6, or such other form as the Lessee and the Lessor may agree;
"Manuals and Technical Records" means all original records, logbooks,
manuals, technical data and other materials and documents (whether kept or
to be kept in compliance with any regulation of the Aviation Authority or
otherwise) relating to the Aircraft all of which shall be maintained in
the English language;
"month" means a period beginning in one calendar month and ending in the
next calendar month on the day numerically corresponding to the day of the
calendar month on which it started; provided that (a) if the period
started on the last Banking Day in a calendar month or if there is no such
numerically corresponding day, it shall end on the last Banking Day in
such next calendar month and (b) if such numerically corresponding day is
not a Banking Day, the period shall end on the next following Banking Day
in the same calendar month but if there is no such Banking Day it shall
end on the preceding Banking Day and "months" and "monthly" shall be
construed accordingly;
"Mortgage" means the mortgage of the Aircraft granted or to be granted by
the Lessor in favour of the Lender as security for the Lessor's
obligations to the Lender in respect of financing of the Aircraft;
"Parent" means The CIT Group/Equipment Financing Inc. of 1211 Avenue of
the Americas, New York, N.Y. 10036;
"Parent Guarantee" means a guarantee given or to be given by the Parent in
favour of the Lessee in connection with the Lessor's obligations under the
Lessee Documents, in form and substance reasonably satisfactory to the
Lessee;
"Part" means all appliances, parts, accessories, instruments, navigational
and communications equipment, furnishings, modules, components and other
items of equipment (other than complete Engines or engines), which may
from time to time be incorporated or installed in or attached to the
Airframe or any Engine;
"Payment Date" means, subject to clause 8.2, the Delivery Date and each of
the dates falling at successive one (1) monthly intervals thereafter
throughout the Lease Period;
6
<PAGE>
"Permitted Air Carrier" means any air carrier which is licenced under
applicable aviation laws and (a) which is not in bankruptcy or subject to
insolvency proceedings and which is listed in part 1 of schedule 5, or (b)
any Affiliate of the Lessee or (c) any other air carrier which the Lessor
shall approve in writing (such approval not to be unreasonably withheld or
delayed);
"Permitted Country" means any of the countries listed in part 2 of
schedule 5 or any other country which the Lessor shall approve;
"Permitted Lien" means in respect of the Aircraft or any Engine:-
(a) the Assignment, the Mortgage and this Agreement;
(b) any Encumbrance for Taxes either not yet assessed or, if assessed,
not yet due and payable or being contested in good faith by
appropriate proceedings (and for the payment of which adequate
reserves have been set aside) so long as any such proceedings or the
continued existence of such Encumbrance do not involve the
likelihood of the sale, forfeiture or loss of, or of any interest
in, the Aircraft or any Engine;
(c) airports, air navigation authorities', airport hangar keepers',
mechanics', material men's, carriers', employees' or other similar
Encumbrances arising in each case, in the ordinary course of
business by statute or by operation of law in respect of obligations
which are not overdue or which are being contested in good faith by
appropriate proceedings (and for the payment of which adequate
reserves have been provided) so long as any such proceedings or the
continued existence of such Encumbrance do not involve the
likelihood of the sale, forfeiture or loss of, or of any interest
in, the Aircraft or any Engine;
(d) Encumbrances (other than Encumbrances for Taxes) arising out of
judgments or awards against the Lessee or any Permitted Air Carrier
having possession of the Aircraft with respect to which at the time
an appeal is being presented in good faith and with respect to which
there shall have been secured a stay of execution pending that
appeal so long as any such Encumbrance does not involve any
likelihood that the Interests of the Lessor in the Airframe, any
Engine or any Part will be adversely affected; and
(e) the rights of any other person under agreements or arrangements to
the extent expressly permitted by the provisions of clause 13;
"Primary Lease Term" means the period of five (5) years commencing from
the time of Delivery;
"Redelivery Location" means such of Arlanda Airport, Stockholm, Sweden or
Copenhagen Airport, Copenhagen, Denmark or Fornebu Airport, Oslo, Norway
7
<PAGE>
as the Lessee may designate or any other location as may be mutually
agreed by the Lessee and the Lessor;
"Relevant Event" means any Termination Event or any event which with the
giving of notice or lapse of time or the satisfaction of any other
condition (or any combination thereof) would constitute a Termination
Event;
"Relevant Rate of Interest" means the rate of interest which is two per
cent. (2%) per annum above the rate quoted by Chemical Bank as its prime
per annum rate for the period in respect of which the Relevant Rate of
Interest falls to be determined;
"Rent" means the instalments of Rent payable pursuant to clause 3.2 and
clause 7.1(a) and schedule 3;
"Replacement Engine" means an engine of the same manufacturer of the same
or an improved model and suitable for use on the Airframe and which is in
at least as good operating condition and of at least equivalent value and
utility as the Engine to be replaced or, as the case may be, in respect of
which an Engine Loss has occurred assuming that such Engine was in the
condition and repair, except for normal wear and tear, required by the
terms hereof immediately prior to the replacement of or, as the case may
be, the occurrence of such Engine Loss;
"Requisition Compensation" means all moneys or other compensation from
time to time payable in respect of the Compulsory Acquisition of the
Aircraft;
"SAS BV" includes the successors, permitted assigns and permitted
transferees of SAS BV;
"Scandinavian Countries" means Denmark, Norway and Sweden;
"Second Renewal Term" shall have the meaning ascribed thereto in clause
3.2;
"State of Registration" means Norway or such other jurisdiction in which
the Aircraft is from time to time registered in accordance with the terms
of this Agreement;
"Taxes" includes all present and future taxes, levies, imposts, duties,
fees or charges of whatever nature, including, without limitation, any
value added or similar tax, together with interest thereon and penalties
in respect thereof and "Taxation" shall be construed accordingly;
"Termination Date" means the date of termination of the leasing of the
Aircraft hereunder pursuant to clause 21.1;
"Termination Event" means any of the events or circumstances described in
clause 20; and
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"Total Loss" means any of the following events:
(a) the actual or constructive total loss of the Aircraft (including any
damage to the Aircraft which results in an insurance settlement on
the basis of a total loss, or requisition for use or hire of the
Aircraft which results in an insurance settlement on the basis of a
total loss);
(b) the Aircraft being destroyed, damaged beyond repair, or otherwise
ceasing to be useable by an airline in the normal course of its
business for a period exceeding one hundred and twenty (120)
consecutive days;
(c) the Compulsory Acquisition of the Aircraft; or
(d) the hijacking, theft, confiscation, capture, detention, seizure or
requisition for use or hire of the Aircraft, other than where the
same amounts to Compulsory Acquisition of the Aircraft, which
deprives the operator of the use of the Aircraft for more than
ninety (90) consecutive days, excluding requisition for use or hire
by any Government Entity of any Scandinavian Country; or
(e) the requisition for use or hire of the Aircraft in the circumstances
referred to in the second sentence of clause 18.5 hereof;
"Warranties" means, at any time, all warranties and indemnities given by
any manufacturer or supplier of any part of the Aircraft to the Lessee
which are assignable either without consent or, if consent is required, in
respect of which such consent has been obtained by the Lessee and held by
the Lessee at such time;
"Warranties Assignment" means the assignment executed or to be executed by
the Lessor and the Lessee assigning in favour of the Lessor the
Warranties.
1.2 Clause headings and the table of contents are inserted for convenience of
reference only and shall be ignored in the interpretation of this
Agreement.
1.3 In this Agreement, unless the context otherwise requires:
(a) references to clauses and schedules are to be construed as
references to the clauses of, and schedules to, this Agreement and
references to this Agreement include schedules;
(b) references to (or to any specified provision of) this Agreement or
any other document shall be construed as references to this
Agreement, that provision or that document as in force for the time
being and as amended in accordance with the terms thereof or, as the
case may be, with the agreement of the relevant parties and (where
such consent is, by the terms of this Agreement or the relevant
document required to be
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obtained as a condition to such amendment being permitted) the prior
written consent of the Lessor and the Lessee;
(c) references to a "regulation" include any present or future
regulation, rule, directive, requirement, request or guideline
(whether or not having the force of law) of any agent, authority,
central bank or governmental department or any self-regulatory or
other supra-national authority;
(d) reference to a "consent" also includes an approval, authorisation,
exemption, filing, licence, order, permission, recording or
registration;
(e) words importing the plural shall include the singular and vice
versa;
(f) references to a person shall be construed as including, references
to an individual, firm, partnership, consortium, joint venture,
association, company, corporation, joint-stock company,
unincorporated body of persons and any Government Entity; and
(g) references to any enactment shall be deemed to include references to
such enactment as re-enacted, amended or extended.
2 Representations and Warranties
2.1 The Lessee represents and warrants to the Lessor that:
(a) the Lessee is a consortium established by the Consortium Agreement
and is regarded as a legal entity under the laws of the Scandinavian
Countries with full power and authority (corporate and other) to
conduct its operations as presently conducted, to own its properties
and to execute and deliver, and to perform all of its obligations
under, this Agreement and any other Lessee Document;
(b) DDL, DNL and ABA are jointly and severally liable as against third
parties for the obligations and liabilities of the Lessee (including
the Lessee's obligations to the Lessor under this Agreement and the
other Lessee Documents) except as the same may be limited by
operation of law and applicable bankruptcy, insolvency,
reorganisation, moratorium or other similar laws affecting the
rights of creditors generally;
(c) this Agreement and each other Lessee Document has been duly
authorised by the Lessee and the Lessee Documents constitute or will
when executed and delivered constitute valid and legally binding
obligations of the Lessee, enforceable in accordance with their
terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganisation, moratorium, liquidation or similar laws
affecting the rights of creditors generally and except as
enforceability may be subject to general principles of equity,
whether asserted in proceedings in equity or at law;
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(d) the execution and delivery of, the performance of its obligations
under, and compliance by the Lessee with the provisions of, the
Lessee Documents will not (i) contravene any existing applicable
law, statute, rule or regulation or any judgment, decree or permit
to which the Lessee is subject, (ii) conflict with, or result in any
breach of any of the terms of, or constitute a default under, any
agreement or other instrument to which the Lessee is a party or is
subject or by which it or any of its property is bound, or (iii)
contravene or conflict with any provision of the Lessee's
constitutional documents;
(e) except for registration of the Aircraft with the Aviation Authority,
no further action, including any filing or recording of any
document, is necessary in order to establish and perfect the
Lessor's title to and interest in the Aircraft, in any applicable
jurisdiction in the Scandinavian Countries;
(f) no litigation, arbitration or administrative proceeding is taking
place, pending or to its knowledge threatened against the Lessee
which could have a material adverse effect on the Lessee's ability
to perform its obligations under the Lessee Documents;
(g) the audited financial statements of the Lessee for the financial
year ended on 31st December, 1992 certified by independent auditors
of recognised standing in the Scandinavian Countries as delivered to
the Lessor have been prepared in accordance with International
Accounting Standards which have been consistently applied, and, as
at such date, the Lessee did not have any significant liabilities
(contingent or otherwise) or any unrealised or anticipated losses
which are not disclosed by, or reserved against in, such financial
statements;
(h) save for the registration of the Aircraft with the Aviation
Authority on a permanent basis in the name of the Lessor and the
issue of a permanent certificate of airworthiness by the Aviation
Authority, it is not necessary to ensure the legality, validity,
enforceability or admissibility in evidence of each of the Lessee
Documents that any of them or any other instrument be notarised,
filed, recorded, registered or enrolled in any court, public office
or elsewhere in the Scandinavian Countries or that any stamp,
registration or similar tax or charge be paid in the Scandinavian
Countries on or in relation to any of the Lessee Documents and the
Lessee Documents are in proper form for their enforcement in the
courts of the Scandinavian Countries;
(i) the choice by the Lessee of English law to govern this Agreement and
the submission by the Lessee to the non-exclusive jurisdiction of
the English courts is valid and binding;
(j) the Lessee has received every consent, approval or authorisation of,
and has given every notice to, each Government Entity having
jurisdiction
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with respect to the execution, delivery or performance of this Lease
(including all monetary and other obligations hereunder) that is
required for the Lessee to execute and deliver this Lease and each
other Lessee Document to which it is a party, and to perform the
transactions contemplated hereby and thereby and each such consent,
approval or authorisation is valid and effective and has not been
revoked;
(k) the Lessee is subject to civil and commercial law with respect to
its obligations under the Lessee Documents and the transactions
contemplated thereby constitute private and commercial acts done for
private and commercial purposes and neither the Lessee nor any of
its assets is entitled to any immunity on the grounds of sovereignty
or otherwise from any legal action or proceeding (which shall
include, without limitation, suit, attachment prior to judgment,
execution or other enforcement).
2.2 SAS BV represents and warrants to the Lessor that:
(a) it is duly organised and existing under the laws of the Netherlands
as a limited liability company and has full power and authority
(corporate and other) to conduct its operations as presently
conducted, to own its properties and to execute and deliver, and to
perform all of its obligations under, this Agreement;
(b) this Agreement has been duly authorised by SAS BV and this Agreement
constitutes valid and legally binding obligations of SAS BV
enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganisation, moratorium, liquidation or similar laws affecting
the rights of creditors generally and except as enforceability may
be subject to general principles of equity, whether asserted in
proceedings in equity or at law;
(c) the execution and delivery of, the performance of its obligations
under, and compliance by SAS BV with the provisions of, this
Agreement will not (i) contravene any existing applicable law,
statute, rule or regulation or any judgement, decree, permit or
consent to which SAS BV is subject or which is in force in relation
to SAS By, (ii) conflict with, or result in any breach of any of the
terms of, or constitute a default under, any agreement to which SAS
BV is a party or is subject or by which it or any of its property is
bound, or (iii) contravene or conflict with any provision of SAS
BV's constitutional documents;
(d) no litigation, arbitration or administration proceeding is taking
place, pending or, to its knowledge, threatened against SAS BV which
could have a material adverse effect on SAS BV's ability to perform
its obligations under this Agreement;
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<PAGE>
(e) the choice by SAS BV of English law to govern this Agreement and the
submission by SAS BV to the non-exclusive jurisdiction of the
English courts is valid and binding;
(f) SAS BV has received every consent, approval or authorisation of, and
has given every notice to, each Government Entity having
jurisdiction with respect to the execution, delivery or performance
of this Lease (including all monetary and other obligations
hereunder) that is required for SAS BV to execute and deliver this
Lease, and to perform the transactions contemplated hereby and each
such consent, approval or authorisation is valid and effective and
has not been revoked;
(g) SAS BV is subject to civil and commercial law with respect to its
obligations under this Lease and the transactions contemplated
hereby constitute private and commercial acts done for private and
commercial purposes and neither SAS BV nor any of its assets is
entitled to any immunity on the grounds of sovereignty or otherwise
from any legal action or proceeding (which shall include, without
limitation, suit, attachment prior to judgment, execution or other
enforcement).
2.3 The Lessor hereby represents and warrants to the Lessee that:
(a) it is duly organised and existing under the laws of Bermuda as a
limited liability company and has all requisite corporate power and
authority to enter into and perform its obligations under this
Agreement and the other Lessee Documents to which it is or will be a
party;
(b) the execution, delivery and performance of this Agreement and the
other Lessee Documents to which it is or will be a party, have been
duly authorised by all necessary corporate action on its part and
each of this Agreement and such other Lessee Documents to which it
is or will be a party constitutes or, when so executed and
delivered, will constitute its legal, valid and binding obligation;
(c) the execution and delivery of, the performance of its obligations
under, and compliance by the Lessor with the provisions of the
Lessee Documents to which it is or will be a party will not (i)
contravene any existing applicable law, statute, rule or regulation
or any judgment, decree or permit to which the Lessor is subject,
(ii) conflict with, or result in any breach of any of the terms of,
or constitute a default under, any agreement or other instrument to
which the Lessor is a party or is subject or by which it or any of
its property is bound, or (iii) contravene or conflict with any
provision of the Lessor's constitutional documents;
(d) no litigation, arbitration or administrative proceeding is taking
place, pending or to its knowledge threatened against the Lessor
which would have a material adverse effect on its liability to
perform its obligations
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<PAGE>
under this Agreement or any other Lessee Document to which it is or
will be a party;
(e) no consent of, giving of notice to, or registration with, or taking
of any other action in respect of, any governmental or other
competent authority or agency of Bermuda or the United States of
America is required to be obtained, given, made or taken by it in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Lessee Document to
which the Lessor is or will be a party or the carrying out by it of
any of the transactions contemplated hereby or thereby; and
(f) the choice by the Lessor of English law to govern this Agreement and
the submission to jurisdiction of the Lessor to the non-exclusive
jurisdiction of the English courts is valid and binding.
2.4 The Lessor hereby represents, warrants, covenants and undertakes to the
Lessee that at all times throughout the Lease Term:
(a) without prejudice to any rights the Lessor may have under clause
23.2, and except as otherwise may be required by applicable law, it
shall maintain and preserve its status as a Bermuda tax exempt
company; and
(b) without prejudice to any rights the Lessor may have under clause
23.2 and save for as a result of any transfer of stock or shares in
the Lessor expressly permitted pursuant to the terms of the Parent
Guarantee, the issued share capital of, and the voting rights in,
the Lessor will be majority owned, directly or indirectly, by the
Parent.
3 Term of Lease
3.1 The Lessor shall lease and the Lessee shall take on lease the Aircraft,
subject to the terms and conditions of this Agreement, for the Lease Term.
3.2 The Lessee shall be entitled, provided that no Termination Event has
occurred and is continuing, on giving to the Lessor notice (which notice,
when given shall be irrevocable) not less than one hundred and eighty
(180) days prior to the end of the Primary Lease Term to extend the Lease
Term for one (1) further year (the "First Renewal Term"). During the First
Renewal Term the Lessee shall be entitled, provided that no Termination
Event has occurred and is continuing, on giving to the Lessor notice
(which notice, when given shall be irrevocable) not less than one hundred
and eighty (180) days prior to the end of the First Renewal Term to extend
the Lease Term for a second period of one (1) further year (the "Second
Renewal Term"). During each of the First and Second Renewal Terms the
provisions of this Agreement shall remain in full force and effect, save
that rent payable by the Lessee shall be determined in accordance with the
provisions of clause 7. 1(b).
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4 Conditions
4.1 The obligation of the Lessor to lease the Aircraft to the Lessee under
this Agreement is subject to the condition that, on or prior to Delivery,
the Lessor shall have received the documents and evidence specified in
Parts 1 and 2 of schedule 1 in form and substance satisfactory to the
Lessor.
4.2 The obligation of the Lessor to lease the Aircraft to the Lessee under
this Agreement is subject to the further conditions that:-
(a) the Aircraft shall have been delivered to the Lessor and the Lessor
shall have received a bill of sale from the Lessee dated the
Delivery Date;
(b) all necessary governmental and other third party consents or
approvals required to permit the Lessor to lease the Aircraft to the
Lessee shall have been received by the Lessor;
(c) the representations and warranties of (i) the Lessee set out in
clause 2.1 and in the Aircraft Purchase Agreement and (ii) SAS BV
set out in clause 2.2, are true and correct as if each were made
with respect to the facts and circumstances existing immediately
prior to the time when Delivery is to take place;
(d) the Lessor shall have received an appraisal of the fair market value
of the Aircraft performed by Aircraft Information Services, Inc.
which the Lessor, notwithstanding the terms of this clause 4.2,
acknowledges and confirms it has received and that such appraisal is
acceptable to it in form and substance;
(e) no Relevant Event shall have occurred and be continuing or would
arise by reason of Delivery taking place; and
(f) the Lessor shall have received written notice from the Lessee at
least one (1) Banking Day prior to Delivery specifying the Delivery
Date, the serial numbers of the Engines being delivered pursuant to
the Aircraft Purchase Agreement and confirming the amount of the
instalments of Rent to be paid pursuant to clause 7.1(a).
4.3 The obligation of the Lessee to take the Aircraft on lease under this
Agreement is subject to the condition that, prior to Delivery, the Lessee
shall have received the documents and evidence specified in Part 3 of
schedule 1 in form and substance satisfactory to the Lessee.
4.4 The obligation of the Lessee to take the Aircraft on lease under this
Agreement is subject to the further conditions that:
(a) the representations and warranties of the Lessor in clauses 2.3,
2.4, 6.1 and 6.2 shall be true and correct as if each was made with
respect to the
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facts and circumstances existing immediately prior to the time when
Delivery is to take place;
(b) no Total Loss or Engine Loss shall have occurred on or prior to
Delivery;
(c) Delivery shall have occurred.
5 Delivery and Acceptance
5.1 Subject to clause 4, immediately following the transfer of title to the
Aircraft by the Lessee to the Lessor under the Aircraft Purchase
Agreement, the Aircraft shall be deemed to have been delivered to the
Lessee by the Lessor and accepted by the Lessee for the purposes of this
Agreement and the Lessee shall execute and deliver the Acceptance
Certificate to the Lessor and the Lease Period shall commence.
5.2 The Lessor and the Lessee acknowledge that the condition, quality,
suitability and fitness for purpose of the Aircraft at Delivery shall be
the sole responsibility of the Lessee, and the Lessor shall not, subject
to clause 4.1 and clause 4.2, be entitled for any reason whatsoever to
refuse to deliver, and the Lessee shall not, subject to clause 4.3 and
clause 4.4, be entitled for any reason whatsoever to refuse to accept
delivery of the Aircraft or to refuse to execute and deliver the
Acceptance Certificate for the Aircraft to the Lessor once the Aircraft is
deemed to have been delivered to and accepted by the Lessor under the
Aircraft Purchase Agreement. The Lessor shall not be liable for any loss
or damage of any kind whatsoever, or any loss of profit, resulting
directly or indirectly from any physical defect or alleged physical defect
in the Aircraft.
5.3 The Lessor shall not be responsible to the Lessee for any loss or expense,
or any loss of profit, arising from any delay in the delivery of, or
failure to deliver, the Aircraft to the Lessee under this Agreement unless
such delay or failure arises as a direct consequence of the wilful default
or gross negligence of the Lessor.
5.4 The Lessee shall not be responsible to the Lessor for any loss or expense,
or any loss of profit arising from any delay in the delivery of, or
failure to deliver, the Aircraft to the Lessor under the Aircraft Purchase
Agreement or to the Lessee under this Agreement where such delay or
failure is not caused by a breach by the Lessee of its obligations under
the Aircraft Purchase Agreement or this Agreement.
5.5 If for any reason, other than a breach by the Lessor of any of its
obligations under the Lessee Documents to which it is a party, the
Aircraft shall not have been delivered to and accepted by the Lessee in
accordance with clause 5.1 within sixty (60) days following the Expected
Delivery Date, or such later date as the Lessor and the Lessee may agree
in writing, then the Lessor may, without prejudice to any other rights or
remedies which the Lessor may have at law, in
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<PAGE>
equity or otherwise, cancel the obligation contained in this Agreement to
lease the Aircraft to the Lessee by the Lessor giving notice to the Lessee
to that effect whereupon the Lessee's obligation to pay Rent and to lease
the Aircraft under this Agreement shall immediately terminate.
5.6 If, for any reason, other than a breach by the Lessee of any of its
obligations under the Lessee Documents, the Aircraft shall not have been
delivered to and accepted by the Lessee in accordance with clause 5.1
within sixty (60) days following the Expected Delivery Date or such later
date as the Lessor and the Lessee may agree in writing, then the Lessee
may, without prejudice to any other rights or remedies which the Lessee
may have at law, in equity or otherwise, cancel the obligation contained
in this Agreement to lease the Aircraft from the Lessor by giving notice
to the Lessor to that effect whereupon the Lessee's obligation to pay Rent
and to lease the Aircraft under this Agreement shall immediately
terminate.
5.7 As soon as practicable after Delivery, but in any event within five (5)
Banking Days, the Lessee shall provide the Lessor with details of the
status of each Engine delivered to the Lessor pursuant to the Aircraft
Purchase Agreement.
6 Lessor's Warranties and Manufacturer's Warranties
6.1 The Lessor warrants and undertakes that, subject to clause 17.1 and clause
21, the Lessor shall not through its own acts interfere during the Lease
Period with the use, possession and quiet enjoyment of the Aircraft by the
Lessee or any Permitted Air Carrier. For avoidance of doubt, the Lessee
acknowledges and agrees that, notwithstanding the foregoing, if the Lessor
is entitled in accordance with the provisions of this Agreement to
interfere with the use, possession and quiet enjoyment of the Aircraft by
the Lessee, the Lessor shall also be entitled to interfere with the use,
possession and quiet enjoyment of the Aircraft by any Permitted Air
Carrier.
6.2 The Lessor warrants that on the Delivery Date the Lessor shall have
received such title to the Aircraft as is conveyed to it on such date by,
or on behalf of, the Lessee and the Aircraft shall be free from Lessor's
Liens.
6.3 THE LESSEE EXPRESSLY AGREES AND ACKNOWLEDGES THAT, SAVE ONLY AS EXPRESSLY
PROVIDED IN CLAUSES 6.1 AND 6.2, NO CONDITION, WARRANTY OR REPRESENTATION
OF ANY KIND IS OR HAS BEEN GIVEN BY OR ON BEHALF OF THE LESSOR IN RESPECT
OF THE AIRCRAFT OR ANY PART THEREOF, AND ACCORDINGLY THE LESSEE CONFIRMS
THAT IT HAS NOT, IN ENTERING INTO THIS AGREEMENT, RELIED ON ANY CONDITION,
WARRANTY OR REPRESENTATION BY THE LESSOR OR ANY PERSON ON THE LESSOR'S
BEHALF, EXPRESS OR IMPLIED, WHETHER ARISING BY LAW OR OTHERWISE IN
RELATION TO THE AIRCRAFT OR ANY PART THEREOF, INCLUDING, WITHOUT
LIMITATION, (A) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR
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PURPOSE, VALUE, CONDITION, DESIGN, USE OR OPERATION OF THE AIRCRAFT; (B)
ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING
OR USAGE FOR TRADE; (C) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY
IN TORT, WHETHER OR NOT ARISING FROM THE ACTUAL OR IMPUTED NEGLIGENCE OR
BREACH OF STATUTORY DUTY ON THE PART OF THE LESSOR, ITS DIRECTORS,
SERVANTS OR AGENTS; AND (D) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR
REMEDY OR LOSS OF OR DAMAGE TO ANY TANGIBLE OR INTANGIBLE THING, FOR LOSS
OF USE, REVENUE OR PROFIT OR FOR ANY LIABILITY OF THE LESSOR TO ANY THIRD
PARTY, OR FOR ANY OTHER DIRECT OR INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
6.4 During the Lease Period the Lessor will use all reasonable endeavours to
extend to the Lessee the benefit of all Warranties and all warranties and
indemnities given by any manufacturer or supplier of any part of the
Aircraft to the Lessor (as owner of the Aircraft), if any. Provided no
Termination Event has occurred and is continuing, the Lessee shall be
entitled during the Lease Period to take such action upon any Warranty or
any such warranty or indemnity in the name of the Lessor against any such
manufacturer or supplier as the Lessee shall see fit, but subject to the
Lessee first ensuring that the Lessor is indemnified and secured to its
reasonable satisfaction against all costs and expenses thereby incurred or
to be incurred.
6.5 The Lessee agrees to assign, promptly after the Lessee becomes aware it
has received the same, to the Lessor or its nominee, the benefit of all
Warranties that are given to the Lessee during the Lease Period by any
manufacturer or supplier of any part of the Aircraft.
7 Rent
7.1 (a) During the Primary Lease Term SAS BV shall pay to the Lessor
instalments of Rent for the Aircraft monthly in advance, each such
instalment, subject to the remainder of this clause 7.1(a), being of
the amount of Six hundred and seventy five thousand Dollars
($675,000). The instalments of Rent payable during the Primary Lease
Term will be subject to amendment, either upward or downward, to
reflect the four (4) year Treasury Rate of the United States of
America (the "US Treasury Rate") in effect one (1) Banking Day
before the Delivery Date. The amount of the instalments of Rent
specified above is calculated by reference to the US Treasury Rate
as of 9th November, 1993 which had a yield to maturity of 4.63%. The
actual instalments of Rent payable during the Primary Lease Term
will be adjusted by reference to the yield to maturity of the US
Treasury Rate having a remaining term to maturity closest to four
(4) years as at 11.00am (New York time) on the date being one (1)
Banking Day before the Delivery Date as reported on pages 5 and 217
("US Treasury and Money Markets") of the information ordinarily
provided by Telerate Systems
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Incorporated, it being agreed that, for every basis point movement
in such yield, the instalments of Rent will be increased or, as the
case may be, decreased by the amount of $391.50; provided however,
that in the event the exact maturity of four (4) years is not so
quoted, the yield will be derived by interpolating on a straight
line basis the yield for the nearest quoted maturity shorter and
longer than four (4) years.
(b) The instalments of Rent to be paid during the First Renewal Term and
the Second Renewal Term shall be calculated by reference to the
formula set out in schedule 3. If the Lessee requests that such
calculation be made, the Lessor, the Lessee and SAS BV agree that
such calculation shall be made not less than one hundred and eighty
(180) days and not more than two hundred and seventy (270) days
prior to the end of the Primary Lease Term or, as the case may be,
the First Renewal Term.
7.2 SAS BV's obligation to pay Rent and the other amounts referred to in
clause 7.3 and the Lessee's obligation to make other payments in
accordance with this Agreement shall be absolute and unconditional
irrespective of any contingency whatsoever including (but not limited to):
(a) any unavailability of the Aircraft for any reason, including, but
not limited to, any lack or invalidity of title or any other defect
in the title, airworthiness, merchantability, fitness for any
purpose, condition, design or operation of any kind or nature of the
Aircraft; or
(b) the ineligibility of the Aircraft for any particular use or trade,
or for registration or documentation under the laws of any relevant
jurisdiction; or
(c) subject to clause 17.4, the Total Loss of, or any damage to, the
Aircraft; or
(d) any failure or delay on the part of any party hereto, whether with
or without fault on its part, in performing or complying with any of
the terms or conditions of this Agreement; or
(e) any insolvency, bankruptcy, administration, reorganisation,
arrangement, readjustment of debt, dissolution, liquidation or
similar proceedings by or against the Lessor, the Lessee, SAS BV or
any Permitted Air Carrier; or
(f) any lack of due authorisation of, or other defect in, this
Agreement.
Nothing in this clause 7.2 shall prejudice the rights of the Lessee and/or
SAS BV to pursue a separate action against the Lessor under applicable law
with respect to any breach by the Lessor of any of its covenants,
obligations, agreements or undertakings under this Agreement.
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7.3 The Lessor and the Lessee each acknowledges and agrees that,
notwithstanding anything to the contrary contained in this Agreement, the
obligations of SAS BV under this Agreement shall be limited to, and
neither the Lessor nor the Lessee shall have any recourse against SAS BV
except in respect of, the obligation of SAS BV to pay Rent pursuant to
this clause 7 in accordance with clauses 8.1, 8.2 and 8.5 and payment
obligations pursuant to clauses 8.3, 8.6, 10, 17.4, 18.5 and 21.1 but only
to the extent that such payment obligations directly relate to, or arise
as a direct result of, payment or non-payment of Rent by or on behalf of
SAS BV.
8 Payments, Interest and Calculations
8.1 All payments to be made by the Lessee or SAS BV to the Lessor under any
Lessee Document shall be made (unless specifically otherwise provided in
such Lessee Document) without prior demand in such currency as is
designated for such payment for value on the day on which payment is due
to the account of the Lessor at Chemical Bank, 640 Madison Avenue, New
York, New York 10022, account number 323-252-907, ABA number 021-000-128
quoting the reference "SAS-767-24475" and marked for the attention of
CEF/IMG or at such other bank in such other place as the Lessor may have
notified to SAS BV and the Lessee.
8.2 When any payment under any Lessee Document would otherwise be due to the
Lessor on a day which is not a Banking Day, the due date for payment shall
be extended to the next following Banking Day.
8.3 If the Lessee or SAS BV fails to pay to the Lessor any sum (including
without limitation, any sum payable pursuant to this clause 8.3) on its
due date for payment under this Agreement, the Lessee or, as the case may
be, SAS BV shall pay to the Lessor on demand interest on such sum from the
due date up to the date of actual payment (as well after as before any
relevant judgment) at the Relevant Rate of Interest.
8.4 All interest and other payments of an annual nature under this Agreement
shall accrue from day to day and be calculated on the basis of actual days
elapsed and a 360 day year.
8.5 Any certificate or determination of the Lessor as to any rate of interest
or any other amount pursuant to and for the purposes of this Agreement
shall be prima facie evidence as to the rate or amount so certified or
determined.
8.6 If any sum due from the Lessee or SAS BV under any Lessee Document or
under any order or judgment given or made in relation thereto has to be
converted from the currency ("the first currency") in which the same is
payable under such Lessee Document or under such order or judgment into
another currency ("the second currency") for the purpose of (a) making or
filing a claim or proof against the Lessee or SAS BV, (b) obtaining an
order or judgment in any court or other tribunal or (c) enforcing any
order or judgment
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given or made in relation to such Lessee Document, the Lessee or, as the
case may be, SAS BV shall indemnify and hold harmless the Lessor from and
against any loss suffered as a result of any difference between (i) the
rate of exchange used for such purpose to convert the sum in question from
the first currency into the second currency and (ii) the rate or rates of
exchange at which the Lessor may in the ordinary course of business
purchase the first currency with the second currency upon receipt of a sum
paid to it in satisfaction, in whole or in part, of any such order,
judgment, claim or proof. Any amount due from the Lessee or SAS BV under
this clause 8.6 shall be due as a separate debt and shall not be affected
by judgment being obtained for any other sums due under or in respect of
such Lessee Document and the term "rate of exchange" includes any premium
and costs of exchange payable in connection with the purchase of the first
currency with the second currency.
9 Costs and Indemnities
9.1 Subject to the exclusions stated in clause 9.2, the Lessee agrees to
indemnify and hold harmless the Lessor and its shareholders, affiliates,
directors, officers, servants, agents and employees (each such person in
this clause 9 being referred to as an "Indemnitee") from and against all
costs, expenses, payments, charges, losses, demands, liabilities, claims,
actions, proceedings, penalties, fines, damages, judgments, orders or
other sanctions (in this clause 9 together referred to as "Losses"):
(a) relating to, or arising directly or indirectly in any manner or for
any cause or reason whatsoever out of, the design, manufacture,
testing, delivery, purchase, import, export, registration,
possession, control, use, operation, leasing, sub-leasing,
insurance, maintenance, repair, refurbishment, condition, service,
overhaul, modification, change, alteration, loss, damage, removal,
storage, re-delivery or replacement of, in or to the Aircraft, or
otherwise in connection with the Aircraft, or relating to loss or
destruction of or damage to any property, or death or injury of, or
other loss of whatsoever nature suffered by, any person caused by,
relating to, or arising from or out of (in each case whether
directly or indirectly) any of the foregoing matters;
(b) which may at any time be made or brought on the ground that any
design, article or material in the Aircraft or the operation or use
thereof constitutes an infringement of any patent, intellectual
property right or any other right whatsoever;
(c) which may at any time be incurred by the Lessor in preventing or
attempting to prevent the arrest, confiscation, seizure, taking in
execution, impounding, forfeiture or detention of the Aircraft, or
in securing the release of the Aircraft;
(d) which the Lessor shall certify as sustained or incurred by it as a
consequence of any default in payment by SAS BV or the Lessee or the
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due and punctual performance of any of the Lessee's other
obligations under any of the Lessee Documents or as a consequence of
the breach by the Lessee or SAS BV of any representation, warranty
or covenant made by the Lessee or SAS BV under any Lessee Document;
or
(e) without prejudice to clause 9.2, which the Lessor or any Indemnitee
shall certify as sustained or incurred by it as a consequence of the
Lessor entering into, or performing its obligations under, the
Lessee Documents, but excluding Losses which represent or relate to
obligations expressly agreed to be performed by the Lessor
thereunder and further excluding, but without prejudice to paragraph
(d) above, any Losses which represent or relate to obligations or
liabilities of the Lessor or any Indemnitee under any contract or
agreement with any third party.
Provided always that the Lessee shall be entitled, at its sole cost and
expense, acting through counsel reasonably acceptable to the respective
Indemnitee, (a) in any judicial or administrative proceeding that involves
solely a claim for one or more Losses, to assume responsibility for and
control thereof, (b) in any judicial or administrative proceeding
involving a claim for one or more Losses and other claims related or
unrelated to the transactions contemplated by this Lease, to assume
responsibility for and control of such claim for Losses to the extent that
the same may be and is severed from such other claims (and such Indemnitee
shall use its best efforts to obtain such severance), and (c) in any other
case, to be consulted by such Indemnitee with respect to judicial
proceedings subject to the control of such Indemnitee. Notwithstanding any
of the foregoing to the contrary, the Lessee shall not be entitled to
assume responsibility for and control of any such judicial or
administrative proceedings (i) while a Relevant Event under the Lease
shall have occurred and be continuing, (ii) if such proceedings would
involve the likelihood of the sale, forfeiture or loss of, or the creation
of any Encumbrance (other than a Permitted Lien) on the Aircraft (except
an Encumbrance which the Lessee shall have bonded in an amount and manner
satisfactory to the Lessor), this Lease or any part thereof, (iii) if such
claim relates in any way to the business of such Indemnitee other than the
transactions contemplated by the Lessee Documents, (iv) if such claim, in
the opinion of independent counsel for such Indemnitee reasonably
satisfactory to the Lessee, has a reasonable possibility of compromising
or jeopardising any substantial interests of such Indemnitee, or (v) the
Lessee shall not have furnished such Indemnitee with an opinion of
independent counsel reasonably satisfactory to such Indemnitee to the
effect that there exists a meritorious basis for contesting such claim.
The Indemnitee may at its own cost participate with its own counsel in any
judicial proceeding controlled by the Lessee pursuant to the preceding
provisions. The Indemnitee shall supply the Lessee with such information
reasonably requested by the Lessee as is necessary or advisable for the
Lessee to control or participate in any proceeding to the extent permitted
by this clause 9.1. Such Indemnitee shall not enter into a settlement or
other compromise with respect to any Losses without the prior written
consent of the Lessee, which consent shall not be
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unreasonably withheld or delayed, unless such Indemnitee waives its right
to be indemnified with respect to such Losses under this clause 9.1.
9.2 Notwithstanding the provisions of clause 9.1, the Lessee shall not be
responsible pursuant to clause 9.1 to any Indemnitee for:
(a) Losses arising or imposed to the extent the same result from the
breach by such Indemnitee of any express provisions of, or the
default of such Indemnitee in its performance of any of its
obligations under, this Agreement or any other Lessee Document to
which the Indemnitee is a party or result from any representation or
warranty given or made by such Indemnitee in this Agreement or any
other Lessee Document to which the Indemnitee is a party being
incorrect at the date when given or made, or any wilful default,
fraud or gross negligence of such Indemnitee;
(b) Losses arising or imposed to the extent the same result from the
sale, transfer or other disposition of the Aircraft, the Airframe,
any Engine or any Part or any interest in the Aircraft, the
Airframe, any Engine or any Part, other than (i) as contemplated by
this Agreement or any other Lessee Document, or (ii) pursuant to the
exercise by the Lessor of any of its rights pursuant to clause 21.1;
(c) Losses to the extent the same arise out of any claim of title to or
against the Aircraft, the Airframe, any Engine or any Part by any
creditor of such Indemnitee claiming in its capacity as such, other
than a claim arising as a result of any breach by the Lessee or SAS
BV of any provision of, or the default by the Lessee or SAS BV in
its performance of any of its obligations under, this Agreement or,
in the case of the Lessee, the Aircraft Purchase Agreement;
(d) Losses arising from or attributable to acts or events occurring
after the latest to occur of (i) the termination or expiry of the
Lease Term, (ii) if the Lessee is required to return the Aircraft to
the Lessor, the date on which the Aircraft is returned to the Lessor
in accordance with the provisions hereof, and (iii) if the leasing
of the Aircraft under this Agreement shall have been terminated
pursuant to clause 21.1, the sale, transfer or other disposition of
the Aircraft, the Airframe, any Engine or any Part or any interest
in the Aircraft, the Airframe, any Engine or any Part; or
(e) except to the extent necessary to make payments on an after-tax
basis, Losses resulting from or arising out of any Taxes or a loss
of Tax benefits or increase in Tax liability whether or not the
Lessee or SAS BV is required to indemnify any person therefor
pursuant to clause 10 (it being understood that clause 10 provides
for the Lessee's and SAS BV's liability with respect to Taxes) and
any other Losses against which the
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Lessee shall have indemnified such Indemnitee pursuant to any other
provision of this Agreement or any other Lessee Document; or
(f) Losses caused by any Lessor's Lien; or
(g) except as otherwise expressly provided herein, Losses which relate
to legal, accounting or other expenses incurred by any Indemnitee or
the Parent in connection with the negotiation, preparation and
execution of any Lessee Document; or
(h) without prejudice to clause 9. 1(d), Losses which are operating or
overhead expenses of any Indemnitee.
9.3 The Lessee shall pay all stamp, documentary, registration or other like
Taxes (including any such Taxes payable by the Lessor) imposed on or in
connection with the Lessee Documents by any country or jurisdiction other
than in Bermuda, the United States of America and any other jurisdiction
in which the Lessor has a place of business (excluding however any
jurisdiction in which the Lessor would not have been deemed to have a
place of business had it not entered into and/or performed its obligations
under the Lessee Documents).
9.4 The Lessee shall pay to the Lessor on demand all expenses (including
legal, survey and other costs) incurred by the Lessor in connection with
the enforcement of, or preservation of any rights under, any of the Lessee
Documents, or otherwise in respect of moneys owing under any of the Lessee
Documents, or in respect of breach of any representation, warranty,
covenant, agreement, condition or stipulation therein contained, together
with interest at the Relevant Rate of Interest from the date on which such
expenses were incurred to the date of payment (as well after as before
judgment).
All expenses payable pursuant to this clause 9.4 shall be paid together
with any value added tax or similar tax thereon (if any), and in the
currency in which the same are incurred by the Lessor.
9.5 Subject always to clause 9.2, the indemnities by the Lessee in favour of
the Lessor contained in this clause 9 shall continue in full force and
effect notwithstanding the termination of the leasing of the Aircraft to
the Lessee under this Agreement.
10 Taxation
10.1 Subject to clauses 10.3, 10.4 and 10.5, the Lessee or, in the case of the
subject matter of paragraph (b) below (but only in so far as the same
relate to payments made by SAS BV under this Agreement) SAS BV, shall pay
promptly and shall indemnify and hold harmless each Indemnitee on an
after-tax basis for and against all Taxes (a) levied or assessed on or in
respect of the Aircraft, or (b) levied or assessed in respect of any
payments made under any of the Lessee Documents or any of the transactions
contemplated by any of the Lessee
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Documents or (c) relating to or arising out of the ownership, possession,
leasing, sub-leasing, use, delivery, operation or return of the Aircraft.
10.2 Subject to clauses 10.3, 10.4 and 10.5, if at any time the Lessee or SAS
BV is required to make any deduction or withholding in respect of Taxes
from any payment due under the Lessee Documents for the account of the
Lessor:
(a) the sum due from the Lessee or, as the case may be, SAS BV in
respect of such payment shall be increased to the extent necessary
to ensure that, after the making of such deduction or withholding,
the Lessor receives on the due date for such payment (and retains,
free from any liability in respect of such deduction or withholding)
a net sum equal to the sum which it would have received had no such
deduction or withholding been required to be made;
(b) the Lessee or, as the case may be, SAS BV shall pay to the relevant
authority within the period for payment permitted by applicable law
the full amount of the deduction or withholding (including, but
without prejudice to the generality of the foregoing, the full
amount of any deduction or withholding from any increased amount
paid pursuant to this clause 10.2);
(c) the Lessee or, as the case may be, SAS BV shall indemnify the Lessor
against any losses or costs incurred by the Lessor by reason of any
failure of the Lessee or SAS BV (as applicable) to make any such
deduction or withholding or by reason of any increased payment not
being made on the due date for such payment; and
(d) the Lessee or, as the case may be, SAS BV shall promptly deliver to
the Lessor any receipt, certificates or other proof evidencing the
amounts (if any) paid or payable in respect of any deduction or
withholding as aforesaid.
10.3 If, following any such deduction or withholding as is referred to in
clause 10.2 from any payment by the Lessee or SAS BV, any Indemnitee shall
receive or be granted a credit against or remission for any Taxes payable
by it (other than Taxes the subject of an indemnity from the Lessee or SAS
BV pursuant to this clause 10), the Lessor shall procure that such
Indemnitee shall, subject to the Lessee or, as the case may be, SAS BV
having made any increased payment in accordance with clause 10.2 and to
the extent that such Indemnitee can do so without prejudicing the
retention of the amount of such credit or remission and without prejudice
to the right of such Indemnitee to obtain any other relief or allowance
which may be available to it, reimburse the Lessee or SAS BV (as
applicable) with such amount as such Indemnitee shall certify to be the
proportion of such credit or remission as will leave such Indemnitee
(after such reimbursement) in no worse position than it would have been in
had there been no such deduction or withholding from the payment by the
Lessee or SAS BV as aforesaid. Such reimbursement shall be made forthwith
upon such
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<PAGE>
Indemnitee certifying that the amount of such credit or remission or
economic benefit has been received by it.
If any Indemnitee shall, for reasons outside its control, lose all or any
portion of any credit in respect of which such Indemnitee shall have
reimbursed the Lessee or SAS BV pursuant to this clause 10.3, the Lessee
or, as the case may be, SAS BV shall refund to such Indemnitee all (or the
appropriate portion of) such reimbursement.
10.4 The Lessor agrees that for so long as in the good faith opinion of the
affected Indemnitee the rights and interests of such Indemnitee would not
be adversely affected thereby:
(a) the Lessor shall procure that such Indemnitee shall notify the
Lessee and SAS BV prior to making payment of any Taxes in respect of
which the Lessee or SAS BV is required to indemnify such Indemnitee
pursuant to this clause 10 provided however that, without prejudice
to the Lessee's or SAS BV's other rights in respect of such failure,
the Lessor's failure to procure that such Indemnitee so notifies the
Lessee and SAS BV shall not affect such Indemnitee's right to
indemnification in respect of such Taxes hereunder;
(b) the Lessor shall procure that such Indemnitee shall consult with the
Lessee and SAS BV for a reasonable period not extending beyond the
due date for payment of the relevant Taxes prior to making payment
of any Taxes in respect of which the Lessee or SAS BV is required to
indemnify such Indemnitee pursuant to this clause 10 provided that,
without prejudice to the Lessee's or SAS BV's other rights in
respect of such failure, the Lessor's failure to procure that such
Indemnitee so consults shall not affect such Indemnitee's right to
indemnification in respect of such Taxes hereunder;
(c) if a claim is made against such Indemnitee for any Tax that is
subject to indemnification under this clause 10, the Lessor shall
procure that such Indemnitee will give the Lessee and SAS BV written
notice of such claim provided that, without prejudice to the
Lessee's or SAS BV's other rights in respect of such failure, the
Lessor's failure to procure that such Indemnitee so notifies the
Lessee shall not affect such Indemnitee's right to indemnification
in respect of Taxes under this clause 10. If the Lessee or SAS BV
(as applicable) so requests in writing within thirty (30) days after
receipt of such notice, the Lessor shall procure that such
Indemnitee shall permit the Lessee or SAS BV (as applicable) to
contest the claim in the name of such Indemnitee or in the name of
the Lessee or SAS BV (as applicable), to the extent permitted by
law. However, if (i) such claim together with other claims which
could be made with respect to other transactions to which such
Indemnitee is then a party could (if sustained) have an adverse
effect on such Indemnitee's business or financial affairs (a
"Special Claim"), or (ii) the Lessee or SAS BV
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<PAGE>
(as applicable) shall not be permitted by law to contest a claim
(other than a Special Claim) on behalf of such Indemnitee, or (iii)
the contest of such claim includes the contest of claims unrelated
to the transactions contemplated by this Lease, then the Lessor
shall procure that such Indemnitee shall contest such claim in good
faith. Notwithstanding the foregoing, no claim shall be contested by
any of the Lessee, SAS BV or such Indemnitee unless and until (a)
such Indemnitee shall have received (i) an indemnity for all
reasonable expenses paid in contesting the claim (including
reasonable attorneys' and accountants' fees and disbursements), and
(ii) written acknowledgement by the Lessee or SAS BV (as applicable)
of its liability hereunder (if such contest is decided adversely) in
respect of such Taxes; (b) the action to be taken will not involve
the likelihood of the sale, forfeiture or loss of, or the creation
of any Encumbrance (except a Permitted Lien or an Encumbrance which
the Lessee or SAS BV (as applicable) shall have bonded in an amount
and manner reasonably satisfactory to the Lessor) on, the Aircraft
or any part thereof or any interest therein; (c) if such contest
shall be conducted in a manner requiring the payment of the claim,
the Lessee or SAS BV (as applicable) shall have advanced the amount
required on an after-tax basis; (d) no Termination Event shall have
occurred and be continuing; and (e) if such claim is a Special
Claim, such Indemnitee shall have received a legal opinion (at the
expense of the Lessee or SAS BV (as applicable)) from counsel
satisfactory to such Indemnitee indicating that a reasonable basis
for such contest exists. The Lessor shall procure that any affected
Indemnitee, the Lessee and SAS BV shall in good faith consider the
other partys' views regarding the conduct of the contest.
Notwithstanding the foregoing provisions of this clause 10, if at
any time any Indemnitee waives its right of indemnification under
this clause 10 in respect of a claim, or if, after having received
payment of indemnification from the Lessee or SAS BV hereunder in
respect of such claim, such Indemnitee tenders such payment to the
Lessee or SAS BV (as applicable), then the Lessee or SAS BV (as
applicable) shall not be entitled to contest, or to continue to
contest, any such claim;
(d) the Lessee or SAS BV (as applicable) will provide such information
as may be reasonably requested by the Lessor and reasonably
available to or obtainable by the Lessee or SAS BV (as applicable)
to enable the Lessor to fulfil its tax filing requirements with
respect to the transactions contemplated hereby. In the event that
any return, statement or report is required to be made or filed with
respect to any Tax required to be indemnified against by the Lessee
or SAS BV under this clause 10, the Lessee or SAS BV (as applicable)
shall notify the Lessor of such requirement and (a) to the extent
permitted by law and, unless otherwise requested by the Lessor or
required by law, make and file in its own name such return,
statement or report in such manner as will show the ownership of the
Aircraft in the Lessor and furnish the Lessor with a copy of such
return, statement or report, or (b) where such return, statement or
report is required to be in the name of or filed by the
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Lessor, prepare and furnish such return, statement or report for
filing by the Lessor in such manner as shall be satisfactory to the
Lessor and send the same to the Lessor for filing no later than
thirty (30) days prior to the due date. Where the Lessor is required
to make or file a return, statement or report reflecting items other
than or in addition to Taxes indemnified against by the Lessee or
SAS BV under this clause 10, the Lessee or SAS BV (as applicable)
shall, upon the Lessor's request, provide the Lessor with
information, within a reasonable time, sufficient to permit such
return, statement or report to be properly made and timely filed;
(e) without prejudice to the provisions of clause 10.4(c), the Lessor
agrees, at the cost, expense and liability of the Lessee, to provide
such documents and instruments as are within its possession and as
are reasonably available to it and to make such filings as the
Lessee or SAS BV may reasonably request for the purpose of reducing
or avoiding any claim, demand or assessment for Taxes in respect of
which the Lessee or SAS BV is required to indemnify pursuant to this
clause 10 or to recover the same from any third party properly
liable for the same.
In furtherance of the foregoing, the Lessor agrees, in each case at the
cost, expense and liability of the Lessee or, as the case may be, SAS BV,
and subject to the Lessee or SAS BV first ensuring that the Lessor is
indemnified and secured to the Lessor's reasonable satisfaction against
all costs, expenses and liabilities thereby incurred or which may be
incurred in connection therewith, to co-operate in good faith with the
Lessee or SAS BV (as applicable) in taking such steps as the Lessor, in
its sole discretion, determines will not be prejudicial to the Lessor and
to be appropriate for the purpose of reducing or avoiding any claim,
demand or assessment for Taxes in respect of which the Lessee or SAS BV is
required to indemnify pursuant to this clause 10 and which are imposed by
any Government Entity or any political subdivision or taxing authority
thereof or therein. The Lessor, the Lessee and SAS BV further agree to
consider in good faith (but without any obligation to agree thereto) any
reasonable modifications of the transaction described in this Lease that
would reduce or eliminate any Taxes imposed on either party as a result of
such transaction.
10.5 Notwithstanding the provisions of clause 10, neither the Lessee nor SAS BV
shall be responsible pursuant to clause 10 for:
(a) Taxes levied on, based on, measured by or with respect to net or
gross income, capital income, asset, capital, capital gains,
receipts, franchises, profits or the conduct of the business of the
Lessor to the extent any Indemnitee would have been subject to such
Taxes in the same amount in the absence of the transactions
contemplated by the Lease or any other Lessee Document;
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(b) Taxes paid, arising or imposed to the extent the same result from
the failure by any Indemnitee to account for Tax on time (provided
always that such Indemnitee has before the due date for payment
either received a written demand therefor or otherwise been made
aware in writing of the imposition of such Taxes and the due date
for payment thereof) other than where any such failure arises as a
result of any breach by the Lessee or SAS BV of any provision of, or
the default by the Lessee or SAS BV in the performance of its
obligations under, the Lessee Documents;
(c) Taxes arising or imposed to the extent the same result from the
breach by any Indemnitee of any express provision of, or the default
by any Indemnitee in its performance of any of its obligations
under, this Agreement or any other Lessee Document or result from
any representation or warranty given or made by any Indemnitee in
this Agreement or any other Lessee Document being incorrect at the
date when given or made, or any fraud or wilful default or gross
negligence of any Indemnitee.
(d) Taxes (save for interest or penalties on Taxes arising earlier and
which are indemnifiable by the Lessee or SAS BV in accordance with
the other provisions of this clause 10) arising or attributable to
acts or events occurring after the latest to occur of (i) the
termination or expiry of the Lease Term, (ii) if the Lessee is
required to return the Aircraft to the Lessor hereunder, the date on
which the Aircraft is returned to the Lessor in accordance with the
provisions hereof, and (iii) if the leasing of the Aircraft under
this Agreement shall have been terminated pursuant to clause 21.1,
the sale, transfer or other disposition of the Aircraft, the
Airframe, any Engine or any Part or any interest in the Aircraft,
the Airframe, any Engine or any Part;
(e) Taxes to the extent any Indemnitee would have been subject to such
Taxes in the same amount as a result of (i) activities or business
of such Indemnitee unrelated to the transactions contemplated by the
Lessee Documents, or (ii) any financing obtained by such Indemnitee;
(f) Taxes arising or imposed to the extent the same are imposed with
respect to the purchase by the Lessor of the Aircraft pursuant to
the Aircraft Purchase Agreement (indemnification for which is
provided in such Agreement) or from the sale, transfer or other
disposition of the Aircraft, the Airframe, any Engine or any Part or
any interest in the Aircraft, the Airframe, any Engine or Part
unless such sale, transfer or other disposition occurs (i) in
connection with the exercise of remedies after the leasing of the
Aircraft under this Agreement shall have been terminated pursuant to
clause 21.1, or (ii) pursuant to clause 17.5, 17.7, 18.5 or 23.1;
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(g) Taxes levied or imposed upon any assignee or transferee (permitted
or otherwise) of any of the Lessor's right, title or interest in or
to any Lessee Document, the Aircraft, the Airframe, any Engine or
Part to the extent such Taxes, at the time of such assignment or
transfer, are, or could reasonably be foreseen will be as a result
of any change in law not then in effect, in excess of the Taxes
which would have been imposed had no such assignment or transfer
taken place;
(h) Taxes in respect of which the Lessee shall have indemnified the
relevant Indemnitee pursuant to any other provision of this
Agreement or any other Lessee Document; and
(i) Taxes imposed on any Indemnitee under any applicable law of any
jurisdiction which would not have been imposed had the transactions
contemplated in the Lessee Documents been the sole connection
between such Indemnitee and such jurisdiction; and
(j) Taxes arising or imposed as a result of the loss of any anticipated
Tax benefits except where such loss is as a result of any breach by
the Lessee of any provisions of, or the default by the Lessee in the
performance of its obligations under, the Lessee Documents.
Provided however, that the preceding paragraphs (e) and (i) shall not
apply to any Taxes imposed on any Indemnitee by a taxing jurisdiction in
Sweden, Belgium or the Netherlands to the extent such tax would not have
been imposed but for the transactions relating to SAS BV's agreement to
pay Rent under this Lease, unless such Taxes would not have been imposed
by such taxing jurisdiction if such Indemnitee had not operated an actual
permanent place of business in such jurisdiction.
10.6 All payments by the Lessee or SAS BV under clause 8.6, clause 9 and this
clause 10 shall include any amount necessary to hold the recipient thereof
harmless on an after-tax basis from all Taxes required to be paid by such
recipient with respect to such payment or indemnity. Calculations made on
an after-tax basis shall be made assuming the actual rate applicable to
the recipient for the relevant year.
10.7 The provisions of this clause 10 shall survive the expiration or
termination of this Lease Agreement.
11 General Undertakings
11.1 The Lessee undertakes with the Lessor that it will:
(a) Notification of Relevant Event
promptly inform the Lessor in writing of any Relevant Event
forthwith upon becoming aware thereof;
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(b) Consents and authorisations
without prejudice to paragraph 4 of Part 1 of schedule 1, 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 in, or in connection with, every consent,
authorisation, licence or approval of governmental or public bodies
or authorities or courts and do, or cause to be done, all other acts
and things, which may from time to time be necessary under any
applicable laws in the State of Registration for the continued due
performance of all its obligations under each of the Lessee
Documents;
(c) Preparation and Supply of Accounts
furnish to the Lessor, within one hundred and eighty (180) days
after the end of each of its financial years, the annual report of
the Lessee in English including the balance sheet and profit and
loss accounts in respect of such financial year and, within sixty
(60) days after the end of each quarter, the quarterly report (if
any) of the Lessee in English which the Lessee makes available to
the public or its creditors generally;
(d) Information concerning the Lessee and SAS BV
provide the Lessor with such additional information as the Lessor
may from time to time in writing reasonably require and is relevant
in the context of the Lessee's or SAS BV's obligations under any of
the Lessee Documents or in respect of the Aircraft.
11.2 The Lessee further undertakes with the Lessor that it will:
(a) Status Report
provide to the Lessor within fifteen (15) days of the written
request of the Lessor (which request the Lessor shall be entitled to
make at any time a Termination Event has occurred and is continuing,
and at any reasonable time during the last two hundred and seventy
(270) days of the Lease Term, but otherwise in respect of the
Airframe, not more than once in any twelve (12) month period and, in
the case of the Engines, not more than once in any six (6) month
period) status reports on the Airframe and/or, as the case may be,
the Engines containing or indicating such information as the Lessor
may reasonably request;
(b) Inspection
throughout the Lease Period permit the Lessor and/or its agents or
representatives to inspect the Aircraft at any reasonable time upon
giving the Lessee not less than ten (10) days prior written notice.
The Lessor shall only be entitled to perform such inspections during
normal business
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hours in the jurisdiction in which the Aircraft is located at the
time of the inspection (or at any other time acceptable to each of
the Lessor and the Lessee) and provided no unreasonable interference
or delay is caused to the Lessee's or any Permitted Air Carrier's
operation, maintenance and use of the Aircraft. The cost of such
inspections and surveys shall be paid by the Lessor.
11.3 Lessor's Undertakings
The Lessor hereby undertakes to the Lessee and SAS BV that throughout the
Lease Term and for so long as any obligations of the Lessor under this
Agreement remain to be performed:
(a) it will not sell or otherwise transfer its title to the Aircraft or
any part thereof or its interest therein, unless otherwise provided
for in this Agreement or any of the other Lessee Documents to which
the Lessee is a party or after having obtained the prior written
consent of the Lessee;
(b) it shall not create or permit to exist any Lessor's Lien (other than
Permitted Liens) on or with respect to the Aircraft, title thereto
or any interest therein and that it will promptly, at its own
expense, take such action as may be necessary duly to discharge any
such Lessor's Lien;
(c) without prejudice to the Lessee's obligations under this Agreement
or pursuant to applicable law, it shall obtain, make and maintain in
full force and effect, promptly renew from time to time and comply
with the terms of all consents, permissions, licences,
authorisations, approvals, registrations and filings in Bermuda, the
United States of America and in any other jurisdiction in which the
Lessor has actual knowledge that any of the foregoing are so
necessary, which may from time to time be necessary in order to
enable it to perform its obligations under this Agreement or any
other Lessee Document to which it is a party or for the legality,
validity, enforceability or admissibility in evidence hereof or
thereof;
(d) it shall notify the Lessee and SAS BV within ten (10) Banking Days
of obtaining or receiving actual knowledge of any change in law
which would require payment by the Lessee, SAS BV or the Lessor of
any additional amount in respect of withholding Taxes pursuant to
this Agreement but any failure of the Lessor so to do shall not
affect or derogate from the obligations of the Lessee or SAS BV (as
applicable) hereunder or under any other Lessee Document or result
in any liability (or increased liability) of the Lessor under this
Agreement or any other Lessee Document;
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(e) it shall promptly forward to the Lessee a copy of any notices
relating to the Lessee's obligations hereunder with respect to the
Aircraft received by it from any appropriate authority;
(f) it shall promptly discharge all or any Taxes which are payable by it
from time to time against which it is not entitled to be indemnified
under any Lessee Document and which if not discharged would
materially and adversely affect the rights or interests of the
Lessee or SAS BV under this Agreement save where, and for so long
as, payment of such Taxes is being contested in good faith and by
appropriate proceedings which will not materially and adversely
affect the rights or interests of the Lessee or SAS BV under this
Agreement.
12 Sub-Leasing
12.1 The Lessee will not at any time, without the prior written consent of the
Lessor (which consent shall not be unreasonably withheld or delayed),
sub-lease, charter, hire or otherwise part with the possession or
operational control of the Aircraft or any Engine or install any Engine,
or permit any Engine to be installed, on any airframe other than the
Airframe.
Notwithstanding the foregoing, so long as no Termination Event shall have
occurred and be continuing, the Lessee may, without the prior written
consent of the Lessor:
(a) subject to the provisions of clause 12.2, sub-lease or deliver
possession of the Aircraft, the Airframe or any Engine to any
Permitted Air Carrier whose base of operations is in a Permitted
Country for a term (including, without limitation, any option of the
sub-lessee to renew or extend the sub-lease) not to extend beyond
the end of the Lease Term.
(b) deliver, or permit such Permitted Air Carrier as has possession of
the Aircraft to deliver, possession of the Airframe or any Engine to
the manufacturer thereof or any qualified person for the purpose of
testing, maintenance, service, repair or overhaul work or any
modifications, changes or alterations permitted under this Agreement
being carried out on the Airframe, such Engine or any Part thereof;
(c) subject, or permit such Permitted Air Carrier as has possession of
the Aircraft to subject, any Engine or Part to normal interchange or
pooling agreements or arrangements in each case customary in the
airline industry and entered into by the Lessee in the ordinary
course of its business with Permitted Air Carriers, provided that if
any interest of the Lessee or the Lessor in or to any such Engine or
Part shall be divested under any such agreement or arrangement, such
divestiture shall be deemed to be a Total Loss with respect to such
Engine or Part and the Lessee shall comply with clause 17.5, in the
case of an Engine, and clause 13.1(d), in the case of a Part; and
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(d) lease, chatter or hire out, or permit such Permitted Air Carrier as
has possession of the Aircraft to lease, charter or hire out, the
Aircraft in circumstances where the Aircraft shall remain registered
in the State of Registration and the Lessee or the Permitted Air
Carrier (as the case may be) shall be obligated under the terms of
the relevant lease, charter or hire agreement to provide the flight
crew and to operate and maintain (other than line maintenance) the
Aircraft and to effect the insurances required to be maintained with
respect to the Aircraft pursuant to clause 16.
12.2 (a) The Lessee shall remain primarily liable hereunder for the
performance of all of the terms of this Agreement to the same extent
as if any sub-lease or transfer of possession contemplated by
clause 12.1 had not occurred and any such sub-lease shall include
provisions (i) for the maintenance and insurance of the Aircraft
substantially the same as those contained in this Agreement, (ii)
that the Aircraft, Airframe or Engines shall not be operated or used
in a manner contrary to the terms of this Agreement, (iii) that the
sub-lessee will not transfer possession or control of the Aircraft,
Airframe or any Engine to anyone other than the Lessee or, following
the occurrence of a Termination Event, the Lessor, provided however
that such provisions shall permit the sub-lessee to transfer
possession or control of the Aircraft, Airframe or any Engine on the
same terms as clauses 12.1(b) to (d), 13.2 or 13.3, (iv) that the
sub-lessee will not assign the sub-lease or further sub-lease the
Aircraft other than as contemplated in clause 12.1(d), and (v) that
the term of such sub-lease will not extend beyond the end of the
Lease Term. The Lessee shall procure that no pooling agreement,
sub-lease or other relinquishment of possession of the Aircraft or
any Engine shall in any way discharge or diminish any of the
Lessee's obligations to the Lessor hereunder nor shall the Lessee
permit any such agreement, sub-lease or arrangement to prejudice the
right, title and interest of the Lessor in and to the Aircraft or
under this Agreement.
(b) Prior to the effective date of any sub-lease referred to in clause
12.1(a), the Lessee shall give the Lessor written notice of its
intent to sub-lease the Aircraft (which notice shall specify the
identity of the proposed sub-lessee and the material terms of the
sub-lease), and as soon as practicable (and in any event not later
than ten (10) days after receipt by the Lessor of such notice) the
Lessor shall elect, by written notice to the Lessee, either (i) that
such sub-lease shall be subject and subordinate to the terms of this
Agreement, or (ii) that such sub-lease shall be assigned in favour
of the Lessor as security for the Lessee's and SAS BV's obligations
under this Agreement provided however that it is understood and
agreed by the Lessee that, in respect of any sub-lease with a term
of six (6) months or less, the Lessor, unless it otherwise agrees in
writing, shall be deemed to have elected the alternative specified
in paragraph (i) above, without the need for any notice or other act
on the part of the Lessor. If the Lessor elects the alternative
specified in paragraph (i)
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above, the Lessee shall procure that the rights of any person who
receives possession of the Aircraft pursuant to such sub-lease shall
be made expressly subject and subordinate to, all the terms of this
Agreement and the Lessor's rights hereunder (including, without
limitation, the right of the Lessor to take possession of the
Aircraft in accordance with clause 21) and will procure that any
such sub-lease includes a provision that such sub-lease will
terminate upon termination of this Agreement for any reason. If the
Lessor elects the alternative specified in paragraph (ii) above,
prior to the effective date of such sub-lease, the Lessee shall
execute an assignment in favour of the Lessor reasonably
satisfactory to the Lessor of all its rights under such sub-lease as
security for all the obligations of the Lessee and SAS BV under the
Lessee Documents (such assignment being enforceable only if a
Termination Event has occurred and is continuing) and the Lessee
shall procure that the sub-lessee under such sub-lease acknowledges
a notice of such assignment. The Lessor agrees to issue to such
sub-lessee, in consideration of such acknowledgement, a letter of
quiet enjoyment addressed to such sub-lessee, in the form of the
Letter of Quiet Enjoyment or in such other form as the Lessor, the
Lessee and such sub-lessee may agree. Any failure by the Lessor to
make an election as contemplated by, and in accordance with, this
clause 12.2(b) shall be deemed to be an election by the Lessor of
the alternative specified in paragraph (ii) above, unless the Lessee
notifies the Lessor to the contrary in writing, and the Lessor shall
be bound by, and perform its obligations under, this clause 12.2(b)
as if the Lessor had elected the alternative specified in paragraph
(ii) above or, as the case may be, paragraph (i) above. All costs
and expenses incurred by the Lessor in connection with the granting
of any assignment referred to in paragraph (ii) shall be for the
account of the Lessee. At least five (5) days prior to the effective
date of any sub-lease contemplated in either paragraph (i) or (ii)
above, the Lessee shall deliver to the Lessor a copy of such
sub-lease provided however that all financial provisions of any such
sub-lease which is subject and subordinate to the terms of this
Agreement may be deleted prior to delivery to the Lessor. For the
avoidance of doubt, the Lessor shall not have the right to require
any assignment of any sub-lease which is subject to and subordinate
to the terms of this Agreement.
(c) The Lessee shall not permit or allow any filing with the Aviation
Authority or any other Government Entity evidencing any such
sub-lease which is prejudicial to any of the Lessor's rights, title
or interest in or to the Aircraft or this Agreement without the
prior written consent of the Lessor.
(d) Notwithstanding the foregoing provisions of this clause 12, the
Lessee shall not enter into any sub-lease which requires any change
in the State of Registration without the prior written consent of
the Lessor (such consent not to be unreasonably withheld or delayed)
provided however that the Lessor may not withhold its consent if the
proposed new State
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of Registration is a Permitted Country and the Lessee delivers to
the Lessor, at the Lessee's cost, prior to the registration of the
Aircraft in the proposed new State of Registration:
(i) a certificate of insurance signed by an independent insurance
broker to the effect that the Aircraft is, and after such
re-registration will continue to be, insured in accordance
with the requirements of clause 16 hereof;
(ii) a certificate signed by a duly authorised officer of the
Lessee stating that no Relevant Event exists as of the date of
such certificate and no such event will occur or exist upon or
resulting from such re-registration; and
(iii) a favourable opinion of English counsel (which counsel and
opinion shall be reasonably satisfactory to the Lessor) that
the applicable Lessee Documents, including (if governed by
English law) any sub-lease in effect at the time of or entered
into in connection with such re-registration are and upon such
re-registration will continue to be legal, valid and binding
and enforceable according to their terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganisation, moratorium, liquidation or similar laws
affecting the rights of creditors generally and except as
enforceability may be subject to general principles of equity,
whether asserted in proceedings in equity or at law; and
(iv) a favourable opinion of counsel (which counsel and opinion
shall be reasonably satisfactory to the Lessor) in the
proposed new State of Registration as to such matters relating
to such re-registration as may be reasonably requested by the
Lessor; and
(v) if such sub-lease shall be to an airline which is not a
recognised flag-carrying airline and if the Lessee itself
obtains the same, a power of attorney which will be
irrevocable and valid and enforceable in the proposed new
State of Registration (but only at a time when a Termination
Event has occurred and is continuing) which would permit the
Lessee and/or the Lessor to de-register the Aircraft from the
Aviation Authority and export the Aircraft from such State of
Registration and the Lessee agrees to use its reasonable
endeavours (having regard to all the commercial circumstances)
to obtain such a power of attorney provided however that,
subject to having made such reasonable endeavours, the Lessee
shall be under no liability or obligation should such a power
of attorney not be obtained.
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13 Operations and Maintenance
13.1 The Lessee further undertakes with the Lessor that throughout the Lease
Period it will have the technical and operational responsibility for the
Aircraft and will at its own cost and expense:
(a) Certificates and Licences
obtain and maintain in full force and effect all necessary
certificates, licences, permits and authorisations required for the
use and operation of the Aircraft, including, without limitation, an
air operators certificate, an unrestricted certificate of
airworthiness with respect to the Aircraft in the public transport
category (passenger) issued by the Aviation Authority, and such
certificates of maintenance, review and release to service as are
required for the Aircraft to be used for the public transport of
passengers;
(b) Operation and Use
(i) use or procure that the Aircraft is used, operated and
controlled in accordance with all applicable laws, ordinances,
rules, regulations, orders or requirements of the State of
Registration and in accordance with all certificates,
licences, permits, authorisations and registrations relating
to the Aircraft imposed by the Aviation Authority and so as
not to invalidate any manufacturer's warranties;
(ii) not use or procure that the Aircraft will not be used for any
purpose for which it is not designed or reasonably suited, or
outside the tolerances and limitations for which the Aircraft
was designed and will be operated in accordance with the
Manuals and Technical Records and in a manner permitted by the
Aviation Authority;
(iii) not use or procure that the Aircraft will not be knowingly
used for any illegal purpose or in an illegal manner or for
any purpose or in any manner not fully covered by the
Insurances, or outside any geographical limit imposed by the
Insurances without first procuring the consent to such use
from the appropriate insurers and complying with such
requirements as to extra premium or otherwise as the insurers
may require or procuring alternative indemnities acceptable to
the Lessor;
(c) Maintenance
ensure that the Aircraft is maintained, serviced, repaired and
overhauled in accordance with the Approved Maintenance Programme so
as to:
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(i) keep the Aircraft in good repair, condition and appearance and
airworthy in all respects and generally in as good operating
condition as when delivered to the Lessee on the Delivery
Date, fair wear and tear excepted;
(ii) comply with all mandatory modifications and Alert Service
Bulletins which are due and applicable to the Aircraft and all
other Service Bulletins which are selected, without
discrimination, by the Lessee for incorporation in the
Lessee's fleet of Boeing 767-300ER aircraft; and
(iii) comply with all applicable laws, ordinances, rules,
regulations, orders and requirements of the State of
Registration and ICAO;
(d) Replacement and Installation of Engines and Parts
the Lessee, at its own cost and expense, shall promptly replace or
cause to be replaced any Engine, or any Part, which may from time to
time be incorporated in, installed on or attached to the Airframe or
any Engine, and which 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, the Lessee may, at its own cost and expense, remove or
permit to be removed in the ordinary course of maintenance, service,
repair, overhaul or testing, any Engine or any Part, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use, provided that
the Lessee shall, at its own cost and expense replace or cause to be
replaced such Engine or Parts as promptly as possible. Each
Replacement Engine or Part shall be free and clear of all
Encumbrances other than Permitted Liens and shall be (i) serviceable
in accordance with the Approved Maintenance Programme and the
regulations of the Aviation Authority, (ii) be an approved part for
use on the Aircraft, and (iii) in as good operating condition as,
and shall have a value and utility substantially equal to, the
Engine or Part replaced assuming such replaced Engine or Part was
then of the value and in the condition and repair required to be
maintained by the terms hereof. Each Engine and Part at any time
removed from the Airframe or (in the case of any Part) any Engine
shall remain the property of the Lessor, no matter where located,
until such time as such Engine or Part shall be replaced by an
Engine or Part which has been incorporated in, installed on or
attached to the Airframe or such Engine (as the case may be) and
which meet the requirements for replacement Engines and Parts
specified above. Immediately upon any replacement Engine and Part
being incorporated in, installed on or attached to the Airframe or
any Engine (as the case may be) as above the Lessee shall procure
that, in accordance with the laws of the lex situs, (i) title to
such replacement or substitute Engine or Part shall vest in the
Lessor free and clear of all Encumbrances other than Permitted Liens
and (ii) such replacement or
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substitute Engine or Part shall become subject to this Agreement and
be deemed part of the Airframe or such Engine (as the case may be)
for all purposes hereof to the same extent as the Engine or Part
originally incorporated in, installed on or attached to the Airframe
or such Engine (as the case may be). The Lessee shall, at the cost
and expense of the Lessee, do such acts and things as the Lessor may
reasonably require to ensure that title so vests in the Lessor. Upon
such installation, title to the replaced or removed Engine or Part
shall vest in the Lessee, free and clear of all Lessor's Liens and
rights or claims of the Lessor. The Lessor shall, at the cost and
expense of the Lessee, do such acts and things as the Lessee may
reasonably require to ensure that title so vests in the Lessee;
(e) Removal of Engines and Parts
subject to clause 13.2 and clause 13.3, ensure that no Engine on the
Airframe or any Part installed in the Airframe or any Engine is at
any time removed therefrom otherwise than during the course of
maintaining, servicing, repairing, overhauling or testing the
Airframe or such Engine, or making such modifications, changes or
alterations to the Airframe or such Engine as are permitted under
this Agreement, and then only if it is promptly reinstalled, or
promptly replaced or substituted by an item complying with the
provisions of clause 13.1(d) Provided that any Engine or Part (as
the case may be) which is installed on the Airframe or any Engine by
way of addition and not by way of replacement, substitution, renewal
or mandatory improvement may be removed without the Lessee being
obliged to comply with the foregoing provisions of this clause
13.1(e), and upon such removal of such Part in such circumstances,
title to such Part shall vest in the Lessee and provided further
that after any such removal the Lessee shall restore the Aircraft to
the condition the Aircraft would have been in had such removed
Engine or Part (as the case may be) not been installed on the
Aircraft;
(f) Non-installed Engines
ensure that, save in accordance with clause 13.3, no Engine is
installed on any other aircraft, and that any Engine not installed
on the Airframe is properly and safely stored in accordance with the
manufacturer's recommendations, and kept free from Encumbrances
other than Permitted Liens and that appropriate insurance cover is
effected in respect of any Engine or Parts belonging to the Lessor
which are not installed on the Airframe or any Engine;
(g) Nameplates
within fourteen (14) days of the Delivery Date affix and maintain a
fireproof nameplate in a reasonably prominent position on the
flightdeck
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or cockpit of the Aircraft stating that the Aircraft is the property
of the Lessor and will ensure that the same is not covered or
painted over; and
(h) Alterations
subject to the provisions of clause 13.4, procure that no
modification to or change or alteration in the Aircraft is made
which will have the effect of reducing the value or airworthiness of
the Aircraft except as (i) necessary for compliance with the
provisions of this Agreement or (ii) required by the manufacturer of
the Aircraft or (iii) required by the Aviation Authority or ICAO.
13.2 Temporary Installation of engines and Parts
The Lessee and any Permitted Air Carrier shall be entitled to install any
engine on the Airframe or any Part on the Airframe or any Engine by way of
substitution or replacement or renewal or mandatory modification
notwithstanding that such installation is not in accordance with clause
13.1(d) if (a) there shall not have been available to the Lessee or, as
the case may be, the Permitted Air Carrier at the time and in the place
that such engine or Part was required to be installed on the Airframe or
any Engine a substitute or replacement engine or Part complying with the
requirements of clause 13.1(d), and (b) it would have resulted in an
unreasonable disruption of the operation of the Aircraft and/or the
business of the Lessee or, as the case may be, the Permitted Air Carrier
to have grounded the Aircraft until such time as an engine or Part
complying with the requirements of clause 13.1(d) became available for
installation in the Airframe or any Engine, and (c) as soon as may be
operationally and economically practicable after installation of the same
on the Airframe or any Engine, and in any event on or prior to the date
falling ninety (90) days after the date of installation of the same or, if
earlier, prior to the date on which the Lessee re-delivers the Aircraft
pursuant to clause 19 the Lessee or, as the case may be, the Permitted Air
Carrier shall ensure that any such engine or Part not complying with the
requirements of clause 13.1(d) is removed and replaced or substituted by
an engine or Part complying with the requirements of clause 13.1(d).
13.3 Pooling and Installation of Parts and Engines on other aircraft
(a) Notwithstanding anything in this Agreement to the contrary, the
Lessee may and may allow any Permitted Air Carrier (for such period
as may be permitted pursuant to the relevant agreement or
arrangement) to lease, let on hire or charter or otherwise part with
possession of an Engine or any Part (on terms conferring no more
than a contractual right in personam against the Lessee, or the
relevant Permitted Air Carrier but not rights against such Engine or
relevant Part) pursuant to pooling agreements or arrangements to
which the Lessee or the relevant Permitted Air Carrier is a party
provided that such pooling agreements or arrangements conform to
normal interchange or pooling arrangements
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customary in the airline industry involving solvent and responsible
scheduled commercial air carriers, or the manufacturer's or
suppliers of the Engines or Parts, and which do not contemplate
transfer of title to the pooled Engine or relevant Part.
(b) Notwithstanding anything in this Agreement to the contrary, the
Lessee may and may allow any Permitted Air Carrier to:
(i) install any of the Engines on an aircraft owned by the Lessee
or the relevant Permitted Air Carrier (as the case may be) or
leased or hired to the Lessee or the relevant Permitted Air
Carrier, as the case may be, whereby the Lessee or the
relevant Permitted Air Carrier (as the case may be) has full
operational control of such aircraft or an aircraft purchased
by the Lessee or the relevant Permitted Air Carrier (as the
case may be) subject to a conditional sale agreement or
subject to a charge or charges covering such aircraft,
provided that the terms of any lease, conditional sale
agreement or charge or charges provide that such Engines will
remain subject to this Agreement free and clear of any rights
of any other lessors, mortgagees or persons other than
Permitted Liens; or
(ii) install any Part belonging to the Lessor on an aircraft owned
by the Lessee or the relevant Permitted Air Carrier (as the
case may be) leased or hired to the Lessee or any relevant
Permitted Air Carrier (as the case may be) on terms whereby
the Lessee or any relevant Permitted Air Carrier (as the case
may be) has full operational control of such aircraft or an
aircraft purchased by the Lessee or the relevant Permitted Air
Carrier (as the case may be) subject to a conditional sale
agreement or subject to a charge or charges covering such
aircraft, provided that the terms of any lease, conditional
sale agreement or charge or charges provide that such Parts
will remain subject to this Agreement free and clear of any
rights of any other lessors, mortgagees or persons other than
Permitted Liens.
13.4 Installation of Other Equipment
Notwithstanding the provisions of clause 13.1(d), the Lessee may, or may
permit any Permitted Air Carrier to, install audio visual entertainment,
telephonic and other equipment in the Aircraft which does not comply with
the requirements as to title thereto specified in clause 13.1(d) and
remove such equipment so installed and the Lessee undertakes that upon
installation of any such equipment it shall make, or procure that there is
made, an entry in the Manuals and Technical Records to the effect that
such equipment is then installed in the Aircraft and that upon termination
of the Lease Period the Lessee shall if it wishes to do so or if it asked
to do so by the Lessor at its own cost and expense, remove any part of or
all of (as the Lessee shall in its absolute
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discretion determine) such equipment from the Aircraft and the Lessee
shall after such removal restore the Aircraft to the same condition it was
in immediately prior to any modification carried out in order to install
such equipment. The Lessor shall not claim or acquire title to any such
equipment other than equipment the Lessee chooses not to remove upon
termination of the Lease Period and equipment purchased by the Lessor as
contemplated by the remainder of this clause 13.4, and the rights of the
owners therein shall not constitute a default under this Agreement. Upon
the expiry of the Lease Period, the Lessor may offer to purchase any
equipment referred to above at a price equal to the Lessee's actual cost
(inclusive of evidenced design, labour and material costs) of such
equipment, and the Lessee may accept or reject any such offer at its sole
discretion. Any equipment referred to in the first sentence of this clause
13.4 which is not removed by the Lessee or is purchased by the Lessor as
contemplated above, prior to the return of the Aircraft to the Lessor at
the end of the Lease Period, shall become the property of the Lessor,
except for any such equipment which is leased by the Lessee and the owner
of such equipment and the Lessor have agreed directly with each other that
such equipment shall remain on the Aircraft.
14 Manuals and Technical Records
14.1 Throughout the Lease Period the Lessee shall ensure that there are kept
accurate, complete and current records of all flights made by the
Aircraft, and of all maintenance and repairs carried out to the Airframe
and each Engine and Parts, and shall maintain all other records, logs and
documents which are required to be maintained in respect of the Aircraft
by the Aviation Authority, and shall allow the Lessor and/or its agents or
representatives to examine such records at any reasonable time during
normal business hours in the jurisdiction where such records are kept (or
at any other time acceptable to both the Lessor and the Lessee) upon
giving not less than ten (10) days written notice to the Lessee and
provided no unreasonable interference or delay is caused to the Lessee's
or any Permitted Air Carrier's operation, maintenance and use of the
Aircraft. The costs of such examinations shall be paid by the Lessor.
14.2 The records, logs and documents so kept or maintained shall be kept and
maintained in the English language and conform with the regulations from
time to time in force of the Aviation Authority, and with the normal
practices of the Lessee and shall disclose the whereabouts of all Engines
and Parts not installed on the Airframe.
14.3 The records, logs and documents so kept or maintained shall be part of the
Manuals and Technical Records and shall be the property of the Lessor and,
at the end of the Lease Period, if the Aircraft is redelivered to the
Lessor, the Lessee shall deliver the original Manuals and Technical
Records to the Lessor, provided that the Lessee shall be entitled to take
and retain copies thereof.
14.4 The Lessee shall (save as hereinafter provided) procure that all the
Manuals and Technical Records are kept on the Aircraft or in its
possession or in the
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possession of the relevant Permitted Air Carrier (save for any purpose
specified in clause 12) and shall procure that no other person (other than
a person entitled to have possession or control of the Aircraft under the
terms of this Agreement) shall have possession of or control over the
Manuals and Technical Records or any of them, except with the prior
written consent of the Lessor (such consent not to be unreasonably
withheld or delayed).
15 Title and Registration
15.1 The Lessee, at its sole cost and expense, shall use its reasonable
endeavours to cause the Aircraft to be certified as to airworthiness by
the Aviation Authority on a permanent basis in accordance with the laws of
Norway or any Permitted Country (as the case may be) at all times during
the Lease Period.
15.2 The Lessee, at its sole cost and expense, shall as soon as reasonably
practicable after the Delivery Date and in any event no later than five
(5) Banking Days following the Delivery Date cause the title of the Lessor
to the Aircraft to be duly registered on a permanent basis and, to the
extent permitted under the laws of Norway, at all times thereafter to
remain duly registered in the Register of Aircraft in accordance with the
laws of Norway, and, to the extent permitted under the laws of Norway,
shall not register or allow the Aircraft to be registered in any other way
or manner under the laws of Norway or any other country (provided that
registration in accordance with the laws of Norway other than by way of
registration of the title of the Lessor to the Aircraft shall not
prejudice the Lessor's position as holder of title to the Aircraft),
except in the event the Lessee either wishes to register the Aircraft in a
different Permitted Country or sub-leases the Aircraft in any Permitted
Country, in which event (provided that such registration will not
prejudice the Lessor's position as holder of title to the Aircraft) the
Lessee shall at its cost, to the extent permitted under the laws of such
other Permitted Country, cause the title of the Lessor to the Aircraft to
be duly registered or recorded in a way or manner similar to those
described in this clause 15.2 under the laws of such Permitted Country,
which registration or recordation, for the avoidance of doubt, shall
extend only to the registration of the Lessor's interests as Owner of the
Aircraft.
15.3 In the event that the Aircraft is returned to the Lessor pursuant to the
terms of this Agreement, the Lessee shall if so requested by the Lessor,
at the Lessee's own cost and expense, take all necessary steps to:
(a) remove the registration of the Aircraft from any jurisdiction in
which the Aircraft may be registered at such time;
(b) obtain an export certificate of airworthiness for the Aircraft (if
applicable) from the Aviation Authority; and
(c) assist the Lessor or its designee(s), at the Lessor's cost, in
securing such new registration of the Aircraft as may be determined
by the Lessor, which assistance shall include, without limitation,
preparation or
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provision of documents necessary to be obtained from the Lessee in
connection with such new registration.
16 Insurance
16.1 On or before Delivery and until the Aircraft has been returned to the
Lessor pursuant to clause 19 or title has been transferred to the Lessee,
the Lessee shall obtain, maintain and keep in full force and effect with
Polygon Insurance Company Limited insurance with respect to the Aircraft
complying with the requirements of this clause 16.
16.2 Until the Aircraft has been returned to the Lessor pursuant to clause 19
or title has been transferred to the Lessee, the Lessee shall comply with
all legal requirements as to the insurance of the Aircraft which may from
time be imposed by the laws of the State of Registration.
16.3 The Lessee shall pay or shall procure the payment of the premiums (or
instalments thereof) as required by the terms of the policies relating to
the Insurances.
16.4 The Lessee shall not create or permit to exist any Encumbrance other than
Permitted Liens over the Insurances, or its interest therein, save as
expressly permitted by this Agreement.
16.5 (a) The Lessee shall obtain and maintain:
(i) "All-Risks" hull insurance on the Aircraft including all
flights, taxiing and ground risks in such amount in Dollars as
is equal to the Agreed Value of the Aircraft as at the time
the insurance is placed or renewed. The deductible in respect
of such insurance shall not exceed $2,000,000.
(ii) "All-Risks" (including War and Allied Risks except when on the
ground or in transit other than by air) property insurance on
Engines, Parts, components or spares when not installed on the
Aircraft on an "Agreed Value" basis for their full replacement
value and including engine test and running risks. The
deductible in respect of such insurance shall not exceed
$1,000,000 each and every loss.
(iii) "War Risks" hull insurance to the extent available as detailed
in the War, Hijacking and Other Perils Exclusion Article
AVN48B or any modification or substitution thereof for the
time being in force but excluding confiscation by the
governments of the Scandinavian Countries, in such amount in
Dollars as is equal to the Agreed Value of the Aircraft as at
the time the insurance is placed or renewed.
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(b) The insurances required under clause 16.5(a) shall be provided on an
agreed value basis, and the policies shall be endorsed to include
paragraph 1 of AVN67A, with the Lessor, inter alia, named as a
Contract Party in AVN67A.
(c) The original certificate of insurance issued by the relevant brokers
shall confirm, in the event of separate insurances being arranged to
cover the "All-Risks" hull insurance and the "War Risks" and related
insurance, that the underwriters subscribing to such insurance have
agreed in the terms of AVS 103 (or equivalent) that in the event of
any dispute as to whether a claim is covered by the "All Risks" or
"War Risks" policy, such claim be settled on a 50/50 claim funding
basis.
16.6 (a) The Lessee shall obtain and maintain, in a form which complies with
the current market standard, aircraft third party, passenger,
baggage, cargo, mail and airline general third party liability and
products liability insurance coverage (including AV52) for a
combined single limit (bodily injury or property damage) of
$500,000,000 for any one accident.
(b) The policies evidencing the insurances required under clause 16.6(a)
shall be endorsed to include paragraph 2 of AVN67A, with the Lessor,
inter alia, named as a Contract Party in AVN67A.
16.7 (a) The policies evidencing the insurances required under clause 16.5
and clause 16.6 shall:
(i) specifically reference this Agreement;
(ii) provide for worldwide coverage (subject only to such
exceptions as may be customary and generally applicable in the
aviation insurance industry with respect to the geographical
scope of the hull, war and allied risks insurances for
aircraft of the same type as the Aircraft); and
(iii) be endorsed to include paragraph 3 of AVN67A with the Lessor
(inter alia) named as a Contract Party in AVN67A.
16.8 The Lessor shall be entitled, after the expiry or termination of the Lease
Period, to require the Lessee at the Lessee's expense to effect and to
maintain insurance, if available, with respect to its liability under the
indemnities set forth in clause 9.1(a) for such period (which shall not
exceed two (2) years from the date of such expiry or termination) as the
Lessor may reasonably require such insurance to provide for the Lessor to
be named as additional insured thereunder to the extent of its interests
under the said indemnities, and the obligation of the Lessee to effect the
same to continue notwithstanding the Lessee ceasing to be the user or
operator of the Aircraft and the Lessor ceasing to be the owner of the
Aircraft.
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16.9 The Lessor shall be entitled to take out and maintain, at the Lessor's
cost, additional insurance relating to the Aircraft, provided that such
insurance does not or may not prejudice any insurances required to be
maintained under this Agreement or recovery thereunder.
16.10 Any reference in this clause 16 to clauses from AVN67A shall be deemed to
have such clauses incorporated herein by reference and become a part of
this Agreement. Such clause shall be effective notwithstanding any changes
made to AVN67A or in the event AVN67A becomes obsolete or superseded by
any successor endorsement provisions, unless the Lessor and the Lessee
shall have entered into a written agreement amending this clause 16 to
provide for appropriate revisions regarding such successor endorsement
provisions.
17 Loss and Damage
17.1 Throughout the Lease Period the Lessee shall bear the full risk of any
loss, destruction, hi-jacking, theft, condemnation, confiscation, seizure
or requisition of or damage to the Aircraft and of any other occurrence of
whatever kind which shall deprive the Lessee or the operator of the
Aircraft for the time being of the use, possession or enjoyment thereof.
17.2 (a) The Lessee shall give the Lessor immediate (and, in any event,
within seven (7) days after such occurrence) notice in writing of
any such occurrence as is referred to in clause 17.1 (other than
repairable damage the likely cost of rectification of which will not
exceed in aggregate Two million Dollars ($2,000,000), or in relation
to any Engine One million Dollars ($1,000,000)) or any other
occurrence of whatever kind which shall deprive the Lessee or the
operator of the Aircraft for the time being of the use, possession
or enjoyment thereof.
(b) The Lessee shall supply to the Lessor all necessary information,
documentation and assistance which may reasonably be required by the
Lessor in connection with making any claim under the Insurances.
17.3 (a) If the Aircraft shall become a Total Loss during the Lease Period,
the Lessee shall pay, or procure that the insurers pay, to the
Lessor being loss payee under the Insurances on the date insurance
proceeds are paid in full but in any case within ninety (90) days
(or such longer period as may be agreed) of the date on which the
Total Loss occurred, the Agreed Value as at the date of payment
thereof together with all amounts of Rent and any other amounts then
due and payable under the Lessee Documents. If the Lessor receives
any monies paid pursuant to the Insurances in excess of the Agreed
Value it shall immediately pay such excess to the Lessee.
(b) For the purposes of this Agreement a Total Loss shall be deemed to
have occurred:
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(i) in the case of an actual total loss, at noon (London time) on
the actual date the Aircraft was lost or, if such date is not
known, noon (London time) on the day on which the Aircraft was
last heard of;
(ii) in the case of any of the events described in sub-paragraph
(a) of the definition of Total Loss (other than an actual
total loss), upon the date that notice claiming the loss of
the Aircraft is given to the relevant insurers, unless the
insurers do not forthwith admit such claim, when such Total
Loss shall be deemed to have occurred at the date and time at
which either a total loss is subsequently admitted by the
insurers or a competent court or arbitration tribunal issues a
judgment to the effect that a total loss has occurred;
(iii) in the case of any of the events described in sub-paragraph
(b) of the definition of Total Loss, upon the date of
occurrence of such destruction, damage or cessation;
(iv) in the case of Compulsory Acquisition, upon the date upon
which the relevant requisition of title or other compulsory
acquisition, requisition, appropriation, expropriation,
deprivation or confiscation occurs; and
(v) in the case of any of the events described in sub-paragraph
(d) of the definition of Total Loss, upon the expiry of the
period of ninety (90) days referred to in such sub-paragraph
(d) after the date upon which the relevant hijacking, theft,
condemnation, confiscation, capture, detention, seizure or
requisition for use or hire occurred.
17.4 SAS BV shall continue to pay Rent on the days and in the amounts required
under this Agreement notwithstanding any Total Loss Provided Always that
no further instalments of Rent shall become due after the date on which
all sums due under clause 17.3(a) shall have been paid in full, and on
such date the Lease Period shall terminate and the Lessor shall assign to
the Lessee or its nominee all claims against third parties relating to the
Aircraft arising from the Total Loss.
17.5 In the event of repairable damage to the Aircraft or any of the Engines,
or an Engine Loss all insurance moneys which may be payable by the
insurers of the Aircraft shall be paid to the Lessee who shall be obliged
to ensure that such damage shall (if it has not already) be made good or
repaired or put in hand for repair or, in the case of an Engine Loss, the
Lessee shall utilise the relevant insurance moneys in payment of the
purchase price of a replacement Engine Provided always that if a Relevant
Event has occurred and is continuing, the Lessor shall be entitled, as
loss payee under the Insurances, to receive any insurance moneys and such
insurance moneys may be applied in or towards
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settlement of any amounts owing by the Lessee or SAS BV to the Lessor
under any Lessee Document.
17.6 In the event of repairable damage to the Aircraft or any of the Engines,
or an Engine Loss, and if the insurance moneys paid in respect thereof are
insufficient to pay the cost or estimated cost of making good or repairing
such damage or the cost of purchasing a replacement Engine, the Lessee
will pay the deficiency.
17.7 Replacement Engine(s)
Upon the occurrence of an Engine Loss under circumstances in which there
has not also occurred a Total Loss, the Lessee shall give the Lessor
written notice promptly after becoming aware thereof and shall, within
sixty (60) days after the occurrence of such Engine Loss, convey or cause
to be conveyed to the Lessor, as replacement for such Engine, title, free
and clear of all Encumbrances other than Permitted Liens, to a Replacement
Engine. Prior to or at the time of any such conveyance, the Lessee will
(a) furnish the Lessor with a bill of sale with respect to such
Replacement Engine and (b) take such other actions and furnish such other
certificates and documents as the Lessor may reasonably require in order
to ensure that the Replacement Engine is duly and properly conveyed to the
Lessor and leased to the Lessee to the same extent as the Engine replaced
thereby and leased hereunder. For all purposes hereof such engine shall,
after such transfer, be deemed part of the property leased hereunder and
shall be deemed an "Engine" as defined herein. Upon full compliance by the
Lessee with the terms of this clause 17.7, the lease hereunder of the
replaced Engine with respect to which such Engine Loss occurred shall
cease and title to such Engine shall thereupon vest in the Lessee or the
Lessee's nominee free and clear of all rights of the Lessor and any
Lessor's Liens. No Engine Loss with respect to any Engine which is
replaced in accordance with the provisions of this clause 17.7 shall
result in any increase or decrease of Rent or the Agreed Value.
18 Requisition
18.1 If the Aircraft is requisitioned for hire by any governmental or other
competent authority during the Lease Period then, unless and until the
Aircraft becomes a Total Loss following such requisition and the Lessee
shall have made payment of all sums due pursuant to clause 17.3(a), the
lease of the Aircraft to the Lessee under this Agreement shall continue in
full force and effect (subject always to the provisions of clause 21) for
the remainder of the Lease Term and the Lessee and, subject to clause 7.3,
SAS BV shall remain fully responsible for the due compliance with all
their respective obligations under this Agreement other than such
obligations which the Lessee is unable to comply with solely by virtue of
such requisition.
18.2 If the Lessee and SAS BV shall duly comply with all their respective
obligations under this Agreement, save as mentioned in clause 18.1, the
Lessee shall, during the Lease Period, be entitled to all requisition hire
paid to the Lessor or to the Lessee on account of such requisition.
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18.3 The Lessee shall, as soon as practicable after the end of any requisition
for hire, cause the Aircraft to be put into the condition required by this
Agreement, and where that requisition shall end after the expiry or
termination of the Lease Term, the Lessee shall, as soon as practicable,
cause the Aircraft to be put into the redelivery condition required by
clause 19, allowance being made for fair wear and tear in respect of the
period from the expiry or termination of the Lease Term.
18.4 The Lessee shall be entitled to all compensation payable in respect of any
change in the structure, state or condition of the Aircraft arising during
the period of requisition for hire. The Lessee shall apply such
compensation in or towards the cost of complying with its obligation under
clause 18.3, provided always that if a Relevant Event has occurred and is
continuing, the Lessor shall be entitled to receive and apply such
compensation in or towards settlement of any amounts owing by the Lessee
under any Lessee Document.
18.5 Should the Aircraft be under requisition for hire at the end of the Lease
Term the lease of the Aircraft under this Agreement shall be extended to
the earlier of the date (the "Extended Date") falling ninety (90) days
after the date of expiration of the Lease Term and the date the Aircraft
is released from such requisition for hire, and all the provisions of this
Agreement shall remain in full force and effect, save that the rate of
Rent payable by SAS BV during such extension shall be equal to the rate of
Rent payable by SAS BV under this Agreement immediately prior to the
expiration of the Lease Term. If the Aircraft remains under requisition
for hire at the Extended Date the Aircraft shall be deemed to be a Total
Loss, and the provisions of this Agreement relating to a Total Loss shall
apply. Upon receipt by the Lessor of the Agreed Value and all other
amounts due and payable to the Lessor under the Lessee Documents in the
circumstances contemplated in this clause 18.5, the Lessor shall transfer
to the Lessee such title to the Aircraft as the Lessor received pursuant
to the Aircraft Purchase Agreement, free of all Lessor's Liens, and the
Lessor shall, at the Lessee's cost, do such acts and things as the Lessee
may reasonably require to ensure that title so vests in the Lessee.
19 Redelivery
19.1 At the end of the Lease Period (other than following a Total Loss) the
Lessee at its own expense shall redeliver the Aircraft to the Lessor at
the Redelivery Location, and the Lessee shall, at the Lessee's cost,
de-register the Aircraft from the Aviation Authority and procure the issue
of an export certificate of airworthiness in respect of the Aircraft. All
other costs in connection with the export of the Aircraft from the State
of Registration and any re-registration of the Aircraft shall be borne by
the Lessor, provided that the Lessee shall, at the Lessor's cost, provide
such assistance as the Lessor may reasonable require.
19.2 On redelivery:
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(a) the condition of the Aircraft and the Manuals and Technical Records
shall be such as to demonstrate that the Lessee has in all respects
complied with the obligations on its part contained in clause 13;
(b) the Aircraft shall be in as good operating condition as when
delivered under this Agreement to the Lessee, ordinary wear and tear
excepted, and free of corrosion unless such corrosion is within
permitted limits as defined in the manufacturer's structural repair
manual;
(c) the Aircraft (i) shall have completed, immediately prior to
redelivery, the next scheduled "C" check (or its equivalent)
including all tasks required for a full "C" check, and which should
include the next scheduled "SC" check (or its equivalent), provided
however that such "SC" check (or its equivalent) is not an "S4C"
check, and shall be at least equivalent in workscope to the systems,
zonal and structures tasks for the respective "C" and "SC" checks in
the Boeing Maintenance Planning Data Document ("MPD") under the
Lessee's Approved Maintenance Programme and (ii) at redelivery shall
have at least half time remaining until its next most comprehensive
basic overhaul ("S4C" check) under the Approved Maintenance
Programme; provided, however, that the Lessee may comply with clause
(ii) above if (A) the Airframe has less than half time but more than
quarter time, remaining until such next basic overhaul and (B) the
Lessee pays to the Lessor the amount equal to (i) the average of the
quotations of the cost of performing an "S4C" check on a Boeing
767-300ER aircraft of similar age as the Aircraft obtained from
three third party providers of "S4C" checks of Boeing 767-300ER
aircraft, one such third party provider being chosen by the Lessor,
one being chosen by the Lessee and the third being acceptable to
each of the Lessor and the Lessee (each acting reasonably), divided
by (ii) the number of Flight Hours which a Boeing 767-300ER aircraft
is scheduled under the Lessee's Approved Maintenance Programme to
operate between one "S4C" check and the immediately following "S4C"
check, for each Flight Hour less than half time remaining to such
next basic overhaul;
(d) with respect to the Aircraft, the nose and the main landing gears
(the "landing gear") shall be half time (currently 9,000 Cycles)
from overhaul. In no circumstance will landing gears be returned
with less than quarter time remaining provided, however, that the
Lessee may comply with this clause 19.1(d) if the landing gear has
less than half time (currently 9,000 Cycles) remaining from the
previous overhaul until the next overhaul the Lessee by paying to
the Lessor $6.25 for each Cycle less than half time (currently 9,000
Cycles) remaining to such next overhaul;
(e) the APU shall be fresh from overhaul;
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(f) each Engine will be returned "half time" (which, for the purpose of
this clause 19.2(f) shall mean the mean time of the Lessee's
operated PW4060 engines between scheduled shop level repairs under
the Lessee's Approved Maintenance Programme). In no circumstance
will any Engine be returned with less than quarter time remaining
(for the purpose of this clause 19.2(f) "quarter time" shall mean
one half of half time). Each Engine will be within the
manufacturer's EGT margins and all other parameters in accordance
with the performance test in the manufacturer's manual or other
comparable test as agreed to by the Lessor using temperature
corrected charts, provided however that such tests shall be made
on-wing using on-wing limitations. Each Engine's trend analysis will
not have exhibited any negative deterioration. If an Engine has less
than half time but more than quarter time, remaining until the next
scheduled removal the Lessee shall pay to the Lessor One hundred and
twenty five Dollars ($125) (adjusted for inflation between the date
of this Agreement and the time of any such payment in accordance
with the producer price index maintained by Denmark) for each Flight
Hour less than half time remaining to the next scheduled removal in
respect of such Engine;
(g) there shall be a current Certificate of Airworthiness and, if
required by the Lessor, an Export Certificate of Airworthiness
issued in respect of the Aircraft by the Aviation Authority in the
public transport category (passenger) and such current certificates
of maintenance, review and release to service issued as shall allow
the Aircraft to be used for the public transport of passengers or
cargo under the regulations of the Aviation Authority;
(h) all airworthiness directives and mandatory orders affecting the
Aircraft issued by the Aviation Authority which require compliance
prior to the date falling six (6) months (or the equivalent number
of Flight Hours and Cycles based on the previous twelve (12) months
of operation) after the last day of the Lease Period shall have been
complied with, provided that (i) appropriate modification kits are
available from the manufacturer concerned on or prior to the last
day of the Lease Period, and (ii) such airworthiness directive or
mandatory order is issued by the Aviation Authority not later than
thirty (30) days prior to the re-delivery, provided that, for the
purpose of this paragraph (h), any waiver, deviation or time
extension obtained by the Lessee (or any Permitted Air Carrier) from
the Aviation Authority and/or any other Government Entity shall be
disregarded;
(i) the Aircraft shall be free and clear of all Encumbrances other than
Lessor's Liens;
(j) the livery, insignia and markings of the Lessee (or any Permitted
Air Carrier) shall have been removed from the Aircraft which shall
be repainted, using the same quality of paint as the Lessee uses on
other
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Boeing 767-300ER aircraft in its fleet, at the Lessee's cost in the
same colour as the surrounding area and in a workmanlike manner to
produce a uniform appearance and the Lessee shall prepare the
Aircraft for such repainting by restoring aerodynamic sealer to any
area of stripped paint and wing, and horizontal stabilizer surfaces
that are painted shall be touched-up as required wherever paint has
peeled away or is otherwise worn out or missing, including control
surfaces not requiring balancing due to painting;
(k) the Aircraft exterior shall be washed, the interior shall be clean
by international commercial airline standards, the cockpit
instrument panels shall be repainted as required if worn beyond
normal wear and tear and placards shall be replaced as required;
(l) all equipment, parts, components, accessories and loose equipment
shall be functioning in accordance with its intended use;
(m) the Lessee shall have strictly adhered to the Boeing Corrosion
Prevention and Control Programme ("CPCP"), or in the event that
Boeing has not established a CPCP for the Boeing 767 aircraft, then
the Lessee shall have strictly adhered to corrosion prevention and
treatment programme in accordance with the Approved Maintenance
Programme;
(n) the Aircraft, except as otherwise provided in this Agreement or as
consented to by the Lessor, shall be in the same configuration
(including, but not limited to, interior seating configuration, the
location of galleys and lavatories) as when the Aircraft was
originally delivered to the Lessee hereunder;
(o) neither the Aircraft nor any Engine shall have any open, deferred or
placarded maintenance items or watch items, nor shall they have any
time extensions, and the Aircraft and Engines shall comply with the
operation specifications of the Lessee without waiver or exceptions;
and
(p) all repairs accomplished during the Lease Term of a temporary or
interim nature, including repairs using blind fasteners and those
requiring repetitive inspections or future upgrading, shall be
upgraded to a permanent repair and all external doublers (scab
patches) shall, if more than one doubler is located on adjacent skin
panels, be replaced with flush repairs (unless such doubler is due
to a service bulletin accomplishment), all in accordance with the
applicable manufacturer's maintenance manual, structural repair
manual, or other Aviation Authority approved data.
19.3 Immediately prior to re-delivery of the Aircraft, the Lessee shall, if the
Lessor so requests in writing, make the Aircraft and the Manuals and
Technical Records available to the Lessor for inspection during normal
business hours in the jurisdiction in which the Manuals and Technical
Records are located in order
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to verify that the condition of the Aircraft complies with the provisions
hereof. The period allowed for such inspection shall have such duration as
to permit the conduct by the Lessor of the following:
(a) inspection of the Manuals and Technical Records;
(b) inspection of the Aircraft, Engines and Parts and the performance of
a full cold and hot section borescope and isotope inspection of the
Engines (the borescope inspections shall be performed by a
representative of the Lessor and at the expense of the Lessor in the
presence of a representative of the Lessee as observer). Any
additional Engine checks and tests including, without limitation,
engine power checks shall be performed at the cost of the Lessee;
(c) the opening or removal of panels as reasonably required by the
Lessor, including access to all compartments and bays that are
accessible through access doors and all other compartments and bays
that are opened during the "C" Check (or its equivalent), provided
however that the Lessor agrees that the inspections referred to in
this paragraph (c) shall be conducted during the "C" Check (or its
equivalent) which is to be performed by the Lessee pursuant to
clause 19.2(c) if (i) the Lessee shall have given the Lessor not
less than ten (10) days advance notice of the time and location for
the performance of such "C" Check (or its equivalent), as the case
may be, and (ii) the Lessor shall be given the opportunity during
such "C" Check (or its equivalent) to conduct all activities
necessary to verify that the Aircraft complies with the requirements
of this clause 19.2; and
(d) if requested by the Lessor, and at the Lessee's expense, a two (2)
hour test flight by the Lessee with a maximum of two (2)
representatives of the Lessor as observer on board, who will
determine, in co-operation with the flight crew of the Aircraft,
which systems will be operated. The Lessee shall be responsible for
all expenses associated with such flight test and the Lessee shall
arrange the necessary crews and fuel. All discrepancies found during
the flight test which are determined not to have been in compliance
with the limits set out in the Lessee's Aviation Authority approved
maintenance manual shall be corrected at the Lessee's expense.
19.4 If on redelivery the Aircraft (including the Manuals and Technical
Records) shall not be in the condition required by clause 19.2 as shall be
determined during the inspections and the test flight described in clause
19.3, the Lessor shall be entitled to require the Lessee at the Lessee's
expense to rectify any defects or deficiencies in the Aircraft when it is
redelivered, and the Lessee shall promptly (in any event, no later than
thirty (30) days after being requested to do so) comply with any such
requirement. To the extent that such rectification extends beyond the
Lease Term, the Lessor may after consultation and with the agreement of
the Lessee (a) remedy such defects and deficiencies
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and recover on demand from the Lessee the costs so incurred, together with
interest at the Relevant Rate of Interest from the date of expenditure by
the Lessor of the relevant cost until the date of recovery thereof from
the Lessee (both before and after any relevant judgment), or (b) continue
the Lease Period on a day-to-day basis until such non-compliance is
rectified by the Lessee with Rent being payable by SAS BV on a day-to-day
basis at the rate at which Rent was payable at the date on which
redelivery would otherwise have occurred.
19.5 Upon redelivery of the Aircraft, if requested by the Lessor by not less
than thirty (30) days prior written notice, the Lessee agrees to provide
at the Lessee's cost storage, storage maintenance and storage facilities
for the Aircraft at a storage location selected by the Lessee for a period
of up to ninety (90) days or such longer period as may be agreed between
the Lessor and the Lessee. During any such period of storage the Aircraft
shall be at the risk of the Lessor and the Lessor shall be responsible for
the insurance of the Aircraft although the Lessee will, if requested to do
so, co-operate with the Lessor in procuring insurance for the Aircraft
during such period satisfactory to the Lessor. The Lessor shall be
responsible for the cost of correcting any discrepancies discovered during
such storage and the cost of complying with any airworthiness directive
issued during the period of such storage and the cost of any other work
requested by the Lessor which the Lessee agrees to perform.
19.6 Any other matters relating to the re-delivery of the Aircraft shall be
resolved between the Lessee and the Lessor following discussions between
them provided that any additional requirements (including, without
limitation, any redelivery/ferry flight required by the Lessor once the
Aircraft has been redelivered at the Delivery Location (excluding any
flight to a storage location)) shall be for the cost of the Lessor.
19.7 In the event of any dispute between the Lessor and the Lessee regarding
any matter contained within this clause 19 the dispute shall be resolved
by three experienced and internationally recognised independent aircraft
technical consultants, one of which shall be chosen by the Lessor, one by
the Lessee and one by the mutual consent of the former two technical
consultants (provided that, if either party shall fail to appoint
technical consultants within thirty (30) days after a written request to
do so by the other party then the second technical consultant shall be
chosen by the technical consultant chosen by the other party) who shall
inspect the Aircraft at the Redelivery Location (or such other location at
which the Aircraft may be situated at the relevant time) with a view to
preparing a report to be delivered to each of the Lessee and the Lessor at
the same time within five (5) Banking days following the completion of
such inspection and setting out the findings and conclusions of the said
aircraft technical consultants regarding the matter in dispute and
containing an opinion as to which party is liable and in what amount such
party is liable to the other party. Each party to this Agreement agrees to
be bound by the findings in such report. The costs of obtaining such
report and the related inspection shall be borne by the Lessee if the
aircraft technical consultants determine that the Aircraft is not in the
redelivery condition required by this clause 19 but if the
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Aircraft is in the condition required the Lessor shall be responsible for
such costs.
19.8 For the purpose of determining whether or not the Aircraft is being
tendered for re-delivery in a condition which complies or fails to comply
with the requirements of this clause 19 the parties agree that the
Lessee's Approved Maintenance Programme shall be used to establish any
benchmark tests by reference to which the state and condition of the
Aircraft should be ascertained by the independent aircraft technical
consultants pursuant to clause 19.7.
19.9 At or upon the return of the Aircraft pursuant to clause 19.1, the Lessee
shall deliver to the Lessor, at no cost to the Lessor, all service
bulletin kits furnished without charge by a manufacturer for installation
on the Aircraft which have not been installed together with appropriate
instructions for installation provided with such kits. In the event such
service bulletin or modifications kits were purchased or manufactured by
the Lessee and have not yet been installed by the Lessee, then the Lessee
shall provide, and the Lessor shall have the option to purchase, such kits
at the Lessor's actual cost for a period of one hundred and eighty (180)
days after re-delivery of the Aircraft, subject to availability.
19.10 The Lessee agrees to sell to the Lessor, within ninety (90) days following
receipt by the Lessee of written notice from the Lessor given on or prior
to the last day of the Lease Period, up to three ship-sets of galley
inserts and/or cargo containers suitable for use on the Aircraft, and the
Lessor agrees that the price of such galley inserts and/or cargo
containers payable by the Lessor shall be the actual cost of the same to
the Lessee, plus all Taxes levied or imposed on or in connection with such
sale.
20 Termination Events
20.1 Each of the following events or circumstances shall constitute a
Termination Event:
(a) SAS BV fails to make any payment of Rent or other payment referred
to in clause 7.3 payable by it under this Agreement within two (2)
Banking Days or the Lessee shall fail to make payment of any other
amount due and payable by the Lessee under this Agreement or any
other Lessee Document, within seven (7) Banking Days, in either case
(unless the Lessor is prohibited from giving any notice by
applicable law) after written notice of non-payment has been
received by the Lessee; or
(b) the Insurances are not obtained and maintained in full force and
effect in accordance with the provisions of clause 16 provided that,
at any time the Aircraft is under requisition for hire, any
invalidation of the Insurances resulting from such requisition shall
not constitute a Termination Event if, for so long as, a Government
Entity has issued indemnities in respect of the Aircraft
satisfactory to the Lessor; or
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(c) the Lessee commits any breach of or omits to observe any of the
obligations or undertakings expressed to be assumed by it under any
Lessee Document (other than those referred to in clauses 20.1(a)
and (b) above) which failure could in the reasonable opinion of the
Lessor materially and adversely affect the rights or interests of
the Lessor hereunder or in any other Lessee Document or in the
Aircraft and, in respect of any such breach or omission which in the
reasonable opinion of the Lessor is capable of remedy, such action
as the Lessor may reasonably require shall not have been taken
within thirty (30) days of the Lessor notifying the Lessee in
writing of such default and of such required action unless the
failure has been waived or excused by the Lessor, provided, however,
that if the Lessee shall have undertaken to cure any such failure
relating to maintenance, service, repair or overhaul and,
notwithstanding the reasonable diligence of the Lessee in attempting
to cure such failure, such failure is not cured within the said
thirty (30) day period but is curable with further due diligence
within the next sixty (60) days, there shall exist no Termination
Event so long as the Lessee is proceeding with due diligence to cure
such failure and provided that such failure is cured within such
additional sixty (60) day period and provided further that there
exists no likelihood of the sale, forfeiture or loss of the Aircraft
or any Engine or Part thereof; or
(d) any representation or warranty made or deemed to be made or repeated
by the Lessee or SAS BV in or pursuant to this Agreement is or
proves to have been incorrect and such incorrectness is likely to
have a material adverse effect on the ability of the Lessee or SAS
BV to perform its obligations under this Agreement or could
materially and adversely affect the rights, interest and position of
the Lessor in the Aircraft and the Lessee or SAS BV (as applicable)
is unable to remedy the incorrect representation or warranty within
thirty (30) days of the Lessor notifying the Lessee and SAS BV in
writing of such incorrectness and specifying the action to be taken
by the Lessee or SAS BV (as applicable) to remedy such
incorrectness; or
(e) the Lessee or SAS BV suspends payment of its debts as they fall due
or becomes insolvent or unable to pay its debts or admits inability
to pay its debts as they fall due or proposes or enters into any
composition or other arrangement for the benefit of its creditors
generally or any class of creditors or proceedings are commenced in
relation to the Lessee or SAS BV under any law, regulation or
procedure relating to reconstruction or readjustment of debts under
any jurisdiction or with any Government Entity; or
(f) the Lessee or SAS BV takes any action or any legal proceedings are
started in any jurisdiction or with any Government Entity for (i)
the Lessee or SAS BV to be adjudicated or found bankrupt or
insolvent, (ii) the winding-up or dissolution of the Lessee or SAS
BV (other than in respect of any amalgamation or reorganisation not
arising out of
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insolvency), (iii) the appointment of a liquidator, trustee,
receiver, or similar officer of the Lessee or SAS BV of the whole or
any part of its undertaking, assets, rights or revenues, or (iv) the
judicial protection of the Lessee or SAS BV from its creditors (not,
in any such case, being action or legal proceedings that the Lessee
or, as the case may be, SAS BV can demonstrate are frivolous,
vexatious or an abuse of the process of the court or which the
Lessee or, as the case may be, SAS BV discharges within thirty (30)
days of the Lessor becoming aware of the same or which the Lessee
or, as the case may be, SAS BV is contesting in good faith and by
appropriate proceedings); or
(g) save where the relevant circumstance constitutes a Total Loss, the
Aircraft is arrested, confiscated, seized, taken in execution,
impounded, forfeited or detained in exercise or purported exercise
of any possessory lien or other claim and the Lessee fails to
procure the release of the Aircraft within thirty (30) days (except
as a consequence of any of (i) the existence of a Lessor's Lien, or
(ii) a breach by the Lessor of the provisions of clause 6.1 or
clause 6.2); or
(h) the registration of the Aircraft in accordance with the provisions
of clause 15.2 is cancelled otherwise than (i) in connection with
the re-registration of the Aircraft upon the commencement or
termination of a sub-lease of the Aircraft permitted under the
provisions of clause 12.2(c), or (ii) as a result of the occurrence
of a Total Loss or (iii) as a result of any act or omission of the
Lessor not arising out of a breach by the Lessee of its obligations
under this Agreement or any other Lessee Document or at the request
of the Lessee; or
(i) the validity or enforceability of any of the Lessee Documents shall
at any time and for any reason be contested by any party thereto
(other than the Lessor), or if any such party shall deny that it has
any, or any further, liability thereunder or shall otherwise
repudiate any of the Lessee Documents.
21 Lessor's Rights Following a Termination Event
21.1 At any time after the occurrence of any Termination Event (and provided
that the same is continuing) the Lessor may, by notice (except in the case
where any such notice is prohibited by law) to the Lessee:
(a) proceed by appropriate court action to enforce performance by the
Lessee and/or SAS BV of the applicable covenants and provisions of
this Agreement or to recover damages for the breach thereof; and/or
(b) terminate the Lease Period with respect to the Aircraft (including,
without limitation, the termination of any sub-lease) on the
termination date specified in such notice and retake possession of
the Aircraft, and the Lessee agrees that the Lessor may for this
purpose enter upon any
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premises where the Aircraft or any part thereof may be located, and
the Lessee or (in the case of amounts for which SAS BV is liable in
accordance with clause 7.3) SAS BV shall pay to the Lessor forthwith
upon such termination such sum as shall equal the aggregate of:
(i) all amounts (including Rent) due under the Lessee Documents as
of the date of termination of the Lease Period as shall be
payable and remain outstanding; and
(ii) all losses incurred by the Lessor in connection with such
termination including, without prejudice to the generality of
the foregoing, all costs and expenses so incurred in
recovering possession of the Aircraft, in moving the Aircraft
to the Redelivery Location and in carrying out any works or
modifications required to bring the Aircraft up to the
condition specified in clause 19.2.
21.2 If the Lessee fails to comply with any of its obligations under any Lessee
Document the Lessor may upon giving the Lessee written notice of its
intention to do so, without being in any way obliged so to do, or
responsible for so doing, and without prejudice to the ability of the
Lessor to treat that non-compliance as a Termination Event, effect
compliance on the Lessee's behalf, and if the Lessor incurs any
expenditure in effecting such compliance the Lessor shall be entitled
(without prejudice to clause 21.1) to recover such expenditure from the
Lessee together with interest thereon at the Relevant Rate of Interest
from the date on which such expenditure is incurred by the Lessor until
the date of reimbursement thereof by the Lessee (both before and after any
relevant judgment).
21.3 The rights and remedies of the Lessor provided in this Agreement are
cumulative and are not exclusive of any rights and remedies provided by
law.
22 Notices
22.1 Every notice, request, demand or other communication under this Agreement
shall be in writing delivered personally or by first class prepaid letter
(airmail if available) or facsimile transmission addressed as follows:
(a) be sent:
(i) to the Lessor to:-
CIT Leasing (Bermuda), Ltd.
Clarendon House
2 Church Street
Hamilton
Bermuda
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Fax: (1) 809-292-4720
(Attention: The Secretary)
with a copy to:-
The CIT Group/Equipment Financing, Inc.
1211 Avenue of the Americas
New York
N.Y. 10036
Phone: (1) 212-536-9490
Fax: (1) 212-536-1388
Attention: General Counsel
(ii) to the Lessee to:-
Scandinavian Airlines System,
SAS Finance (Dept. STOUY),
Frosundaviks Alle 1,
S-161 87 Stockholm,
Sweden
Fax: 46 8 85 58 76
Attention: SAS Finance
(iii) to SAS BV to:-
Regentlaan 45
1000 Brussels
Belgium
Fax: 322 514 5714
Attention Managing Director
with a copy to the Lessee
or to such other address or facsimile number as is notified by one party
to the other under this Agreement. Save as otherwise expressly provided in
this Agreement, a notice, request, demand or other communication shall be
deemed to have been received, in the case of a letter, when personally
delivered or five (5) days after it has been put in the post or, in the
case of a telefax, on electronic confirmation by the recipient of actual
receipt or, if earlier, on actual or deemed receipt by the recipient of a
confirmatory letter.
22.2 All documents, notices, communications, evidence, reports, opinions and
other documents given or to be given under this Agreement, unless made in
the English language, shall (unless expressly provided to the contrary) be
accompanied by an English translation and the English version of all such
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documents, notices, communications, evidence, reports, opinions and other
documents shall, to the extent permitted by applicable law, govern in the
event of any conflict with the non-English version thereof.
23 Assignment
23.1 Neither the Lessee nor SAS BV may assign or otherwise transfer any of its
rights or obligations under this Agreement without the prior written
consent of the Lessor (such consent not to be unreasonably withheld or
delayed).
23.2 (a) Save for, and pursuant to, the Assignment and the Mortgage, the
Lessor may not assign or otherwise transfer any or all of its
rights, benefits or obligations under or pursuant to any Lessee
Document without the prior written consent of the Lessee (such
consent not to be unreasonably withheld or delayed), other than to:-
(i) in the case of an assignment or transfer of all the Lessor's
rights and obligations under the Lessee Documents, an
Affiliate of the Lessor, provided that (if such Affiliate has,
or has at any time in the twelve (12) month period immediately
preceding the proposed date of such assignment or transfer
had, a tangible net worth of less than $50,000,000) such
assignment or transfer shall be conditional upon the receipt
by the Lessee of a guarantee issued by the Parent of all such
Affiliate's obligations to the Lessee in the same form
(mutatis mutandis) as the Guarantee (unless such Affiliate's
obligations are covered by the Guarantee), and (if a new
guarantee is to be provided) a legal opinion obtained at the
cost of the Lessor in form and substance reasonably
satisfactory to the Lessee in respect of such guarantee and
assignment and transfer; or
(ii) in the case of an assignment or transfer of all the Lessor's
rights and obligations under the Lessee Documents, a person:-
(1) who has and had at all times during the twelve (12)
month period immediately preceding such proposed
assignment or transfer, a net worth of not less than
$50,000,000; and
(2) who is not a commercial airline in competition with the
Lessee; and
(3) who is constituted by no more than four persons provided
however that one person shall have full power and
authority, as agent, to take any and all actions of the
Lessor contemplated or permitted by any of the Lessee
Documents, including, without limitation, the grant of
consents or waivers thereunder; and
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(4) who, in the case of any transfer or assignment of rights
which is not accompanied by the assignment or transfer
of all obligations pursuant to the Lessee Documents,
prior to such assignment or transfer, issues (and
procures that any mortgagee of such person issues) to
the Lessee a letter of quiet enjoyment in the same form
(mutatis mutandis) as the Letter of Quiet Enjoyment; and
(5) who, prior to any such assignment or transfer which
involves a transfer of obligations of the Lessor
pursuant to the Lessee Documents, represents and
warrants to the Lessee substantially in the terms of the
Lessor's representations and warranties set out in the
Lessee Document, but as if references to "Bermuda" were
references to the country or state of incorporation of
such person,
and provided that, notwithstanding any other provision of this
clause 23. the Lessee shall have no liability or obligation under or
pursuant to any Lessee Document after any assignment or transfer by
the Lessor of any or all of its rights, benefits or obligations
under or pursuant to any Lessee Document in respect of any cost,
expense or liability which, at the time of such assignment or
transfer, is, or could reasonably be foreseen (as a result of a
change in law not then in effect) will be, in excess of what would
have been incurred had such assignment or transfer not taken place
and provided further that the Lessor may not make any such
assignment or transfer, unless the Lessee is first indemnified to
its reasonable satisfaction from and against any cost, expense or
liability which may be incurred by the Lessee in connection with
such assignment or transfer which would not have been incurred by
the Lessee if such assignment or transfer had not taken place and
further provided that the restrictions set out in paragraphs (a)(i)
and (ii) above shall not apply at any time a Termination Event has
occurred and remains outstanding.
(b) The Lessor undertakes and agrees that it will not execute the
Assignment or the Mortgage unless and until each beneficiary thereof
has agreed with the Lessee to issue a Letter of Quiet Enjoyment to
the Lessee and the Lessee agrees, upon receipt of such Letter of
Quiet Enjoyment, to cooperate in good faith with the Lessor, at the
request and cost of the Lessor in relation to any acts or things as
may be required to protect the rights of any beneficiary of the
Assignment and/or the Mortgage.
23.3 The agreements, covenants, obligations and liabilities contained in this
Agreement on the part of the Lessee and the obligations contained in this
Agreement on the part of SAS BV, including, but not limited to all
obligations to pay Rent and indemnify the Lessor, are made for the benefit
of the Lessor, any assignee or transferee of the Lessor and their
respective successors and assigns.
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23.4 The agreements, covenants, obligations and liabilities contained in this
Agreement on the part of the Lessor, are made for the benefit of the
Lessee and SAS BV, any assignee or transferee of the Lessee or SAS BV (as
applicable) and their respective successors and assigns.
24 Miscellaneous
24.1 The Lessee Documents contain the entire agreement between the Lessor, the
Lessee and SAS BV relating to the leasing of the Aircraft, and the terms
and conditions of any Lessee Document shall not be varied otherwise than
by an instrument in writing of even date herewith or subsequent hereto
executed by or on behalf of the parties thereto.
24.2 No failure or delay on the part of the Lessor in exercising any right,
power or remedy under this Agreement or any other Lessee Document shall
operate as a waiver thereof, nor shall any single or partial exercise by
the Lessor of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided in this Agreement and the other Lessee
Documents are cumulative and are in addition to any remedies provided by
law.
24.3 Subject to the periods of grace referred to in clause 20, time shall be of
the essence as regards the performance by the Lessee and SAS BV of their
respective obligations under this Agreement.
24.4 The Lessee shall from time to time do and perform such other and further
acts and execute and deliver any and all such further instruments as may
be required by law or reasonably requested in writing by the Lessor to
establish, maintain and protect the rights and remedies of the Lessor and
to carry out and effect the intent and purposes of this Agreement.
24.5 This Agreement may be executed in any number of counterparts and by each
of the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original, and all of which, taken
together, shall constitute one and the same instrument.
24.6 If any provision of this Agreement shall become invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired.
24.7 Time and strict and punctual performance are of the essence with respect
to the payment obligations of the Lessee under this Agreement.
25 Confidentiality
25.1 At all times during the continuance of this Agreement and for a period of
seven (7) years after the end of the Lease Term, each of the parties
hereto shall keep
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confidential and shall not, without the prior written consent, in the case
of the Lessee or SAS BV, of the Lessor and, in the case of the Lessor, of
the Lessee, disclose to any other person the subject matter of this
Agreement or any other Lessee Document and the transactions contemplated
hereby or any other agreement entered into after the date hereof by the
Lessor, the Lessee and SAS BV or any of them in connection with this
Agreement or any other Lessee Document provided that the parties hereto
shall be entitled, without any such consent, to disclose the same:
(a) in connection with any proceedings arising out of or in connection
with this Agreement or any of the other Lessee Documents; or
(b) if required to do so by an order of a court of competent
jurisdiction whether in pursuance of any procedure for discovery of
documents or otherwise; or
(c) pursuant to any law or regulation having the force of law; or
(d) to any fiscal, monetary, tax, governmental or other competent
authority; or
(e) to the auditors, legal or other professional advisors of the Lessee,
SAS BV or the Lessor or the Lessor's, the Lessee's or SAS BV's
parent, subsidiary or affiliate (direct or indirect) companies; or
(f) if any of the same is or shall become publicly known otherwise than
as a result of a breach by such party of this clause 25; or
(g) in any manner contemplated by any of the Lessee Documents; or
(h) to directors, officers and employees of the Lessor, the Lessee or
SAS BV, or their respective parent companies (direct or indirect),
any of its subsidiaries or affiliates (direct or indirect), or any
of such subsidiary's or affiliate's parent companies, and to legal
counsel of any of the foregoing.
In the event of any disclosure to any person or party pursuant to
sub-paragraphs (e) or (h) above, each of the Lessor, the Lessee and SAS BV
agrees to use its best efforts to inform such person or party of the
confidential nature of the information and use its best efforts to secure
from such persons an agreement not to disclose the Information. In the
event of any request for disclosure of Information pursuant to
sub-paragraphs (a)-(d) above, each of the Lessor, the Lessee and SAS BV
agrees (if and to the extent permitted by law) to use its best efforts to
provide the others with advance notice of any such request for disclosure
as promptly as feasible in order that the affected party may seek a
protective order or such other appropriate remedy as the affected party
deems necessary; provided that none of the Lessor, the Lessee or SAS BV
shall have an obligation to undertake any action in order to maintain the
confidentiality of
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the Information where the request for the disclosure is made pursuant to
sub-paragraphs (a)-(d) above other than the obligation to use its best
efforts to give notice as provided by this Agreement.
The term "Information" includes all written financial and other
information furnished by one party to one or more of the other parties to
this Agreement in connection with this Agreement and which is identified
to the recipient(s) as confidential by being marked "Confidential".
26 Law and Jurisdiction
26.1 This Agreement is governed by and shall be construed in accordance with
English law.
26.2 For the benefit of the other party, each party to this Agreement
irrevocably agrees that any legal action or proceedings in connection with
this Agreement or any other Lessee Document which is expressed to be
governed by English law, against either party or any of its assets may be
brought in the English Courts, which shall have jurisdiction to settle any
disputes arising out of or in connection with this Agreement or any other
Lessee Document and each party hereby irrevocably and unconditionally
submits to the jurisdiction of the English Courts.
26.3 The submission to jurisdiction referred to in clause 26.2 shall not (and
shall not be construed so as to) limit the rights of either party to this
Agreement to take proceedings against the other party in the courts of any
other competent jurisdiction, nor shall the taking of proceedings in any
one or more jurisdictions preclude the taking of proceedings in any other
jurisdiction, whether concurrently or not.
26.4 Each party to this Agreement irrevocably waives any objection it may now
or hereafter have to the laying of venue of any action or proceeding in
any court and any claim it may now or hereafter have that any action or
proceeding has been brought in an inconvenient forum.
26.5 Each of the Lessee and SAS BV hereby irrevocably designates, appoints and
empowers Scandinavian Airlines System at present of 52-53 Conduit Street,
London W1R 0AY to receive for it and on its behalf service of process
issued out of the English courts in any legal action or proceeding arising
out of or in connection with this Agreement and/or any other Lessee
Document. The Lessee confirms its acceptance of its appointment by SAS BV
referred to above.
26.6 The Lessor hereby irrevocably designates, appoints and empowers London Law
Agency Limited at present of Temple Chambers, 84 Temple Avenue, London
EC4Y 0HP to receive for it and on its behalf service of process issued
out of the English courts in any legal action or proceeding arising out of
or in connection with this Agreement and/or any other Lessee Document to
which it is a party.
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26.7 Each party to this Agreement agrees that in any legal action or
proceedings against it or its assets in connection with this Agreement
and/or any other Lessee Document no immunity from such legal action or
proceedings (which shall include, without limitation, suit, attachment
prior to judgment, other attachment, the obtaining of judgment, execution
or other enforcement) shall be claimed by or on behalf of its or with
respect to its assets, irrevocably waives any such right of immunity which
it or its assets now have or may hereafter acquire or which may be
attributed to it or its assets and consents generally in respect of any
such legal action or proceedings to the giving of any relief or the issue
of any process in connection with such action or proceedings including,
without limitation, the making, enforcement or execution against any
property whatsoever (irrespective of its use or intended use) of any order
of judgment which may be made or given in such action or proceedings.
IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
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Schedule 1
List of Documents and Evidence
Part 1
1 (a) A copy, certified by a duly authorised representative of the Lessee
to be a true. complete and up-to-date copy, of the Consortium
Agreement and the Inter-Government Agreement; and
(b) A copy, certified by a duly authorised representative of SAS BV to
be a true, complete and up to date copy, of the constituent
documents of SAS BV.
2 A certificate, executed by a duly authorised representative of the Lessee
certifying that the board of directors of the Lessee has:-
(a) approved the transactions contemplated by such of the Lessee
Documents to which the Lessee is a party; and
(b) authorised a person or persons to execute and deliver on behalf of
the Lessee such of the Lessee Documents to which it is a party and
any notices or other documents to be given pursuant thereto.
3 A power of attorney, duly executed by SAS BV, authorising a person or
persons to execute and deliver on behalf of SAS BV this Agreement.
4 Specimen signatures, authenticated by a duly authorised representative of
the relevant person of each of the authorised signatories referred to in
clauses 2(b) and 3 of this schedule 1.
5 Evidence that all governmental and other licences, approvals, consents,
registrations and filings necessary for any matter or thing contemplated
by the Lessee Documents and for the legality, validity, enforceability,
admissibility in evidence and effectiveness thereof (including, but
without prejudice to the generality of the foregoing, any exchange control
approvals that may be required) which the Lessee or SAS BV is required to
obtain pursuant to the Lessee Documents, have been obtained or effected on
an unconditional basis and remain in full force and effect (or, in the
case of effecting of any registrations and filings, that arrangements
reasonably satisfactory to the Lessor have been made for the effecting of
the same within any applicable time limit).
6 Evidence reasonably satisfactory to the Lessor that all steps which it is
reasonably practicable to take on or prior to the Delivery Date have been
taken by the Lessee to obtain or facilitate the registration of the
Aircraft with the Aviation Authority in Norway on a permanent basis in the
name of the Lessor and for the issuance by the Aviation Authority of a
certificate of airworthiness.
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Part 2
1 (a) Originals or certified copies of certificates evidencing the
insurance required to be maintained pursuant to clause 16; and
(b) a letter addressed to the Lessor by a recognised firm of aviation
insurance brokers reasonably satisfactory to the Lessor confirming
that the insurance required to be maintained pursuant to clause 16
adequately protects the interests of the Lessor; and
(c) a letter of undertaking addressed to the Lessor from the Lessee's
insurance brokers in form and substance reasonably satisfactory to
the Lessor.
2 A certified copy of each of:-
(a) the Certificate of Airworthiness in the public transport category
(passenger) issued by the Aviation Authority with respect to the
Aircraft,
(b) the current Air Operator's Certificate issued by the Aviation
Authority to the Lessee with respect to aircraft of the type of the
Aircraft,
(c) a certified copy of the Dispensation.
3 Two original copies of the Aircraft Purchase Agreement and the Warranties
Assignments (as defined in the Aircraft Purchase Agreement) executed by
each of the parties thereto. For the avoidance of doubt, the foregoing
reference to Warranties Assignments as a condition precedent shall not
include a reference to any consent of any third party contemplated by any
such Warranty Assignment.
4 A certificate signed by a duly authorised officer of the Lessee, dated the
Delivery Date, to the effect that:-
(a) the representations and warranties made by each of the Lessee and
SAS BV contained in the Lessee Documents are true and correct on and
as of such date as though made on and as of such date and all
authorisations and approvals of, giving of notice to, and filings
and recordings with, all regulatory bodies and authorities which may
be conditions to the validity or enforceability of the Lessee
Documents or the Lessee's or SAS BV's performance of the terms
thereof have been duly accomplished; and
(b) no Relevant Event or Termination Event has occurred and is
continuing or would result from the lease of the Aircraft.
5 Legal opinions of Dutch, Swedish, Danish and Norwegian counsel to the
Lessee on matters relating to the Lessee Documents or the registration of
the Aircraft (as the case may be) and on matters of Dutch, Swedish, Danish
or Norwegian
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law (as the case may be) in form and substance reasonably satisfactory to
the Lessor.
6 Legal opinion of English counsel to the Lessee on matters relating to the
Lessee Documents and on matters of English law, in form and substance
reasonably satisfactory to the Lessor.
7 Executed copies of each of the Lessee Documents.
8 An executed copy of the letter from the Lessee (as Seller) to the Lessor
(as Buyer) as to payment of the purchase price of the Aircraft pursuant to
the Aircraft Purchase Agreement).
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Part 3
1 A copy certified by the Secretary of the Lessor to be a true, complete and
up-to-date copy, of the constitutional documents of the Lessor.
2 A copy, certified by the Secretary of the Lessor to be a true copy, and as
being in full force and effect and not amended or rescinded, of
resolutions of the board of directors of the Lessor:-
(a) approving the transactions contemplated by the Lessee Documents; and
(b) authorising a person or persons to execute and deliver on behalf of
the Lessor, the Lessee Documents to which it is a party and any
notices or other documents to be given pursuant thereto.
3 Specimen signatures, verified by an Incumbency Certificate of the Lessor
of each of the authorised signatories referred to in clause 2(b) of this
schedule 1.
4 Evidence that all governmental and other licences, approvals, consents,
registrations and filings necessary for any matter or thing contemplated
by the Lessee Documents and for the legality, validity, enforceability,
admissibility in evidence and effectiveness thereof (including, but
without prejudice to the generality of the foregoing, any exchange control
approvals that may be required) which the Lessor is required to obtain
pursuant to the Lessee Documents, have been obtained or effected on an
unconditional basis and remain in full force and effect.
5 Legal opinions from (a) Conyers, Dill & Pearman on matters of Bermudan
law, (b) Schulte, Roth and Zabel on matters of New York law relating to
the Guarantee, and (c) in-house counsel of the Guarantor on matters
relating to the Guarantee, in each case in form and substance reasonably
satisfactory to the Lessee.
6 Two original copies of the Aircraft Purchase Agreement duly executed by
each of the parties thereto.
7 The Parent Guarantee duly executed by the Parent.
8 Copies of the Certificate of Incorporation and By-Laws of the Parent
certified as true, complete and up-to-date as of the Delivery Date by a
duly authorised officer of the Parent.
9 An application for the registration of the Lessor with the Aviation
Authority as the owner of the aircraft prepared by the Lessee and duly
executed by the Lessor.
69
<PAGE>
10 A certified copy of the confirmation of London Law Agency Limited of its
acceptance of its appointment of the Lessors process agent.
70
<PAGE>
Schedule 2
Acceptance Certificate
This Acceptance Certificate is delivered, on and as of the date set forth below
by SCANDINAVIAN AIRLINES SYSTEM Denmark-Norway-Sweden (the "Lessee"), to CIT
LEASING (BERMUDA), LTD., (the "Lessor"), pursuant to an Aircraft Lease Agreement
dated ____ December, 1993, and made between the Lessor and the Lessee (the
"Agreement").
Details of Acceptance
The Lessee hereby indicates and confirms to the Lessor its successors and
assigns, that the Lessee has at ____ hours (London time) on this day of ____
December, 1993, at _________ accepted the following in accordance with the
provisions of the Agreement:
(a) Model: Boeing 767-300ER jet airframe,
Norwegian Registration Mark LN-RCG and Manufacturer's Serial No. 24475
(b) Two (2) Pratt & Whitney PW4060 Engines with Manufacturer's Serial Numbers
724137 and 724170.
Confirmation of Undertakings
The terms used in this Certificate shall have the meaning given to such terms in
the Agreement.
The Lessee confirms that as at ____ hours (London time) today, being the
Delivery Date as defined in the Agreement:
(i) the Aircraft was duly accepted by the Lessee in accordance with and
subject to all of the terms and conditions contained in the Agreement and
the execution and delivery of this Certificate further confirms the
acceptance of the Aircraft by the Lessee for all purposes of the
Agreement;
(ii) the Lease Period commenced and the Lessee became obliged to pay to the
Lessor the amounts provided for in the Agreement with respect to the
Aircraft;
(iii) the Aircraft is insured in accordance with the Agreement;
(iv) the representations and warranties made by the Lessee under clause 2 of
the Agreement remain, and if made at the date hereof, would be, true and
correct in all respects;
(v) the Aircraft conforms to the Lessee's requirements;
71
<PAGE>
(vi) the Aircraft is satisfactory to the Lessee in all respects;
(vii) fuel on board is ____ kgs;
(viii) no Relevant Event has occurred or will result from Delivery taking place;
(ix) loose equipment on the Aircraft are as set out in Appendix "A" hereto and
the Manuals and Technical Records are as set out in Appendix "B".
The Lessee confirms that each instalment of Rent payable under clause 7.1(a) of
the Agreement shall be the sum of $680,481.
IN WITNESS WHEREOF the Lessee has caused this Acceptance Certificate to be
executed in its name, but its duly authorised officer(s) or representative(s),
pursuant to due corporate authority, this ____ day of December, 1993.
SIGNED by )
for and on behalf of ) ------------------------------
SCANDINAVIAN AIRLINES )
SYSTEM Denmark-Norway-Sweden )
72
<PAGE>
[LOGO] TECHNICAL EQUIPMENT CHECK LIST 767-300ER AC Reg
APPENDIX "A"
1993-99-1
- --------------------------------------------------------------------------------
Chk Qty No. Description
- --------------------------------------------------------------------------------
All items checked by maintenance at A-check.
o - Items checked by AUP at originating station or crew change.
x - Items checked by cabin crew at originating station or crew change.
m - Items checked by maintenance personnel at MSC.
- --------------------------------------------------------------------------------
FLIGHT DECK
1 Pinto Board
o 4 pr D243426 Emergency Evacuation Gloves
o 4 465970 Smoke Goggles, EROS, P/N MXP 210-00
3 475092 Hand Microphone, TELEX 38T
2 475093 Boomset, Airman 750
3 Headset, Sennhereer P/N 681647
2 Normal Check List
o 2 Emergency/Malfunction Check List
1 Tool Kit, sealed (M 648-033 cockpit)
6 Sun Visor, small (4), large (2)
o 4 F81XS SAS Flashlight
o 4 467532 Life Vest, red
3 Aircraft Log, FLIGHT DECK (brown cover)
o 1 Chart Folder -300ER
m 1 EICAS Log
o 1 Flight Manual
o 1 Ship's Library, AOM Vol 1 & 2, FRM, AHM, SHH
1 Flight Document Folder, FDF
1 Map Folder (National Geographic)
o 1 688181 Smoke Hood
o 1 915 Dynalite flashlight
o 1 42D8331 Fire Axe
o 1 pr 85027 Fire Protection Gloves
o 1 Handcuff kit
o 1 467502 Fire Extinguisher, Halon, sealed
o 1 Fueling Order Pad
5 Gear Pins
4 [illegible] Tube Cover
o 1 452-205 VHF Emergency Transceiver
1 Technical Equipment Check List
1 Certificate Folder, sealed
1 Route Manual Box, sealed
o 1 476932 Handset interphone & PA, P/N 285N 0412-3
FORWARD COATROOM
1 Extension cushion for 1st observer's seat
o 1 Cold weather suit, DA400614
x 1 Key to Flight Deck door
x 1 Wheel Chair
o 4 Polar suits and Down boots for F/D, in two bags
CABIN, GENERAL
m 685674 Life Vest, yellow, one under each pass. seat
incl. crew rest seat
m Polar suit, one under each pass. seat, incl.
crew rest seat
Slide/Raft, one at each cabin door
FWD LEFT CABIN DOOR (C/A 1 and 7)
x 1 + 1 467532 Life Vest, red
x 1 + 1 Flashlight, emergency, P2-07-0003-001
x 1 + 1 Cabin Emergency Check Lists
x 1 + 1 C/A Pre-Flight Check List
x 1 Technical Equipment Check List (C/A 1)
x 1 Safety on Board folder (C/A 7)
x 1 476932 Handset, interphone (C/A 1)
x 1 490179 Megaphone (check for function)
VIDEO CONTROL CENTER (VCC)
x 1 F81XS Flashlight, SAS
x 1 476932 Handset, interphone
x 1 Cabin Log
x 1 CAM, COP and Video Folder
x 1 Cabin Failure Guide (CFG)
x 1 5207F Eurosleeper Kit
x 3 Polar suits and Down boots for C/A 1, 7 and 4
x 1 Key to C/A Slow
FWD RIGHT CABIN DOOR (C/A 4)
x 1 467532 Life Vest, red
x 1 Flashlight, emergency, P2-07-0003-001
x 1 F81XS Flashlight, SAS
x 1 Safety on Board folder
x 1 C/A Pre-Flight Check List C/A 4
x 1 Cabin Emergency Check Lists
x 1 476932 Handset, interphone
G4 STOWAGE LH
x 1 467502 Fire Extinguisher, Halon, sealed
x 1 452-101 ELT (Radio Beacon), sealed
x 1 451-105 Oxygen Bottle 310 l, min press 1500 psi
x 2 742850 Oxygen mask
x 1 Dangerous Goods kit, DA 400494
x 1 467536 Life Vest, Demo
x 1 Oxygen Demo kit, DA 400628
x 2 688181 Smoke Hood
x 1 453-000 First Aid kit, sealed
x 4 685674 Life Vest, yellow, reserve
x 2 820003 Artificial Respiration Mask
x 2 451-103 Oxygen Bottle 120 l, min press 1500 psi
x 4 742880 Oxygen mask
x 1 453-004 Doctor's Kit, sealed
G4 STOWAGE RH
x 1 467502 Fire Extinguisher, Halon, sealed
x 1 451-103 Oxygen Bottle 310 l, min press 1500 psi
x 2 742880 Oxygen mask
x 1 467536 Life Vest, Demo
x 1 688181 Smoke Hood
x 1 Oxygen Demo-kit, DA 400628
x 2 685674 Life Vest, yellow, reserve
x 1 453-000 First Aid kit, sealed
DOGHOUSE, D6
x 1 451-105 Oxygen Bottle 310 l, min press 1500 psi
x 2 742880 Oxygen Mask
x 1 451-103 Oxygen Bottle 120 l, min press 1500 psi
x 2 742880 Oxygen mask
x 1 820003 Artificial Respiration Mask
x 2 467536 Life Vest, Demo
x 2 Oxygen Demo-kit, DA 400628
x 1 Polar suit and Down boots (C/A 6)
DOG HOUSE D4, RH
x 1 467502 Fire Extinguisher, Halon, sealed
x 1 688181 Smoke Hood
DOG HOUSE D3, LH
x 1 467502 Fire Extinguisher, Halon, sealed
OVER WING AREA (C/A 3 and C/A 6)
x 1 + 1 Cabin Emergency Check Lists
x 1 + 1 C/A Pre-Flight Check List
x 1 + 1 Safety on Board folder
x 1 + 1 Flashlight, emergency P2-07-0003-001
x 1 F81XS Flashlight, SAS (C/A 3)
x 1 + 1 467532 Life Vest, red
x 1 476932 Handset, interphone (C/A 3)
LAVATORY E STOWAGE S9 AND S10
x 2 467502 Fire Extinguisher, Halon, sealed
x 1 256-002 Fire Extinguisher, H2O, sealed
x 1 Fire Axe
x 1 688181 Smoke Hood
x 1 pr 85027 Fire Protection Gloves, 650104
x 15 467538 Life Vest, infant
x 15 Infant/Extension belt P/N 501695-405 (or DA-400510-1)
Effective: 17SEP83
Issue No: 13
<PAGE>
- --------------------------------------------------------------------------------
DOG HOUSE D6
2 451-105 Oxygen Bottle 310 l, min. press. 1500 psi
x 4 742880 Oxygen Mask
x 1 461-103 Oxygen Bottle 120 l, min. press. 1500 psi
x 2 742880 Oxygen Mask
x 1 620003 Artificial Respiration Mask
x 2 467536 Life Vest, Demo
x 2 Oxygen Demo-kit, DA 400628
x 1 Polar suit and Down boots (C/A 3)
AFT LEFT CABIN DOOR (C/A 5 and 8)
x 1+1 Cabin Emergency Check Lists
x 1+1 C/A Pre-Flight Check List
x 1+1 Safety on Board folder
x 1+1 Flashlight, emergency, P2-07-0003-001
x 1+1 467532 Life vest, red
C/A 8
x 1 476932 Handset, interphone
x 1 490179 Megaphone (in G5, check for function)
DOG HOUSE D9
x 2 451-105 Oxygen Bottle 310 l, min. press. 1500 psi
x 4 742880 Oxygen Mask
x 2 451-103 Oxygen Bottle 120 l, min. press. 1500 psi
x 4 742880 Oxygen Mask
x 1 820003 Artificial Respiration Mask
x 2 Polar suit and Down boots for C/A 5 and 8
AFT CENTER DOGHOUSE D 11
x 2 463-000 First Aid Kit ____ sealed
x 1 467502 Fire extinguisher, Halon, ____ sealed
x 1 688181 Smoke Hood
AFT RIGHT CABIN DOOR (C/A 2)
x 1 Cabin Emergency Check Lists
x 1 C/A Pre-Flight Check List C/A 2
x 1 Safety on Board folder
x 1 Flashlight, emergency, P2-07-0003-001
x 1 F81XS Flashlight, SAS
x 1 467532 Life Vest, red
x 1 476932 Handset, interphone
DOG HOUSE D10
x 2 451-105 Oxygen Bottle 310 l, min. press. 1500 psi
x 4 742880 Oxygen Mask
x 2 461-103 Oxygen Bottle 120 l, min. press. 1500 psi
x 4 742880 Oxygen Mask
x 1 820003 Artificial Respiration Mask
x 1 Polar suit and Down boots for C/A 2
AFT CENTER DOGHOUSE D12
x 1 452-101 ELT (Radio Beacon ____ sealed
x 1 467502 Fire Extinguisher, Halon, ____ sealed
x 1+1 688181 Smoke Hood
x 6 685674 Life Vest, yellow, reserve
- --------------------------------------------------------------------------------
Comfort/Service items to be carried on flight deck:
- - 6 x Sanitary napkin,SANI-COM, 420-016-01
- - 3 x Instrument Screen Cleaner, VISIAL, 361-107-01
- - 12 x Ear Covers, 6 ea DE 1204, 6 ea D125083
- - 2 x Waste Bag.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Arctic survival equipment:
Polar suits P/N 1443R SAS
Down boots P/N SAS 838644
Bag, cont. 2 ea polar suits and 2 ea down boots DA 300258
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
loading and checks Notify P-I-C of any
C/A signature pertains only to technical remarks for
items marked x entering in A/C Log.
- -----------------------------------------------------
Station Date Sign. Time Station Date Sign. Time Notes about discrepancies
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Appendix "B"
Manuals and Technical Records
0 Maintenance Program: Complete description and copy of 1 set
present maintenance program to include time controls,
maintenance intervals and program planning schedule.
1 MM: Maintenance Manual for APU, Engines and Airframe 1 set
2 IPC for APU, Engines and Airframe 1 set
3 Wiring Diagram Manual 1 set
4 System Schematics 1 set
5 Ramp Maintenance Manual 1 set
6 B.I.T.E. Manual 1 set
7 Fault Isolation Manual 1 set
8 Fault Reporting Manual 1 set
9 Weight and Balance Manual 1 set/AC
10 Fuel Measuring Sticks Tables for Off Altitude Conditions 1 set
Boeing Document No D345T030 (Fuelling Procedures)
11 Interior Finish Specification 1 set
12a Boeings Flight Operations Manual (FOM) 1 set
12b SAS Aircraft Operations Manual (AOM) 1 set/AC
13 FAA Approved Flight Manual (AFM) 1 set/AC
14 SAS Emergency Malfunctioning Checklist 1 set/AC
15 Aircraft Readiness Log 1 set/AC
16 Aircraft Log Books 1 set/AC
17 Engine Log Books 1 set/AC
18 APU Log Books 1 set/AC
19 AD Status: Records of AD status for APU, engines and 1 set/AC
airframe
20 SB Status: Records of SB status for APU, engines and 1 set/AC
airframe
<PAGE>
Schedule 3
Rent payable during the First Renewal Term
and the Second Renewal Term
Rent payable during any First Renewal Term and during any Second Renewal Term
shall continue to be paid monthly in advance and shall be calculated as the
lesser of (a) the fair market rent per month for the Aircraft as it may be
determined pursuant to and in accordance with the following paragraph and (b)
ninety per cent. (90%) of the monthly Rent paid by the Lessee during the Primary
Lease Term.
In this schedule 3 the expression "fair market rent" shall be determined not
less than one hundred and eighty (180) days and not more than two hundred and
seventy (270) days before the first day of the First Renewal Term or the Second
Renewal Term (as the case may be) on the basis of, and shall mean the amount
which would be obtainable in an arm's-length transaction between an informed and
willing lessee (other than a lessee currently in possession of the Aircraft)
under no compulsion to lease and an informed and willing lessor under no
compulsion to lease, and neither of which is Lessor or Lessee or a permitted
sub-lessee or a subsidiary or Affiliate of or a person related to the Lessor or
the Lessee or a permitted sub-lessee, for the lease of the Aircraft, assuming
that the Aircraft is unencumbered by this Lease or any renewal or purchase
option and that the Aircraft is in the condition and repair required to be
maintained by the terms of this Lease upon return of the Aircraft pursuant to
clause 19 hereof, and such amount shall be net of leasing and transportation
charges.
73
<PAGE>
Schedule 4
Agreed Value
Date Agreed Value % *
---- ----------------
30-Dec-93 101.148%
30-Jan-94 101.091%
23-Feb-94 101.030%
30-Mar-94 100.964%
30-Apr-94 100.897%
30-May-94 100.826%
30-Jun-94 100.755%
30-Jul-94 100.679%
30-Aug-94 100.598%
30-Sep-94 100.517%
30-Oct-94 100.431%
30-Nov-94 100.340%
30-Dec-94 100.249%
30-Jan-95 100.153%
28-Feb-95 100.053%
30-Mar-95 99.947%
30-Apr-95 99.841%
30-May-95 99.730%
30-Jun-95 99.618%
30-Jul-95 99.502%
30-Aug-95 99.380%
30-Sep-95 99.258%
30-Oct-95 99.131%
30-Nov-95 98.999%
30-Dec-95 98.866%
30-Jan-96 98.729%
29-Feb-96 98.586%
30-Mar-96 98.438%
30-Apr-96 98.289%
30-May-96 98.135%
30-Jun-96 97.980%
30-Jul-96 97.820%
30-Aug-96 97.655%
30-Sep-96 97.489%
30-Oct-96 97.318%
30-Nov-96 97.141%
30-Dec-96 96.964%
30-Jan-97 96.781%
21-Feb-97 96.593%
* The Agreed Value for each date set forth In this Schedule 4
shall equal the product of the Agreed Value % set forth
opposite such date multiplied by $65,000,000.
74
<PAGE>
Date Agreed Value % *
---- ----------------
30-Mar-97 96.399%
30-Apr-97 96.204%
30-May-97 96.004%
30-Jun-97 95.803%
30-Jul-97 95.596%
30-Aug-97 95.384%
30-Sep-97 95.171%
30-Oct-97 94.952%
30-Nov-97 94.728%
30-Dec-97 94.502%
30-Jan-98 94.271%
28-Feb-98 94.034%
30-Mar-98 93.792%
30-Apr-98 93.580%
30-May-98 93.363%
30-Jun-98 93.177%
30-Jul-98 92.986%
30-Aug-98 92.789%
30-Sep-98 92.624%
30-Oct-98 92.453%
30-Nov-98 92.278%
30-Dec-98 91.231%
* The Agreed Value for each date set forth in this Schedule 4
shall equal the product of the Agreed Value % set forth
opposite such date multiplied by $65,000,000.
75
<PAGE>
Schedule 5
Part 1
Permitted Air Carriers
Aer Lingus
Aero Mexico
Air Aruba
Air Canada
Air Europe Italy S.P.A.
Air France
Air Malta
Air New Zealand
Air 2000
Alitalia
All Nippon Airways
American Airlines
Ansett Australia
Asiana Airlines
Australia-Asia Airlines
Britannia Airways
British Airways
British Midland
Canadian
Cathay Pacific
Condor Flugdienst
Continental
Delta Air Lines
Dragonair
El Al
Finnair
Garuda
Iberia
Icelandair
Japan Airlines
Japan Air System
KLM
Korean Airlines
LAN Chile
Lauda Air
LOT
LTU Sud International Airways
Martinair Holland
Malaysian Airlines
Monarch
Northwest
Olympic
Premiair
Qantas
76
<PAGE>
Region Air
Royal Brunei Airlines
SABENA
SAS
Singapore Airlines
Silk Air (affiliate of Singapore Airlines)
Spanair
Sun Country
Swissair
TAP
Thai
Transbrazil
Translift
TWA
United Airlines
USAir
Varig
77
<PAGE>
Schedule 5
Part 2
Permitted Countries
Aruba
Australia
Austria
Belgium
Brazil
Brunei
Canada
Chile
Finland
France
Germany
Greece
Hong Kong
Ireland
Iceland
Israel
Italy
Japan
Malta
Malaysia
Mexico
Netherlands
New Zealand
Portugal
Seychelles
Singapore
South Korea
Spain
Switzerland
Thailand
United Kingdom
United States
78
<PAGE>
Schedule 6
Form of Letter of Quiet Enjoyment
From: [Lender] (the "Lender")
To: Scandinavian Airlines System (the "Lessee")
[ ], 199[ ].
Dear Sirs,
Lease of Boeing 767-300ER Aircraft, Manufacturer's Serial Number 24475
(the "Aircraft") dated ____ December, 1993, between CIT Leasing (Bermuda),
Ltd. (the "Lessor"), the Lessee and SAS Capital BV (the "Lease")
1 For good and valuable consideration (the receipt and sufficiency of which the
Lender acknowledges and confirms), the Lender confirms to you that the Lender
will not interfere with the quiet possession and use of the Aircraft by the
Lessee throughout the term of the Lease, so long as no Termination Event (as
defined in the Lease), which has not been waived by the Lessor, has occurred and
is continuing.
2 The foregoing undertaking is not to be construed as restricting the rights of
the Lender (if any) to dispose of the Aircraft to such persons and on such terms
as it considers appropriate. However, if the Lender exercises such rights during
the term of the Lease, and provided that no Termination Event (as defined in the
Lease), which has not been waived by the Lessor, has occurred and is continuing,
the Lender will (subject to any requirements or restrictions imposed by
applicable law) dispose of the Aircraft expressly subject to the Lease and on
terms that the purchaser issues an undertaking to the Lessee that it will not
interfere with the quiet possession and use of the Aircraft by the Lessee
throughout the remaining term of the lease, so long as no Termination Event (as
defined in the Lease), which has not been waived by the Lessor, has occurred and
is continuing.
3 This letter shall be governed by, and construed in accordance with, English
law.
Please countersign this letter in order to confirm your agreement to its
terms.
--------------------------------
[Lender]
79
<PAGE>
Agreed and accepted
- --------------------------------
Scandinavian Airline Systems
80
<PAGE>
SIGNED on behalf of )
CIT LEASING (BERMUDA), LTD. ) /s/ [Illegible] /s/ Miriam D. Starc
by: ) [Illegible] Miriam D. Starc
in the presence of:- ) ATTORNEY-IN-FACT ATTORNEY-IN-FACT
SIGNED on behalf of )
SCANDINAVIAN AIRLINES SYSTEM ) /s/ [Illegible] /s/ John Forngre
Denmark-Norway-Sweden ) [Illegible] John Forngre
by: ) POWER OF ATTORNEY POWER OF ATTORNEY
in the presence of:- )
SIGNED on behalf of )
SAS CAPITAL BV ) /s/ [Illegible] /s/ John Forngre
by: ) [Illegible] John Forngre
in the presence of:- ) POWER OF ATTORNEY POWER OF ATTORNEY
81
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000879496
<NAME> AFG INVESTMENT TRUST C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 21,944,450
<SECURITIES> 0
<RECEIVABLES> 1,019,784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,964,234
<PP&E> 92,186,671
<DEPRECIATION> 42,241,976
<TOTAL-ASSETS> 72,908,929
<CURRENT-LIABILITIES> 5,872,745
<BONDS> 30,675,690
0
0
<COMMON> 0
<OTHER-SE> 36,360,494
<TOTAL-LIABILITY-AND-EQUITY> 72,908,929
<SALES> 0
<TOTAL-REVENUES> 19,153,506
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,056,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,098,019
<INCOME-PRETAX> 4,999,220
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,999,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,999,220
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
