-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sgh2KK1vEtxZRYpqE1gwV0KyLcDapwYyqgTEegqOyyYr4rjqXNduVFk1rZekoxe6 NKAnXHNJWxILmZBYuJdmSw== 0000950109-96-002057.txt : 19960410 0000950109-96-002057.hdr.sgml : 19960410 ACCESSION NUMBER: 0000950109-96-002057 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960409 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000808513 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 042968859 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16512 FILM NUMBER: 96545472 BUSINESS ADDRESS: STREET 1: AMERICAN FINANCE GROUP STREET 2: 53 STATE STREET 14TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6175421200 MAIL ADDRESS: STREET 1: AMERICAN FINANCE GROUP STREET 2: 53 STATE STREET 14TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109 10-K/A 1 FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Mark One) [XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 ------------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________________________ to ________________ Commission file number 0-16512 --------------------------------------------------------- American Income Partners III-B Limited Partnership - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2968859 - ---------------------------------------------- ---------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 98 N. Washington St., Fifth Floor, Boston, MA 02114 - ---------------------------------------------- ---------------------------- (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: 1,127,330 Units Representing Limited Partnership Interest - -------------------------------------------------------------------------------- (Title of class) - -------------------------------------------------------------------------------- (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, 1995 (Part I and II) 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, 1995 and 1994....................................................................* Statement of Operations for the years ended December 31, 1995, 1994 and 1993.............................................* Statement of Changes in Partners' Capital for the years ended December 31, 1995, 1994 and 1993.............................................* Statement of Cash Flows for the years ended December 31, 1995, 1994 and 1993.............................................* Notes to the Financial Statements................................................................* (2) Financial Statement Schedules: None required. (3) Exhibits: Except as set forth below, all Exhibits to Form 10-K, as set forth in Item 601 of Regulation S-K, are not applicable.
Exhibit Number ---------- 4 Amended and Restated Agreement and Certificate of Limited Partnership included as Exhibit A to the Prospectus which is included in Registration Statement on Form S-1 (No. 33- 11160). 13 The 1995 Annual Report to security holders, a copy of which is furnished for the information of the Securities and Exchange Commission. Such Report, except for those portions thereof which are incorporated herein by reference, is not deemed "filed" with the Commission. 23 Consent of Independent Auditors. 99 (a) Lease agreement with Northwest Airlines, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 as Exhibit 28 (b) and is incorporated herein by reference. * Incorporated herein by reference to the appropriate portion of the 1995 Annual Report to security holders for the year ended December 31, 1995. (See Part II) Exhibit Number ---------- 99 (b) Lease agreement with Bally's Health and Tennis Corporation was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 as Exhibit 28 (d) and is incorporated herein by reference. 99 (c) Lease agreement with Equicor, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 as Exhibit 28 (e) and is incorporated herein by reference. 99 (d) Lease agreement with Contract Transportation Systems Co. is filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and is included herein. 99 (e) Lease agreement with The Denver and Rio Grande Western Railroad is filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and is included herein. 99 (f) Lease agreement with ING Aviation Lease is filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and is included herein. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacity and on the date indicated. AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP By: AFG Leasing Incorporated, a Massachusetts corporation and the Managing General Partner of the Registrant. By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle ----------------------------- ----------------------- Geoffrey A. MacDonald Gary D. Engle Chief Executive Officer, President, Chief Operating Chairman, and a member of the Officer and member of the Executive Committee of AFG and Executive Committee of AFG President and a Director of the (Principal Financial Officer) Managing General Partner (Principal Executive Officer) Date: April 9, 1996 Date: April 9, 1996 --------------------------- --------------------- By: /s/ Gary M. Romano ----------------------------- Gary M. Romano Vice President and Controller of AFG and Clerk of the Managing General Partner (Principal Accounting Officer) Date: April 9, 1996 --------------------------- EX-13 2 1995 ANNUAL REPORT AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP INDEX TO ANNUAL REPORT TO THE PARTNERS Page ------ SELECTED FINANCIAL DATA 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3-6 FINANCIAL STATEMENTS: Report of Independent Auditors 7 Statement of Financial Position at December 31, 1995 and 1994 8 Statement of Operations for the years ended December 31, 1995, 1994 and 1993 9 Statement of Changes in Partners' Capital for the years ended December 31, 1995, 1994 and 1993 10 Statement of Cash Flows for the years ended December 31, 1995, 1994 and 1993 11 Notes to the Financial Statements 12-19 ADDITIONAL FINANCIAL INFORMATION: Schedule of Excess (Deficiency) of Total Cash Generated to Cost of Equipment Disposed 20 Statement of Cash and Distributable Cash From Operations, Sales and Refinancings 21 Schedule of Costs Reimbursed to the Managing General Partner and its Affiliates as Required by Section 10.4 of the Amended and Restated Agreement and Certificate of Limited Partnership 22 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, 1995:
Summary of Operations 1995 1994 1993 1992 1991 - ------------------------ -------------- -------------- -------------- -------------- -------------- Lease revenue $ 988,217 $ 1,848,626 $ 2,099,057 $ 4,359,224 $ 5,319,789 Net income (loss) $ (138,635) $ 699,271 $ 387,803 $ (243,574) $ (539,206) Per Unit: Net income (loss) $ (0.12) $ 0.61 $ 0.34 $ (0.21) $ (0.47) Cash distributions $ 1.12 $ 2.00 $ 2.00 $ 1.50 $ 3.12 Financial Position - ------------------------ Total assets $ 4,495,572 $ 6,464,885 $ 8,503,879 $ 10,835,606 $ 16,013,399 Total long-term obligations -- $ 223,620 $ 591,954 $ 1,117,971 $ 4,041,438 Partners' capital $ 4,194,601 $ 5,614,292 $ 7,192,455 $ 9,082,086 $ 11,033,736
-2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year ended December 31, 1995 compared to the year ended December 31, 1994 and the year ended December 31, 1994 compared to the year ended December 31, 1993 Overview - -------- As an equipment leasing partnership, American Income Partners III-B Limited Partnership (the "Partnership") was organized to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. The Partnership 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 Partnership's portfolio progresses through various stages. Initially, all equipment generates rental revenue under primary term lease agreements. During the life of the Partnership, these agreements expire on an intermittent basis and equipment held pursuant to the related leases are renewed, re-leased or sold, depending on prevailing market conditions and the assessment of such conditions by American Finance Group ("AFG") to obtain the most advantageous economic benefit. Over time, a greater portion of the Partnership's original equipment portfolio becomes available for remarketing and cash generated from operations and from sales or refinancings begins to fluctuate. Ultimately, all equipment will be sold and the Partnership will be dissolved. In accordance with the Partnership's stated investment objectives and policies, the Managing General Partner is considering the winding-up of the Partnership's operations, including the liquidation of its entire portfolio. The Partnership's operations commenced in 1987. Results of Operations - --------------------- For the year ended December 31, 1995, the Partnership recognized lease revenue of $988,217 compared to $1,848,626 and $2,099,057 for the years ended December 31, 1994 and 1993, respectively. The decrease in lease revenue between 1993 and 1995 was expected and resulted principally from primary lease term expirations and the sale of equipment. The Partnership also earns interest income from temporary investments of rental receipts and equipment sales proceeds in short-term instruments. The Partnership's equipment portfolio includes certain assets in which the Partnership holds a proportionate ownership interest. In such cases, the remaining interests are owned by AFG or an affiliated equipment leasing program sponsored by AFG. Proportionate equipment ownership enables the Partnership to further diversify its equipment portfolio by participating in the ownership of selected assets, thereby reducing the general levels of risk which could result from a concentration in any single equipment type, industry or lessee. The Partnership and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. In 1995, the Partnership sold equipment which was fully depreciated to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $470,835 compared to a net gain of $199,001 and $516,300 on equipment having a net book value of $4,926 and $461,140 in 1994 and 1993, respectively. It cannot be determined whether future sales of equipment will result in a net gain or a net loss to the Partnership, as such transactions will be dependent upon the condition and type of equipment being sold and its marketability at the time of sale. In addition, the amount of gain or loss reported for financial statement purposes is partly a function of the amount of accumulated depreciation associated with the equipment being sold. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including AFG'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. AFG attempts to monitor these changes in order to identify opportunities which may be advantageous to the Partnership and which will maximize total cash returns for each asset. -3- The total economic value realized upon final disposition of each asset is comprised of all primary lease term revenue generated from that asset, together with its residual value. The latter consists of cash proceeds realized upon the asset's sale in addition to all other cash receipts obtained from renting the asset on a re-lease, renewal or month-to-month basis. The Partnership classifies such residual rental payments as lease revenue. Consequently, the amount of gain or loss reported in the financial statements is not necessarily indicative of the total residual value the Partnership achieved from leasing the equipment. Depreciation expense was $709,153, $1,125,714 and $1,994,828 for the years ended December 31, 1995, 1994 and 1993, respectively. For financial reporting purposes, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset on a straight-line basis over such term. For purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that an asset is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight- line basis over the asset's remaining economic life (See Note 2 to the financial statements herein). The Partnership recorded a write-down of the carrying value of its interest in an L1011-50 aircraft representing an impairment, during the year ended December 31, 1995. The resulting charge, $762,100 ($0.67 per limited partnership unit) in 1995 was based on a comparison of the estimated net realizable value and corresponding carrying value for the Partnership's interest in the aircraft. Net realizable value was estimated based on (I) third-party appraisals of the Partnership's aircraft and (ii) AFG's assessment of prevailing market conditions for similar aircraft. In recent years, market values for used commercial jet aircraft have deteriorated. Consistent price competition and other pressures within the airline industry have inhibited sustained profitability for many carriers. Most major airlines have had to re-evaluate their aircraft fleets and operating strategies. Such issues complicate the determination of net realizable value for specific aircraft, and particularly used aircraft, because cost-benefit and market considerations may differ significantly between major airlines. Aircraft condition, age, passenger capacity, distance capability, fuel efficiency, and other factors also influence market demand and market value for passenger jet aircraft. Interest expense was $726 or less than 1% of lease revenue in 1995, $23,228 or 1.3% of lease revenue in 1994 and $58,308 or 2.8% of lease revenue in 1993. Interest expense is not expected to be incurred in future periods due to the retirement of all outstanding debt obligations. Management fees were 5% of lease revenue in each of the years ended December 31, 1995, 1994 and 1993 and will not change as a percentage of lease revenue in future years. Operating expenses consist principally of administrative charges, professional service costs, such as audit and legal fees, as well as printing, distribution and remarketing expenses. In certain cases, equipment storage or repairs and maintenance costs may be incurred in connection with equipment being remarketed. Collectively, operating expenses represented approximately 12.1%, 8.6% and 5.1% of lease revenue in 1995, 1994 and 1993, respectively. Operating expenses in 1994 include repair, maintenance, legal and other costs incurred in connection with the re-lease of an L1011-50 aircraft to a third party. The amount of future operating expenses cannot be predicted with certainty; however, such expenses are usually higher during the acquisition and liquidation phases of a partnership. Other fluctuations typically occur in relation to the volume and timing of remarketing activities. Liquidity and Capital Resources and Discussion of Cash Flows - ------------------------------------------------------------ The Partnership by its nature is a limited life entity which was established for specific purposes described in the preceding "Overview". As an equipment leasing program, the Partnership's principal operating activities derive from asset rental transactions. Accordingly, the Partnership's principal source of cash from operations is provided by the collection of periodic rents. These cash inflows are used to satisfy debt service obligations associated with leveraged leases, and to pay management fees and operating costs. Operating activities generated net cash -4- inflows of $1,234,405, $1,547,716 and $2,478,853 in 1995, 1994 and 1993, respectively. Future renewal, re-lease and equipment sale activities will cause a gradual decline in the Partnership's lease revenue and corresponding sources of operating cash. Overall, expenses associated with rental activities, such as management fees, and net cash flow from operating activities will decline as the Partnership experiences a higher frequency of remarketing events. During 1995, the Partnership and other affiliated partnerships, executed a renegotiated and extended lease agreement in connection with two DC-10-40 aircraft leased by Northwest Airlines, Inc. ("Northwest"). Pursuant to these agreement, Northwest will continue to lease the aircraft until September 3, 2000. The Partnership, which owns a 2.05% interest in these aircraft, will receive $61,542 each year through December 31, 1999 and $46,157 during the year ending December 31, 2000. Ultimately, the Partnership will dispose of all assets under lease. This will occur principally through sale transactions whereby each asset will be sold to the existing lessee or to a third party. Generally, this will occur upon expiration of each asset's primary or renewal/re-lease term. In certain instances, casualty or early termination events may result in the disposal of an asset. Such circumstances are infrequent and usually result in the collection of stipulated cash settlements pursuant to terms and conditions contained in the underlying lease agreements. Cash expended for equipment acquisitions and cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. During 1994, the Partnership capitalized $18,346 in connection with the upgrade of an L1011-50 aircraft. In 1995, the Partnership realized $470,835 in equipment sale proceeds compared to $203,927 and $977,440 in 1994 and 1993, respectively. Future inflows of cash from asset disposals will vary in timing and amount and will be influenced by many factors including, but not limited to, the frequency and timing of lease expirations, the type of equipment being sold, its condition and age, and future market conditions. The Partnership obtained long-term financing in connection with certain equipment leases. The origination of such indebtedness and the subsequent repayments of principal were reported as components of financing activities. Cash inflows of $125,631 in 1993 resulted from leveraging a portion of the Partnership's equipment portfolio with third-party lenders. No leveragings of equipment occurred in 1994 and 1995. Each note payable was 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 coincided with the lease rental term). As rental payments were collected, a portion or all of the rental payment was used to repay the associated indebtedness. Cash distributions to the General Partners and Recognized Owners are declared and generally paid within fifteen days following the end of each calendar quarter. The payment of such distributions is presented as a component of financing activities. For the year ended December 31, 1995, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $1,281,056. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership (the "Restated Agreement, as amended"), the Recognized Owners were allocated 99% of these distributions, or $1,268,245, and the General Partners were allocated 1%, or $12,811. The fourth quarter 1995 cash distribution was paid on January 22, 1996. Cash distributions paid to the Recognized Owners consist of both a return of and a return on capital. To the extent that cash distributions consist of Cash From Sales or Refinancings, substantially all of such cash distributions should be viewed as a return of capital. Cash distributions do not represent and are not indicative of yield on investment. Actual yield on investment cannot be determined with any certainty until conclusion of the Partnership and will be dependent upon the collection of all future contracted rents, the generation of renewal and/or re-lease rents, and the residual value realized for each asset at its disposal date. Future market conditions, technological changes, the ability of AFG to manage and remarket the assets, and many other events and circumstances, could enhance or detract from individual asset yields and the collective performance of the Partnership's equipment portfolio. -5- The future liquidity of the Partnership will be influenced by the foregoing and will be greatly dependent upon the collection of contractual rents and the outcome of residual activities. The Managing General Partner anticipates that cash proceeds resulting from these sources will satisfy the Partnership's future expense obligations. However, the amount of cash available for distribution in future periods will fluctuate. Equipment lease expirations and asset disposals will cause the Partnership's net cash from operating activities to diminish over time; and equipment sale proceeds will vary in amount and period of realization. In addition, the Partnership may be required to incur asset refurbishment or upgrade costs in connection with future remarketing activities. Accordingly, fluctuations in the level of quarterly cash distributions will occur during the life of the Partnership. -6- REPORT OF INDEPENDENT AUDITORS To the Partners of American Income Partners III-B Limited Partnership: We have audited the accompanying statements of financial position of American Income Partners III-B Limited Partnership as of December 31, 1995 and 1994, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Income Partners III-B Limited Partnership at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Additional Financial Information identified in the Index to Annual Report to the Partners is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Ernst & Young LLP ERNST & YOUNG LLP Boston, Massachusetts March 12, 1996 -7- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP STATEMENT OF FINANCIAL POSITION December 31, 1995 and 1994
ASSETS 1995 1994 - ------ ---------- ---------- Cash and cash equivalents $ 802,718 $ 958,005 Rents receivable, net of allowance for doubtful accounts of $60,000 3,044 225,496 Accounts receivable - affiliate 5,490 125,811 Equipment at cost, net of accumulated depreciation of $7,839,693 and $10,675,416 at December 31, 1995 and 1994, respectively 3,684,320 5,155,573 ---------- ---------- Total assets $4,495,572 $6,464,885 ========== ========== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- Notes payable $ -- $ 223,620 Accrued interest -- 8,572 Accrued liabilities 20,000 15,500 Accrued liabilities - affiliate 15,216 3,557 Deferred rental income 52,247 29,985 Cash distributions payable to partners 213,508 569,359 ---------- ---------- Total liabilities 300,971 850,593 ---------- ---------- Partners' capital (deficit): General Partners (205,925) (191,728) Limited Partnership Interests (1,127,330 Units; initial purchase price of $25 each) 4,400,526 5,806,020 ---------- ---------- Total partners' capital 4,194,601 5,614,292 ---------- ---------- Total liabilities and partners' capital $4,495,572 $6,464,885 ========== ==========
The accompanying notes are an integral part of these financial statements. -8- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP STATEMENT OF OPERATIONS for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------ ----------- ----------- Income: Lease revenue $ 988,217 $ 1,848,626 $ 2,099,057 Interest income 42,891 51,202 37,642 Gain on sale of equipment 470,835 199,001 516,300 ------------ ----------- ----------- Total income 1,501,943 2,098,829 2,652,999 ------------ ----------- ----------- Expenses: Depreciation 709,153 1,125,714 1,994,828 Write-down of equipment 762,100 -- -- Interest expense 726 23,228 58,308 Equipment management fees - affiliate 49,411 92,431 104,953 Operating expenses - affiliate 119,188 158,185 107,107 ------------ ----------- ----------- Total expenses 1,640,578 1,399,558 2,265,196 ------------ ----------- ----------- Net income (loss) $ (138,635) $ 699,271 $ 387,803 ============ =========== =========== Net income (loss) $ (0.12) $ 0.61 $ 0.34 per limited partnership unit ============ =========== =========== Cash distributions declared per limited partnership unit $ 1.12 $ 2.00 $ 2.00 ============ =========== ===========
The accompanying notes are an integral part of these financial statements. -9- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL for the years ended December 31, 1995, 1994 and 1993
General Recognized Owners Partners ----------------------------------- Amount Units Amount Total ------------ ------------- ----------- ------------ Balance at December 31, 1992 $ (157,051) 1,127,330 $ 9,239,137 $ 9,082,086 Net income - 1993 3,878 -- 383,925 387,803 Cash distributions declared (22,774) -- (2,254,660) (2,277,434) ------------ ------------- ----------- ------------ Balance at December 31, 1993 (175,947) 1,127,330 7,368,402 7,192,455 Net income - 1994 6,993 -- 692,278 699,271 Cash distributions declared (22,774) -- (2,254,660) (2,277,434) ------------ ------------- ----------- ------------ Balance at December 31, 1994 (191,728) 1,127,330 5,806,020 5,614,292 Net loss - 1995 (1,386) -- (137,249) (138,635) Cash distributions declared (12,811) -- (1,268,245) (1,281,056) ------------ ------------- ----------- ------------ Balance at December 31, 1995 $ (205,925) 1,127,330 $ 4,400,526 $ 4,194,601 ============ ============= =========== ============
The accompanying notes are an integral part of these financial statements. -10- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------- ------------- ------------- Cash flows from (used in) operating activities: Net income (loss) $ (138,635) $ 699,271 $ 387,803 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation 709,153 1,125,714 1,994,828 Write-down of equipment 762,100 -- -- Gain on sale of equipment (470,835) (199,001) (516,300) Decrease in allowance for doubtful accounts -- (53,000) -- Changes in assets and liabilities: Decrease in: rents receivable 222,452 64,267 195,495 accounts receivable - affiliate 120,321 2,962 475,446 Increase (decrease) in: accrued interest (8,572) (18,060) (15,820) accrued liabilities 4,500 (49,000) (8,000) accrued liabilities - affiliate 11,659 (7,976) (22,997) deferred rental income 22,262 (17,461) (11,602) ------------- ------------- ------------- Net cash from operating activities 1,234,405 1,547,716 2,478,853 ------------- ------------- ------------- Cash flows from (used in) investing activities: Purchase of equipment -- (18,346) -- Proceeds from equipment sales 470,835 203,927 977,440 ------------- ------------- ------------- Net cash from investing activities 470,835 185,581 977,440 ------------- ------------- ------------- Cash flows from (used in) financing activities: Proceeds from notes payable -- -- 125,631 Principal payments - notes payable (223,620) (368,334) (651,648) Distributions paid (1,636,907) (2,277,434) (2,135,094) ------------- ------------- ------------- Net cash used in financing activities (1,860,527) (2,645,768) (2,661,111) ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (155,287) (912,471) 795,182 Cash and cash equivalents at beginning of year 958,005 1,870,476 1,075,294 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 802,718 $ 958,005 $ 1,870,476 ============= ============= ============= Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 9,298 $ 41,288 $ 74,128 ============= ============= =============
The accompanying notes are an integral part of these financial statements. -11- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP Notes to the Financial Statements December 31, 1995 NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS - --------------------------------------------- The Partnership was organized as a limited partnership under the Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on June 29, 1987, for the purpose of acquiring and leasing to third parties a diversified portfolio of capital equipment. Partners' capital initially consisted of contributions of $1,000 from the Managing General Partner (AFG Leasing Incorporated) and $100 from the Initial Limited Partner (AFG Assignor Corporation). On September 29, 1987 the Partnership issued 1,127,330 units representing assignments of limited partnership interests (the "Units") to 2,125 investors. Unitholders and Limited Partners (other than the Initial Limited Partner) are collectively referred to as Recognized Owners. Subsequent to the Partnership's Closing on September 29, 1987, the Partnership had five General Partners: AFG Leasing Incorporated, a Massachusetts corporation, Kestutis J. Makaitis, Daniel J. Roggemann, Martin F. Laughlin and Geoffrey A. MacDonald (collectively the "General Partners"). Messrs. Makaitis, Roggemann and Laughlin elected to withdraw as Individual General Partners. The General Partners, each of which is affiliated with American Finance Group ("AFG"), a Massachusetts partnership, are not required to make any other capital contributions except as may be required under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited Partnership (the "Restated Agreement, as amended"). AFG is a successor to the business of American Finance Group, Inc., a Massachusetts corporation engaged since its inception in 1980 in various aspects of the equipment leasing business. In 1990, certain members of AFG's management, principally Geoffrey A. MacDonald, Chief Executive Officer and co-founder of AFG, established AFG Holdings (Massachusetts) Limited Partnership ("Holdings Massachusetts") to acquire ownership and control of AFG. Holdings Massachusetts effected this event by acquiring all of the equity interests of AFG's two partners, AFG Holdings Illinois Limited Partnership ("Holdings Illinois") and AFG Corporation. Holdings Massachusetts incurred significant indebtedness to finance this acquisition, a significant portion of which was scheduled to mature in 1995. On December 16, 1994, the senior lender to Holdings Massachusetts (the "Senior Lender") assumed control of its security interests in Holdings Illinois and AFG Corporation and sold all such interests to GDE Acquisitions Limited Partnership, a Massachusetts limited partnership owned and controlled entirely by Gary D. Engle, President and member of the Executive Committee of AFG. As a result of this transaction, GDE Acquisitions Limited Partnership acquired all of the assets, rights and obligations of AFG from the Senior Lender and assumed control of AFG. Geoffrey A. MacDonald remains as Chief Executive Officer of AFG and member of its Executive Committee. Significant operations commenced September 29, 1987 when the Partnership made its initial equipment purchase. Pursuant to the Restated Agreement, as amended, Distributable Cash From Operations and Distributable Cash From Sales or Refinancings will be allocated 99% to the Recognized Owners and 1% to the General Partners until Payout and 85% to the Recognized Owners and 15% to the General Partners after Payout. Payout will occur when the Recognized Owners have received distributions equal to their original investment plus a cumulative annual return of 10% (compounded quarterly) on undistributed invested capital. Under the terms of a Management Agreement between the Partnership and AFG, management services are provided by AFG to the Partnership at fees which the Managing General Partner believes to be competitive for similar services. (Also see Note 4.) 12 AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Statement of Cash Flows - ----------------------- The Partnership considers liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. From time to time, the Partnership invests excess cash with large institutional banks in reverse repurchase agreements with overnight maturities. Under the terms of the agreements, title to the underlying securities passes to the Partnership. The securities underlying the agreements are book entry securities. At December 31, 1995, the Partnership had $800,000 invested in reverse repurchase agreements secured by U.S. Treasury bills or interests in U.S. Government securities. Revenue Recognition - ------------------- Rents are payable to the Partnership monthly, 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. Future minimum rents of $1,336,884 are due as follows: For the year ending December 31, 1996 $ 666,013 1997 501,630 1998 61,542 1999 61,542 2000 46,157 ---------- Total $1,336,884 ==========
Revenue from major individual lessees which accounted for 10% or more of lease revenue in each of the past three years is as follows:
1995 1994 1993 ----------- ----------- ----------- Northwest Airlines, Inc. $ 402,598 $ 493,661 $ 585,067 ING Aviation Lease $ 197,624 -- -- Contract Transportation Systems Co. $ 100,603 -- -- The Denver and Rio Grande Western Railroad $ 100,260 -- -- Equicor, Incorporated -- $ 213,939 $ 226,302 Bally's Health and Tennis Corporation -- -- $ 256,798
During 1995, the Partnership and other affiliated partnerships, executed a renegotiated and extended lease agreement in connection with two DC-10-40 aircraft leased by Northwest Airlines, Inc. ("Northwest"). Pursuant to the agreement, Northwest will continue to lease these aircraft until September 3, 2000. The Partnership, which owns a 2.05% interest in these aircraft, will receive $61,542 each year through December 31, 1999 and $46,157 during the year ending December 31, 2000. During 1994, the Managing General Partner lowered the aggregate amount reserved against potentially uncollectable rents to $60,000. This caused an increase in lease revenue of $53,000 in 1994. The reserve was reviewed and considered adequate as of December 31, 1995. It cannot be determined whether the Partnership will recover any past due rents in the future; however, the Managing General Partner will pursue the collection of all such items. -13- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) 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 AFG, one of its affiliates, including other equipment leasing programs sponsored by AFG, or from third-party sellers. Equipment cost represents asset base price plus acquisition fees and was determined in accordance with the Restated Agreement, as amended, and certain regulatory guidelines. Asset base price is affected by the relationship of the seller to the Partnership as summarized herein. Where the seller of the equipment was AFG or an affiliate, asset base price was the lower of (i) the actual price paid for the equipment by AFG or the affiliate plus all actual costs accrued by AFG or the affiliate while carrying the equipment less the amount of all rents earned by AFG or the affiliate prior to selling the equipment or (ii) fair market value as determined by the Managing General Partner in its best judgment, including all liens and encumbrances on the equipment and other actual expenses. Where the seller of the equipment was a third party who did not manufacture the equipment, asset base price was the lower of (i) the price invoiced by the third party or (ii) fair market value as determined by the Managing General Partner. Where the seller of the equipment was a third party who also manufactured the equipment, asset base price was the manufacturer's invoice price, which price was considered to be representative of fair market value. Depreciation - ------------ The Partnership's depreciation policy is intended to allocate the cost of equipment over the period during which it produces economic benefit. The principal period of economic benefit is considered to correspond to each asset's primary lease term, which term generally represents the period of greatest revenue potential for each asset. Accordingly, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset on a straight-line basis over such term. For purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that an asset is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life. Periodically, the Managing General Partner evaluates the net carrying value of equipment to determine whether it exceeds estimated net realizable value. Adjustments to reduce the net carrying value of equipment are recorded in those instances where estimated net realizable value is considered to be less than net carrying value. Such adjustments 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 AFG'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. AFG attempts to monitor these changes in order to identify opportunities which may be advantageous to the Partnership and which will maximize total cash returns for each asset. Allocation of Profits and Losses - -------------------------------- For financial statement purposes, net income or loss is allocated to each Partner according to their respective ownership percentages (99% to the Recognized Owners and 1% to the General Partners). See Note 5 concerning allocation of income or loss for income tax purposes. -14- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) Net Income (Loss) and Cash Distributions Per Unit - ------------------------------------------------- Net income (loss) and cash distributions per Unit are based on 1,127,330 Units outstanding during each of the three years in the period ended December 31, 1995 and computed after allocation of the General Partners' 1% share of net income (loss) and cash distributions. Accrued Liabilities - Affiliate - ------------------------------- Unpaid operating expenses paid by AFG on behalf of the Partnership are reported as Accrued Liabilities Affiliate. (See Note 4.) Provision for Income Taxes - -------------------------- No provision or benefit from income taxes is included in the accompanying financial statements. The Partners are responsible for reporting their proportionate shares of the Partnership's taxable income or loss and other tax attributes on their tax returns. Impact of Recently Issued Accounting Standards - ---------------------------------------------- In March 1995, the Financial Accounting Standards Board issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Partnership will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the impact of adoption to be material to the financial statements of the Partnership. NOTE 3 - EQUIPMENT - ------------------ The following is a summary of equipment owned by the Partnership at December 31, 1995. In the opinion of AFG, the acquisition cost of the equipment did not exceed its fair market value.
Lease Term Equipment Equipment Type (Months) at Cost Location - ------------------------- ------ ------------ ----------------------- Aircraft 36-108 $ 8,412,409 MN/Foreign Motor vehicles 12-72 1,177,235 IL Manufacturing 24-72 663,153 OH Communications 1-60 618,182 KS/MD/NJ/NY/TX Locomotives 57-60 438,017 GA/MI/MO/OH/OK Materials handling 1-84 212,396 CA/MO/NJ/TX Computers and peripherals 1-60 2,621 PA ------------ Total equipment cost 11,524,013 Accumulated depreciation (7,839,693) ------------ Equipment, net of accumulated depreciation $ 3,684,320 ============
-15- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) In certain cases, the cost of the Partnership's equipment represents a proportionate ownership interest. The remaining interests are owned by AFG or an affiliated equipment leasing program sponsored by AFG. The Partnership and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. Proportionate equipment ownership enables the Partnership to further diversify its equipment portfolio by participating in the ownership of selected assets, thereby reducing the general levels of risk which could result from a concentration in any single equipment type, industry or lessee. At December 31, 1995, the Partnership's equipment portfolio included equipment having a proportionate original cost of $10,030,246, representing approximately 87% of total equipment cost. Generally, the costs associated with maintaining, insuring and operating the Partnership's equipment are incurred by the respective lessees pursuant to terms specified in their individual lease agreements with the Partnership. As equipment is sold to third parties, or otherwise disposed of, the Partnership recognizes a gain or loss equal to the difference between the net book value of the equipment at the time of sale or disposition and the proceeds realized upon sale or disposition. The ultimate realization of estimated residual value in the equipment is dependent upon, among other things, AFG's ability to maximize proceeds from selling or re-leasing the equipment upon the expiration of the primary lease terms. At December 31, 1995, the Partnership was not holding any equipment for sale or re-lease. The Partnership recorded a write-down of the carrying value of its interest in an L1011-50 aircraft representing an impairment, during the year ended December 31, 1995. The resulting charge, $762,100 ($0.67 per limited partnership unit) in 1995 was based on a comparison of the estimated net realizable value and corresponding carrying value for the Partnership's interest in the aircraft. NOTE 4 - RELATED PARTY TRANSACTIONS - ----------------------------------- All operating expenses incurred by the Partnership are paid by AFG on behalf of the Partnership and AFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during each of the three years in the period ended December 31, 1995, which were paid or accrued by the Partnership to AFG or its Affiliates, are as follows:
1995 1994 1993 -------------- -------------- ------------- Equipment management fees $ 49,411 $ 92,431 $ 104,953 Administrative charges 21,000 12,000 14,955 Reimbursable operating expenses due to third parties 98,188 146,185 92,152 ------------- ------------- ------------- Total $ 168,599 $ 250,616 $ 212,060 ============= ============= =============
As provided under the terms of the Management Agreement, AFG is compensated for its services to the Partnership. Such services include all aspects of acquisition, management and sale of equipment. For acquisition services, AFG is compensated by an amount equal to 4.75% of Equipment Base Price paid by the Partnership. For management services, AFG is compensated by an amount equal to the lesser of (i) 5% of gross lease rental revenue or (ii) fees which the Managing General Partner reasonably believes to be competitive for similar services -16- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) for similar equipment. Both of these fees are subject to certain limitations defined in the Management Agreement. Compensation to AFG for services connected to the sale of equipment is calculated as the lesser of (i) 3% of gross sale proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under arm's length circumstances. Payment of the remarketing fee is subordinated to Payout and is subject to certain limitations defined in the Management Agreement. Administrative charges represent amounts owed to AFG, pursuant to Section 10.4 of the Restated Agreement, as amended, for persons employed by AFG who are engaged in providing administrative services to the Partnership. Reimbursable operating expenses due to third parties represent costs paid by AFG on behalf of the Partnership which are reimbursed to AFG. All equipment was purchased from AFG, one of its affiliates, including other equipment leasing programs sponsored by AFG, or from third-party sellers. The Partnership's Purchase Price was determined by the method described in Note 2. All rents and proceeds from the sale of equipment are paid directly to either AFG or to a lender. AFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At December 31, 1995, the Partnership was owed $5,490 by AFG for such funds and the interest thereon. These funds were remitted to the Partnership in January 1996. On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a newly formed Massachusetts limited partnership owned and controlled by certain principals of AFG, commenced a voluntary cash Tender Offer (the "Offer") for up to approximately 45% of the outstanding units of limited partner interest in this Partnership and 20 affiliated partnerships sponsored and managed by AFG. The Offer was subsequently amended and supplemented in order to provide additional disclosure to unitholders; increase the offer price; reduce the number of units sought to approximately 35% of the outstanding units; and extend the expiration date of the Offer to October 20, 1995. Following commencement of the Offer, certain legal actions were initiated by interested persons against AALP, each of the general partners (4 in total) of the 21 affected programs, and various other affiliates and related parties. One action, a class action brought in the United States District Court for the District of Massachusetts (the "Court") on behalf of the unitholders (limited partners), sought to enjoin the Offer and obtain unspecified monetary damages. A settlement of this litigation was approved by the Court on November 15, 1995. A second class action, brought in the Superior Court of the Commonwealth of Massachusetts (the "Superior Court") seeking to enjoin the Offer, obtain unspecified monetary damages, and intervene in the first class action, was dismissed by the Superior Court. The Plaintiffs have filed an appeal in this matter. The limited partners of the Partnership tendered approximately 99,540 units or 8.83% of the total outstanding units of the Partnership to AALP. The operations of the Partnership are not expected to be adversely affected by these proceedings or settlements. NOTE 5 - INCOME TAXES - --------------------- The Partnership is not a taxable entity for federal income tax purposes. Accordingly, no provision for income taxes has been recorded in the accounts of the Partnership. For financial statement purposes, the Partnership allocates net income or loss to each class of partner according to their respective ownership percentages (99% to the Recognized Owners and 1% to the General Partners). This convention differs from the income or loss allocation requirements for income tax and Dissolution Event purposes as delineated in the Restated Agreement, as amended. For income tax purposes, the Partnership allocates net income or net loss in accordance with the provisions of such agreement. The Restated Agreement, as amended, requires that upon dissolution of the Partnership, the General Partners will be required to contribute -17- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) to the Partnership an amount equal to any negative balance which may exist in the General Partners' tax capital account. At December 31, 1995, the General Partners had a positive tax capital account balance. The following is a reconciliation between net income (loss) reported for financial statement and federal income tax reporting purposes for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993 ------------- ------------- ------------- Net income (loss) $ (138,635) $ 699,271 $ 387,803 Financial statement depreciation in excess of tax depreciation 352,477 288,498 965,303 Write-down of equipment 762,100 -- -- Prepaid rental income 22,262 (17,461) (11,602) Other -- (111,399) 621,715 ------------- ------------- ------------- Net income for federal income tax reporting purposes $ 998,204 $ 858,909 $ 1,963,219 ============= ============= =============
The following is a reconciliation between partners' capital reported for financial statement and federal income tax reporting purposes for the years ended December 31, 1995 and 1994:
1995 1994 ------------ ------------ Partners' capital $ 4,194,601 $ 5,614,292 Add back selling commissions and organization and offering costs 1,188,909 1,188,909 Financial statement distributions in excess of tax distributions 2,135 5,694 Cumulative difference between federal income tax and financial statement income (loss) (2,288,907) (3,425,746) ------------- ------------ Partners' capital for federal income tax reporting purposes $ 3,096,738 $ 3,383,149 ============= ============
Financial statement distributions in excess of tax distributions and cumulative difference between federal income tax and financial statement income (loss) represent timing differences. NOTE 6 - LEGAL PROCEEDINGS - -------------------------- In 1991, a lessee of the Partnership, Healthcare Financial Services, Inc. and Healthcare International, Inc., the guarantor of certain lease obligations of Healthcare Financial Services, Inc., (collectively, the "Debtors") filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. The Partnership and certain other AFG-sponsored programs filed a proof of claim in this case. All of the Partnership's affected equipment, having an -18- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) original cost of $116,689 and representing approximately 1% of the Partnership's aggregate equipment portfolio prior to its sale, was fully depreciated and was partially assumed by a successor sub-lessee. In November 1993, the successor sub-lessee ceased paying rent. AFG, on behalf of the Partnership and other AFG- sponsored programs, filed a complaint on November 23, 1994 in the Superior Court of the State of California to recover such unpaid rentals (including late fees, interest and other related damages) from the successor sub-lessee. The Chapter 11 proceeding of the Debtors were dismissed on July 21, 1994. On November 27, 1995, the Partnership sold the affected equipment recognizing a nominal net gain for financial statement purposes. On March 15, 1993, Herman's Sporting Goods, Inc., a lessee of the Partnership (the "Debtor") filed for protection under Chapter 11 of the Bankruptcy Code in the United States District Court, Trenton, New Jersey. The Chapter 11 proceeding remains pending. Certain unpaid rents due to the Partnership were scheduled by the Debtor as unsecured claims. On August 23, 1994, the Court confirmed the Debtor's First Modified Plan of Reorganization, as Amended and Modified, and the Partnership has received two of the three scheduled payments from the Debtor with respect to its unsecured claims. In addition, the Partnership sold a portion of the equipment, having an original cost of $159,647, during 1994. This disposition resulted in a net gain of $3,600 for financial statement purposes. At December 31, 1995, the Partnership's equipment portfolio included other equipment on lease to the Debtor with an original cost of approximately $31,000, which is fully depreciated for financial reporting purposes and which represents less than 1% of the Partnership's aggregate equipment portfolio. Renewal rental schedules for this equipment are currently in effect by order of the Bankruptcy Court. All scheduled renewal lease rents from the Debtor have been collected to date and the Partnership has not experienced any material losses as a result of this bankruptcy. NOTE 7 - SUBSEQUENT EVENT - ------------------------- On January 1, 1995, AFG entered into a series of agreements with PLM International, Inc., a Delaware corporation headquartered in San Francisco, California ("PLM"), whereby PLM would: (i) purchase, in a multi-step transaction, certain of AFG's assets and (ii) provide accounting, asset management and investor services to AFG and certain of AFG's affiliates, including the Partnership and all other equipment leasing programs managed by AFG (the "Investment Programs"). On January 3, 1996, AFG and PLM executed an amendment to the 1995 agreements whereby PLM purchased: (i) AFG's lease origination business and associated contracts, (ii) the rights to the name "American Finance Group" and associated logo, and (iii) certain furniture, fixtures and computer software. PLM hired AFG's marketing force and certain other support personnel effective January 1, 1996 in connection with the transaction and relinquished its responsibilities under the 1995 agreements to provide accounting, asset management and investor services to AFG, its affiliates and the Investment Programs after December 31, 1995. Accordingly, AFG and its affiliates retain ownership and control and all authority and rights with respect to each of the general partners or managing trustees of the Investment Programs; and AFG, as Manager, will continue to provide accounting, asset management and investor services to the Partnership. Pursuant to the 1996 amendment to the 1995 agreements, AFG and certain of its affiliates agreed not to compete with the lease origination business sold to PLM for a period of five years. AFG reserved the right to satisfy all equipment needs of the Partnership and all other Investment Programs and reserved certain other rights not material to the Partnership. AFG also agreed to change its name, except where it is used in connection with the Investment Programs. AFG's management considers the amendment to the 1995 agreements to be in the best interest of AFG and the Partnership. -19- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST OF EQUIPMENT DISPOSED for the years ended December 31, 1995, 1994, 1993 The Partnership classifies all rents from leasing equipment as lease revenue. Upon expiration of the primary lease terms, equipment may be sold, rented on a month-to-month basis or re-leased for a defined period under a new or extended lease agreement. The proceeds generated from selling or re-leasing the equipment, in addition to any month-to-month revenue, represent the total residual value realized for each item of equipment. Therefore, the financial statement gain or loss, which reflects the difference between the net book value of the equipment at the time of sale or disposition and the proceeds realized upon sale or disposition, may not reflect the aggregate residual proceeds realized by the Partnership for such equipment. The following is a summary of cash excess associated with equipment dispositions occurring in the years ended December 31, 1995, 1994 and 1993.
1995 1994 1993 ------------- ------------- ------------- Rents earned prior to disposal of equipment, net of interest charges $ 4,157,961 $ 2,708,776 $ 5,634,384 Sale proceeds realized upon disposition of equipment 470,835 203,927 977,440 ------------- ------------- ------------- Total cash generated from rents and equipment sale proceeds 4,628,796 2,912,703 6,611,824 Original acquisition cost of equipment disposed 4,306,976 2,208,353 6,135,896 -------------- -------------- -------------- Excess of total cash generated to cost of equipment disposed $ 321,820 $ 704,350 $ 475,928 ============== ============== ==============
-20- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS, SALES AND REFINANCINGS for the year ended December 31, 1995
Sales and Operations Refinancings Total ------------------ ------------------ ------------------ Net income (loss) $ (609,470) $ 470,835 $ (138,635) Add back: Depreciation 709,153 -- 709,153 Write-down of equipment 762,100 -- 762,100 Management fees 49,411 -- 49,411 Less: Principal reduction of notes payable (223,620) -- (223,620) ------------------ ------------------ ------------------ Cash from operations, sales and refinancings 687,574 470,835 1,158,409 Less: Management fees (49,411) -- (49,411) ------------------ ------------------ ------------------ Distributable cash from operations, sales and refinancings 638,163 470,835 1,108,998 Other sources and uses of cash: Cash at beginning of year 958,005 -- 958,005 Net change in receivables and accruals 372,622 -- 372,622 Less: Cash distributions paid (1,166,072) (470,835) (1,636,907) ------------------ ------------------ ------------------ Cash at end of year $ 802,718 -- $ 802,718 ================== ================== ==================
-21- AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP SCHEDULE OF COSTS REIMBURSED TO THE MANAGING GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED BY SECTION 10.4 OF THE AMENDED AND RESTATED AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP December 31, 1995 For the year ended December 31, 1995, the Partnership reimbursed the Managing General Partner and its Affiliates for the following costs: Operating expenses $ 101,719 -22- EX-23 3 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of American Income Partners III-B Limited Partnership of our report dated March 12, 1996, included in the 1995 Annual Report to the Partners of American Income Partners III-B Limited Partnership. /s/ Ernst & Young LLP ERNST & YOUNG LLP Boston, Massachusetts March 12, 1996 -15- EX-99.D 4 LEASE AGREEMENT WITH CONTRACT TRANSPORTATION MASTER EQUIPMENT LEASE AGREEMENT NO. 84010HT151 Dated as of January 4, 1984 between AMTRAN CORPORATION LESSOR AND CONTRACT TRANSPORTATION SYSTEMS CO. LESSEE TABLE OF CONTENTS -----------------
SECTION PAGE - ------- ---- 1. Definitions................................................. 1 2. Agreement for Lease of Equipment............................ 3 3. Delivery and Acceptance of Equipment........................ 3 4. No Warranties by Lessor..................................... 3 5. Lease Term.................................................. 4 6. Rent........................................................ 4 7. Changes in Acquisition Cost................................. 4 8. Lessee's Representations and Warranties..................... 4 9. Titling and Registration; Identification Marks.............. 5 10. Fees and Taxes.............................................. 6 11. Indemnification by Lessee................................... 7 12. Use of Equipment; Liens..................................... 7 13. Equipment Maintenance, Repair, and Additions................ 9 14. Loss, Damage or Destruction of Equipment.................... 9 15. Transfer.................................................... 10 16. Reports..................................................... 10 17. Insurance................................................... 11 18. Return of Equipment......................................... 12 19. Lessor's Ownership: Equipment to be and Remain Personal Property.................................. 13 20. Events of Default........................................... 13 21. Assignment by Lessor;Estoppel Certificates.................. 16 22. Option to Renew............................................. 17 23. Additional Rights of Lessor................................. 18 24. Net Lease; Non-Terminability................................ 19
25. Lessee's Right to Sublease and Assign.................................................. 19 26. Recording, Registration and Filing.......................... 19 27. Investment Tax Credit....................................... 20 28. Option to Purchase.......................................... 20 29. Lessee's Right to Terminate................................. 20 30. Quiet Enjoyment............................................. 21 31. Notices..................................................... 22 32. Entire Agreement, Severability, Effect and Modification of Lease....................... 22 33. Countersignature............................................ 22 34. Governing Law............................................... 22 35. Lessor's Right to Perform for Lessee........................ 22 36. Agreement for Lease Only.................................... 23 37. Financial Statements........................................ 23 38. Miscellaneous............................................... 23
EXHIBIT 1 -- Rental Schedule and Certificate of Inspection and Acceptance with Stipulated Loss Values EXHIBIT 2 -- Agreement MASTER EQUIPMENT LEASE AGREEMENT NO. 84010HT151, dated as of January 4, 1984, between AMTRAN CORPORATION (herein called "Lessor"), a Massachusetts corporation having a place of business at One Liberty Square, Boston, Massachusetts 02109, and Contract Transportation Systems Co. (hereinafter called "Lessee"), a Delaware corporation with its principal place of business at 1370 Ontario Street, Cleveland, Ohio 44101. In consideration of the mutual covenants hereafter contained, Lessor and Lessee hereby agree as follows: 1. Definitions - The following terms shall, unless the context otherwise ----------- requires, have the following meanings for all purposes of this Lease: "ACQUISITION COST" of any item of Equipment means an amount equal to the sum of (i) the purchase price of such item of Equipment paid by Lessor, plus, (ii) any excise, sales or use tax paid by Lessor on or with respect to such item of Equipment, plus (iii) any reasonable costs, expenses and fees paid or incurred by Lessor in obtaining and delivering such item of Equipment to Lessee and any expenses of installation of such item of Equipment paid for by Lessor. "ADDITIONAL RENT" shall have the meaning specified in Section 6(b) hereof. "APPRAISAL" shall have the meaning specified in Section 22(c) hereof. "BASIC RENT" shall have the meaning specified in Section 6(a) hereof. "CASUALTY OCCURRENCE" shall have the meaning specified in Section 14 hereof. "CERTIFICATE OF INSPECTION AND ACCEPTANCE" means the certification contained in or which is an Exhibit to each Rental Schedule to be executed by Lessee, substantially in the form of "Exhibit 1" attached hereto. "DEFAULT INTEREST RATE" shall mean the rate of interest set forth in Section 6(b) hereof. "EQUIPMENT" means the equipment described on each Rental Schedule now or hereafter executed pursuant to this Master Lease, and owned by Lessor and leased by Lessor to Lessee or ordered by Lessor for lease to Lessee as provided herein and any attachments, accessories, or additions thereto or substitutions therefor. "EVENTS OF DEFAULT" shall have the meaning specified in Section 20(a) hereof. "FAIR MARKET VALUE" means the appraised value of the Equipment in question determined with the procedure for Appraisal set forth in Section 22(c) hereof. "FAIR RENTAL RATE" shall have the meaning specified in Section (22a)(2) hereof. "INTERIM TERM" shall commence upon the commencement date set forth in the applicable Rental Schedule and shall end on the commencement date of the Primary Term. "INVESTMENT TAX CREDIT" shall mean any investment tax credit provided for in Section 38 et seq. of the Internal Revenue Code of 1954, as amended, which may be available with respect to the Equipment or any item thereof. "LEASE" shall have the meaning specified in Section 2 hereof. "LEASE COMMENCEMENT DATE" with respect to an item of Equipment means the date of the commencement of the Lease Term of such item and shall be the date such item is accepted by Lessee for lease hereunder. "LEASE TERM" for each Rental Schedule shall mean the "Interim Term" plus the "Primary Term" including any period of renewal provided for herein. "MANUFACTURER(S)" shall mean the manufacturer(s) listed for each item of Equipment on the Rental Schedule in question. "MASTER LEASE" shall have the meaning specified in Section 2 hereof. "PAYMENT DATES" shall have the meaning specified in Section 6(a) hereof. "PRIMARY TERM" for each Rental Schedule shall commence and shall end on the date set forth therein. "PRIME RATE OF INTEREST" shall mean the rate of interest announced from time to time as its "Prime Rate" by the lending institution providing the permanent debt financing with respect to the Rental Schedule in question; if the lending institution in question has no PRIME RATE OF INTEREST, then Lessor and Lessee agree that the PRIME RATE OF INTEREST announced from time to time by Morgan Guaranty Trust company of New York, in New York City shall apply hereunder. "RENEWAL TERM" shall have the meaning specified in Section 22(a)(2) hereof. "RENTAL SCHEDULE" means each schedule, substantially in the form of "Exhibit 1" attached hereto, now or hereafter executed by Lessor and Lessee pursuant to this Master Lease, setting forth a full description of Equipment to be leased hereunder, its location, its Acquisition Cost, the amount of rent payable by Lessee with respect thereto, the lease term thereof, the Lease Commencement Date with respect thereto, and such other details as Lessor and Lessee may desire. "STIPULATED LOSS VALUE" shall have the meaning specified in Section 14(b) hereof. "TERMINATION DATE" means the expiration or termination of the Primary Term or Renewal Term of any item of Equipment, whether by the passage of time or otherwise. 2. AGREEMENT FOR LEASE OF EQUIPMENT - Lessor shall lease to Lessee and -------------------------------- Lessee shall lease from Lessor such Equipment as may be mutually agreed, in the manner and upon the terms and conditions specified in this Master Equipment Lease Agreement (this "Master Lease"). Each Rental Schedule shall Incorporate the terms of this Master Lease and shall constitute a separate lease (the term "this Lease" shall hereinafter refer collectively to the applicable Rental Schedule and this Master Lease, to the extent the terms of this Master Lease are incorporated in such Rental Schedule). 3. DELIVERY AND ACCEPTANCE OF EQUIPMENT - Lessor and Lessee understand that ------------------------------------ the manufacturer or vendor of the Equipment will deliver the Equipment to the premises of the Lessee specified in the Rental Schedule and such delivery shall be deemed to be delivery of the Equipment by Lessor to Lessee hereunder. Lessor hereby authorizes Lessee as its agent to accept for Lessor, and in Lessor's name, the Equipment from said manufacturer or vendor upon delivery. Upon such delivery, Lessee shall cause an inspector or inspectors of Lessee to inspect the Equipment, and if it is found to be acceptable to accept delivery of such Equipment and execute and deliver to Lessor a Certificate of Inspection and Acceptance stating that such Equipment has been inspected and accepted and is marked in accordance with Section 9 hereof, whereupon such Equipment shall be deemed to have been delivered to and accepted by Lessee. Lessee's execution of each Rental Schedule and Certificate of Acceptance shall obligate Lessee to lease the Equipment described therein from Lessor upon the acceptance of such Equipment by Lessee and Lessee shall be subject thereafter to all the terms and conditions of this Lease. 4. NO WARRANTIES BY LESSOR - As between Lessor and Lessee, Lessee's ----------------------- acceptance for lease hereunder of any Equipment as evidenced by its execution of a Certificate of Inspection and Acceptance with respect thereto shall constitute Lessee's acknowledgment that such Equipment: (a) is of a size, design, capacity and manufacture acceptable to Lessee for lease hereunder; and (b) otherwise conforms to the requirements of this Lease and is subject to all of the terms and conditions of this Lease. LESSOR HEREBY MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION THE CONDITION, SELECTION, QUALITY, SUITABILITY OR OPERATION OF ANY EQUIPMENT, OR THE MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE OR PERFORMANCE OF THE EQUIPMENT OR THE MAINTENANCE THEREOF, AND THE LESSEE LEASES THE EQUIPMENT "AS IS" AND "WHERE IS". In no event shall any defect in, or unfitness of, any Equipment relieve Lessee of the obligation to pay rent or to make any other payments required hereunder or of any other obligation hereunder. Without limiting the generality of the foregoing, Lessor shall not be liable to Lessee for any (a) defects, either latent or patent, in any of the Equipment or for any direct or consequential damage therefrom; (b) loss of use of any of the Equipment or for any interruption in Lessee's business occasioned by Lessee s inability to use any of the Equipment for any reason whatsoever; and (c) damages in the event that the Manufacturer delays delivery of the Equipment. Lessor hereby transfers and assigns to Lessee for and during the Lease Term all its rights and interest in the Manufacturer's warranty with respect to any and all of the Equipment, and agrees to execute all agreements and documents reasonably -3- necessary to effect such transfer and assignment. To the extent that any claims or rights of Lessor with respect to the Equipment may not be assigned or otherwise be available to Lessee, Lessor will use its best efforts to enforce such claims or rights against the Manufacturer. 5. LEASE TERM - The Equipment is leased for an Interim Term and a Primary ---------- Term unless and until the term of this Lease shall expire, be extended or be terminated pursuant to any provision hereof. The Interim Term and the Primary Term shall commence and expire on the dates set forth in the Rental Schedule applicable to the item of Equipment in question. The provisions of Section 11 shall apply as between Lessor and Lessee with respect to any Equipment from the time the Equipment is ordered by Lessor. Lessee hereby authorizes Lessor to insert the Lease Commencement Date for an item of Equipment on the Rental Schedule therefor when such item has been accepted by Lessee for lease hereunder. 6. RENT (a) This Lease is a net lease and Lessee shall pay to Lessor in ---- immediately available funds on the due date, as fixed rent for the Equipment during the Interim Term and the Primary Term, the amount set forth in the Rental Schedule ("Basic Rent") on the dates set forth therein ("Payment Dates"), at Lessor's address set forth above, or at such other address or to such other person or entity as Lessor, from time to time, may designate. (b) Lessee shall also pay to Lessor on demand, in immediately available funds on the due date, all amounts which Lessee is required to pay pursuant to this Lease (other than Basic Rent) together with every fine, penalty, interest and cost which may be added for non-payment or late payment thereof. Such amounts shall constitute additional rent ("Additional Rent"). If Lessee shall fail to pay any Additional Rent, Lessor shall have the right to pay the same and shall have all rights, powers and remedies with respect thereto as are provided herein or by law in the case of nonpayment of Basic Rent. With respect to any amount of Basic Rent or Additional Rent not paid when due hereunder, Lessee shall pay to Lessor interest on such overdue amount at the lower of: (1) two percent (2%) above the Prime Rate of interest per annum but in no event less than two percent (2%) per annum above the permanent debt rate of the Rental Schedule(s) applicable to such overdue amount, or (ii) the highest rate permitted by law ("Default Interest Rate"). Lessee shall perform all Its obligations under this Lease at its sole cost and expense, and shall pay all Basic Rent and Additional Rent when due. Lessor agrees to invoice Lessee on a semi-annual basis for each Basic Rent payment, said invoice to be sent to Lessee thirty (30) days prior to the due date of the Basic Rent payment in question. 7. CHANGES IN ACQUISITION COST - In the event that, subsequent to Lessor's --------------------------- placing of the order for the Equipment with the Manufacturer and prior to the execution by Lessee of the Certificate of Inspection and Acceptance, the Acquisition Cost shall increase or decrease, Lessor and Lessee agree to make the necessary changes to the Rental Schedule for such item of Equipment and to make any necessary adjustments necessitated thereby in the rent figures set forth on such Rental Schedule. Lessor agrees that it will take no action not sanctioned by the Lessee which will cause the price of the Equipment to increase during the period referred to in this Section 7. -4- 8. LESSEE'S REPRESENTATIONS AND WARRANTIES -- Lessee represents and --------------------------------------- warrants for the benefit of Lessor (and if requested by Lessor, will provide other supporting documents to the effect) that both as of the date of this Lease and the date any Equipment is accepted for lease hereunder: (a) Lessee is a corporation legally incorporated and validly existing, in good standing under the laws of the state of its incorporation, with full corporate power to enter into this Lease and to pay and perform its obligations hereunder, and under each Rental Schedule and is qualified to do business in the location(s) where the Equipment is installed; (b) this Lease has been duly authorized, executed and delivered by and Lessee, is enforceable in accordance with its terms and Lessee's execution, delivery and performance thereunder do not and will not contravene any provisions of or constitute a default under, any indenture, mortgage, contract or other instrument by which it is bound; (c) any approval required from any public regulatory body or from any parent or affiliate of Lessee or from any other person, firm or corporation with respect to the entering into or performance of this Lease by Lessee has been obtained as of the date of this Lease or will be obtained promptly thereafter; (d) there are no suits or proceedings pending, or to the knowledge of Lessee threatened, in any court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee, which, if decided against Lessee, would impair Lessee's ability to pay the rents as they become due or perform any of its other obligations pursuant to this Lease; and (e) there has been no material adverse change to Lessee's financial condition since the date of Lessee's most recent audited financial statement. 9. TITLING AND REGISTRATION; IDENTIFICATION MARKS -- (a) The Lessee will, on behalf of the Lessor and at the Lessee's expense, promptly obtain an application for the Lessor's title for each item of Equipment, reflecting the Lessor or its assignee as owner and whomever the Lessor shall designate as first lienholder, the Manufacturer's certificate of title and a certificate of registration issued in the name of the Lessor or its assignee. Certificates of ownership shall be delivered to the Lessor or to whomever the Lessor shall designate. The Lessee shall, at Lessee's expense, take such action as shall be necessary from time to time to avoid suspension or revocation of any certificates of ownership and to renew and maintain all certificates of registration. If the Lessee is required to obtain any new certificate of ownership or of registration, the Lessee shall, at Lessee's sole expense and after prior written notice to the Lessor, obtain such new certificate of ownership or of registration in the manner provided herein. The Lessor appoints the Lessee its attorney-in-fact for the purpose of carrying out the Lessee's obligations pursuant to this Section 9. The Lessee shall notify the Lessor of the state in which each item of Equipment is titled and registered, the license plate number of each item of Equipment, and any changes of such state of license plate number. -5- (b) If requested by Lessor or required by federal, state or local law, Lessor shall furnish to Lessee and Lessee shall, at Lessee's expense, affix to the Equipment a sign, tag or other form of notice to disclose Lessor's ownership of the Equipment or that the Equipment is leased, and Lessee shall keep and maintain such sign, tag or other form of notice affixed or attached to the Equipment throughout the Lease Term. Lessee will not allow the name of any persons other than Lessor or its assignee to be placed on any Equipment as a claim of ownership other than that of Lessor; provided, however, that Lessee may cause such Equipment to be lettered with the names or initials or other insignia customarily affixed by the manufacturer thereof or used by Lessee on equipment used by it of the same or a similar type for convenience of identification of its rights to use such Equipment as permitted under this Lease or normal advertising displays. 10. FEES AND TAXES - Lessee agrees to pay promptly when due, and to -------------- indemnify and hold Lessor harmless from, all license, title and registration fees whatsoever, all taxes (including without limitation all sales, use, personal property, franchise, ad valorem, value added, leasing, leasing use, -- ------- federal highway use, fuel, third structure and stamp taxes) and all levies, imposts, duties, highway or bridge tolls, fees (including without limitation all documentation fees) and all other charges (together with any penalties, fines or interest thereon), whether such fees, taxes, or charges are general or special, ordinary or extraordinary, foreseen or unforeseen, which are assessed, levied or imposed by any governmental or taxing authority against or upon Lessor, with respect to any Equipment or the purchase, acquisition, ownership, delivery, leasing, possession, use, operation, control or return thereof, or the rents, receipts or earnings arising therefrom which accrue during the term of this Lease, excluding, however, any federal, state or local taxes levied on or measured by Lessor's net income. In the event any such fees, levies, imposts, duties, charges or taxes which are the responsibility of Lessee are paid by Lessor, or if Lessor be required to collect or pay any thereof, Lessee shall reimburse Lessor therefor (plus any penalties, fines or interest thereon) promptly upon demand. Lessee will file all personal property tax returns covering the Equipment, and unless and until Lessor notifies Lessee in writing to the contrary, Lessee will pay the personal property taxes levied or assessed thereon directly to the levying authority. Upon Lessor's written request, Lessee shall submit to Lessor a true and correct copy of its personal property tax return and its receipt evidencing payment of the tax. In the event Lessor elects to pay personal property taxes directly to levying authority, Lessor shall submit to Lessee a true and correct copy of Its personal property tax return and its receipt evidencing payment of the tax and Lessee will then promptly reimburse Lessor for the full amount of such personal property taxes so paid by Lessor. All of the obligations of Lessee under this Section 10 with respect to any fees, levies imposts, duties, charges, withholdings, taxes and governmental charges (together with any penalties, fines or interest thereon) assessed, levied imposed or accrued prior to the expiration or other termination of this Lease shall continue in full force and effect notwithstanding such expiration or other termination and are expressly made for the benefit of, and shall be enforceable by, Lessor. Lessor shall obtain a sales tax exemption, where available, with respect to its purchase of the Equipment from the vendor thereof and any tax payable with respect to the use of the Equipment by Lessee shall be paid by Lessee, a pro rata basis, with each rental payment due hereunder, to the extent permissible by law. -6- 11. INDEMNIFICATION BY LESSEE - Lessee shall indemnify Lessor against, and ------------------------- agrees to defend, protect, save and keep Lessor harmless from any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements, including legal fees and expenses, of whatsoever kind and nature imposed on, incurred by or asserted against Lessor (including, without limitation, by way of strict or absolute liability), in any way relating to or arising out of: (a) The ordering, construction, purchase, acceptance, installment, rejection or use of the Equipment; or (b) Lessee's acts or omissions relating to the delivery, non-delivery, possession, use, maintenance, operation, control, condition, return, redelivery, storage, surrender, or other use of the Equipment during the term of this Lease, including without limitation: (i) claims or penalties arising from any violation of the laws of any country or political subdivision thereof, (ii) loss, damage, destruction, removal of any item of Equipment, death or injury to any person, including tort claims of any kind, whether based on fault or strict liability in tort (whether or not such loss, damage, death or injury is shown to be caused by any use or misuse of any item of Equipment), (iii) any liens or other claims required to be removed or released by Lessee pursuant to Section 12 hereof, (iv) latent or other defects, whether or not discoverable, and (v) any claim for patent, trademark or copyright infringement, provided, however, Lessee shall have no obligation to Lessor under this Section - -------- ------- 11 for any indemnification or hold harmless claim against Lessee which in any way relates to or arises out of the negligence or wilful misconduct of the Lessor. In case any action, suit or proceeding is brought against Lessor by reason of any of the foregoing, Lessee, at Lessee's expense, shall cause the claim upon which such action, suit or proceeding is based to be discharged, or shall resist and defend such action, suit or proceeding (or cause the same to be resisted or defended) by counsel designated by Lessee. If Lessor shall be made a party to any litigation commenced against Lessee, and Lessee, at its expense, shall fail to provide Lessor with counsel approved by Lessor, Lessee shall pay all costs and attorneys' fees and expenses incurred by Lessor in connection with such litigation. Notwithstanding any other provision hereof, Lessor shall not be required to take any action hereunder involving the expenditure of funds unless Lessee shall have provided Lessor with such funds as may reasonably be requested by Lessor in connection with such action to be taken by Lessor. Lessor agrees, at Lessee's expense, to cooperate and take such action as may be reasonably necessary to generally assist Lessee in the conduct of any litigation relating to this Lease and hereinbefore described in this Section 11. -7- The indemnification of Lessee under this Section 11 shall survive the payment of all obligations under, and the termination of, this Lease. 12. USE OF EQUIPMENT; LIENS - During the Lease Term, Lessee warrants and ------------------------ agrees that the Equipment will be used and operated under and in compliance with the laws of the jurisdictions in which the Equipment may be located and operated and in compliance with all lawful acts, rules, regulations and orders of any judicial, legislative or regulatory body having power to regulate or supervise the use of the Equipment. Lessee shall comply with and shall cause the Equipment to comply with all contracts (including insurance policies) agreements and restrictions applicable thereto or to the use or ownership thereof. Lessee shall use each item of Equipment and permit each item of Equipment to be used only for such purposes as such Equipment was designed and suited. During the Lease Term Lessee, will not directly or indirectly create, incur, assume or suffer to exist any mortgage, security interest, pledge, lien, charge, encumbrance or claim on or with respect to the Equipment, Lessor's title thereto, or any interest therein, except: (a) the respective rights of Lessor (and its assigns, if any) and Lessee as herein provided; (b) liens or encumbrances granted or placed thereon by Lessor (or its assigns, if any); (c) liens or encumbrances resulting from claims against Lessor but not against Lessee and unrelated to this Lease, and not resulting from any default, act or omission of Lessee; (d) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings; (e) inchoate materialmen's, mechanics', workmen's, repairmen's, employees' or other like liens arising in the ordinary course of business and not delinquent; and (f) liens arising out of judgments against Lessee with respect to which at the time of appeal or proceeding for review is being prosecuted in good faith and with respect to which there has been secured a stay of execution pending such appeal or proceeding for review; provided, -------- however, that the liens referred to in clauses (d) and (e) of this ------- Section 12 and this clause (f) may remain only so long as the existence thereof does not subject the Equipment in question to forfeiture, seizure, sale or foreclosure or otherwise adversely affect the rights of Lessor or its assigns. Lessee, at its own expense, will promptly take such action as may be necessary to keep the Equipment free and clear of, and to duly discharge, any such mortgage, security interest, pledge, lien, charge, encumbrance or claim not excepted above. Lessee agrees to procure and maintain in effect all licenses, certificates, permits and other approvals and consents required by federal, state, county, municipal or foreign laws and regulations in connection with Lessee's possession, use, operation and maintenance of the Equipment. Except as otherwise provided in Section 25 hereof, Lessee agrees that without -8- Lessor's prior written consent, which consent will not be unreasonably withheld, Lessee will not assign or transfer its rights under this Lease, or sublease any of the Equipment, or remove or suffer any of the Equipment to be removed from the location specified in the Rental Schedule for such Equipment, or permit any Equipment to be used by anyone other than Lessee, Lessee's employees, a representative of the manufacturer or an independent contractor engaged by Lessee. 13. EQUIPMENT MAINTENANCE, REPAIR, AND ADDITIONS (a) During the Lease Term -------------------------------------------- with respect thereto, Lessee, at Lessee's sole expense, will maintain the Equipment and each item thereof in good and efficient operating repair, appearance and condition except for ordinary wear and tear, and will make all ordinary and extraordinary adjustments, replacements and repairs which may be required to keep the Equipment and each item thereof in good and efficient operating repair and condition. All maintenance and repairs to the Equipment shall be made by the Manufacturer thereof or those of substantially equal skill or knowledge in maintaining and repairing the Equipment. (b) Upon request by Lessee, Lessor agrees to purchase or otherwise obtain for the Lessee additional items of equipment that are available for interface and connection with items of the Equipment and to lease the same to the Lessee for the remaining Lease Term, including renewal terms, upon the same terms and conditions as are herein specified, and the rentals for such additional items shall be negotiated in good faith between Lessor and Lessee. Notwithstanding the foregoing and provided that the value of the Equipment or any item thereof shall not be reduced thereby, Lessee shall have the right at any time to add or connect additional compatible equipment to the Equipment whether such compatible equipment is owned by Lessee or on rental with any third party. In each case, Lessee shall disconnect or detach such equipment upon the expiration or earlier termination of this Lease, or such equipment shall become the property of the Lessor. Lessee agrees to indemnify and hold Lessor harmless from any loss or damage caused to the Equipment by the connection to, or disconnection from, any compatible equipment. 14. LOSS, DAMAGE OR DESTRUCTION OF EQUIPMENT - Lessee shall bear all risks ---------------------------------------- of damage to, taking of, or loss or destruction of, any item of Equipment during the Lease Term thereof and until such Equipment has been returned to Lessor pursuant to the provisions of Sections 18 or 20, whichever is applicable. In the event that any item of Equipment shall become lost, stolen, destroyed or irreparably damaged from any cause whatsoever, or if any item of Equipment or Lessor's title thereto shall be requisitioned or seized by and governmental authority (each such occurrence being hereafter called a "Casualty Occurrence") during the Lease Term of such item until such item has been returned to Lessor in accordance with the provisions of Sections 18 or 20 hereof, whichever is applicable, Lessee shall promptly notify Lessor in writing of such fact, fully informing Lessor of all details with respect thereto, and shall at the option of Lessee: (a) within ten (10) days of such Casualty Occurrence inform Lessor by written notice of its intent to replace the item or items of Equipment suffering such Casualty Occurrence and with the written consent of Lessor, replace the same, as soon as practicable, with like property approved by the -9- Lessor with a market value and utility at least equal to that of the replaced Equipment prior to the Casualty Occurrence which property shall thereupon become the property of Lessor subject to this Lease for the then remaining Lease Term. In the event Lessee elects to replace the Equipment pursuant to this Section 14(a) and Lessor does not give its consent as provided for herein, Lessee agrees to promptly pay either the Stipulated Loss Value or Fair Market Value pursuant to the provisions of Section 14(b) hereof; or In the event Lessee elects, with the written concurrence of Lessor, to replace the Equipment pursuant to this Section 14(a), any insurance proceeds received as a result of the Casualty Occurrence in question shall be applied first in payment of any then due and unpaid obligation of Lessee to Lessor hereunder and secondly to reimburse Lessee for funds it has expended to replace the item of Equipment in question pursuant to this Section 14(a), provided that -------- ---- all remaining amounts, if any, shall be paid to Lessor. (b) pay Lessor in cash the greater of the Fair Market Value of the item of Equipment in question as of the date of the Casualty Occurrence or the "Stipulated Loss Value" as set forth in the Exhibit to the Rental Schedule pursuant to which such item of Equipment is leased hereunder. This payment shall be made on the next succeeding Payment Date following the Casualty Occurrence. Upon such payment and the payment of all other rent and all other amounts then due hereunder up to and including the Payment Date this Lease shall terminate with respect to the Equipment or part thereof so paid for and all Lessor's right and title to the Equipment shall pass to Lessee, "as is" and "where is" without warranty or recourse, as evidenced by a duly executed bill of sale naming Lessor as the seller and Lessee as the buyer. In the event a payment has been or is to be made by Lessee pursuant to Section 14(b) as the result of a Casualty Occurrence, any insurance proceeds received as a result of the Casualty Occurrence in question shall be applied first in payment of any then unpaid obligation of Lessee to Lessor hereunder and secondly in payment of Lessee's obligation to pay the greater of Stipulated Loss Value or Fair Market Value for such item if not already paid by Lessee to Lessor, or, if already paid by Lessee, to reimbursement to Lessee for its payment of Stipulated Loss Value or payment of Fair Market Value whichever is the case, provided that all remaining amounts, if any, shall be paid to Lessor. -------- ---- Nothing in this Section 14 shall in any way diminish Lessee's obligation to return the Equipment pursuant to Sections 18 or 20 hereof in the event the Lessee elects to replace the Equipment in question pursuant to clause (a) hereof. 15. TRANSFER - Lessor may at its sole discretion sell or transfer any of -------- the Equipment and/or this Lease to a partnership, trust or other person or entity subject to the rights of the Lessee or any assignee of Lessee under this Lease, provided, however, that Lessor agrees to pay any costs or expenses -------- ------- associated with such transfer. 16. REPORTS - On or before February 1 of each year of the Lease Term, ------- Lessee will cause to be furnished to Lessor, if requested, an accurate statement, as of the preceding calendar year: -10- (a) showing the amount, description and identifying numbers of all items of Equipment that may have suffered a Casualty Occurrence during the preceding calendar year, and such other information regarding the condition and state of repair of such items of Equipment as Lessor may reasonably request; (b) certifying that all items of Equipment have been marked as required by Section 9 hereof; and (c) certifying that all items of Equipment continue to remain located at the premises specified on the Rental Schedule therefor or at such location as has been approved in writing by the Lessor. Lessor shall have the right, upon reasonable notice to Lessee, to inspect the items of Equipment and Lessee's records with respect thereto at such times as shall be reasonably necessary to confirm to Lessor the existence and proper maintenance thereof during the continuance of the Lease. 17. INSURANCE - (a) Lessee will maintain, at its sole cost and expense, at --------- all times during the Lease Term of any Equipment, and until such Equipment has been returned to Lessor in accordance with the provisions of Sections 18 or 20, whichever is applicable, with reputable insurers acceptable to Lessor, such acceptance not to be unreasonably withheld, (A) insurance in an amount equal to the greater of Fair Market Value or Stipulated Loss Value, of each item of Equipment leased hereunder, insuring against loss and/or damage to such Equipment arising out of any risk covered by fire, windstorm, explosion, and extended coverage and against such other risks as are customarily insured against by companies owning property of a similar character and engaged in a business similar to that engaged in by Lessee, or, alternatively, Lessee shall have the right to self assume with respect to damages set forth in clause (A) hereof to the extent and in the amounts set forth in clause (A) hereof, and (B) comprehensive public liability and property damage insurance, insuring against liability for death, bodily injury and property damage resulting from ownership, maintenance, use or operation of the Equipment in the minimum amount of $5,000,000. All insurance policies shall (i) name Lessor (and also any assignee of Lessor, if requested by such assignee) as an additional insured, with losses under the physical loss and/or damage policies to be payable to Lessor and Lessee as their respective interests may appear, (ii) with respect to the physical loss and damage policies only, shall contain endorsements waiving any default in payment of premium or satisfaction of any other obligation of the Lessee as a condition to payment to Lessor as additional insured, and (iii) provide that the policies may only be materially altered or canceled by the insurer after thirty (30) days prior written notice to Lessor and to any assignee of Lessor. Lessee shall deliver to Lessor, prior to the Lease Commencement Date for any item of Equipment (or any such other time or times as Lessor may request) a certificate or other evidence of the maintenance of all such insurance satisfactory to Lessor, provided however, that Lessor shall be under no duty to examine such certificates or other evidence of insurance, or to advise Lessee in the event that its insurance is not in compliance with this Lease. The comprehensive physical loss or damage insurance policy or policies shall also provide that upon receipt by the insurer from Lessor of any written notice of the occurrence of an Event of Default hereunder, any proceeds payable by said insurer with respect to any loss or destruction of, or damage to, any Equipment, shall be payable solely to Lessor (and to any -11 - assignee of Lessor, if requested by such assignee) from the date of said insurer's receipt of such written notice, up to the date said insurer receives written notice from Lessor that said Event of Default is no longer continuing hereunder. On or prior to acceptance of any item of Equipment for lease hereunder, and thereafter not less than five (5) days prior to the expiration dates of the expiring policies required pursuant to this Section 17, Lessee shall deliver to each party hereto certificates of insurance issued by the insurers thereunder or by an insurance broker authorized to bind such insurers evidencing the insurance maintained pursuant to this Section 17; provided, -------- however, that if the delivery of any certificate is delayed, Lessee shall - ------- deliver the formal certificate upon receipt thereof. (b) In the event that Lessee shall fail to maintain insurance as herein provided, Lessor or its assignee may at its option, but without obligation, provide such insurance and, in such event, Lessee shall, upon demand from time to time, reimburse Lessor or its assignee for the cost thereof, together with interest on such cost computed at the Default Interest Rate per annum, computed from the date of payment of such cost to the date of reimbursement. Lessor or its assignee shall give Lessee prompt written notice of any such insurance. (c) If no Event of Default or no event which, but for the lapse of time or the giving of notice or both, would be an Event of Default, shall have occurred and be continuing, and if the Lessee shall have made payment to Lessor or its assignee of the Stipulated Loss Value for any item of Equipment, Lessee shall be entitled to receive any insurance proceeds or condemnation payments with respect to the related casualty occurrence up to an amount equal to such Stipulated Loss Value, and any balance of such proceeds or payments shall remain the property of Lessor and its successors and assigns. All casualty insurance proceeds in respect to any item of Equipment not suffering a casualty occurrence shall be paid to Lessee upon proof reasonably satisfactory to Lessor that any damage to such item of Equipment in respect to which such proceeds were paid has been fully repaired. (d) Nothing in this Section 17 shall be construed to prohibit Lessor or its assignee(s) from insuring at its own expense any item of Equipment or its interest therein, and any insurance so maintained shall not provide for or result in a reduction of the coverage or the amounts under any of the insurance required to be maintained by Lessee under this Section 17. 18. RETURN OF EQUIPMENT - Upon the expiration or earlier termination of ------------------- this Lease with respect to an item of Equipment, the Lessee, at its own risk and expense, shall return such item of Equipment to the Lessor, together with all license plates and all registration certificates, certificates of ownership, maintenance and repair records and similar documents in the Lessee's possession, at the place originally delivered hereunder, or such other places as the Lessor and Lessee may mutually agree, in the condition in which such item of Equipment is required to be maintained pursuant to Section 13 hereof and, with respect to any items of Equipment which are tractor or trailer units, at least meeting the following conditions: (a) All items of Equipment originally furnished with such item of Equipment, or the substantial equivalent thereof, shall be installed, intact and in the condition required by Section 13 hereof at the time of return; -12- (b) The power train including engine, transmission and driveline shall be in standard operating condition; (c) All components of any item of Equipment shall function in their original condition and appearance and as originally designed, reasonable wear and tear excepted; (d) Each item of Equipment shall comply with all applicable Department of Transportation and other federal rules and regulations and all rules and regulations of the jurisdiction in which such item of Equipment is returned; and (e) Each item of Equipment shall be free of any advertising and identification of Lessee. Lessee shall provide storage for each item of Equipment at such item of Equipment's redelivery location at Lessee's expense and risk for a period of ninety (90) days or until Lessor has sold or otherwise disposed of such item of Equipment, whichever shall first occur; provided Lessor has no right hereunder -------- to abandon any item of Equipment to Lessee. 19. LESSOR'S OWNERSHIP EQUIPMENT TO BE AND REMAIN PERSONAL PROPERTY - Lessee --------------------------------------------------------------- acknowledges and agrees that it has not, and by the execution of this Lease it does not have or obtain, and by payments and performance hereunder it does not and will not have or obtain, any title to the Equipment, nor any property right or interest, legal or equitable, therein, except its rights as Lessee hereunder and subject to the terms hereof. It is expressly understood that all of the Equipment shall be and remain personal property notwithstanding the manner in which the Equipment may be attached or affixed to realty, and that upon the expiration or other termination of the Lease Term of any Equipment, Lessee shall have the obligation, and Lessor shall have the right, to remove, or cause the removal of, such Equipment, from the premises whereon the same is then located, whether or not any such Equipment is affixed or attached to realty or to any building. There shall be no merger of this Lease or the leasehold hereby created with the fee interest in the any item of Equipment by reason of the fact that the same person acquires or holds, directly or indirectly, this Lease or the leasehold interest hereby created or any interest herein or in such leasehold interest as well as the fee interest any item of Equipment or any interest in such fee interest. If Lessee is unable to return, or is prevented from returning, any Equipment to Lessor upon the expiration or termination of the Lease Term hereof as required under Sections 18 or 20 hereof, for any reason whatsoever including, but not limited to, the assertion by any third party of any claim against such Equipment, or of any right with respect thereto, whether or not resulting from the manner in which such Equipment is affixed to or attached to, or installed on or in, the realty or any building(s) thereof, such Equipment shall, for all purposes of this Lease be deemed to have been subject of a Casualty Occurrence, and Lessee shall pay to Lessor the amounts provided in Section 14(b) hereof, with respect to such Equipment, at the time, in the manner, and with the consequences provided in such Section. 20. EVENTS OF DEFAULT - (a) If, during the continuance of this Lease, one or ----------------- more of the following events (hereinafter called "Events of Default") shall occur: -13- (1) default shall be made in the payment of any rent hereunder, or default shall be made in the payment of any obligation provided for in this Lease, and any such default shall continue for more than ten (10) days after the due date of such rent or obligation, provided that no Event of Default shall occur if the -------- ---- failure of the Lessor to receive the payment in question is not the result of any act or omission on the part of the Lessee and if payment is made to Lessor by Lessee no later than one (1) business day after Lessee has notice of such failure of Lessor to receive such payment; (2) Lessee shall default in the observance and/or performance of any other covenant, condition and agreement on the part of Lessee to be observed and/or performed under this Lease and such default shall continue for thirty (30) days after written notice from Lessor to Lessee specifying the default and demanding the same to be remedied, provided there shall be no event of default if Lessee is proceeding diligently to cure and if reasonable indemnification satisfactory to Lessor and its assignee is provided; (3) any material representation or warranty made by Lessee herein or in any document or certificate furnished to Lessor in connection herewith or pursuant hereto shall at any time prove to be incorrect when made in any material respect; (4) Lessee shall make or permit any unauthorized assignment or transfer of this Lease or of Lessee's rights and obligations hereunder, or Lessee shall make or permit any unauthorized sublease or transfer of any Equipment, or the possession of same; (5) Lessee shall make an assignment for the benefit of creditors, or cease doing business as a going concern, or become insolvent or bankrupt or admit in writing its inability to pay its debts as they mature, or consent to the appointment of a trustee or receiver, or a trustee or a receiver shall be appointed on decree or order of a court having jurisdiction in the premises, for Lessee or for a substantial part of Lessee's property without Lessee's consent and such decree or order shall continue undischarged and unstayed for a period of ninety (90) days, or bankruptcy, reorganization, insolvency, arrangement, or liquidation proceeding shall be instituted by or against Lessee, and if instituted against Lessee, a decree or order adjudicating Lessee a bankrupt shall continue undischarged and unstayed for a period of ninety (90) days; (6) if pursuant to the merger of Lessee into another corporation pursuant to which Lessee is not the surviving corporation, or the consolidation of Lessee with one or more other corporations and the sale or other disposition of all or substantially all the assets of Lessee to one or more other entities, the surviving entity or transferee of assets, as the case may be, shall not deliver to Lessor and to any assignee of Lessor's interest in this Lease an acknowledged instrument in recordable form, assuming all obligations covenants and responsibilities of Lessee hereunder and under any instrument executed by Lessee, and acknowledging the assignment of Lessor's interest this Lease as security for indebtedness; -14- (b) Then, in any such case, Lessor, at its option, may do any one or more of the following; (1) declare this Lease, with respect to the Rental Schedule in question, in default upon written notice (or telephonic notice promptly confirmed in writing) to Lessee, and proceed by appropriate court action or actions at law or in equity or in bankruptcy to enforce performance by Lessee of the covenants and terms of this Lease and/or to recover damages for the breach thereof; (2) terminate this Lease upon written notice (or telephonic notice promptly confirmed in writing) to Lessee; whereupon all right of Lessee to use the Equipment shall absolutely cease and terminate; (3) whether or not this Lease be terminated, repossess the Equipment, wherever found, with legal process, and for this purpose Lessor and/or its agents may enter upon any premises of or under the control or jurisdiction of Lessee or any agent of Lessee, and remove the Equipment therefrom; (4) with respect to any Equipment returned to or repossessed by Lessor, hold or use such Equipment for any purpose whatsoever, including selling the same at a private or public, cash or credit sale, or Lessor may re-lease such Equipment in all the foregoing events free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction; (5) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights set forth above in this Section 20 with respect to any item of Equipment, and upon written notice (or telephonic notice promptly confirmed in writing) to the Lessee specifying a payment date which shall be not earlier than ten days after the date of such notice, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent for such item of Equipment due after the payment date specified in such notice), any unpaid Basic Rent for such item of Equipment due for periods prior to the payment date specified in such notice plus whichever of the following amounts the Lessor, in its sole discretion, shall specify in such notice: (i) an amount equal to the excess, if any, of 115% of the Stipulated Loss Value for such item of Equipment computed as of the Basic Rent Payment Date next preceding the payment date specified in such notice or if such payment date occurs on a Basic Rent Payment Date, then computed as of such Basic Rent Payment Date, over the present value of the fair market rental value (determined as hereafter in this Section 20 provided) of such item of Equipment for the remainder of the Lease Term or renewal term, as the case may be, as of the payment date specified in such notice, such present value to be computed on the basis of 12% per annum rate of discount from the respective dates upon which such rent would be paid, or (ii) an amount equal to the excess, if any, of 115% of the Stipulated Loss Value for such item of Equipment as of the Basic Rent Payment Date next preceding the payment date specified in such notice or if such payment date occurs on a Basic Rent Payment Date, then computed as of such Basic Rent Payment Date, over the fair market sales value of such item of Equipment (determined as hereafter in this Section 20 provided) as of the payment date specified in such notice; -15- (6) whether or not any Equipment is returned to, or repossessed by Lessor, as aforesaid, Lessee shall also be liable for, and Lessor may forthwith recover from Lessee, all unpaid rent and other unpaid sums that accrued prior to the date of Lessee's default. In addition to the foregoing, Lessor may also recover from Lessee all costs and expenses arising out of Lessee's default, including without limitation expenses of repossession of the Equipment and the storage, repairs, reconditioning, sale and releasing thereof, reasonable attorneys' fees and fees of collection agencies, incurred by Lessor in exercising any of its rights or remedies hereunder; and (7) if Lessor shall have sold any item of Equipment pursuant to paragraph (4) above, Lessor, in lieu of exercising its rights under paragraph (5) above with respect to such item of Equipment may, if it shall so elect, demand that the Lessee pay to Lessor, and the Lessee shall pay to Lessor, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent for such item of Equipment due on Payment Dates subsequent to the Payment Date next preceding such sale), any unpaid Basic Rent for such item of Equipment due for periods up to and including the Payment Date next preceding the date such sale occurs plus the amount, if any, by which 115% of the Stipulated Loss Value of such item of Equipment computed as of the Payment Date next preceding the date of such sale or if such sale occurs on a Payment Date, then computed as of such Payment Date, exceeds the net proceeds of such sale. For the purposes of this Section 20, "fair market rental value" and "fair market sales value" shall be determined on the basis of an appraisal of The American Appraisal Company or a comparable independent appraiser chosen by the Lessor, and the cost of any such appraisal shall be borne by the Lessee. In the event that any court of competent jurisdiction determines that any provision of this Section 20 is invalid or unenforceable in whole or in part, such determination shall not prohibit Lessor from establishing damages it sustained as a result of any breach of this Lease in any action or proceeding in which Lessor seeks to recover such damages. Any repossession or resale of any Equipment shall not bar an action for damages for breach of this Lease, as hereinbefore provided, and the bringing of an action or the entry of judgment against Lessee shall not bar Lessor's right to repossess any or all Equipment. The remedies herein provided in favor of Lessor, shall not be deemed to be exclusive, but shall be cumulative and shall be in addition to all other remedies in Lessor's favor existing in law, in equity or bankruptcy. If an Event of Default has occurred hereunder, Lessee shall pay to Lessor, on demand, all expenses incurred by Lessor as a result thereof, including reasonable attorneys' fees and expenses. 21. ASSIGNMENT BY LESSOR; ESTOPPEL CERTIFICATES. - (a) Lessor may, at any ------------------------------------------- time and from time to time assign, in whole or in part, this Lease, any item of the Equipment, the Basic Rent, Additional Rent and other sums at any time due and to become due, or at any time owing or payable by the Lessee to Lessor under any of the provisions of this Lease without notice to or consent of Lessee. Lessee agrees that; if so requested, it will acknowledge such assignment in writing to such assignee. -16- (b) No such assignee shall be obligated to perform any duty, covenant or condition required to be performed by Lessor under any of the provisions of this Lease. Lessee, by its execution hereof, acknowledges and agree that notwithstanding any such assignment, each and every covenant, agreement, representation and warranty of Lessor under this Lease shall be and remain the sole liability of the Lessor and of every successor in interest of Lessor. Lessee further acknowledges and agrees that from and after the receipt by Lessee of written notice of such an assignment from Lessor, Lessee shall comply with the directions or demands given in writing by the assignee and the assignee shall have the right to exercise (either in its own name or in the name of the Lessor) such rights, privileges and remedies of Lessor provided in such assignments. Lessee shall not assert against the assignee any defense, counterclaims, set-off, abatement, reduction or recoupment that Lessee may have against Lessor. After any such assignment, this Lease may not be amended or modified without the prior written consent of any such assignee. Upon any assignment of this Lease or granting of any mortgage on or security interest in any of the Equipment, Lessee agrees to execute and Lessor or its assignee may record any instruments relating to such assignment, mortgage or security interest desired by the Lessor or assignee in accordance with the laws of the relevant jurisdiction(s) and the Lessee shall promptly submit on request such documents as may be requested by the Lessor or assignee in order to secure and complete any assignment, mortgage or security interest. (c) Lessee will, from time to time, upon request by Lessor, execute, acknowledge and deliver to Lessor a certificate signed by a responsible senior officer of Lessee stating that this Lease is unmodified and in full effect (or, if there have been modifications, that this Lease is in full effect as modified, and setting forth such modifications) and the dates to which Basic Rent, Additional Rent and other sums payable here under have been paid, and either stating that to the knowledge of the signer of such certificate no default exists hereunder or specifying each such default of which the signer has knowledge. Lessee acknowledges any such certificate may be relied upon by any existing or prospective assignee of Lessor's interest under this Lease or any purchaser of any item of the Equipment. 22. OPTION TO RENEW - (a) Upon the expiration of the Primary Term with --------------- respect to each Rental Schedule, provided that Lessee has paid all rentals and all other sums then due by Lessee to Lessor, or which would become due upon the request of Lessor, as required under the provisions of this Lease, and provided that no Event of Default, and no event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and then remains unremedied to Lessor's satisfaction, Lessee shall have the option, exercisable on at least 90 days prior written notice to Lessor to renew the Lease Term with respect to all, but not less than all (except for items that have been destroyed and for which Lessor has received payment of the Stipulated Loss Value with respect thereto) of the Equipment then subject to said Rental Schedule, either: (1) on a month-to-month renewal basis, terminable by either Lessor or Lessee upon thirty days written notice, at the same rate, terms and conditions as described herein for a term that in no event shall exceed one year; or -17- (2) up to three (3) successive additional terms (each of which being herein called a "Renewal Term") for one year each at a rental for each such Renewal Term at a rate that would be obtained in an arms-length transaction between an informed and willing prospective lessee and an informed and willing lessor under no compulsion to lease (said rate being herein called the "Fair Rental Rate"). (b) If, on or before a date 60 days prior to the expiration of the Primary Term or any Renewal Term with respect to each Rental Schedule for which notice of Renewal has been given, Lessor and Lessee are unable to agree upon a determination of the Fair Rental Rate for the Equipment, Lessee and Lessor shall have no obligation to renew this Lease. However, if Lessee wishes to proceed with its option, Lessee shall give written notice to Lessor to that effect and the Equipment shall be leased during the Renewal Term at the Fair Rental Rate determined in accordance with the procedure for Appraisal below provided that the total term of the Lease, including any Renewal Term(s) entered into pursuant to Section 22 hereof, shall not exceed 75% of the useful life of the item of Equipment in question. (c) "Appraisal" shall mean a procedure whereby two recognized independent equipment appraisers, one chosen by Lessee and one by Lessor shall mutually agree upon the amount in question. Lessor or Lessee, as the case may be, shall deliver a written notice to the other party appointing its appraiser within 15 business days after receipt from the other party of a notice appointing that party's appraiser. If within 15 days after appointment of the two appraisers as described above, the two appraisers are unable to agree upon the amount in question, a third recognized independent appraiser shall be chosen within five days thereafter by the mutual agreement of such first two appraisers, or if such first two appraisers fail to agree upon the appointment of a third appraiser, such appointment shall be made by an authorized representative of the American Arbitration Association, and the appraisal of the third appraiser so appointed and chosen shall be given within a period of ten (10) days after the selection of such third appraiser. The average of the three appraisals arrived at by said three appraisers shall be binding and conclusive on Lessor and Lessee. Lessor and Lessee shall pay the fees of the respective appraisers appointed by them and shall share equally the fees and expenses of the third appraiser, if any, and those of the American Arbitration Association, if applicable. (d) After a determination of the Fair Rental Rate of the Equipment has been made in accordance with the procedure described above, Lessee's exercise of its option shall be effective upon the expiration of the Primary Term of the Rental Schedule in question. 23. ADDITIONAL RIGHTS OF LESSOR. - No right or remedy hereunder shall be --------------------------- exclusive of any other right or remedy hereunder or now or hereafter existing. Failure to insist upon the strict performance of any provision hereof or to the exercise of any option, right, power or remedy contained herein shall not constitute a waiver or relinquishment thereof for the future. Receipt by Lessor of any Basic Rent, Additional Rent or other sum payable hereunder with knowledge of the breach of any provision hereof shall not constitute a waiver of such breach and no waiver by Lessor of any provision hereof shall be deemed to have been made unless made in writing. -18- Lessor shall be entitled to injunctive relief in case of the violation, or attempted or threatened violation, or any of the provisions hereof, or to a decree compelling performance of any of the provisions hereof or to any other remedy allowed to Lessor by law. 24. NET LEASE; NON-TERMINABILITY. - This Lease is a net lease and, except as ---------------------------- otherwise expressly provided herein, any present or future law to the contrary notwithstanding, shall not terminate, nor shall Lessee be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect to any Basic Rent, Additional Rent or other sum payable hereunder, nor shall the obligations of Lessee hereunder be affected, other than as expressly set forth in this Lease, by reason of any damage to or destruction of any item of the Equipment; any taking of any item of the Equipment by condemnation or otherwise; any prohibition, limitation, restriction or prevention of Lessee's use or enjoyment of any item of the Equipment; any other cause whether similar or dissimilar to the foregoing; or any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting Lessor or any assignee of Lessor in any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. The parties intend that the obligations of Lessee hereunder shall be separate and independent covenants and agreements and shall continue unaffected unless such obligations shall have been modified or terminated pursuant to a written amendment to this Lease. 25. LESSEE'S RIGHT TO SUBLEASE AND ASSIGN - Notwithstanding the provisions ------------------------------------- of Section 12 hereof and provided that no Event of Default has occurred and is continuing, Lessee shall have the right (a) to sublease the Equipment for a term or terms expiring no later than the day prior to the Termination Date of this Lease subject to the prior written approval of the Lessor, which approval shall not be unreasonably withheld, except that no such consent shall be required for any sublease to a parent, domestic subsidiary or sister corporation of or any other business entity affiliated with the Lessee, and (b) to assign this Lease, provided that Lessee shall remain liable for the full performance of all terms, - -------- ---- covenants and conditions of this Lease as a principal and not as a surety and that the Agreement dated as of February 15, 1984 by The Sherwin-Williams Company in favor of the Lessor relating to this Lease, attached hereto as Exhibit 2, remains in full force and effect with respect to the continuing obligations of Lessee and the obligations of such assignee of the Lessee, and further provided, ------- -------- that such assignee shall agree to be bound by all the terms and provisions hereof. No sublease or assignment of the Equipment by Lessee shall relieve Lessee of any of its obligations hereunder. 26. RECORDING, REGISTRATION AND FILING - Lessee shall, at its expense, --------- accomplish all recording, registrations and filings of this Lease and any mortgage, security interest, waiver, license, permit or certificate incident thereto, required by law or deemed reasonably necessary by Lessor to protect its interests in the Equipment, and shall furnish Lessor with satisfactory evidence of each such recording, registration and filing. Notwithstanding anything contained herein to the contrary, the cost of filing any mortgage or security interest intended for the protection of Lessor shall be borne solely by Lessor. -19- 27. INVESTMENT TAX CREDIT - Lessor agrees to pass to Lessee any Investment --------------------- Tax Credit. Lessor agrees that it will exercise the available election therefor in a proper and timely manner and then pass such Investment Tax Credit directly to Lessee. Lessor hereby acknowledges that all such available Investment Tax Credit shall be for Lessee's account 28. OPTION TO PURCHASE - (a) Upon the expiration of the Primary Term or any ------------------ Renewal Term with respect to each Rental Schedule, provided that Lessee has paid all rentals and all other sums then due by Lessee to Lessor, or which would become due upon request of Lessor, as required under the provisions of this Lease, and provided that no Event of Default, and no event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and then remains unremedied to Lessor's satisfaction, Lessee shall have the option, exercisable on at least 120 days prior written notice to Lessor to purchase the Equipment with respect to all, but not less than all (except for items that have been destroyed and for which Lessor has received payment of the Stipulated Loss Value with respect thereto) of the Equipment then subject to said Rental Schedule, at the then Fair Market Value, unless otherwise specified on the applicable Rental Schedule. (b) If, on or before a date 60 days prior to the expiration of the Primary Term or any Renewal Term with respect to each Rental Schedule, Lessor and Lessee are unable to agree upon a determination of the Fair Market Value for the Equipment, Lessee shall have no obligation to purchase the Equipment. However, if Lessee wishes to exercise its option at Fair Market Value it shall so notify Lessor in writing, and such value shall be determined in accordance with the procedure for Appraisal as set forth in Section 22 hereto. (c) After a determination of the Fair Market Value of the Equipment has been made in accordance with the procedure described above, Lessee shall purchase the Equipment by payment to Lessor of the Fair Market Value in cash upon the expiration of the term of the applicable Rental Schedule. Upon payment by Lessee to Lessor of the Fair Market Value, in cash, Lessor shall deliver to Lessee title to the Equipment evidenced by a valid bill of sale conveying title from Lessor to Lessee. 29. LESSEE'S RIGHT TO TERMINATE - Provided that no Event of Default has --------------------------- occurred and remains unremedied, and no event which with the giving of notice or lapse of time, or both would constitute an event of default: A. Lessee shall have the option to terminate prior to the expiration of the primary lease term provided that: (i) a minimum of sixteen (16) semiannual payments of Basic Rent shall have been made from the Commencement Date of the primary term, (ii) not less than 180 days prior notice to exercise the early termination option shall have been given in writing to Lessor, (iii) termination shall be effective on the date (the "Termination Date") which is the later of (a) the last day of the month following expiration of ninety-six (96) full months from the Commencement Date of the Primary Term or (b) the last day of the month following expiration of the 180 day notice period, or (c) the date of payment of the Termination Value provided that either (a) or (b) has been satisfied, and (iv) Lessee shall pay on or prior to the Termination Date an amount equal to the Termination Value (as hereinafter defined) and all other sums due Lessor under this Lease including all rents due and owing to the Lessor up to and including the Payment Date of the last Basic Rent immediately preceding the Termination Date. -20- B. During the period from receipt of notice to Lessor until the Termination Date, Lessor and Lessee shall each use its best efforts to obtain firm written offers for the re-lease of the Equipment, and each party shall submit to the other copies of all offers received. No offer shall be considered a Qualified Offer to re-lease unless (i) the offer and offeror have been approved in all respects by Lessor and by Lessor's assignee, (Lessor shall not unreasonably withhold its approval and will exercise its best efforts to ensure that Lessor's Assignee does not unreasonably withhold its approval), and (ii) the offer is received prior to the Termination Date and can be accepted on such date. If no Qualified Offer to re-lease has been received then the Lessee shall continue the Lease until expiration. The "Termination Value" referred to in this Section 29 shall be an amount equal to the product of the applicable percentage as set forth with respect to such Termination Date in Exhibit 1 to the applicable Rental Schedule multiplied by the Manufacturer's Invoice Cost of the Equipment subject to the notice of termination. The "Proceeds" referred to in this Section 29 shall be the net present value under a re-lease of the Equipment of all future rents from such re-lease discounted at the lowest interest rate committed in writing in a Qualified Offer. In calculating the Proceeds, only those non-terminable payments that accrue from the Termination Date to the end of the Primary Term or the end of the re-lease, whichever is earlier, shall be taken into account. Lessee shall upon the Effective Date of Termination pay to Lessor or its Assignee(s) in cash the amount equal to the Termination Value of the Equipment. Immediately following the receipt of this payment Lessor shall pay to Lessee in cash an amount equal to the lesser of the Termination Value or the Proceeds. When Lessor and its Assignee(s) have received all the sums due and payable hereunder, then Lessee shall receive from Lessor and its Assignee(s) a legally enforceable notice of termination of Lessee's rights and obligations under this Lease. Lessee shall also pay Lessor, on demand, all reasonable and necessary costs incurred by Lessor, if any, associated with (a) solicitation of offers to re- lease and (b) the remarketing, deinstallation, transportation (including transportation insurance), refurbishing and reinstallation of the Equipment. C. No assignee to whom this Lease has been assigned, whether as collateral security or otherwise, shall have no obligation to solicit offers for the re- lease of the Equipment pursuant to this early termination option. Notwithstanding the assignment of this Lease, this early termination option shall survive in favor of Lessee. Lessee agrees to look only to Lessor and not to any assignee of Lessor for the performance of any affirmative obligation hereunder. The Lessee shall not be relieved of any of its obligations under the Lease until the Termination Payment, as detailed on Exhibit 1, has been paid in full to Assignee. 30. QUIET ENJOYMENT - So long as no Event of Default has occurred and is --------------- continuing hereunder, Lessee shall have peaceful and quiet use and enjoyment of the Equipment against acts of Lessor or anyone claiming solely by, through, or under Lessor. -21- 31. NOTICES - Except as provided in Section 20 hereof, any notice required ------- or permitted to be given by either party hereto to the other shall be deemed to have been given five (5) days after it is deposited in the United States mail, registered, postage prepaid, addressed to either party at its address set forth herein, or to such other address as either party shall hereafter furnish to the other in writing. Notice shall be sent to parties at the following locations: 1. If to Lessee: Contract Transportation Systems Co. 1370 Ontario Street P.O. Box 856 Cleveland, OH 44101 with a copy to: The Sherwin-Williams Company 101 Prospect Avenue N.W. Cleveland, OH 44115 Attention: Treasurer 2. If to Lessor: AmTran Corporation One Liberty Square Boston, MA 02109 32. ENTIRE AGREEMENT, SEVERABILITY, EFFECT AND MODIFICATION OF LEASE - This ---------------------------------------------------------------- Lease constitutes the entire agreement between the parties with respect to the leasing of the Equipment. Any provision of this Lease which is prohibited or unenforceable in any jurisdiction, shall be, as to such jurisdiction, ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. No variation or modification of this Lease and no waiver of any of its provisions or conditions shall be valid unless in writing and signed by duly authorized representatives of Lessor and Lessee. 33. COUNTERSIGNATURE - This Lease is not binding until executed by both ---------------- parties. 34. GOVERNING LAW - Lessor and Lessee agree that this Lease shall be ------------- governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 35. LESSOR'S RIGHT TO PERFORM FOR LESSEE - If Lessee fails to duly and ------------------------------------ promptly perform any of its obligations under this Lease (except for the payment of rent) or falls to comply with any of the covenants or agreements contained herein, Lessor may itself perform such obligations or comply with such covenants or agreements, for the account of Lessee without thereby waiving any default, and any amount paid or expense (including reasonable attorneys' fees) reasonably incurred by Lessor in connection with such performance or compliance shall, together with interest thereon at the Default Interest Rate be payable by Lessee to Lessor on demand. -22- 36. AGREEMENT FOR LEASE ONLY - Lessor and Lessee agree that this Lease is ------------------------ and is intended to be a true lease (and not a lease intended as a security or a lease in the nature of a security interest) and further agree to treat this Lease as a true lease for all purposes, including without limitation, legal, tax, clerical and accounting. 37. FINANCIAL STATEMENTS - Lessee agrees to furnish, upon Lessor's request -------------------- such financial information concerning Lessee as Lessor or Lessor's assignee may reasonably require during the term of this Lease. 38. MISCELLANEOUS. The captions in this Master Lease and this Lease are for ------------- convenience of reference only and shall not define or limit the provisions hereof or thereof. The Master Lease and this Lease may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Master Lease and this Lease, it shall not be necessary to produce or account for more than one such counterpart. IN WITNESS WHEREOF, Lessor and Lessee, each pursuant to the due authority, have caused these presents to be signed in their respective names, by their duly authorized officers and their corporate seals, if applicable, to be hereunto affixed and duly attested, as of the date first above written. LESSOR: LESSEE: AMTRAN CORPORATION CONTRACT TRANSPORTATION SYSTEMS CO. By: /s/ Geoffrey A. MacDonald By: /s/ SIGNATURE APPEARS HERE __________________________ ___________________________ Tit1e: /s/ Vice President Title: Treasurer _______________________ ________________________ -23- EXHIBIT 1 RENTAL SCHEDULE ____ AND CERTIFICATE OF INSPECTION AND ACCEPTANCE RENTAL SCHEDULE ___ and CERTIFICATE OF INSPECTION AND ACCEPTANCE to Master Equipment Lease No. 84010HT151 dated as of January 4, 1984 (the "Lease") by and between the undersigned, the terms and conditions of which are hereby incorporated herein by reference. Lessee hereby (a) authorizes Lessor to order for lease to Lessee the equipment described herein (the "Equipment") and to insert hereon the Lease Commencement Date for such Equipment upon Lessee's acceptance of same for lease. (b) agrees to lease such Equipment upon Lessee's acceptance of same for lease, (b) agrees to lease such equipment from Lessor effective the Lease Commencement Date thereof and for the lease term specified below, and (c) agrees to pay Lessor the rent, in the amounts and at the times specified below, and (c) agrees to pay Lessor the rent, in the amounts and at the times specified below, for each item of Equipment. All of the terms used herein which are defined in the Lease shall have the same meaning as so defined.
Item Trailor Lessor's No. Serial No. Unit No. Year Make Model Cost - ---- -------------------- -------- ---- ---- ----- --------- Total Equipment Cost: (State) $ ----------------- GRAND TOTAL EQUIPMENT COST: $ LEASE TERM: Interim Term: Primary Term: Commencement Date: * Commencement Date: ---------- --------- Expiration Date: Expiration Date: ---------- ---------
*with respect to each Item of Equipment shall be the Acceptance Dates set forth above. PAYMENT DATES: The Interim Term rent payment is due and payable The remaining rentals commence and continue semi-annually in arrears through and including -24- BASIC RENT: Basic Rent Per Period: ----------- Basic Rent Per Day: ----------- NOTE 1: Basic Rent Per Day is applicable during the Interim Term and is payable on the first Payment Date. Note 2: Basic Rent Per Period and Basic Rent Per Day is computed by multiplying the Equipment Cost as set forth above by: Periodic Lease Rate Factor: ---------- Per Diem Lease Rate Factor: ---------- NOTE 3: Lease rates and rentals are based on an assumed debt rate of % and will be revised to reflect the actual debt rate. The undersigned, being a duly authorized representative of the Lessor and the Lessee hereby CERTIFY that the units of Equipment described above have been duly delivered to Lessee in good order and duly inspected and accepted by the Lessee as of the Acceptance Date reflected above on behalf of the Lessee as conforming in all respects with the requirements and provisions of the Lease. AMTRAN CORPORATION CONTRACT TRANSPORTATION SYSTEMS CO. - ------------------ ----------------------------------- LESSOR LESSEE By By ------------------------------- ---------------------------- Title Title ---------------------------- -------------------------- Date Date ----------------------------- -------------------------- EX-99.E 5 LEASE AGREEMENT WITH THE DENVER AND RIO GRANDE -25- ANNEX C - -------------------------------------------------------------------------------- [CS&M Ref. 4650-037] LEASE OF RAILROAD EQUIPMENT Dated as of January 1, 1979 between THE DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY and FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, as Trustee - -------------------------------------------------------------------------------- Filed and recorded with the Interstate Commerce Commission pursuant to 49 U.S.C. (S) 11303 on March 30, 1979, at 9:55 a.m., recordation number 10238-B. A Uniform Commercial Code financing statement was filed with the Office of the Secretary of State of Colorado at 1:41 p.m., on April 16, 1979, File No. 363588, listing the Lessee as Debtor, the Owner-Trustee as the Secured Party and the Agent as Assignee of the Secured Party and covering the Equipment listed herein. (This was a precautionary filing in the event the Lease might be determined to be a U.C.C. security agreement, contrary to the intent of the parties.)
Lease of Railroad Equipment Table of Contents Page ---- (S) 1. Net Lease............................................... L-1 (S) 2. Delivery and Acceptance of Units........................ L-2 (S) 3. Rentals................................................. L-3 (S) 4. Term of Lease........................................... L-4 (S) 5. Identification Marks.................................... L-4 (S) 6. Taxes................................................... L-5 (S) 7. Maintenance; Casualty Occurrences, Insurance............................................... L-8 (S) 8. Reports and Inspection.................................. L-11 (S) 9. Disclaimer of Warranties; Compliance with Laws and Rules; Indemnification.................... L-12 (S) 10. Default................................................. L-15 (S) 11. Return of Units upon Default............................ L-18 (S) 12. Assignment; Possession and Use.......................... L-20 (S) 13. Renewal Options and Right of First Refusal.............. L-22 (S) 14. Return of Units upon Expiration of Lease Term.............................................. L-24 (S) 15. Recording............................................... L-26 (S) 16. Interest on Overdue Rentals............................. L-26 (S) 17. Notices................................................. L-27 (S) 18. Severability; Effect and Modification of Lease.......... L-27
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Page ---- (S) 19. Execution............................................... L-27 (S) 20. Law Governing........................................... L-28 (S) 21. Definitions............................................. L-28 (S) 22. Concerning the Lessor................................... L-28
Schedule I--Schedule of Equipment Schedule 2--Casualty Values LEASE OF RAILROAD EQUIPMENT dated as of January 1, 1979, between THE DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY, a Delaware corporation (the "Lessee"), and FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, a national banking association, as Trustee (the "Lessor") under a Trust Agreement dated as of the date hereof (the "Trust Agreement") with George S. Eccles (the "Owner"). The Lessor is entering into a conditional sale agreement (the "Security Documentation") dated as of the date hereof with Whitehead & Kales Company (the "Builder") wherein the Builder has agreed to manufacture, sell and deliver to the Lessor the units of railroad equipment described in Schedule 1 hereto (the "Equipment"). The Builder is assigning its interests in the Security Documentation to United States Trust Company of New York, acting as agent (hereinafter, together with its successors and assigns, called the "Vendor") under a Participation Agreement dated as of the date hereof (the "Participation Agreement") with the Lessee and the parties named in Schedule A thereto. The Lessee desires to lease such number of units of the Equipment as are delivered and accepted and settled for under the Security Documentation (the "Units") at the rentals and for the terms and upon the conditions hereinafter provided. NOW, THEREFORE; in consideration of the premises and of the rentals to be paid and the covenants hereinafter mentioned to be kept and performed by the Lessee, the Lessor hereby leases the Units to the Lessee upon the following terms and conditions: (S) 1. Net Lease. This Lease is a net lease and the Lessee shall not --------- be entitled to any abatement of rent, reduction thereof or setoff against rent, including, but not limited to, abatements, reductions or setoffs due or alleged to be due by reason of any past, present or future claims of the Lessee against the Lessor under this Lease or under the Security Documentation, or against the Builder or the Vendor or otherwise; nor, except as otherwise expressly provided herein, shall this Lease terminate, or the respective obliga- L-2 tions of the Lessor or the Lessee be otherwise affected, by reason of any defect in or damage to or loss of possession or loss of use or destruction of all or any of the Units from whatsoever cause, any liens, encumbrances or rights of others with respect to any of the Units, the prohibition of or other restriction against the Lessee's use of all or any of the Units, the interference with such use by any person or entity, the invalidity or unenforceability or lack of due authorization of this Lease, any insolvency of or any bankruptcy, reorganization or similar proceeding against the Lessee, or for any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding, it being the intention of the parties hereto that the rents and other amounts payable by the Lessee hereunder shall continue to be payable in all events in the manner and at the times herein provided unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Lease. To the extent permitted by applicable law, the Lessee hereby waives any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender the lease of any of the Units except in accordance with the express terms hereof. Each rental or other payment made by the Lessee hereunder shall be final and the Lessee shall not seek to recover all or any part of such payment from the Lessor for any reason whatsoever. (S) 2. Delivery and Acceptance of Units. The Lessor hereby appoints -------------------------------- the Lessee its agent for inspection and acceptance of the Units pursuant to the Security Documentation. The Lessor will cause the Units to be delivered to the Lessee at the point within the United States of America at which the Units are delivered to the Lessor under the Security Documentation. Upon such delivery, the Lessee will cause an employee of the Lessee to inspect the same, and if such Unit is found to be acceptable, to accept delivery of such Unit and the Lessee shall execute and deliver to the Lessor a certificate of acceptance (the "Certificate of Acceptance") in accordance with the provisions of Article 3 of the Security Documentation, stating that such Unit has been inspected and accepted on behalf of the Lessee and the Lessor on the date of such Certificate of Acceptance and is marked in accordance with (S) 5 hereof, whereupon, except as provided in the next sentence hereof, such Unit shall be deemed to have been delivered to and accepted by the Lessee and shall be subject thereafter to all the terms and conditions of this Lease. The delivery, inspection and acceptance L-3 hereunder of any unit of Equipment excluded from the Security Documentation pursuant to the first paragraph of Article 4 thereof shall be null and void and ineffective to subject such unit to this Lease. (S) 3. Rentals. The Lessee agrees to pay to the Lessor as rental for ------- each Unit subject to this Lease one interim and 10 consecutive annual payments in arrears. The interim payment for each Unit subject to this Lease is payable on September 15, 1979, and shall be in an amount equal to the product of (a) the Purchase Price (as defined in the CSA) for such Unit multiplied by (b) the number of days elapsed from and including the date of delivery for such Unit under the CSA to but not including the interim payment date multiplied by (c) a fraction, the numerator of which shall be the greater of 9.6% or 125% of the interest rate charged by Citibank N.A., New York, on 90-day loans to prime commercial borrowers as of the Deposit Date and the denominator of which shall be 365. The annual payments are payable on September 15 in each year, commencing September 15, 1980, to and including September 15, 1989, as follows: the first five such payments shall be in an amount equal to 11.1949% of the Purchase Price of each such Unit then subject to this Lease; and the next five such payments shall each be in an amount equal to 13.6825% of the Purchase Price of each such Unit then subject to this Lease. The percentages set forth in the preceding sentence are based upon an assumed delivery and acceptance date on or before June 30, 1979, for all trilevel auto racks described on Schedule 1 hereto. In the event that the delivery and acceptance date for any of such trilevel auto racks shall occur after June 30, 1979, such percentages shall be adjusted by such amount as will cause the Lessor's net return over the term of this Lease to equal the net return that would have been available had such delivery and acceptance date occurred on or before June 30, 1979, and the parties hereto agree to execute such amendments and other documents as may be necessary to adjust such percentages and all other terms dependent upon the delivery and acceptance dates, including, without limitation, Casualty Values, in order to reflect any such occurrence of such delivery acceptance date. The Lessee shall pay as additional rental the following: (i) on the Cut-Off Date (as defined in Paragraph 8 of the Participation Agreement), an amount equal to any amounts payable by the Lessor pursuant to clause (a) of the final paragraph of Paragraph 8 of the Participation Agreement on such date plus an amount equal to any amounts payable by L-4 the Lessor pursuant to the first paragraph of Paragraph 8 of the Participation Agreement, and (ii) on September 15, 1979, an amount equal to any amount payable to the Lessor in respect of interim interest pursuant to clause (b) of the final paragraph of Paragraph 8 of the Participation Agreement. Notwithstanding any other provision hereof, to the extent that the Lessee shall be denied possession of a Unit or Units because of the occurrence of a default under the Security Documentation which is not an Event of Default (as such term is hereinafter defined) under this Lease, the Lessee shall have no further obligation to make any additional rental payments for such Unit or Units with regard to periods subsequent to its loss of possession of such Unit or Units. If any of the rental payment dates referred to above is not a business day the rental payment otherwise payable on such date shall be payable on the next succeeding business day. The term "business day" as used herein means a calendar day, excluding Saturdays, Sundays and any other day on which banking institutions in New York, New York, are authorized or obligated to remain closed. The Lessor irrevocably instructs the Lessee to make all the payments provided for in this Lease, including, but not limited to, the payments provided for in this (S) 3 and in (S) 7 hereof, at the principal office of the Vendor, for the account of the Lessor in care of the Vendor, with instructions to the Vendor first, to apply such payments to satisfy the obligations of the Lessor under the Security Documentation, and second, so long as no event of default or event which with the lapse of time and/or demand provided for in the Security Documentation could constitute an event of default under the Security Documentation shall have occurred and be continuing, to pay any balance promptly to the Lessor at such place as the Lessor shall specify in writing. The Lessee agrees to make each payment provided for herein as contemplated by this paragraph in Federal or other funds immediately available to the Vendor by 11:00 a.m., New York time, on the date such payment is due. (S) 4. Term of Lease. The term of this Lease as to each Unit shall ------------- begin on the date of delivery and acceptance of such Unit hereunder and, subject to the provisions of (S)(S) 7 and 10 hereof, shall terminate on the date on which the final payment of rent in respect thereof is due pursuant to (S) 3 hereof. The obligations of the Lessee hereunder (including, but not limited to, the obligations under (S)(S) 6, 7, 9 L-5 and 14 hereof) shall survive the expiration of the term of this Lease. Notwithstanding anything to the contrary contained herein, all rights and obligations of the Lessee under this Lease and in and to the Units are subject to the rights of the Vendor under the Security Documentation. If an event of default should occur under the Security Documentation, the Vendor may terminate this Lease (or rescind its termination), all as provided therein. (S) 5. Identification Marks. The Lessee (at its own expense) will --------------------- cause each Unit to be kept numbered with its identifying number set forth in Schedule 1 hereto, or in the case of any Unit not there listed, such identifying number as shall be set forth in any amendment or supplement hereto extending this Lease to cover such Unit, and will keep and maintain, plainly, distinctly, permanently and conspicuously marked on each side of each Unit, in letters not less than one inch in height, the words "Leased from First Security Bank of Utah, National Association, as Trustee, and Ownership subject to a Security Agreement filed with the Interstate Commerce Commission and a Security Interest under the Uniform Commercial Code", or other appropriate words designated by the Vendor, with appropriate changes thereof and additions thereto as from time to time may be required by law in order to protect the Lessor's and Vendor's title to and interest in such Unit and the rights of the Lessor under this Lease and of the rights of the Vendor under the Security Documentation. The Lessee will not place any such Unit in operation or exercise any control or dominion over the same until such words shall have been so marked and will replace promptly any such markings which may be removed, defaced or destroyed. The Lessee will not change the road number of any Unit unless and until (i) a statement of new number or numbers to be substituted therefor shall have been filed with the Vendor and the Lessor and duly filed, recorded and deposited by the Lessee in all public offices where this Lease and the Security Documentation shall have been filed, recorded and deposited and (ii) the Lessee shall have furnished the Vendor and the Lessor an opinion of counsel to such effect. The Units may be lettered with the names or initials or other insignia customarily used by the Lessee or its affiliates. Except as provided in the immediately preceding paragraph, the Lessee will not allow the name of any person, association or corporation to be placed on any Unit as a designation that might be interpreted as a claim of ownership. L-6 (S) 6. Taxes. All payments to be made by the Lessee hereunder will ------ be free of expense to the Lessor for collection or other charges and will be free of expense to the Lessor with respect to the amount of any local, state, Federal or foreign taxes (other than any United States Federal income tax payable by the Lessor in consequence of the receipt of payments provided for herein and, to the extent that the Lessor receives credit therefor against its United States Federal income tax liability, any foreign income tax, and other than the aggregate of all state or local taxes measured by net income based on such receipts, value added taxes in lieu of such net income taxes and any state franchise tax which is not based on or measured by net income up to the amount of any such taxes which would be payable to the state and city in which the Lessor has its principal place of business without apportionment to any other state, except any such tax which is in substitution for or relieves the Lessee from the payment of taxes which it would otherwise be obligated to pay or reimburse as herein provided) or license fees, ad valorem property taxes, taxes and charges (Federal, state and local), fines or penalties and interest (all such expenses, taxes, license fees, ad valorem property taxes, taxes and charges (Federal, state and local), fines and penalties and interest being hereinafter called impositions) hereafter levied or imposed upon or in connection with or measured with respect to this Lease or any sale, rental, use, payment, shipment, delivery or transfer of title under the terms hereof or the Security Documentation, all of which impositions the Lessee assumes and agrees to pay on demand in addition to the payments to be made by it provided for herein. The Lessee will also pay promptly all impositions which may be imposed upon any Unit or for the use or operation thereof or upon the earnings arising therefrom (except as provided above) or upon the Lessor by reason of its ownership thereof and will keep at all times all and every part of such Unit free and clear of all impositions which might in any way affect the title of the Lessor or the interest of the Lessor or result in a lien upon any such Unit; provided, -------- however, that the Lessee shall be under no obligation to pay any impositions of - ------- any kind so long as such imposition remains unpaid and Lessee is contesting in its own name and in good faith and by appropriate legal or administrative proceedings such impositions, or the Lessor is required to contest such impositions as provided in this S 6, and the nonpayment thereof does not, in the reasonable opinion of the Lessor, adversely affect the title, property or rights of the Lessor hereunder or the Lessor or the Vendor under the Security Documentation. The Lessee L-7 agrees to give the Lessor notice of such contest brought in Lessee's name within 30 days after institution thereof and the Lessor agrees to provide such information as may be reasonably requested by the Lessee in furtherance of such contest. If any impositions shall have been charged or levied against the Lessor directly and paid by the Lessor, the Lessee shall pay the Lessor on presentation of an invoice therefor if the Lessor shall have been legally liable with respect thereto (as evidenced by an opinion of counsel for the Lessor) or the Lessee shall have approved the payment thereof, and the Lessor agrees to give the Lessee written notice promptly after it first obtains knowledge of the making of such charge or levy, and agrees to take such other action as may reasonably be requested by the Lessee for the purpose of contesting payment or obtaining refund of all or a portion of such imposition, as hereinafter provided in this (S) 6. In the event that the Lessor shall become obligated to make any payment to the Builder or the Vendor or otherwise pursuant to any correlative provision of the Security Documentation not covered by the foregoing paragraph of this (S) 6, the Lessee shall pay such additional amounts (which shall also be deemed impositions hereunder) to the Lessor to fulfill completely its obligations pursuant to said provision; provided, however, that the Lessor shall ----------------- have contested (if required to do so under this (S) 6) such impositions in good faith and to the extent permitted under the Security Documentation. In the event any returns, statements or reports with respect to impositions involving any Unit are required to be made, the Lessee will make such returns, statements and reports in such manner as to show the interest of the Lessor and the Vendor in such Units, as shall be satisfactory to the Lessor and the Vendor or, where not so permitted, will notify the Lessor and the Vendor of such requirement and will prepare and deliver such reports to the Lessor and the Vendor within a reasonable period of time prior to the time such reports are to be filed in such manner as shall be satisfactory to the Lessor and the Vendor. In the event that, during the continuance of this Lease, the Lessee becomes liable for the payment or reimbursement of any imposition, pursuant to this (S) 6, such liability shall continue, notwithstanding the expiration of this Lease, until all such impositions are paid or reimbursed by the Lessee. L-8 In the event the Lessee may be prohibited by law or is impaired from contesting in its own name any imposition covered by this (S) 6 in respect of which the Lessee would otherwise be required to make payments to the Lessor pursuant hereto, the Lessor shall, upon request and at the expense of the Lessee, take all legal and other appropriate action reasonably requested by the Lessee to contest such imposition. The Lessor shall not be obligated to take any such legal or other appropriate action unless the Lessee shall first have indemnified the Lessor for all liabilities and expenses which may be entailed therein. Further, the Lessee shall indemnify and hold the Lessor harmless from and against any and all claims, costs, expenses, damages, losses and liabilities incurred in connection therewith as a result of, or incident to, any action taken by the Lessor or Lessee under this (S) 6. The Lessee shall be entitled to any refund received by the Lessor or the Lessee in respect of any imposition paid by the Lessee, provided no Event of Default (or other event which after notice or lapse of time or both would become an Event of Default) shall have occurred and be continuing. The Lessee shall, whenever reasonably requested by the Lessor, submit to the Lessor copies of returns, statements, reports, billings and remittances, or furnish other evidence satisfactory to the Lessor of the Lessee's performance of its duties under this (S) 6. The Lessee shall also furnish promptly upon request such data as the Lessor reasonably may require to permit the Lessor's compliance with the requirements of taxing jurisdictions. The amount which the Lessee shall be required to pay with respect to any imposition which is subject to indemnification under this (S) 6 shall be an amount sufficient to restore the Lessor to the same net after tax rate of return and after tax cash position, after considering the effect of such payment on its United States Federal income taxes and state and city income taxes or franchise taxes based on net income, that the Lessor would have been in had such imposition not been imposed. (S) 7. Maintenance; Casualty Occurrences; Insurance. The Lessee --------------------------------------------- agrees that, at Lessee's own cost and expense, it will be responsible for ordinary maintenance and repairs required to maintain and keep all of the Units which are subject to this Lease in good operating order, repair and condition and eligible for interchange service. In the event that any Unit shall be or become worn L-9 out lost, stolen, destroyed, or irreparably damaged, from any cause whatsoever, returned to the Builder pursuant to the patent indemnity provisions of the Security Documentation, or taken or requisitioned by condemnation or otherwise by the United States Government or any political subdivision thereof for a stated period which shall exceed the then remaining term of the Security Documentation or for an indefinite period, but only when such period shall exceed the term hereof, or by any other governmental entity resulting in loss of possession by the Lessee for a period of 90 consecutive days (such occurrences being hereinafter called Casualty Occurrences), prior to the return of such Unit in the manner set forth in (S) 14 hereof, the Lessee shall promptly and fully notify the Lessor and the Vendor with respect thereto. On the September 15 next succeeding such notice the Lessee shall pay to the Lessor an amount equal to the rental payment or payments, if any, in respect of such Unit due and payable on such date plus a sum equal to the Casualty Value (as hereinafter defined) of such Unit as of the date of such payment in accordance with the schedule referred to below. Upon the making of such payment by the Lessee in respect of any Unit, the rental for such Unit shall cease to accrue, the term of this Lease as to such Unit shall terminate and (except in the case of the loss, theft, complete destruction or return to the Builder of such Unit) the Lessor shall be entitled to recover possession of such Unit and the Lessee shall pay all costs of removal of such Unit and of freight to the place designated pursuant to (S) 14 hereof. The Casualty Value of each Unit as of the payment date on which payment is to be made as aforesaid shall be that percentage of the Purchase Price of such Unit as is set forth in Schedule 2 hereto opposite such date; provided, however, that if the Casualty Value for any Unit as of such payment - ----------------- date as determined pursuant to Schedule 2 reflects an amount representing investment credit recapture to the Owner that is greater or lesser than the actual amount of investment credit recapture incurred by the Owner as a result of the Casualty Occurrence to such Unit, the Casualty Value for such Unit as so determined shall be appropriately decreased or increased so as to reflect the actual amount of investment credit recapture incurred by the Owner as a result of the Casualty Occurrence to such Unit. Whenever any Unit shall suffer a Casualty Occurrence after termination of this Lease at the expiration of the original or extended term hereof and before such Unit shall have been returned in the manner provided in (S) 14 hereof, the L-10 Lessee shall promptly and fully notify the Lessor with respect thereto and pay to the Lessor an amount equal to the Casualty Value of such Unit, which shall be 20% of the Purchase Price of such Unit (unless such termination occurs after the term of this Lease has been extended pursuant to (S) 13 hereof, in which case the amount of such Casualty Value shall be as agreed upon between the Lessor and the Lessee at the time of such extension). Upon the making of any such payment by the Lessee in respect of any Unit (except in the case of the loss, theft or complete destruction of such Unit), the Lessor shall be entitled to recover possession of such Unit. The Lessor hereby irrevocably appoints the Lessee its agent to dispose of any Unit suffering a Casualty Occurrence or any component thereof, at the best price obtainable on an "as is, where is" basis. Provided that the Lessee has previously paid the Casualty Value to the Lessor, the Lessee shall be entitled to the proceeds of such sale to the extent they do not exceed the Casualty Value of such Unit, and shall pay any excess to the Lessor. In the event of the requisition for use (which is not a Casualty Occurrence) by the United States Government or any political subdivision thereof (hereinafter called the Government) of any Unit during the term of this Lease all of the Lessee's obligations under this Lease with respect to such Unit shall continue to the same extent as if such requisition had not occurred, except that if such Unit is returned by the Government at any time after the end of the term of this Lease, the Lessee shall be obligated to return such Unit to the Lessor pursuant to (S) 11 or 14 hereof, as the case may be, promptly upon such return by the Government rather than at the end of the term of this Lease, but the Lessee shall in all other respects comply with the provisions of said (S) 11 or 14, as the case may be, with respect to such Unit. All payments received by the Lessor or the Lessee from the Government for the use of such Unit during the term of this Lease shall be paid over to, or retained by, the Lessee provided no Event of Default (or other event which after notice or lapse of time or both would become an Event of Default) shall have occurred and be continuing; and all payments received by the Lessor or the Lessee from the Government for the use of such Unit after the term of this Lease, shall be paid over to, or retained by, the Lessor. Except as hereinabove in this (S) 7 provided, the Lessee shall not be released from its obligations hereunder in the event of, and shall bear the risk of, any Casualty L-1l Occurrence to any Unit from and after delivery and acceptance thereof by the Lessee hereunder. The Lessee will, at all times prior to the return of the Equipment to the Lessor, at its own expense, cause to be carried and maintained property insurance (which may be self-insurance to the extent hereinafter permitted) and public liability insurance in respect of the Units at the time subject hereto, in amounts (subject to customary deductibles) and against risks customarily insured against by railroad companies in respect of similar equipment, and, in any event, comparable in amounts and against risks customarily insured against by the Lessee in respect of similar equipment owned by it. If the Lessor shall receive any insurance proceeds or condemnation payments in respect of a Unit suffering a Casualty Occurrence, the Lessor shall, subject to the Lessee's having made payment of the Casualty Value in respect of such Unit, pay such proceeds or condemnation payments to the Lessee up to an amount equal to the Casualty Value with respect to a Unit paid by the Lessee and any balance of such proceeds or condemnation payments shall remain the property of the Lessor. Insurance proceeds received by the Lessor from the Lessee's insurance coverage in respect of any Unit not suffering a Casualty Occurrence shall be paid to the Lessee upon proof satisfactory to the Lessor that any damage to such Unit in respect of which such proceeds were paid has been fully repaired, but only to the extent of the Lessee's costs (including overhead and profit, if applicable) in effecting such repairs. Except as aforesaid, all such insurance proceeds shall be retained by the Lessor. (S) 8. Reports and Inspection. On or before April 30 in each year, ----------------------- commencing with the calendar year 1980, the Lessee will furnish to the Lessor and the Vendor (a) an accurate statement (i) setting forth as at the preceding December 31 the amount, description and numbers of all Units then leased hereunder and covered by the Security Documentation, the amount, description and numbers of all Units that have suffered a Casualty Occurrence during the preceding calendar year or are then undergoing repairs (other than running repairs) or then withdrawn from use pending such repairs (other than running repairs) and such other information regarding the condition and state of repair of the Units as the Lessor or the Vendor may reasonably request, (ii) stating that, in the case of all Units repainted or repaired during the period covered by such statement, the numbers and markings required by (S) 5 hereof and by the L-12 Security Documentation have been preserved or replaced and (iii) stating that the Lessee is in compliance with the insurance provisions of (S) 7 hereof and setting forth a description of the insurance, if any, in effect with respect to the Equipment pursuant to (S) 7 hereof and (b) a certification of insurance coverage from the Lessee's independent broker stating the amounts, if any, of such insurance in effect and the amount of deductible. The Lessor, at its sole cost and expense, shall have the right by its agents, to inspect the Units and the Lessee's records with respect thereto at such reasonable times as the Lessor may request during the continuance of this Lease. The Lessee shall promptly notify the Lessor and the Vendor of any material changes or any material proposed changes of which the Lessee has knowledge in its insurance coverage in effect with respect to the Equipment pursuant to (S) 7 hereof. The Lessee shall furnish to the Lessor the reports required to be furnished to the Lessor pursuant to Paragraph 10 of the Participation Agreement. (S) 9. Disclaimer of Warranties; Compliance with Laws and Rules; --------------------------------------------------------- Indemnification. THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS - ---------------- OR IMPLIED, AS TO THE DESIGN OR CONDITION OF, OR AS TO THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE UNITS DELIVERED TO THE LESSEE HEREUNDER, AND THE LESSOR MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS OF THE UNITS FOR ANY PARTICULAR PURPOSE OR AS TO TITLE TO THE UNITS OR ANY COMPONENT THEREOF, OR AS TO THE LESSEE'S RIGHT TO QUIET ENJOYMENT THEREOF (EXCEPT AS TO ACTS OF THE LESSOR), OR ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY UNIT, EITHER UPON DELIVERY THEREOF TO THE LESSEE OR OTHERWISE NOR SHALL THE LESSOR (EXCEPT AS TO VOLUNTARY ACTS OF LESSOR) BE RESPONSIBLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT), it being agreed that all such risks, as between the Lessor and the Lessee, are to be borne by the Lessee; but the Lessor hereby irrevocably appoints and constitutes the Lessee its agent and attorney-in-fact during the term of this Lease to assert and enforce from time to time, in the name of and for the account of the Lessor and/or the Lessee, as their interests may appear, at the Lessee's sole cost and expense, whatever claims and rights the Lessor may have against the Builder under the provisions of Item 2 of Annex A of the Security Documentation; provided, however, that if at any time an Event of -------- ------- Default shall have occurred and be continuing, the Lessor may assert and enforce, at the Lessee's sole cost and expense, such claims and rights. The Lessor shall have no responsibility L-13 or liability to the Lessee or any other person with respect to any of the following: (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Units or by any inadequacy thereof or deficiency or defect therein or by any other circumstances in connection therewith; (ii) the use, operation or performance of any Units or any risks relating thereto; or (iii) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Units. The Lessee's delivery of a Certificate of Acceptance shall be conclusive evidence as between the Lessee and the Lessor that the Units described therein are in all the foregoing respects satisfactory to the Lessee, and the Lessee will not assert any claim of any nature whatsoever against the Lessor based on any of the foregoing matters. The Lessee agrees, for the benefit of the Lessor and the Vendor, to comply in all respects (including without limitation, with respect to the use, maintenance and operation of each Unit) with all applicable laws of the jurisdictions in which its operations involving the Units may extend, with all lawful rules of the Department of Transportation, the Interstate Commerce Commission and any other legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Units and with all applicable interchange rules, to the extent that such laws and rules affect the title, operation or use of the Units, and in the event that, prior to the expiration of this Lease or any renewal thereof, such laws or rules require any alteration, replacement, addition or modification of or to any part on any Unit, the Lessee will conform therewith at its own expense; provided, however, that the Lessee -------- ------- may at its own expense, in good faith, contest the validity or application of any such law or rule in any reasonable manner which does not, in the reasonable opinion of the Lessor or the Vendor, adversely affect the property or rights of the Lessor or the Vendor under this Lease or under the Security Documentation. The Lessee, at its own cost and expense, may furnish other additions, modifications and improvements to the Units during the term of this Lease. Any additions, modifications and improvements made by the Lessee which are readily removable without causing material damage to the Units shall be owned by the Lessee and may be removed by the Lessee at any time during the term of this Lease or any renewal thereof and prior to the return thereof to the Lessor pursuant to (S) 11 or 14 hereof, except additions, modifications and improvements required to maintain each Unit's eligibility for interchange service or to comply with the provisions of the first para- L-14 graph of (S) 7 or the first sentence of this paragraph. Any additions, modifications and improvements made by the Lessee which are not so readily removable shall become the property of the Lessor. The Lessee agrees to indemnify, protect and hold harmless the Lessor (in both its individual and fiduciary capacities) and the Vendor from and against all losses, damages, injuries, liabilities, claims (including without limitation claims for strict liability in tort) and demands whatsoever, regardless of the cause thereof, and expenses in connection therewith, including, but not limited to, counsel fees and expenses, patent liabilities, penalties and interest, arising out of or as the result of the entering into or the performance of or the occurrence of a default, an event of default or an Event of Default under the Security Documentation, the Participation Agreement, this Lease, or any sub-lease entered into pursuant to (S) 12 hereunder, the ownership of any Unit, the ordering, acquisition, use, operation, condition, purchase, delivery, rejection, storage or return of any Unit or any accident in connection with the operation, use, condition, possession, storage or return of any Unit resulting in damage to property or injury or death to any person, except as otherwise provided in (S) 14 of this Lease, or the transfer of title to the Equipment by the Vendor pursuant to any provision of the Security Documentation. The indemnities arising under this paragraph shall continue in full force and effect with respect to all events, facts, conditions or other circumstances occurring or existing prior to the expiration or termination of the term of this Lease and return of the Units as provided in (S) 14 of this Lease; provided, however, that the Lessor shall not be indemnified by the Lessee -------- ------- for any event which would otherwise give rise to the foregoing indemnification, if such event is caused by the wilful misconduct or gross negligence of the Lessor, its officers, employees, representatives or agents; provided, further, -------- ------- that the foregoing indemnification shall not apply to any failure of payment of the principal of or interest on the Conditional Sale Indebtedness and shall not be deemed to operate as a guarantee of the residual value of any Unit. The amount the Lessee shall be required to pay with respect to any of its obligations under this paragraph shall include a payment to the indemnified party sufficient to restore such party to the same position, after considering the effect of such payment on its United States Federal income taxes and state and city income taxes or franchise taxes based on net income, that the indemnified party would have been in had the liability or expense indemnified against not been incurred. L-15 The Lessee further agrees to indemnify, protect and hold harmless the Vendor and the Builder as third party beneficiaries hereof from and against any and all liability, claims, costs, charges and expenses, including royalty payments and counsel fees, in any manner imposed upon or accruing against the Vendor or the Builder because of the use in or about the construction or operation of any of the Units of any article of material specified by the Lessee and not manufactured by the Builder or of any design, system, process, formula or combination specified by the Lessee and not developed or purported to be developed by the Builder which infringes or is claimed to infringe on any patent or other right. The Lessee will give notice to the Builder of any claim known to the Lessee from which liability may be charged against the Builder under the Security Documentation. The Lessee shall not be released from its obligations hereunder in the event of any damage to or the destruction or loss of any or all of the Units. The Lessee agrees to prepare and deliver to the Lessor within a reasonable time prior to the required date of filing (or, to the extent permissible, file on behalf of the Lessor) any and all reports (other than tax returns) to be filed by the Lessor with any Federal, state or other regulatory authority by reason of the ownership by the Lessor or the Vendor of the Units or the leasing thereof to the Lessee. (S) 10. Default. If, during the continuance of this Lease, one or more ------- of the following events (each such event being herein sometimes called an Event of Default) shall occur: (A) default shall be made in payment of any amount provided for in (S) 3 or (S) 7 of this Lease and such default shall continue for ten business days, or default shall be made in payment of any other amount provided for in this Lease and such default shall continue for ten business days after written notice from the Lessor or the Vendor to the Lessee specifying the default and demanding that the same be remedied; (B) the Lessee shall make or permit any unauthorized assignment or transfer of this Lease, or any interest herein, or of the right to possession of the Units, or any thereof and shall fail or refuse to cause such assignment or transfer to be canceled by agreement of all parties having any interest therein and to recover L-16 possession of such Units within 15 days after written notice from the Lessor to the Lessee demanding such cancelation and recovery of possession; (C) default shall be made in the observance or performance of any other of the covenants, conditions and agreements on the part of the Lessee contained herein or in the Participation Agreement, and such default shall continue for 30 days after written notice from the Lessor or the Vendor to the Lessee specifying the default and demanding that the same be remedied; (D) a petition for reorganization under Section 77 of the Bankruptcy Act, as now constituted or as said Section 77 may hereafter be amended or under any other provision of Title 11 of the United States Code, as now constituted or as hereafter amended, shall be filed by or against the Lessee and, unless such petition shall have been dismissed, nullified, stayed or otherwise rendered ineffective (but then only so long as such stay shall continue in force or such ineffectiveness shall continue), all the obligations of the Lessee under this Lease and the Consent (as defined in the Security Documentation) shall not have been and shall not continue to have been duly assumed in writing, pursuant to a court order or decree, by a trustee or trustees appointed (whether or not subject to ratification) in such proceedings in such manner that such obligations shall have the same status as obligations incurred by such trustee or trustees, within 30 days after such appointment, if any, or 60 days after such petition shall have been filed, whichever shall be earlier or by the trustee in such proceedings in accordance with the provisions of 11 U.S.C. (S) 1168, or any successor provision, as the same may hereinafter be amended; or (E) any other proceedings shall be commenced by or against the Lessee for any relief which includes, or might result in, any modification of the obligations of the Lessee hereunder, under any bankruptcy or insolvency laws, or laws relating to the relief of debtors, readjustments of indebtedness, reorganizations, arrangements, compositions or extensions (other than a law which does not permit any readjustments of the obligations of the Lessee hereunder or under the Consent), and, unless such proceedings shall have been dismissed, nullified, stayed or otherwise rendered ineffective (but then only so long as such stay shall continue in force or such ineffective- L-17 ness shall continue), all the obligations of the Lessee under this Lease and the Consent shall not have been and shall not continue to have been duly assumed in writing, pursuant to a court order or decree, by a trustee or trustees or receiver or receivers appointed (whether or not subject to ratification) for the Lessee or for the property of the Lessee in connection with any such proceedings in such manner that such obligations shall have the same status as obligations incurred by such a trustee or trustees or receiver or receivers, within 30 days after such appointment, if any, or 60 days after such proceedings shall have been commenced, whichever shall be earlier; then, in any such case, the Lessor, at its option, may: (a) proceed by appropriate court action or actions either at law or in equity, to enforce performance by the Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof; or (b) by notice in writing to the Lessee terminate this Lease, whereupon all rights of the Lessee to the use of the Units shall absolutely cease and terminate as though this Lease had never been made, but the Lessee shall remain liable as herein provided; and thereupon the Lessor may by its agents enter upon the premises of the Lessee or other premises where any of the Units may be and take possession of all or any of such Units and thenceforth hold, possess, sell, operate, lease to others and enjoy the same free from any right of the Lessee, or its successors or assigns, to use the Units for any purposes whatever and without any duty to account to the Lessee for such action or inaction or for any proceeds arising therefrom; but the Lessor shall, nevertheless, have a right to recover from the Lessee any and all amounts which under the terms of this Lease may be then due or which may have accrued to the date of such termination (computing the rental for any number of days less than a full rental period by multiplying the rental for such full rental period by a fraction of which the numerator is such number of days and the denominator is the total number of days in such full rental period) and also to recover forthwith from the Lessee as damages for loss of the bargain and not as a penalty, an amount equal to the excess, if any, of the Casualty Value as of the rental payment date on or next preceding the date of termination over the amount the Lessor reasonably L-18 estimates to be the sales value of such Unit at such time; provided, -------- however, that in the event the Lessor shall have sold any Unit, the Lessor, ------- in lieu of collecting any amounts payable to the Lessor by the Lessee pursuant to the preceding clause of this part (b) with respect to such Unit, may, if it shall so elect, demand that the Lessee pay the Lessor and the Lessee shall pay to the Lessor on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty, an amount equal to the excess, if any, of the Casualty Value for such Unit, as of the rental payment date on or next preceding the date of termination over the net proceeds of such sale; or (c) make the payment or perform or comply with any agreement, the nonpayment, nonperformance or noncompliance with which caused such Event of Default, and the amount of such payment and the amount of the reasonable expenses of Lessor incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest at the rate of 10.6% per annum, shall be payable by Lessee as additional rental hereunder upon demand by Lessor. In addition, the Lessee shall be liable, except as otherwise provided above, for any and all unpaid amounts due hereunder before, during or after the exercise of any of the foregoing remedies and for all reasonable attorneys' fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of the Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the return of any Unit. The remedies in this Lease provided in favor of the Lessor shall not be deemed exclusive, but shall be cumulative and may be exercised concurrently or consecutively, and shall be in addition to all other remedies in its favor existing at law or in equity. The Lessee hereby waives any mandatory requirements of law, now or hereafter in effect, which might limit or modify the remedies herein provided, to the extent that such waiver is not, at the time in question, prohibited by law. The Lessee hereby waives any and all existing or future claims to any offset against the rental payments due hereunder, and agrees to make such payments regardless of any offset or claim which may be asserted by the Lessee or on its behalf. L-19 The failure of the Lessor to exercise the rights granted it hereunder upon the occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies. (S) 11. Return of Units Upon Default. If this Lease shall terminate ----------------------------- pursuant to (S) 10 hereof, the Lessor may, upon such further notice, if any, as may be required for compliance with any mandatory legal requirements then in force and applicable to the action to be taken by the Lessor, take or cause to be taken by its agent or agents, immediate possession of each of the Units, or one or more of the Units and may remove the same from possession and use of the Lessee or any other person and for such purpose may enter upon the premises of the Lessee or any other premises where the Units may be located and may use and employ in connection with such removal any supplies, services and aids and any available trackage and other facilities or means of the Lessee, subject to all mandatory requirements of due process of law. If this Lease shall terminate pursuant to (S) 10 hereof, the Lessee shall forthwith deliver possession of the Units to the Lessor. Each Unit so delivered shall be in the same operating order, repair and condition as when originally delivered to the Lessee, ordinary wear and tear excepted. For the purpose of delivering possession of any Unit or Units to the Lessor as above required, the Lessee shall at its own cost, expense and risk: (a) forthwith and in the usual manner cause the Equipment to be moved to such point or points on the lines of the Lessee or any of its affiliates as the Lessor reasonably may designate; (b) if the Vendor shall so request cause the Equipment to be detached from each unit of railroad rolling stock to which it has been attached; at the option of the Vendor, permit the Vendor to store the Equipment on any of the lines or elsewhere on the premises of the Lessee, as the Vendor may reasonably designate (or if the storage of the Equipment on such lines or premises would materially impair the Lessee's ability to perform its obligations as a common carrier by rail, on such other lines or premises of Lessee as shall be satisfactory to the Vendor), at the risk of the Vendee without charge for rent or storage until the L-20 Equipment has been sold, leased or otherwise disposed of by the Vendor; and (c) transport the same to any place on the lines of railroad operated by the Lessee or any of its affiliates or to any connecting carrier for shipment, all as directed by the Lessor, but only in such manner as shall not materially impair the ability of the Lessee to perform its obligations as a common carrier by rail. The assembling, delivery, storage, insurance and transporting of the Units as hereinbefore provided shall be at the expense and risk of the Lessee and are of the essence of this Lease, and upon application to any court of equity having jurisdiction in the premises the Lessor shall be entitled to a decree against the Lessee requiring specific performance of the covenants of the Lessee so to assemble, deliver, store and transport the Units. During any storage period, the Lessee will, at its own cost and expense, maintain and keep the Equipment in good order and repair and will permit the Lessor or any person designated by it, including the authorized representative or representatives of any prospective purchaser, lessee or user of any such Unit, to inspect the same. As between the Lessor and the Lessee, all amounts earned in respect of the Units after the date of termination of this Lease shall belong to the Lessor and, if received by the Lessee, shall be promptly turned over to the Lessor. In the event any Unit is not assembled, delivered and stored, as hereinabove provided, within 60 days after such termination the Lessee shall, in addition, pay to the Lessor for each day thereafter an amount equal to the amount, if any, by which the product of (i) a fraction the numerator of which is 10.6% and the denominator of which is 360, and (ii) the Purchase Price of such Unit for each such day exceeds the actual earnings received by the Lessor on such Unit for each such day; such payment shall not affect the obligation of the Lessee to redeliver the Equipment pursuant to the first sentence of this paragraph. Without in any way limiting the obligation of the Lessee under the foregoing provisions of this (S) 11, the Lessee hereby irrevocably appoints the Lessor as the agent and attorney of the Lessee, with full power and authority, at any time while the Lessee is obligated to deliver possession of any Unit to the Lessor, to demand and take possession of such Unit in the name and on behalf of the Lessee from whomsoever shall be in possession of such Unit at the time. (S) 12. Assignment; Possession and Use. This Lease ------------------------------- L-21 shall be assignable in whole or in part by the Lessor without the consent of the Lessee, but the Lessee shall be under no obligation to any assignee of the Lessor except upon written notice of such assignment from the Lessor, provided that no assignment for other than security purposes shall be made without the consent of the Lessee, which consent shall not be unreasonably withheld. All the rights of the Lessor hereunder (including, but not limited to, the rights under (S)(S) 6, 7 and 10 and the rights to receive the rentals payable under this Lease) shall inure to the benefit of the Lessor's assigns. So long as the Lessee shall not be in default under this Lease and the Lessee shall have fully complied with the provisions of the fourth paragraph of this (S) 12 the Lessee shall be entitled to the possession and use of the Units and, without the Lessor's consent, to sublease the Units to, or to permit their use by, a user incorporated in the United States of America (or any State thereof or the District of Columbia), upon lines of railroad owned or operated by the Lessee or such user or by a railroad company or companies incorporated in the United States of America (or any State thereof or the District of Columbia), or over which the Lessee, such user, or such railroad company or companies have trackage rights or rights for operation of their trains, and upon the lines of railroad of connecting and other carriers in the usual interchange of traffic or in through or run-through service, but only upon and subject to all the terms and conditions of this Lease; provided, however, that the Lessor's consent, not -------- ------- to be unreasonably withheld, must be obtained for any sublease that is for a term or terms that aggregate more than six months in any one year; provided -------- further, however, that the Lessee shall not sublease or permit the sublease or - ------- ------- use of any Unit to service involving regular operation and maintenance outside the United States of America; and provided further, however, that any such -------- ------- ------- sublease or use shall be consistent with the provisions of Paragraph 12 of the Participation Agreement. No such assignment or sublease shall relieve the Lessee of its obligations hereunder which shall be and remain those of principal and not a surety. The Lessee will initially affix the Units to railroad flat cars furnished by Trailer Train Company. The Lessee will not install or affix the Units to any other railroad rolling stock (other than installation of individual Units on a temporary basis) unless the owner of such other rolling stock and all persons having a security interest therein shall have acknowledged that such owner or holder of a security interest L-22 shall not acquire any interest in, or rights with respect to, Units which may be installed on such railroad rolling stock. Any such sublease may provide that the subleasee, so long as it shall not be in default under such sublease, shall be entitled to the possession of the Units included in such sublease and the use thereof; provided, however, that -------- ------- every such sublease shall be subject to the rights and remedies of the Vendor under the Security Documentation and the Lessor under this Lease in respect of the Units covered by such sublease upon the occurrence of an Event of Default thereunder or hereunder. The Lessee, at its own expense, will as soon as possible cause to be duly discharged any lien, charge, security interest or other encumbrance (except any sublease as aforesaid and other than an encumbrance resulting from claims against the Lessor, the Vendee or the Vendor not related to the ownership or leasing of, or the security title of the Vendor to, the Units) which may at any time be imposed on or with respect to any Unit including any accession thereto or the interest of the Lessor, the Vendor or the Lessee therein; except that this covenant will not be breached by reason of liens for taxes, assessments or governmental charges or levies, in each case not due and delinquent or undetermined or inchoate materialmen's, mechanics', workmen's, repairmen's or other like liens arising in the ordinary course of business and, in each case, not delinquent; and, furthermore, the Lessee shall be under no obligation to discharge any such lien, charge, security interest or encumbrance so long as it is contesting the same in good faith and by appropriate legal proceedings and the failure to discharge the same does not, in the reasonable opinion of the Lessor and the Vendor, adversely affect the title, property or rights of the Lessor hereunder or the Vendor under the Security Documentation. Nothing in this (S) 12 shall be deemed to restrict the right of the Lessee to assign or transfer its leasehold interest under this Lease in the Units or possession of the Units to any railroad corporation incorporated under the laws of any state of the United States of America or the District of Columbia (which shall have duly assumed the obligations of the Lessee hereunder) into or with which the Lessee shall have become merged or consolidated or which shall have acquired or leased all or substantially all the lines of railroad of the Lessee; provided, however, that such assignee, lessee or transferee will -------- ------- not, upon the effectiveness of such merger, consolidation, lease or acquisition be in default under any provision of this Lease and that such acquisition or lease L-23 of railroad lines of the Lessee shall not alter in any way the Lessee's obligation to the Lessor and Vendor hereunder which shall be and remain those of a principal and not a surety. (S) 13. Renewal Options and Right of First Refusal. Provided that ------------------------------------------- this Lease has not been earlier terminated and the Lessee is not in default hereunder, the Lessee may by written notice delivered to the Lessor not less than six months prior to the end of the original term of this Lease elect to extend the term of this Lease in respect of all but not fewer than all of the Units then covered by this Lease, for a two-year period commencing on the scheduled expiration of the original term of this Lease. Thereafter the Lessee may, subject to the first proviso of this (S) 13, elect to extend the term of this Lease in respect of all but not fewer than all of the Units then covered by this Lease for three additional two-year periods upon written notice delivered to the Lessor not less than six months prior to the end of the preceding renewal period. Each of such extensions shall be on the same terms and conditions as are contained in this Lease, except as to the amount of rentals, which for the first of such renewal periods shall be in an amount equal to 6.2194% of the Purchase Price of each of the Units then subject to this Lease and for each of the three succeeding renewal periods shall be at a "Fair Market Rental" (as such term is defined in this (S) 13) payable annually in arrears, and except as to applicable Casualty Values, which shall be as agreed upon between the Lessor and the Lessee at the time of each of such extensions. If the Lessor elects to sell the Units to third parties effective upon the expiration of the original or any extended term of this Lease, or at any time within ninety days after such expiration, the Lessee shall have the right of first refusal to purchase such Units. The Owner shall, in a commercially reasonable manner, solicit offers to buy such Units (excepting additions, modifications and improvements which may be removed by the Lessee pursuant to (S) 9 hereof), and upon receipt thereof shall exhibit to the Lessee a true copy of the most favorable bona fide offer. The Lessee may by written notice delivered within 15 days of the receipt of said copy advise the Lessor and the Owner that the management of the Lessee intends to recommend to its Board of Directors that its right of first refusal be exercised, and, within a further period of 30 days following the giving of such written notice, the Lessee shall by written notice delivered to the Lessor and the Owner either exercise such right of first refusal or advise the Lessor and the Owner that the L-24 Board of Directors of the Lessee has determined that such right of first refusal should not be exercised. If such right of first refusal is exercised as aforesaid, the Lessee shall purchase such Units at the sale price and on the same terms set forth in such offer; provided that any such sale to a third party -------- shall be subject to the Lessee's right to continue to lease the Units pursuant to the terms hereof. Upon purchase of the Units by the Lessee, the Lessor shall upon request of the Lessee execute and deliver to the Lessee or to the Lessee's assignee or nominee, a bill of sale (without representations or warranties except that such Units are free and clear of all claims, liens, security interest and other encumbrances by or in favor of any person claiming by, through or under the Lessor) for such Units, and such other documents as may be required to release such Units, from the terms and scope of this Lease and to transfer title thereto to the Lessee or such assignee or nominee, in such forms as may reasonably be requested by the Lessee, all at the Lessee's expense. Fair Market Rental shall be determined on the basis of, and shall be equal in amount to, the rental which would obtain in an arm's-length transaction between an informed and willing lessee (other than a lessee currently in possession) and an informed and willing lessor under no compulsion to lease and, in such determination, costs of removal from the location of current use shall not be a deduction from such rental but there shall be excluded any rental value attributable to additions, modifications and improvements which the Lessee is entitled to remove pursuant to (S) 9 hereof; provided, however, that Fair Market -------- ------- Rental shall be determined as provided; in the preceding sentences on the basis of the term and other terms and conditions of the lease being considered. If, after 45 days from the giving of notice by the Lessee of the Lessee's election to extend the term of this Lease beyond the first renewal period, as provided in the first or second paragraph of this (S) 13, the Lessor and the Lessee are unable to agree upon a determination of Fair Market Rental, such rental shall be determined in accordance with the foregoing definition by the following procedure: If either party to such determination shall have given written notice to the other requesting determination of such value by this appraisal procedure, the parties shall consult for the purpose of appointing a qualified independent appraiser by mutual agreement. If no such appraiser is so appointed within 20 business days after such notice is L-25 given, each party shall appoint an independent appraiser within 25 business days after such notice is given, and the two appraisers so appointed shall within 35 business days after such notice is given appoint a third independent appraiser. If no such third appraiser is appointed within 35 business days after such notice is given, either party may apply, to make such appointment, to the American Arbitration Association, and both parties shall be bound by any appointment so made. Any appraiser or appraisers appointed pursuant to the foregoing procedure shall be instructed to determine the Fair Market Rental of the Units subject to the proposed extended term within 90 days after his or their appointment. If the parties shall have appointed a single appraiser or if either party shall have failed to appoint an appraiser, the determination of the single appraiser appointed shall be final. If three appraisers shall be appointed, the determination of the appraiser which differs most from the other two appraisers shall be excluded, the remaining two determinations shall be averaged and such latter average shall be final and binding upon the parties hereto. The appraisal proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association as in effect on the date hereof, except as modified hereby. The provision for this appraisal procedure shall be the exclusive means of determining Fair Market Rental and shall be in lieu of any judicial or other procedure for the determination thereof, and each party hereto hereby consents and agrees not to assert any judicial or other procedures. The expenses of the appraisal procedure shall be borne equally by the Lessee and the Lessor. (S) 14. Return of Units upon Expiration of Lease Term. As soon as ---------------------------------------------- practicable on or after the expiration of the original term or an extended term of this Lease with respect to any Unit which Lessee does not purchase or release pursuant to (S)13, the Lessee will, at its own cost and expense, at the request of the Lessor, deliver possession of such Unit to the Lessor at such point or points on its lines as the Lessee may reasonably designate, in such city on the lines of Lessee as Lessor may reasonably designate, or in the absence of Lessor's designation, in such city on the lines of Lessee as Lessee may designate, and permit the Lessor to store such Unit at such point or points on the Lessee's lines where storage facilities are available as it may select for a period not exceeding sixty days and transport the same, at any time within such sixty day period, to any reasonable place on the lines of railroad operated by the Lessee, or to any connecting carrier for shipment, all as directed by the L-26 Lessor, the movement and storage of such Units to be at the expense and risk of the Lessee. During any such storage period the Lessee will permit the Lessor or any person designated by it, including the authorized representative or representatives of any prospective purchaser, lessee or user of such Unit, to inspect the same; provided, however, that the Lessee shall not be liable, except -------- ------- in the case of negligence of the Lessee or of its employees or agents, for any injury to, or the death of, any person exercising, either on behalf of the Lessor or any prospective purchaser, lessee or user, the rights of inspection granted under this sentence. Each Unit returned to the Lessor pursuant to this (S) 14 shall (i) be in the same operating order, repair and condition as when originally delivered to the Lessee, ordinary wear and tear excepted, (ii) except for additions, modifications and improvements which the Lessee is entitled to remove under the provisions of (S) 9 of this Lease, meet all operating standards then in effect under the applicable rules of any governmental agency or other organization with jurisdiction, and (iii) if requested by the Lessor, be detached from each unit of railroad rolling stock to which it has been attached. The assembling, delivery, storage and transporting of the Units as hereinbefore provided are of the essence of this Lease, and upon application to any court of equity having jurisdiction in the premises, the Lessor shall be entitled to a decree against the Lessee requiring specific performance of the covenants of the Lessee so to assemble, deliver, store and transport the Units. All amounts earned in respect of the Units after the date of termination of this Lease shall belong to the Lessor and, if received by the Lessee, shall be promptly turned over to the Lessor. In the event any Unit is not assembled, delivered and stored, as hereinabove provided, within 60 days after such termination, the Lessee shall, in addition, pay to the Lessor for each day thereafter an amount equal to the amount, if any, by which the product of (i) a fraction the numerator of which is 10.6% and the denominator of which is 360, and (ii) the Purchase Price of such Unit for each such day, exceeds (iii) the actual earnings received by the Lessor on such Unit for each such day. (S) 15. Recording. The Lessee, at its own expense, will cause this ---------- Lease, the Security Documentation and any assignment hereof or thereof to be filed and recorded with the Interstate Commerce Commission in accordance with 49 U.S.C. S 11303(a). The Lessee, at its own expense, will further cause this Lease and/or appropriate financing statements or continuation statements to be filed and recorded, and from time to time when required refiled and rerecorded, L-27 in accordance with the applicable provisions of the Uniform Commercial Code of the States of Utah and Colorado (and, if the Lessee changes its chief place of business to a different state, in any such other state) and in any other state of the United States of America or the District of Columbia where filing is reasonably requested by the Lessor for the purpose of proper protection, to the satisfaction of counsel for the Lessor, of its interests and rights under this Agreement or for the purpose of carrying out the intention of this Agreement. The Lessee will undertake the filing, registering, deposit, and recording required of the Lessor under the Security Documentation and will from time to time do and perform any other act and will execute, acknowledge, deliver, file, register, record (and will refile, reregister, deposit and redeposit or rerecord whenever required) any and all further instruments required by law or reasonably requested by the Lessor or the Vendor for the purpose of proper protection, to their satisfaction, of the Vendor's and the Lessor's respective interests in the Units, or for the purpose of carrying out the intention of this Lease, the Security Documentation and the assignment thereof to the Vendor; and the Lessee will promptly furnish to the Vendor and the Lessor evidence of all such filing, registering, depositing or recording, and an opinion or opinions of counsel for the Lessee with respect thereto satisfactory to the Vendor and the Lessor. This Lease and the Security Documentation shall be filed and recorded with the Interstate Commerce Commission and under the Uniform Commercial Code of the State of Utah prior to the delivery and acceptance hereunder of any Unit. (S) 16. Interest on Overdue Rentals. Anything to the contrary herein ---------------------------- contained notwithstanding, any nonpayment of rentals and other obligations due hereunder shall result in the obligation on the part of the Lessee promptly to pay, to the extent legally enforceable, interest at a rate per annum equal to 10.6% on the overdue rentals and other obligations for the period of time during which they are overdue or such lesser amount as may be legally enforceable. (S) 17. Notices. Any notice required or permitted to be given by -------- either party hereto to the other shall be deemed to have been given when mailed, first class, postage prepaid, addressed as follows: (a) if to the Lessor, at 79 South Main Street, Salt Lake City, Utah 84125, Attention of Corporate Trust Division, Trust Department; with a copy to: Itel Corporation, Equipment Finance Division, One Embarcadero L-28 Center, San Francisco, California 94111, Attention of Financial Service Group, Contract Administration; and (b) if to the Lessee, at One Park Central, 1515 Arapahoe Street, Denver, Colorado 80217, Attention Manager of Equipment Planning; or addressed to either party at such other address as such party shall hereafter furnish to the other party in writing. Copies of each such notice shall be given to the Vendor at 130 John Street, New York, New York 10038, Attention of Corporate Trust and Agency Division. (S) 18. Severability; Effect and Modification of Lease. Any provision ----------------------------------------------- of this Lease which is prohibited or unenforceable in any jurisdiction, shall be, as to such jurisdiction, ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Except for the Participation Agreement and the Trust Agreement, this Lease exclusively and completely states the rights of the Lessor and the Lessee with respect to the leasing of the Units and supersedes all other agreements, oral or written, with respect thereto. No variation or modification of this Lease and no waiver of any of its provisions or conditions shall be valid unless in writing and signed by duly authorized signatories for the Lessor and the Lessee. (S) 19. Execution. This Lease may be executed in several counterparts, ---------- such counterparts together constituting but one and the same instrument, but the counterpart delivered to the Vendor pursuant to the assignment hereof to the Vendor shall be deemed to be the original and all other counterparts shall be deemed duplicates thereof. Although for convenience this Lease is dated as of the date first set forth above, the actual date or dates of execution hereof by the parties hereto is or are, respectively, the date or dates stated in the acknowledgments hereto annexed. (S) 20. Law Governing. The terms of this Lease and all rights and -------------- obligations hereunder shall be governed by the laws of the State of Colorado; provided, however, that the parties shall be entitled to all rights conferred by - -------- ------- 49 U.S.C. (S) 11303. L-29 (S) 21. Definitions. Whenever the term "Lessor" is used in this Lease, ------------ it shall also include the Owner and any assignee of the Owner and, where the context so requires (including but not limited to certain of the provisions of (S) 6 hereof), shall, except for purposes of any assignment of the "Lessor's" rights under this Lease, refer only to the Owner or such assignee of the Owner. (S) 22. Concerning the Lessor. Each and all of the warranties, --------------------- representations, undertakings and agreements herein made on the part of the Lessor are each and every one of them made and intended not as personal representations, undertakings and agreements by First Security Bank of Utah, National Association, or for the purpose or with the intention of binding said bank personally but are made and intended for the purpose of binding only the Trust Estate as such term is used in the Trust Agreement, and this Lease is executed and delivered by the said bank solely in the exercise of the powers expressly conferred upon said bank as trustee under the Trust Agreement, and no personal liability or personal responsibility is assumed by or shall at any time be asserted or enforceable against said bank, except for wilful misconduct or gross negligence, or against the Owner under the Trust Agreement (except under the last paragraph of Section 5.01 thereof) or on account of any representation, undertaking or agreement herein of the Lessor or the Owner, either expressed or implied, all such personal liability (except as aforesaid), if any, being expressly waived and released by the Lessee and by all persons claiming by, through or under the Lessee. IN WITNESS WHEREOF, the parties hereto have executed or caused this instrument to be executed as of the date first above written. THE DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY, by W. J. Holtman ----------------------------- Vice President [Corporate Seal] Attest: C. E. Schmeckpeper - ----------------------------- Secretary L-30 FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee, by William C. McGregor ----------------------------- Authorized Signatory [Seal] Attest: John R. Sager - ----------------------------- Authorized Signatory STATE OF COLORADO,) )ss.: COUNTY OF DENVER, ) On this 15th day of March 1979, before me personally appeared W. J. Holtman, to me personally known, who, being by me duly sworn, says that he is a President of THE DENVER AND RIO GRANDE WESTERN RAILROAD COMPANY, that one of the seals affixed to the foregoing instrument is the corporate seal of said Corporation, that said instrument was signed and sealed on behalf of said Corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said Corporation. Dale F. Machart ----------------------------- Notary Public [Notarial Seal] My Commission expires July 10, 1979 STATE OF UTAH, ) ) ss.: COUNTY OF SALT LAKE,) On this the 14th day of March 1979, before me personally appeared William C. McGregor, to me personally known, who being by me duly sworn, says that he is an Authorized Officer of First Security Bank of Utah, National Association, that one of the seals affixed to the foregoing instrument is the seal of said bank, that said instrument was signed and sealed on behalf of said bank by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said bank. Venna L. De Cora ----------------------------- Notary Public [Notarial Seal] My Commission expires November 15, 1981 SCHEDULE 1 TO LEASE
D+RGW I.D. Numbers Type Quantity (Inclusive) ---- -------- ----------- Fully-enclosed 36 207-242 trilevel auto racks Fully-enclosed 14 243-256 coverless trilevel auto racks Fully-enclosed 36 171-206 bilevel auto racks
SCHEDULE 2 TO LEASE CASUALTY VALUES
Casualty Payment Percentage of Dates Purchase Price - ---------------- -------------- September 15, 1979 103.4830 September 15, 1980 102.6252 September 15, 1981 100.3031 September 15, 1982 96.7315 September 15, 1983 92.0214 September 15, 1984 86.2911 September 15, 1985 77.4176 September 15, 1986 67.6956 September 15, 1987 57.2622 September 15, 1988 46.1350 September 15, 1989 and thereafter during storage 34.6653
CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979 - ---------------------------------------------------------- First Security Bank of Utah, N.A. 79 South Main Street Salt Lake City, Utah 84125 George S. Eccles In care of First Security Leasing Company 79 South Main Street Salt Lake City, Utah 84111 The Denver and Rio Grande Western Railroad Company One Park Central 1515 Arapahoe Street Denver, Colorado 80217 I, duly appointed and authorized representative for the Vendee and the Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated as of January 1, 1979, respectively, do hereby certify that I inspected and accepted delivery under the Conditional Sale Agreement and Lease of Equipment of the following Items of Equipment: TYPE OF EQUIPMENT: Enclosed Tri-Level Auto Rack DATE ACCEPTED: April 24, 1979 NUMBER OF UNITS: Twenty-Two (22) NUMBERED:
W&K TTX SERIAL NO. D+RGW NO. --- ---------- --------- ETTX 854117 66763/764 218 ETTX 854109 66761/762 217 ETTX 853781 66767/768 220 ETTX 854116 66765/766 219 ETTX 854087 66747/748 210 ETTX 854005 66755/756 214 ETTX 853785 66753/754 213 ETTX 854014 66741/742 207 ETTX 820880 66745/746 209 ETTX 854059 66743/744 208 ETTX 854056 66749/750 211 ETTX 853991 66751/752 212 ETTX 854071 66757/758 215 ETTX 854111 66759/760 216 ETTX 853782 66769/770 221 ETTX 853777 66771/772 222 ETTX 853776 66773/774 223 ETTX 854120 66775/776 224 ETTX 854010 66777/778 225 ETTX 853986 66779/780 226 ETTX 854039 66781/782 227 ETTX 854055 66783/784 228
I do further certify that the foregoing Items of Equipment are in good order and condition and appear to conform to the specifications, requirements and standards applicable thereto and to all applicable United States Department of Transportation and Interstate Commerce Commission requirements and specifications and to all applicable interchange requirements of the Association of American Railroads. I do further certify that each of the foregoing Items of Equipment has been marked by means of a stencil printed in contrasting colors upon each side of each Item of Equipment in letters not less than one inch in height as follows: "Leased from First Security Bank of Utah, National Association, as Trustee, and Ownership Subject to a Security Agreement filed with the Interstate Commerce Commission and a Security Interest under the Uniform Commercial Code." The execution of this Certificate will in no way relieve or decrease the responsibility of Lessee for any warranties it has made with respect to the Equipment. cc: Ms. Chris Collins /s/ G.L. Nicalin Corporate Trust and --------------------------------------- Agency Division Inspector and Authorized Representative United States Trust of First Security Bank of Utah, Company of New York National Association, as Vendee, 130 John Street and The Denver and Rio Grande New York, N. Y. 10038 Western Railroad Company, as Lessee CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979 - ---------------------------------------------------------- First Security Bank of Utah, N.A. 79 South Main Street Salt Lake City, Utah 84125 George S. Eccles In care of First Security Leasing Company 79 South Main Street Salt Lake City, Utah 84111 The Denver and Rio Grande Western Railroad Company One Park Central 1515 Arapahoe Street Denver, Colorado 80217 I, duly appointed and authorized representative for the Vendee and the Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated as of January 1, 1979, respectively, do hereby certify that I inspected and accepted delivery under the Conditional Sale Agreement and Lease of Equipment of the following Items of Equipment: TYPE OF EQUIPMENT: Enclosed Tri-Level Auto Rack DATE ACCEPTED: April 25, 1979 NUMBER OF UNITS: Fourteen (14) NUMBERED:
W&K TTX SERIAL NO. D&RGW NO. --- ---------- --------- ETTX 854073 66785/786 229 ETTX 854051 66787/788 230 ETTX 853995 66789/790 231 ETTX 854080 66791/792 232 ETTX 854098 66793/794 233 ETTX 854100 66795/796 234 ETTX 854097 66797/798 235 ETTX 854082 66799/800 236 ETTX 854065 66801/802 237 ETTX 854113 66803/804 238 ETTX 853988 66805/806 239 ETTX 853831 66807/808 240 ETTX 854094 66809/810 241 ETTX 854020 66811/812 242
I do further certify that the foregoing Items of Equipment are in good order and condition and appear to conform to the specifications, requirements and standards applicable thereto and to all applicable United States Department of Transportation and Interstate Commerce Commission requirements and specifications and to all applicable interchange requirements of the Association of American Railroads. I do further certify that each of the foregoing Items of Equipment has been marked by means of a stencil printed in contrasting colors upon each side of each Item of Equipment in letters not less than one inch in height as follows: "Leased from First Security Bank of Utah, National Association, as Trustee, and Ownership Subject to a Security Agreement filed with the Interstate Commerce Commission and a Security Interest under the Uniform Commercial Code." The execution of this Certificate will in no way relieve or decrease the responsibility of Lessee for any warranties it has made with respect to the Equipment. cc: Ms. Chris Collins /s/ G.L. Nicalin Corporate Trust and --------------------------------------- Agency Division Inspector and Authorized Representative United States Trust of First Security Bank of Utah, Company of New York National Association, as Vendee, 130 John Street and The Denver and Rio Grande New York, N. Y. 10038 Western Railroad Company, as Lessee CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979 - ---------------------------------------------------------- First Security Bank of Utah, N.A. 79 South Main Street Salt Lake City, Utah 84125 George S. Eccles In care of First Security Leasing Company 79 South Main Street Salt Lake City, Utah 84111 The Denver and Rio Grande Western Railroad Company One Park Central 1515 Arapahoe Street Denver, Colorado 80217 I, duly appointed and authorized representative for the Vendee and the Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated as of January 1, 1979, respectively, do hereby certify that I inspected and accepted delivery under the Conditional Sale Agreement and Lease of Equipment of the following Items of Equipment: TYPE OF EQUIPMENT: Enclosed Bi-Level Auto Rack DATE ACCEPTED: May 25, 1979 NUMBER OF UNITS: Twenty-one (21) NUMBERED:
W&K TTX SERIAL NO. D&RGW NO. --- ---------- --------- TTGX 911544 67257/258 182 TTGX 911534 67259/260 183 TTGX 910482 67261/262 184 TTGX 911538 67263/264 185 TTGX 912071 67265/266 186 TTGX 911513 67267/268 187 TTGX 912753 67269/270 188 TTGX 912072 67271/272 189 TTGX 911800 67273/274 190 TTGX 912426 67275/276 191 TTGX 911529 67277/278 171 TTGX 912788 67279/280 172 TTGX 911511 67281/282 173 TTGX 910979 67283/284 174 TTGX 911486 67285/286 175 TTGX 911662 67287/288 176 TTGX 912690 67289/290 177 TTGX 912765 67291/292 178 TTGX 912234 67293/294 179 TTGX 912240 67295/296 180 TTGX 911860 67297/298 181
I do further certify that the foregoing Items of Equipment are in good order and condition and appear to conform to the specifications, requirements and standards applicable thereto and to all applicable United States Department of Transportation and Interstate Commerce Commission requirements and specifications and to all applicable interchange requirements of the Association of American Railroads. I do further certify that each of the foregoing Items of Equipment has been marked by means of a stencil printed in contrasting colors upon each side of each Item of Equipment in letters not less than one inch in height as follows: "Leased from First Security Bank of Utah, National Association, as Trustee, and Ownership Subject to a Security Agreement filed with the Interstate Commerce Commission and a Security Interest under the Uniform Commercial Code." The execution of this Certificate will in no way relieve or decrease the responsibility of Lessee for any warranties it has made with respect to the Equipment. cc: Ms. Chris Collins /s/ G.L. Nicalin Corporate Trust and --------------------------------------- Agency Division Inspector and Authorized Representative United States Trust of First Security Bank of Utah, Company of New York National Association, as Vendee, 130 John Street and The Denver and Rio Grande New York, N. Y. 10038 Western Railroad Company, as Lessee CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979 - ---------------------------------------------------------- First Security Bank of Utah, N.A. 79 South Main Street Salt Lake City, Utah 84125 George S. Eccles In care of First Security Leasing Company 79 South Main Street Salt Lake City, Utah 84111 The Denver and Rio Grande Western Railroad Company One Park Central 1515 Arapahoe Street Denver, Colorado 80217 I, duly appointed and authorized representative for the Vendee and the Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated as of January 1, 1979, respectively, do hereby certify that I inspected and accepted delivery under the Conditional Sale Agreement and Lease of Equipment of the following Items of Equipment: TYPE OF EQUIPMENT: Enclosed Bi-Level Auto Rack DATE ACCEPTED: June 13, 1979 NUMBER OF UNITS: Fifteen (15) NUMBERED:
W&K TTX SERIAL NO. D&RGW NO. --- ---------- --------- TTGX 911516 67305/306 195 TTGX 911520 67307/308 196 TTGX 912078 67309/310 197 TTGX 912658 67311/312 198 TTGX 911524 67313/314 199 TTGX 911536 67315/316 200 TTGX 912556 67317/318 201 TTGX 911933 67303/304 194 TTGX 912065 67301/302 193 TTGX 912070 67299/300 192 TTGX 912102 67319/320 202 TTGX 911197 67321/322 203 TTGX 912760 67323/324 204 TTGX 913478 67325/326 205 TTGX 911861 67327/328 206
I do further certify that the foregoing Items of Equipment are in good order and condition and appear to conform to the specifications, requirements and standards applicable thereto and to all applicable United States Department of Transportation and Interstate Commerce Commission requirements and specifications and to all applicable interchange requirements of the Association of American Railroads. I do further certify that each of the foregoing Items of Equipment has been marked by means of a stencil printed in contrasting colors upon each side of each Item of Equipment in letters not less than one inch in height as follows: "Leased from First Security Bank of Utah, National Association, as Trustee, and Ownership Subject to a Security Agreement filed with the Interstate Commerce Commission and a Security Interest under the Uniform Commercial Code." The execution of this Certificate will in no way relieve or decrease the responsibility of Lessee for any warranties it has made with respect to the Equipment. cc: Ms. Chris Collins /s/ G.L. Nicalin Corporate Trust and --------------------------------------- Agency Division Inspector and Authorized Representative United States Trust of First Security Bank of Utah, Company of New York National Association, as Vendee, 130 John Street and The Denver and Rio Grande New York, N. Y. 10038 Western Railroad Company, as Lessee CERTIFICATE OF ACCEPTANCE UNDER CONDITIONAL SALE AGREEMENT AND LEASE OF EQUIPMENT, BOTH DATED AS OF JANUARY 1, 1979 - ---------------------------------------------------------- First Security Bank of Utah, N.A. 79 South Main Street Salt Lake City, Utah 84125 George S. Eccles In care of First Security Leasing Company 79 South Main Street Salt Lake City, Utah 84111 The Denver and Rio Grande Western Railroad Company One Park Central 1515 Arapahoe Street Denver, Colorado 80217 I, duly appointed and authorized representative for the Vendee and the Lessee under the Conditional Sale Agreement and Lease of Equipment, both dated as of January 1, 1979, respectively, do hereby certify that I inspected and accepted delivery under the Conditional Sale Agreement and Lease of Equipment of the following Items of Equipment: TYPE OF EQUIPMENT: Roofless Tri-Level Auto Rack DATE ACCEPTED: June 7, 1979 NUMBER OF UNITS: Fourteen (14) NUMBERED:
W&K TTX SERIAL NO. D&RGW NO. --- ---------- --------- CTTX 853863 67707/708 243 CTTX 853918 67725/726 244 CTTX 853914 67727/728 245 CTTX 853832 67711/712 246 CTTX 853912 67709/710 247 CTTX 853784 67729/730 248 CTTX 853870 67731/732 249 CTTX 853835 67733/734 250 CTTX 853916 67713/714 251 CTTX 853833 67715/716 252 CTTX 853915 67717/718 253 CTTX 854072 67719/720 254 CTTX 853741 67721/722 255 CTTX 853840 67723/724 256
I do further certify that the foregoing Items of Equipment are in good order and condition and appear to conform to the specifications, requirements and standards applicable thereto and to all applicable United States Department of Transportation and Interstate Commerce Commission requirements and specifications and to all applicable interchange requirements of the Association of American Railroads. I do further certify that each of the foregoing Items of Equipment has been marked by means of a stencil printed in contrasting colors upon each side of each Item of Equipment in letters not less than one inch in height as follows: "Leased from First Security Bank of Utah, National Association, as Trustee, and Ownership Subject to a Security Agreement filed with the Interstate Commerce Commission and a Security Interest under the Uniform Commercial Code." The execution of this Certificate will in no way relieve or decrease the responsibility of Lessee for any warranties it has made with respect to the Equipment. cc: Ms. Chris Collins /s/ G.L. Nicalin Corporate Trust and --------------------------------------- Agency Division Inspector and Authorized Representative United States Trust of First Security Bank of Utah, Company of New York National Association, as Vendee, 130 John Street and The Denver and Rio Grande New York, N. Y. 10038 Western Railroad Company, as Lessee BILL OF SALE ------------ WHITEHEAD & KALES COMPANY (hereinafter called the Builder), in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration paid by the United States Trust Company of New York (hereinafter called the Assignee), assignee under an Agreement and Assignment dated as of the 1st day of January 1, 1979, by and between the Builder and the Assignee, by which the Builder assigned to the Assignee certain rights of the Builder under a Conditional Sale Agreement dated as of the 1st day of January, 1979, by and between the Builder and First Security Bank of Utah, N.A., as trustee (hereinafter called the Vendee), at or before the execution and delivery of these presents, the receipt of which is hereby acknowledged, does hereby grant, bargain, sell, transfer and set over unto the Assignee, its successors and assigns, all of the Builder's right, title and interest (the same being a security interest) in and to the following items of Equipment which have been delivered by the Builder to the Vendee pursuant to said Conditional Sale Agreement:
QUANTITY DESCRIPTION BUILDER'S SERIAL NUMBERS - ----------------- ----------------------------------- ------------------------ THIRTY-SIX (36) Fully Enclosed Tri-Level Auto Racks (see attached Exhibit A)
TO HAVE AND TO HOLD the aforesaid security interest as to all and singular the railroad equipment above described to the Assignee, its successors and assigns, for its and their own use and behoof forever. And the Builder hereby warrants to the Assignee, its successors and assigns, and to the Vendee, that at the time of delivery of each of the above described items of Equipment to the Vendee under the above mentioned Conditional Sale Agreement, the Builder had legal title thereto and good and lawful right to sell such item, and the title to such item was free and clear of all claims, liens, and encumbrances of any nature except only the rights created under the said Conditional Sale Agreement; the aforesaid Agreement and Assignment; and the rights of the Lessee, Denver & Rio Grande Western Railroad Company, under the Lease of Railroad Equipment dated as of January 1, 1979, and the Builder covenants that it will warrant and defend such title against the demands of all persons whomsoever based on claims originating prior to the delivery of the Equipment by the Builder under said Conditional Sale Agreement. IN WITNESS WHEREOF the Builder has caused this instrument to be executed in its name by a duly authorized officer and its corporate seal to be hereunto affixed, duly attested, the 16th day of May, 1979. WHITEHEAD & KALES COMPANY ( S E A L ) By /s/ C.E. Wieser -------------------------------------- C. E. Wieser, Vice President-Finance ATTEST: /s/ G. Konchal - --------------------------------- G. Konchal, Treasurer THIS EXHIBIT A IS PART OF BILL OF SALE RE CLOSING ON THIRTY-SIX (36) FULLY ENCLOSED TRI-LEVEL AUTO RACKS FOR THE DENVER & RIO GRANDE WESTERN RAILROAD COMPANY. EXHIBIT "A"
Car Number Rack No. Serial No. Shipper Destination - ----------- -------- ---------- -------- ----------------- ETTX 854014 DRGW 207 66741-42 RD 12614 Lakewood, Georgia " 854059 " 208 66743-44 " " " " 820880 " 209 66745-46 " " " " 854087 " 210 66747-48 " " " " 854056 " 211 66749-50 " " " " 853991 " 212 66751-52 " " " " 853785 " 213 66753-54 " " " " 854005 " 214 66755-56 " " " " 854071 " 215 66757-58 RD 12615 " " " 854111 " 216 66759-60 " " " " 854109 " 217 66761-62 " " " " 854117 " 218 66763-64 " " " " 854116 " 219 66765-66 " " " " 853781 " 220 66767-68 " " " " 853782 " 221 66769-70 " " " " 853777 " 222 66771-72 RD 12616 Oklahoma City, Oklahoma " 853776 " 223 66773-74 " " " " 854120 " 224 66775-76 " " " " 854010 " 225 66777-78 " " " " 853986 " 226 66779-80 " " " " 854039 " 227 66781-82 " " " " 854055 " 228 66783-84 " " " " 854098 " 233 66793-94 RD 12626 " " " 854097 " 235 66797-98 " " " " 854082 " 236 66799-800 " " " " 854073 " 229 66785-86 RD 12634 " " " 854065 " 237 66801-02 RD 12641 " " " 854100 " 234 66795-96 " " " " 853831 " 240 66807-08 " " " " 854080 " 232 66791-92 " " " " 853995 " 231 66789-90 " " " " 854113 " 238 66803-04 " " " " 854051 " 230 66787-88 " " " " 854094 " 241 66809-10 RD 12644 " " " 853988 " 239 66805-06 RD 12655 " " " 854020 " 242 66811-12
INVOICE WHITEHEAD & KALES COMPANY No. 20047 58 HALTINER STREET RIVER ROUGE, MICHIGAN 48218 D.U.N.S 00-535-6258 PHONE:(313)849-1200 - ----------------------------------------------- YOUR ORDER NO. OUR ORDER NO. INVOICE DATE MAIL ALL REMITTANCES TO AB-75140-74101 4-30-79 ABOVE ADDRESS - --------------------------------------------------------- GAP INITIAL & NO. SHIPPED VIA F.O.B. TERMS PLEASE PAY FROM Various Rail Our Plant Net THIS INVOICE - --------------------------------------------------------- NO STATEMENT WILL BE ISSUED UNLESS REQUESTED United States Trust Company of New York, PAYABLE IN U.S. FUNDS SOLD as Agent and TO First Security Bank of Utah, N.A., as Owner-Trustee SHIPPED TO DESTINATION See Attached Exhibit "A" - -- SHIPPER'S NO Form 010279
- ----------------------------------------------------------------------------------------------------------------------------------- QTY. DESCRIPTION UNIT PRICE AMOUNT W & K USE ONLY - ----------------------------------------------------------------------------------------------------------------------------------- 36 Enclosed Tri-level Superstructures Mounted on 89' -4" Flat Car 20 Units G.M. Service 36,757.71 735,154,20 15 Units G.M. Service 37,035.51 555,532.65 1 Unit Chrysler Service 36,475.71 36,475.71 ------------- $1,327,162.56 Car Numbers, Serial Numbers and Rack Numbers See Attached Exhibit "A" THIS INVOICE IS HEREBY APPROVED BY: [SIGNATURE APPEARS HERE] ----------------------------------------------- Denver & Rio Grande Western Railroad, Lessee and BY: [SIGNATURE APPEARS HERE] ----------------------------------------------- First Security Bank of Utah, N.A.-Owner-Trustee No Michigan Sales Tax or Use Tax is included in this billing. We will issue additional billing for such tax if it is determined at any future date that the items herein are taxable. WHITEHEAD & KALES COMPANY - ----------------------------------------------------------------------------------------------------------------------------------- NOTICE* ACCOUNTS NOT PAID WHEN DUE BEAR THE INTEREST AT RATE OF 1% PER MONTH FROM DATE OF MATURITY WHICH IS AN ANNUAL RATE OF 12%. - -----------------------------------------------------------------------------------------------------------------------------------
TERMS OF SALE 1. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 2. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 3. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX NOTICE: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX EXHIBIT "A"
Car Number Rack No. Serial No. Shipper Destination - ----------- -------- ---------- -------- ----------------- ETTX 854014 DRGW 207 66741-42 RD 12614 Lakewood, Georgia " 854059 " 208 66743-44 " " " " 820880 " 209 66745-46 " " " " 854087 " 210 66747-48 " " " " 854056 " 211 66749-50 " " " " 853991 " 212 66751-52 " " " " 853785 " 213 66753-54 " " " " 854005 " 214 66755-56 " " " " 854071 " 215 66757-58 RD 12615 " " " 854111 " 216 66759-60 " " " " 854109 " 217 66761-62 " " " " 854117 " 218 66763-64 " " " " 854116 " 219 66765-66 " " " " 853781 " 220 66767-68 " " " " 853782 " 221 66769-70 " " " " 853777 " 222 66771-72 RD 12616 Oklahoma City, Oklahoma " 853776 " 223 66773-74 " " " " 854120 " 224 66775-76 " " " " 854010 " 225 66777-78 " " " " 853986 " 226 66779-80 " " " " 854039 " 227 66781-82 " " " " 854055 " 228 66783-84 " " " " 854098 " 233 66793-94 RD 12626 " " " 854097 " 235 66797-98 " " " " 854082 " 236 66799-800 " " " " 854073 " 229 66785-86 RD 12634 " " " 854065 " 237 66801-02 RD 12641 " " " 854100 " 234 66795-96 " " " " 853831 " 240 66807-08 " " " " 854080 " 232 66791-92 " " " " 853995 " 231 66789-90 " " " " 854113 " 238 66803-04 " " " " 854051 " 230 66787-88 " " " " 854094 " 241 66809-10 RD 12644 " " " 853988 " 239 66805-06 RD 12655 " " " 854020 " 242 66811-12
BILL OF SALE ------------ WHITEHEAD & KALES COMPANY (hereinafter called the Builder), in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration paid by the United States Trust Company of New York (hereinafter called the Assignee), assignee under an Agreement and Assignment dated as of the 1st day of January 1, 1979, by and between the Builder and the Assignee, by which the Builder assigned to the Assignee certain rights of the Builder under a Conditional Sale Agreement dated as of the 1st day of January, 1979, by and between the Builder and First Security Bank of Utah, N.A., as trustee (hereinafter called the Vendee), at or before the execution and delivery of these presents, the receipt of which is hereby acknowledged, does hereby grant, bargain, sell, transfer and set over unto the Assignee, its successors and assigns, all of the Builder's right, title and interest (the same being a security interest) in and to the following items of Equipment which have been delivered by the Builder to the Vendee pursuant to said Conditional Sale Agreement:
QUANTITY DESCRIPTION BUILDER'S SERIAL NUMBERS - ----------------- ----------------------------------- ------------------------ FIFTEEN (15) FULLY ENCLOSED BI-LEVEL AUTO RACKS SEE INVOICE
TO HAVE AND TO HOLD the aforesaid security interest as to all and singular the railroad equipment above described to the Assignee, its successors and assigns, for its and their own use and behoof forever. And the Builder hereby warrants to the Assignee, its successors and assigns, and to the Vendee, that at the time of delivery of each of the above described items of Equipment to the Vendee under the above mentioned Conditional Sale Agreement, the Builder had legal title thereto and good and lawful right to sell such item, and the title to such item was free and clear of all claims, liens, and encumbrances of any nature except only the rights created under the said Conditional Sale Agreement; the aforesaid Agreement and Assignment; and the rights of the Lessee, Denver & Rio Grande Western Railroad Company, under the Lease of Railroad Equipment dated as of January 1, 1979, and the Builder covenants that it will warrant and defend such title against the demands of all persons whomsoever based on claims originating prior to the delivery of the Equipment by the Builder under said Conditional Sale Agreement. IN WITNESS WHEREOF the Builder has caused this instrument to be executed in its name by a duly authorized officer and its corporate seal to be hereunto affixed, duly attested, the 22nd day of June, 1979. WHITEHEAD & KALES COMPANY ( S E A L) By /s/ C. E. Wieser -------------------------------------- C. E. Wieser, Vice President-Finance ATTEST: /s/ G. Konchal - ------------------------------ G. Konchal, Treasurer INVOICE WHITEHEAD & KALES COMPANY No. 20251 58 HALTINER STREET RIVER ROUGE, MICHIGAN 48218 D.U.N.S 00-535-5258 PHONE:(313)849-1200 R 20578 - ----------------------------------------------- YOUR ORDER NO. OUR ORDER NO. INVOICE DATE MAIL ALL REMITTANCES TO 2488-W-SAS AB 75143-74103 6-19-79 ABOVE ADDRESS - --------------------------------------------------------- CAP INITIAL & NO. SHIPPED VIA F.O.B. TERMS PLEASE PAY FROM N&W Our Plant Net THIS INVOICE - --------------------------------------------------------- NO STATEMENT WILL BE ISSUED UNLESS REQUESTED United States Trust Company of New York, PAYABLE IN U.S. FUNDS SOLD as Agent and TO First Security Bank of Utah, N.A., as Owner-Trustee SHIPPED TO Agent of Consolidated Rail Corporation DESTINATION Lorain, Ohio - -- SHIPPER'S NO Form 010279
- ----------------------------------------------------------------------------------------------------------------------------------- QTY. DESCRIPTION UNIT PRICE AMOUNT W & K USE ONLY - ----------------------------------------------------------------------------------------------------------------------------------- 15 Fully Enclosed Bi-Level Auto-Racks 30534.22 $458,013.30 Car Number Rack No. Serial No. Shipper ----------- -------- ---------- -------- TTGX 912070 DRGW 192 67299-300 RD 12925 " 911933 " 194 67303-04 RD 12951 " 911516 " 195 67305-06 " " 912065 " 193 67301-02 " " 911520 " 196 67307-08 RD 12961 " 911536 " 200 67315-16 " " 911861 " 206 67327-28 RD 12968 " 911197 " 203 67313-14 RD 12978 " 913478 " 205 67325-26 " " 911524 " 199 67321-22 " " 912760 " 204 67323-24 RD 12993 " 912102 " 202 67319-20 RD 13002 " 912658 " 198 67311-12 " " 912078 " 197 67309-10 " " 912556 " 201 67317-18 RD 13017 THIS INVOICE IS HEREBY APPROVED By: [SIGNATURE APPEARS HERE] -------------------------------------------- Denver & Rio Grande Western Railroad, Lessee and By: [SIGNATURE APPEARS HERE] ------------------------------------------------ No Michigan Sales Tax or Use Tax is included in this First Security Bank of Utah, N.A., Owner-Trustee billing. We will issue additional billing for such tax if it is determined at any future date that the items herein are taxable. WHITEHEAD & KALES COMPANY - ------------------------------------------------------------------------------------------------------------------------------------ NOTICE* ACCOUNTS NOT PAID WHEN DUE BEAR THE INTEREST AT RATE OF 1% PER MONTH FROM DATE OF MATURITY WHICH IS AN ANNUAL RATE OF 12% - ------------------------------------------------------------------------------------------------------------------------------------
TERMS OF SALE 1. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 2. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 3. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX NOTICE: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX BILL OF SALE ------------ WHITEHEAD & KALES COMPANY (hereinafter called the Builder), in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration paid by the United States Trust Company of New York (hereinafter called the Assignee), assignee under an Agreement and Assignment dated as of the 1st day of January 1, 1979, by and between the Builder and the Assignee, by which the Builder assigned to the Assignee certain rights of the Builder under a Conditional Sale Agreement dated as of the 1st day of January, 1979, by and between the Builder and First Security Bank of Utah, N.A., as trustee (hereinafter called the Vendee), at or before the execution and delivery of these presents, the receipt of which is hereby acknowledged, does hereby grant, bargain, sell, transfer and set over unto the Assignee, its successors and assigns, all of the Builder's right, title and interest (the same being a security interest) in and to the following items of Equipment which have been delivered by the Builder to the Vendee pursuant to said Conditional Sale Agreement:
QUANTITY DESCRIPTION BUILDER'S SERIAL NUMBERS - ----------------- ----------------------------------- ------------------------ FOURTEEN (14) FULLY ENCLOSED COVERLESS TRI-LEVEL AUTO RACKS (RAILPACS) SEE ATTACHED EXHIBIT "A" TWENTY-ONE (21) FULLY ENCLOSED BI-LEVEL AUTO RACKS
TO HAVE AND TO HOLD the aforesaid security interest as to all and singular the railroad equipment above described to the Assignee, its successors and assigns, for its and their own use and behoof forever. And the Builder hereby warrants to the Assignee, its successors and assigns, and to the Vendee, that at the time of delivery of each of the above described items of Equipment to the Vendee under the above mentioned Conditional Sale Agreement, the Builder had legal title thereto and good and lawful right to sell such item, and the title to such item was free and clear of all claims, liens, and encumbrances of any nature except only the rights created under the said Conditional Sale Agreement; the aforesaid Agreement and Assignment; and the rights of the Lessee, Denver & Rio Grande Western Railroad Company, under the Lease of Railroad Equipment dated as of January 1, 1979, and the Builder covenants that it will warrant and defend such title against the demands of all persons whomsoever based on claims originating prior to the delivery of the Equipment by the Builder under said Conditional Sale Agreement. IN WITNESS WHEREOF the Builder has caused this instrument to be executed in its name by a duly authorized officer and its corporate seal to be hereunto affixed, duly attested, the 22nd day of June, 1979. WHITEHEAD & KALES COMPANY ( S E A L) By /s/ C. E. Wieser, -------------------------------------- C. E. Wieser, Vice President-Finance ATTEST : /s/ G. Konchal - ------------------------------ G. Konchal, Treasurer THIS EXHIBIT "A" IS PART OF BILL OF SALE COVERING PURCHASE BY DENVER RIO GRANDE WESTERN RAILROAD (LESSEE) OF FOURTEEN (14) FULLY ENCLOSED COVERLESS TRI-LEVEL AUTO RACKS AND TWENTY-ONE (21) FULLY ENCLOSED BI-LEVEL AUTO RACKS. EXHIBIT "A"
Car Number Rack No. Serial No. Shipper Destination - ----------- -------- ---------- -------- ----------------- CTTX 853863 DRGW 243 67707-08 RD 12927 Lansing, Michigan " 853912 " 247 67709-10 " " " " 853832 " 246 67711-12 " " " " 853833 " 252 67715-16 RD 12936 " " " 853914 " 245 67727-28 " " " " 853870 " 249 67731-32 " " " " 853784 " 248 67729-30 " " " " 853916 " 251 67713-14 " " " " 853915 " 253 67717-18 " " " " 853835 " 250 67733-34 RD 12949 " " " 853918 " 244 67725-26 " " " " 853741 " 255 67721-22 " " " " 853840 " 256 67723-24 " " " " 854072 " 254 67719-20 RD 12959 " " TTGX 911544 DRGW 182 67257-58 RD 12845 Detroit, Michigan " 912753 " 188 67269-70 RD 12846 Valley Park, Missouri " 911513 " 187 67267-68 " " " " 910482 " 184 67261-62 RD 12855 Detroit, Michigan " 911538 " 185 67263-64 " " " " 911529 " 171 67277-78 RD 12870 Pontiac, Michigan " 912426 " 191 67275-76 RD 12871 Valley Park, Missouri " 912788 " 172 67279-80 RD 12877 Pontiac, Michigan " 911511 " 173 67281-82 " " " " 911800 " 190 67273-74 RD 12878 Valley Park, Missouri " 911534 " 183 67259-60 RD 12879 Detroit, Michigan " 912071 " 186 67265-66 RD 12895 " " " 910979 " 174 67283-84 RD 12897 Pontiac, Michigan " 912240 " 180 67295-96 " " " " 911860 " 181 67297-98 " " " " 911662 " 176 67287-88 RD 12905 " " " 912690 " 177 67289-90 " " " " 911486 " 175 67285-86 RD 12910 " " " 912072 " 189 67271-72 RD 12921 Valley Park, Missouri " 912234 " 179 67293-94 RD 12923 Pontiac, Michigan " 912765 " 178 67291-92 RD 12938 " "
INVOICE WHITEHEAD & KALES COMPANY No. 20248 58 HALTINER STREET RIVER ROUGE, MICHIGAN 48218 D.U.N.S 00-535-6258 PHONE:(313)849-1200 - ----------------------------------------------- YOUR ORDER NO. OUR ORDER NO. INVOICE DATE MAIL ALL REMITTANCES TO 2488-W-SAS AB-75141-75142 6-15-79 ABOVE ADDRESS - --------------------------------------------------------- GAP INITIAL & NO. SHIPPED VIA F.O.B. TERMS PLEASE PAY FROM Various Rail Our Plant Net THIS INVOICE - --------------------------------------------------------- NO STATEMENT WILL BE ISSUED UNLESS REQUESTED United States Trust Company of New York PAYABLE IN U.S. FUNDS SOLD as Agent and TO First Security Bank of Utah, N.A., as Owner-Trustee SHIPPED TO DESTINATION See Attached Exhibit "A" - -- SHIPPER'S NO " " " "
Form 010279 - ----------------------------------------------------------------------------------------------------------------------------------- QTY. DESCRIPTION UNIT PRICE AMOUNT W & K USE ONLY - ----------------------------------------------------------------------------------------------------------------------------------- 14 Fully enclosed coverless tri-level auto racks (Railpacs) 35998.00 $ 503,972.00 10 Fully enclosed bi-level auto racks 30077.53 300,775.30 11 Fully enclosed bi-level auto racks 30116.53 331,281.83 ------------- Total Invoice $1,136,029.13 Car numbers, serial numbers and rack numbers on attached Exhibit "A" THIS INVOICE IS HEREBY APPROVED By: [SIGNATURE APPEARS HERE] ------------------------------------------------- Denver & Rio Grande Western Railroad, Lessee and By: [SIGNATURE APPEARS HERE] ------------------------------------------------- First Security Bank of Utah, N.A., Owner-Trustee No Michigan Sales Tax or Use Tax is included in this billing. We will issue additional billing for such tax if it is determined at any future date that the items herein are taxable. WHITEHEAD & KALES COMPANY - ------------------------------------------------------------------------------------------------------------------------------------ NOTICE* ACCOUNTS NOT PAID WHEN DUE BEAR THE INTEREST AT RATE OF 1% PER MONTH FROM DATE OF MATURITY WHICH IS AN ANNUAL RATE OF 12% - ------------------------------------------------------------------------------------------------------------------------------------
1. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 2. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 3. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX NOTICE XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX EXHIBIT "A"
Car Number Rack No. Serial No. Shipper Destination - ----------- -------- ---------- -------- ----------------- CTTX 853863 DRGW 243 67707-08 RD 12927 Lansing, Michigan " 853912 " 247 67709-10 " " " " 853832 " 246 67711-12 " " " " 853833 " 252 67715-16 RD 12936 " " " 853914 " 245 67727-28 " " " " 853870 " 249 67731-32 " " " " 853784 " 248 67729-30 " " " " 853916 " 251 67713-14 " " " " 853915 " 253 67717-18 " " " " 853835 " 250 67733-34 RD 12949 " " " 853918 " 244 67725-26 " " " " 853741 " 255 67721-22 " " " " 853840 " 256 67723-24 " " " " 854072 " 254 67719-20 RD 12959 " " TTGX 911544 DRGW 182 67257-58 RD 12845 Detroit, Michigan " 912753 " 188 67269-70 RD 12846 Valley Park, Missouri " 911513 " 187 67267-68 " " " " 910482 " 184 67261-62 RD 12855 Detroit, Michigan " 911538 " 185 67263-64 " " " " 911529 " 171 67277-78 RD 12870 Pontiac, Michigan " 912426 " 191 67275-76 RD 12871 Valley Park, Missouri " 912788 " 172 67279-80 RD 12877 Pontiac, Michigan " 911511 " 173 67281-82 " " " " 911800 " 190 67273-74 RD 12878 Valley Park, Missouri " 911534 " 183 67259-60 RD 12879 Detroit, Michigan " 912071 " 186 67265-66 RD 12895 " " " 910979 " 174 67283-84 RD 12897 Pontiac, Michigan " 912240 " 180 67295-96 " " " " 911860 " 181 67297-98 " " " " 911662 " 176 67287-88 RD 12905 " " " 912690 " 177 67289-90 " " " " 911486 " 175 67285-86 RD 12910 " " " 912072 " 189 67271-72 RD 12921 Valley Park, Missouri " 912234 " 179 67293-94 RD 12923 Pontiac, Michigan " 912765 " 178 67291-92 RD 12938 " "
EX-99.F 6 LEASE AGREEEMENT WITH ING AVIATION LEASE -------------------------------------------------- -------------------------------------------------- LEASE AGREEMENT (G-BEAL) dated as of April 30, 1994 between United States Trust Company of New York as Trustee of "AFG/British Airways Trust" Lessor and Internationale Nederlanden Aviation Lease B.V. Lessee One Used Lockheed L-1011-385-50 Aircraft Manufacturers Serial No. 1145 U.K. Registration Mark G-BEAL and Three Rolls-Royce RB211-22B Engines and Related Parts and Records TABLE OF CONTENTS ----------------- 1. DEFINITIONS....................................................... 1 1.1 ACMI Lease.................................................. 1 1.2 Acceptance Certificate (Interim)............................ 1 1.3 Acceptance Certificate (Final).............................. 1 1.4 Acceptance Certificate (Return)............................. 1 1.5 Aircraft.................................................... 2 1.6 Airframe.................................................... 2 1.7 Airworthiness Directive..................................... 2 1.8 Applicable Laws............................................. 2 1.9 APU......................................................... 2 1.10 BA.......................................................... 2 1.11 Basic Rent.................................................. 2 1.12 Basic Term.................................................. 2 1.13 Beneficiary................................................. 2 1.14 Business Day(s)............................................. 2 1.15 CAA......................................................... 2 1.16 Certificated Air Carrier.................................... 3 1.17 Cycle....................................................... 3 1.18 Day......................................................... 3 1.19 Delivery Date............................................... 3 1.20 Dollars or $................................................ 3 1.21 Engine...................................................... 3 1.22 Escrow Account.............................................. 3 1.23 Event of Default............................................ 3 1.24 Excepted Payments........................................... 3 1.25 FAA......................................................... 3 1.26 Federal Aviation Act........................................ 3 1.27 Final Month Hours........................................... 3 1.28 Guarantor................................................... 3 1.29 Guaranty.................................................... 4 1.30 Hour(s)..................................................... 4 1.31 Lease....................................................... 4 1.32 Lease Commencement Date..................................... 4 1.33 Lease Documents............................................. 4 1.34 Lessee...................................................... 4 1.35 Lessor...................................................... 4 1.36 Lessor's Lien............................................... 4 1.37 Lien........................................................ 4 1.38 Maintenance Program......................................... 4 1.39 Maintenance Reserve......................................... 4 -ii- 1.40 Manuals and Technical Records............................... 4 1.41 Modification Payment........................................ 4 1.42 Officer's Certificate....................................... 5 1.43 Operative Documents......................................... 5 1.44 Optional Modifications...................................... 5 1.45 Overdue Rate................................................ 5 1.46 Parts....................................................... 5 1.47 Permitted Liens............................................. 5 1.48 Permitted Sublease.......................................... 5 1.49 Permitted Sublessee......................................... 5 1.50 Person...................................................... 5 1.51 Rent........................................................ 5 1.52 Rent Payment Date........................................... 5 1.53 Replacement Engine.......................................... 6 1.54 Return Location............................................. 6 1.55 Rolls-Royce................................................. 6 1.56 Sublessee................................................... 6 1.57 Stipulated Loss Value....................................... 6 1.58 Supplemental Rent........................................... 6 1.59 Tax......................................................... 6 1.60 Term........................................................ 6 1.61 Total Loss.................................................. 6 1.62 U.K......................................................... 7 2. AGREEMENT TO LEASE; TERM.......................................... 7 2.1 Leasing of Aircraft......................................... 7 2.2 Acceptance.................................................. 7 2.3 Delivery of Aircraft........................................ 7 2.4 Term........................................................ 7 2.5 Guaranty.................................................... 7 3. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS................ 7 3.1 Organization; Good Standing; Certification.................. 7 3.2 Authority; Consent.......................................... 8 3.3 Legal, Valid and Binding.................................... 8 3.4 Compliance with Other Instruments........................... 8 3.5 Governmental Consents....................................... 8 3.6 No Adverse Agreements....................................... 8 3.7 No Defaults or Violations................................... 8 3.8 Litigation.................................................. 8 3.9 No Total Loss or Event of Default........................... 9 3.10 Financial Statements........................................ 9 -iii- 3.11 Financial and Other Information to be Supplied.............. 9 4. LESSOR'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS............... 9 5. CONDITIONS PRECEDENT.............................................. 9 5.1 Conditions Precedent to Obligation of Lessor to Lease Aircraft.............................................. 9 5.2 Conditions Precedent to Obligation of Lessee to Lease Aircraft.............................................. 11 6. PAYMENTS.......................................................... 12 6.1 Basic Rent.................................................. 12 6.2 Net Lease; No Set-off or Deductions......................... 12 6.3 Immediately Available Funds................................. 13 6.4 Supplemental Rent........................................... 13 7. DISCLAIMER OF WARRANTIES AND MANUFACTURERS' WARRANTIES............ 14 7.1 Disclaimer.................................................. 14 7.2 Other Warranties............................................ 14 8. USE, OPERATION AND MAINTENANCE.................................... 15 8.1 General..................................................... 15 8.2 Operation and Use........................................... 15 8.3 Maintenance in General...................................... 16 8.4 Specific Items of Maintenance............................... 17 8.5 Parts....................................................... 17 8.6 Airworthiness Directives.................................... 18 8.7 Modification Payments by the Government..................... 19 8.8 Corrosion Control........................................... 19 8.9 Modifications............................................... 19 8.10 Possession.................................................. 20 8.11 Reports..................................................... 20 8.12 Right to Inspect............................................ 21 8.13 Aircraft Records............................................ 21 8.14 Maintenance Reserves........................................ 21 9. RETURN OF AIRCRAFT................................................ 22 9.1 Return Location, Notices, Costs, Taxes and Fees............. 22 9.2 Return of Other Engines..................................... 22 -iv- 9.3 Condition of Aircraft....................................... 23 9.4 Condition of Airframe....................................... 24 9.5 APU......................................................... 24 9.6 Borescope Inspection........................................ 24 9.7 Inspection.................................................. 25 9.8 Operational Ground Check.................................... 25 9.9 Operational Check Flight.................................... 25 9.10 Acceptance.................................................. 25 9.11 Deferred Return Condition Discrepancy Correction............ 26 9.12 Costs....................................................... 26 9.13 Manuals and Technical Records............................... 26 9.14 Lessee's Special Exterior Markings.......................... 26 9.15 Ownership................................................... 26 9.16 Early Termination........................................... 27 10. TITLE; REGISTRATION; LIENS........................................ 27 10.1 Title....................................................... 27 10.2 Registration................................................ 27 10.3 Liens....................................................... 27 10.4 Notice of Ownership......................................... 27 11. INSURANCE......................................................... 28 11.1 All-Risk Insurance.......................................... 28 11.2 War Risk Insurance.......................................... 28 11.3 Liability Insurance......................................... 29 11.4 Additional Requirements; Loss Payment....................... 29 11.5 No Set-Off.................................................. 30 11.6 Notice of Material Alteration or Cancellation............... 30 11.7 Application of Hull Insurance Proceeds...................... 30 11.8 Insurance for Own Account................................... 30 11.9 Reports..................................................... 31 11.10 Continuing Insurance........................................ 31 12. LOSS, DAMAGE OR REQUISITION....................................... 31 12.1 Total Loss of Airframe...................................... 31 12.2 Engine Loss................................................. 32 12.3 Repairable Damage; Use of Insurance Proceeds................ 32 12.4 Payments from Governmental Authorities for Requisition of Title or Use; Requisition.................... 33 12.5 Application of Payments During Existence of Event of Default............................................ 33 -v- 13. EVENTS OF DEFAULT................................................. 33 13.1 Failure to Make Payments.................................... 33 13.2 Failure to Obtain or Maintain Insurance..................... 33 13.3 Failure to Perform Other Obligations........................ 33 13.4 Representations and Warranties Untrue....................... 34 13.5 Guaranty.................................................... 34 13.6 Insolvency or Bankruptcy..................................... 34 14. REMEDIES.......................................................... 35 15. INDEMNITIES....................................................... 36 15.1 General Indemnification and Waiver of Certain Claims........ 36 15.2 Taxes and Other Charges..................................... 38 15.3 Continuing Indemnification.................................. 38 16. TRANSFER, ASSIGNMENT AND SUBLEASE................................. 38 16.1 Assignment or Encumbrance by Lessor......................... 38 16.2 Sublease of Aircraft or Assignment by Lessee................ 39 16.3 Consolidation, Merger or Transfer by Lessee................. 39 16.4 Nonrecourse As to Trustee................................... 39 17. NOTICES........................................................... 39 18. LESSOR'S RIGHT TO PERFORM FOR LESSEE.............................. 40 19. MISCELLANEOUS..................................................... 40 19.1 Waivers, Headings........................................... 40 19.2 Counterparts................................................ 41 19.3 Agreement to Lease.......................................... 41 19.4 Governing Law............................................... 41 19.5 Benefit and Binding Effect.................................. 41 19.6 Further Assurances.......................................... 41 Exhibit A Description of Aircraft..................................... A-1 Exhibit B Acceptance Certificate (Interim)............................ B-1 Exhibit C Acceptance Certificate (Final).............................. C-1 Exhibit D Acceptance Certificate (Return)............................. D-1 Exhibit E Guaranty by Internationale Nederlanden Lease Holding N.V.... E-1 Exhibit F Acceptance Flight Report.................................... F-1 -vi- LEASE AGREEMENT (G-BEAL) ------------------------ This LEASE AGREEMENT (G-BEAL), dated as of April 30, 1994, ("Lease"), is by and between United States Trust Company of New York, a New York corporation, having its principal place of business at 114 West 47th Street, New York, NY 10036, solely as successor trustee under the Amended and Restated Trust Agreement "AFG/British Airways Trust" dated as of June 29, 1987 and not in its individual capacity ("Lessor") and Internationale Nederlanden Aviation Lease B.V., a Netherlands corporation, having its principal place of business at Karspeldreef 14, 1101 CK Amsterdam-Zuidoost, The Netherlands ("Lessee"); WITNESSETH ---------- WHEREAS, Lessor desires to lease the Aircraft to Lessee and Lessee desires to lease the Aircraft from Lessor in each case pursuant to the terms and conditions of this Lease; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows. SECTION 1. DEFINITIONS The following terms shall have the following respective meanings for all purposes of this Agreement: 1.1 "ACMI Lease" means any arrangement whereby Lessee (or Sublessee) agrees to furnish the Aircraft to a third party pursuant to which (i) Sublessee's crew at all times shall maintain full operational control of the Aircraft, (ii) the Aircraft shall be operated solely by regular employees of Sublessee possessing all current appropriate CAA or Swedish Civil Aviation Authority certificates and licenses (it being understood that cabin attendants need not be regular employees of Sublessee), (iii) the insurance required under Section 11 shall remain in full force and effect, (iv) the Aircraft shall be maintained in accordance with Sublessee's normal maintenance practices and as required by the terms of this Lease and (v) the term of any such ACMI Lease does not extend beyond the Term. 1.2 "Acceptance Certificate (Interim)" means a certificate in substantially the form of Exhibit B to be executed by Lessor and Lessee on the date Lessee takes possession of the Aircraft in Roswell, New Mexico. 1.3 "Acceptance Certificate (Final)" means a certificate in substantially the form of Exhibit C hereto, to be executed by Lessor and Lessee on the Delivery Date as required under Section 2.2. 1.4 "Acceptance Certificate (Return)" means a certificate in substantially the form of Exhibit D hereto, to be executed by Lessor and Lessee on the return of the Aircraft to Lessor as required by Section 9.1 hereof. -1- 1.5 "Aircraft" means (A) that certain Lockheed L-1011-385-50 Airframe identified and described in Exhibit A hereto (including all Parts comprising such Airframe) together with the three Rolls-Royce RB211-22B Engines delivered in connection therewith as identified and described in Exhibit A hereto (or any engine substituted for any of said Engines pursuant to Section 9.2 or Section 12.2 of this Lease), whether or not any of such initial Engines or substitute engines may from time to time be installed on such Airframe or may be installed on any other airframe or on any other aircraft; and (B) where the context permits, the Manuals and Technical Records. 1.6 "Airframe" means the Aircraft except the Engines or engines from time to time installed thereon and the Manuals and Technical Records. 1.7 "Airworthiness Directive(s)" has the meaning given in Section 8.6 hereof. 1.8 "Applicable Law" means all applicable laws and treaties of any government and applicable, legally adopted rules, regulations, and orders of any governmental body, instrumentality, agency or authority. 1.9 "APU" means auxiliary power unit. 1.10 "BA" means British Airways PLC, its successors and assigns. 1.11 "Basic Rent" means the rent payable on Rent Payment Dates throughout the Basic Term for the Aircraft pursuant to 6.1 of the Lease. 1.12 "Basic Term" means the period during which Lessee shall lease the Aircraft in accordance with this Lease, which shall be a period commencing on the Delivery Date and ending on the sixth month anniversary of the Delivery Date. 1.13 "Beneficiary" (collectively "Beneficiaries") means each of American Income Partners III A Limited Partnership, American Income Partners III B Limited Partnership, American Income Partners III C Limited Partnership, American Income Partners III D Limited Partnership, American Income 7 Limited Partnership and American Income 8 Limited Partnership, the owners of 100% of the beneficial interest under that certain Amended and Restated Trust Agreement "AFG/British Airways Trust" dated as of June 29, 1987 pursuant to which Lessor, as trustee and not in its individual capacity is the owner of the Aircraft and is Lessor hereunder. 1.14 "Business Day(s)" means any day other than a Saturday, a Sunday or a day on which commercial banking institutions are authorized by law to be closed in any city where the principal business office of Lessor is located or The Netherlands. 1.15 "CAA" means the Civil Aviation Authority of Sweden, or a successor agency. -2- 1.16 "Certificated Air Carrier" means a Person qualified under the Air Navigation Order 1989 under the laws of the United Kingdom or the laws of the Kingdom of Sweden or any successor thereto to be designated by Lessor as the Person in whose name the Aircraft is to be registered and otherwise qualified under Applicable Law to operate the Aircraft. 1.17 "Cycle" means one take-off and landing of the Aircraft. 1.18 "Day" means one calendar day when used to measure intervals in the Maintenance Program relating to hard time calendar controlled parts. 1.19 "Delivery Date" means the date on which Lessee executes and delivers to Lessor an Acceptance Certificate (Final) for the Aircraft, in accordance with Section 2.2. 1.20 "Dollars or $" means United States Dollars. 1.21 "Engine" means: any or all of the Rolls-Royce RB211-22B engines identified and described in Exhibit A, whether or not from time to time installed on such Airframe or installed on any other airframe; and any engine that may from time to time be substituted, pursuant to Section 9.2 or Section 12.2 of this Lease, for such Engine and constituting a Replacement Engine. 1.22 "Escrow Account" means any account established by Lessor at National Westminster Bank USA pursuant to the provisions of Section 8.14 hereof. 1.23 "Event of Default" has the meaning given in Section 13 hereof. 1.24 "Excepted Payments" means all public liability insurance and any proceeds thereof paid or payable as a result of claims paid or losses suffered by Lessor and any indemnity or other amount payable in favor of Lessor in its individual capacity or in favor of Beneficiary, including, without limitation, any payments pursuant to Section 15 hereof. 1.25 "FAA" means the United States Federal Aviation Administration of the United States Department of Transportation, and any agency or instrumentality of the United States government succeeding to its functions. 1.26 "Federal Aviation Act" means the Federal Aviation Act of 1958, as amended, or any subsequent legislation that amends, supplements or supersedes the Federal Aviation Act. 1.27 "Final Month Hours" shall have the meaning set forth in Section 8.14. 1.28 "Guarantor" means International Nederlanden Lease Holding N.V., a Netherlands corporation. -3- 1.29 "Guaranty" means the Guaranty in substantially the form of Exhibit E hereto, pursuant to which Guarantor is guaranteeing the obligations of Lessee hereunder. 1.30 "Hour(s)" means Aircraft flight time, expressed in hours, or part thereof, between take-off and landing. 1.31 "Lease" means this Lease Agreement as the same may be modified, amended or supplemented from time to time pursuant to the terms hereof. 1.32 "Lease Commencement Date" means the date designated for the commencement of the Lease as set forth on the Acceptance Certificate (Final). 1.33 "Lease Documents" means the Lease with attachments and schedules and those documents in the form of Exhibits A through E hereto. 1.34 "Lessee" means Internationale Nederlanden Aviation Lease B.V., a Netherlands corporation, its successors and permitted assigns. 1.35 "Lessor" means United States Trust Company of New York, a New York corporation, not in its individual capacity but solely as trustee of the "AFG/British Airways Trust" its successors and assigns. 1.36 "Lessor's Lien" means any Lien arising as a result of (i) claims against Lessor or any Beneficiary not related to the transactions contemplated by this Lease, (ii) any act or omission of Lessor or any Beneficiary which is not related to the transactions contemplated by this Lease or is in violation of any of the terms of this Lease, or (iii) arising out of claims against Lessor or any Beneficiary with respect to Taxes against which Lessee is not required to indemnify Lessor or any Beneficiary. 1.37 "Lien" means any mortgage, pledge, lien, charge, encumbrance, lease or security interest relating to the Aircraft, the Lease or any Part, as the context may require. 1.38 "Maintenance Program" has the meaning given in Section 8.3 hereof. 1.39 "Maintenance Reserve" has the meaning given in Section 8.14 hereof. 1.40 "Manuals and Technical Records" means all such manuals, technical data, log books and other records pertaining to the Aircraft (including, without limitation, the technical manuals and aircraft records listed in the Acceptance Certificate (Final)) to be maintained by Lessee as shall be required to comply with the requirements of the CAA or otherwise by Applicable Law. 1.41 "Modification Payment" has the meaning given in Sections 8.7 hereof. -4- 1.42 "Officer's Certificate" means as to any company a certificate signed by any officer duly authorized to execute such certificate. 1.43 "Operative Documents" means the Lease Documents, each document provided by or entered into by Lessee, Guarantor and Lessor in conjunction with this Lease. 1.44 "Optional Modifications" has the meaning given in Section 8.9 hereof. 1.45 "Overdue Rate" means the rate of interest per annum, announced from time to time by the Bank of Boston in Boston, Massachusetts as its "base" rate of interest which serves as the basis on which effective rates of interest for loans are calculated, plus 3.0 percentage points; each change in such base rate shall cause an equal and corresponding change in the Overdue Rate. 1.46 "Parts" means all appliances, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (other than Engines or engines), which may from time to time be incorporated or installed in or attached to the Airframe or any Engine or so long as title thereto shall remain vested in Lessor in accordance with Section 8.5 hereof after removal therefrom. 1.47 "Permitted Liens" means (a) the respective rights of Lessor and Lessee as provided herein, including, without limitation, any encumbrance which Lessor has caused to be placed on the Aircraft as permitted pursuant to Section 16.1 hereof; (b) the rights of others under agreements or arrangements to the extent expressly permitted in Section 8.10 hereof; (c) Liens for Taxes either not yet due or being contested in good faith (and for the payments of which adequate reserves have been provided by Lessee or Sublessee) by appropriate proceedings so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of the Airframe or any Engine; (d) material suppliers', mechanics', workers', repairers', employees' or other like liens arising in the ordinary course of business and for amounts the payment of which is not yet deliquent and so long as such proceedings do not involve a material danger of the sale, forfeiture or loss of the Airframe or any Engine; and (e) Lessor's Liens. 1.48 "Permitted Sublease" means a sublease meeting the requirements of Section 16.2 hereof. 1.49 "Permitted Sublessee" means any sublessee under a Permitted Sublease. 1.50 "Person" means an individual, partnership, corporation, business trust, joint venture, governmental authority or other entity of whatever nature. 1.51 "Rent" means Basic Rent and Supplemental Rent. 1.52 "Rent Payment Date" has the meaning given in Section 6.1 hereof. -5- 1.53 "Replacement Engine" means an engine of the same or an improved model as an Engine being replaced pursuant to Sections 9.2 or 12.2 hereof, which is suitable for installation and use on the Airframe without impairing the value or utility of the Airframe and having a time status, modification status, value, manufacturer's warranty status, condition and utility at least equal to the Engine it is replacing (assuming such Engine was in the modification status, condition, and repair required by the terms hereof immediately prior to being replaced). Any such Replacement Engine shall be an Engine hereunder. 1.54 "Return Location" has the meaning given in Section 9.1(a) hereof. 1.55 "Rolls-Royce" means Rolls-Royce Commercial Aero Engines Limited. 1.56 "Sublessee" means Air Operations of Europe. 1.57 "Stipulated Loss Value" for the Aircraft means eight million dollars ($8,000,000). 1.58 "Supplemental Rent" means all monetary amounts, liabilities and obligations (other than Basic Rent) which Lessee assumes or agrees to pay under any Lease Document to Lessor including, without limitation, Maintenance Reserves and Stipulated Loss Value. 1.59 "Tax" means all license and registration fees and all taxes, levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever together with any penalties, additions to tax, fines or interest thereon. 1.60 "Term" means the Basic Term pursuant to Sections 2.4 and any extension thereof pursuant to the terms hereof or otherwise as Lessor and Lessee may hereinafter agree. 1.61 "Total Loss" with respect to the Aircraft, Airframe, any Engine or the Manuals and Technical Records means any of the following events with respect to such property: (i) loss of such property or the use thereof due to theft of disappearance for more than 90 days; (ii) loss of such property or the use thereof due to destruction, damage beyond repair or rendition of such property permanently unfit for normal use; (iii) any event which should or does result in the receipt of insurance proceeds with respect to such property on the basis of a total loss, arranged total loss or constructive total loss; (iv)(A) the condemnation, taking, confiscation or seizure of title to the Aircraft or Airframe (B) the condemnation, taking, confiscation or seizure of the use of the Aircraft or Airframe for a period equal to the shorter of 180 days or the date the Aircraft is required to be returned to Lessor pursuant to Section 9 hereof by any Person; or (v) with respect to any Engine, the taking of title or requisition for use by any government and any divestiture of title deemed a Total Loss pursuant to Section 12.2 of this Lease. A Total Loss with respect to the Aircraft shall be deemed to occur if a Total Loss occurs with respect to the Airframe. -6- 1.62 "U.K." means the United Kingdom of Great Britain and Northern Ireland. SECTION 2. AGREEMENT TO LEASE: TERM. ------------------------ 2.1 Leasing of Aircraft. Subject to the terms and conditions of the ------------------- Lease Documents, and in reliance upon the agreements, representations and warranties therein contained and made pursuant hereto, Lessee agrees to provisionally accept the Aircraft for lease hereunder pursuant to the provisions of the Acceptance Certificate (Interim) and Lessor, agrees to lease the Aircraft to Lessee pursuant to the terms thereof. 2.2 Acceptance. Subject to the terms and conditions of the Lease ---------- Documents, and in reliance upon the agreements, representations and warranties therein contained and made pursuant thereto, Lessee hereby agrees to lease the Aircraft from Lessor hereunder on the Delivery Date, such leasing to be evidenced by Lessee executing and delivering the Acceptance Certificate (Final), and (to the extent that it has not already done so) to execute and deliver all other Operative Documents and certificates and take all other actions as are required to be executed and delivered or taken by Lessee on or before the Delivery Date pursuant to the terms of the Operative Documents. 2.3 Delivery of Aircraft. The Aircraft shall be delivered to Lessee -------------------- by Lessor for purposes of this Lease at Roswell, New Mexico, USA pursuant to the provisions of the Acceptance Certificate (Interim) and Gatwick Airport, London, U.K. on the Delivery Date. 2.4 Term. Except as otherwise provided herein, the Aircraft shall ---- be leased for a term which comprises the Basic Term and any extension thereof pursuant to the terms hereof except that the Term shall end upon any earlier termination of this Lease in accordance with its terms. 2.5 Guaranty. Simultaneously with the execution and delivery of the -------- Acceptance Certificate (Interim) by Lessee and Lessor hereunder, Guarantor shall execute and deliver the Guaranty in favor of Lessor. SECTION 3. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS. -------------------------------------------------- Lessee represents, warrants and agrees as follows: 3.1 Organization: Good Standing: Certification. Lessee is a ------------------------------------------ corporation duly incorporated, validly existing and in good standing under the laws of The Netherlands and has the corporate power and authority to own or hold under lease its properties and to enter into and perform its obligations hereunder. Lessee is duly qualified and authorized to do business wherever the nature of its activities or properties requires such authorization. Sublessee is as of the date hereof and at all times during the Term shall remain a Certificated Air Carrier. -7- 3.2 Authority: Consent. Lessee has the full power, authority and ------------------ legal right to execute, deliver and perform the terms of each of the Operative Documents to which it is a party. The execution, delivery and performance of each of the Operative Documents to which it is a party have been duly authorized by all necessary corporate action of Lessee and do not require any stockholder approval or approval or consent of, or notice to, any trustee or holders of any indebtedness or obligations of Lessee. 3.3 Legal, Valid and Binding. Each of the Operative Documents to ------------------------ which Lessee is a party has been duly executed and delivered by Lessee and constitutes the legal, valid and binding obligations of Lessee, enforceable in accordance with its terms. 3.4 Compliance with Other Instruments. To the best of Lessee's --------------------------------- knowledge, neither the execution, delivery or performance by Lessee of the Operative Documents to which it is a party nor the consummation or performance by Lessee of the transactions contemplated therein will conflict with or result in any violation of, or constitute a default under, the certificate of incorporation or by-laws of Lessee or any agreement, mortgage, indenture, lease or other instrument or any Applicable Law by which Lessee or its properties or assets are bound. 3.5 Governmental Consents. Neither the execution and delivery of any --------------------- of the Operative Documents nor the performance of any of the transactions contemplated thereby by Lessee requires the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect to the CAA, or any other governmental authority or agency, including any judicial body. 3.6 No Adverse Agreements. Lessee is not a party to any agreement or --------------------- instrument or subject to any charter or any corporate restriction, which if performed in accordance with terms, would materially and adversely affect Lessee's financial condition, business or operations or the ability of Lessee to perform its obligations under any of the Operative Documents to which it is a party. 3.7 No Defaults or Violations. Lessee is not and during the Term will ------------------------- not be in default under any mortgage, deed of trust, indenture or other instrument or agreement to which Lessee is a party or by which it or any of its properties or assets may be bound, or be in violation of any Applicable Law, which default or violation would have a material adverse effect on the financial condition, business or operations of Lessee or its ability to perform any of its obligations under any of the Lease Documents to which it is a party. 3.8 Litigation. There are no pending or, to the best of Lessee's ---------- knowledge after due inquiry, threatened actions or proceedings by or before any court, administrative agency, regulatory authority or arbitrator which would if decided against Lessee either individually or in the aggregate materially and adversely affect the financial condition, business or operations of Lessee or the ability of Lessee to perform its obligations under any of the Operative Documents to which it is a party. -8- 3.9 No Total Loss or Event of Default. No event or circumstance --------------------------------- exists which, upon delivery and leasing of the Aircraft hereunder, would cause the creation of a Total Loss or an Event of Default hereunder. 3.10 Financial Statements. The audited consolidated balance sheet of -------------------- Guarantor and its subsidiaries, as of the end of each of its last three fiscal years (up to December 31, 1993) and the related audited consolidated statements of income and changes in financial position for the years then ended and the unaudited consolidated balance sheet of Guarantor and its subsidiaries as of March 31, 1994 and the related statements of income and changes in financial position for the 3 months then ended (copies of each of which will be furnished to Lessor), each prepared in accordance with generally accepted accounting principles and practices, fairly and accurately present the financial position of Guarantor and its affiliates, as of the dates thereof and for the periods covered thereby. Since March 31, 1994, there has been no material adverse change in the financial condition, business, operations or prospects of Guarantor. 3.11 Financial and Other Information to be Supplied. Lessee agrees to ---------------------------------------------- furnish to Lessor during the Term: (a) As soon as possible and in any event within 5 days after the occurrence of an Event of Default which is continuing, an Officer's Certificate setting forth in detail the nature of such Event of Default and the action which Lessee proposes to take with respect thereto; (b) from time to time, such other information relating to its financial, operational or business affairs or conditions as Lessor may reasonably request. SECTION 4. LESSOR'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS. --------------------------------------------------- Lessor covenants that provided no Event of Default has occurred and remains unremedied, neither it nor anyone claiming exclusively by, through or under Lessor or any Beneficiary will interfere with Lessee's quiet enjoyment of the Aircraft during the Term. SECTION 5. CONDITIONS PRECEDENT. -------------------- 5.1 Conditions Precedent to Obligation of Lessor to Lease Aircraft. -------------------------------------------------------------- The obligation of Lessor to lease the Aircraft to Leasee under this Lease is subject to the fulfillment to the satisfaction of Lessor, on or before the Delivery Date or concurrently with Lessor's leasing of the Aircraft hereunder, of the following conditions precedent: (a) Each of the Operative Documents shall have been duly authorized, executed and delivered by the respective party or parties thereto and shall be satisfactory in form -9- and substance satisfactory to Lessor, and an executed original or conformed copy, as appropriate, of the Operative Documents shall have been delivered to Lessor and, where appropriate in due form of recordation with the CAA; (b) On the Delivery Date for the Aircraft (i) the representations and warranties of Lessee contained in the Lease Documents shall be true and accurate; (ii) nothing shall have occurred which materially and adversely has affected or will affect the ability of Lessee to carry on its business and to perform its obligations under the Lease Documents; and (iii) no event shall have occurred and be continuing, or would result from the lease of the Aircraft, which constitutes an Event of Default. (c) No change shall have occurred after the date of this Agreement in Applicable Law that in the opinion of Lessor would make it illegal for Lessor to maintain its interest in the Aircraft. (d) In furtherance of and not in limitation of its rights set forth in Section 5.1(a), Lessor shall have received the following, in each case in form and substance satisfactory to it: (i) incumbency certificates of Lessee and Guarantor regarding the officers of Lessee and Guarantor authorized to execute and deliver the Operative Documents to which each is a party, respectively; (ii) an insurance report of an independent insurance broker and certificates of insurance, as to Lessee's due compliance with the terms of Section 11 of this Lease; (iii) certified copies of all documents evidencing the corporate actions of Lessee and Guarantor, duly authorizing the lease by Lessee of the Aircraft hereunder and the execution, delivery and performance by Lessee of each of the Lease Documents to which it is a party and by Guarantor of the Guaranty; (iv) such other documents and evidence with respect to Lessee as Lessor may reasonably request in order to consummate the transactions contemplated by the Lease Documents, the taking of all corporate actions in connection therewith and compliance with the conditions herein set forth. (e) a favorable opinion from Mr. Henk Stoltz, Counsel to Lessee and Guarantor, covering such matters incident to the transactions contemplated hereby as it may reasonably request. (f) Concurrent with the acceptance of the Aircraft for lease hereunder, Lessee shall have deposited into the Escrow Account the sum of $145,000 representing an -10- advance payment of the Maintenance Reserve for 200 Hours of usage of the Aircraft during the sixth month of the Term as calculated pursuant to the provisions of Section 8.14 hereof. 5.2 Conditions Precedent to Obligation of Lessee to Lease Aircraft. -------------------------------------------------------------- The obligation of Lessee to lease the Aircraft from Lessor under the Lease is subject to the fulfillment to the satisfaction of Lessee, on or before Delivery Date or concurrently with Lessee's execution of the Acceptance Certificate (Final), of the following conditions precedent: (a) The Aircraft shall hold a valid U.K. Standard Certificate of Airworthiness and shall be duly registered with the CAA; (b) The Engines shall be serviceable in accordance with the written standards of Rolls-Royce reasonably applicable to the Engines; (c) The landing gear of the Aircraft shall be serviceable; (d) The Aircraft shall be in compliance with all outstanding Airworthiness Directives, compliance with which is mandatory on the Delivery Date; (e) Lessee, at its expense, shall have boroscopically inspected the Engines and shall have reasonably concluded that the condition of the Engines is satisfactory to it. (f) The Aircraft shall in addition be in the following condition: (i) The Aircraft shall be clean by United States commercial airline standards and shall have received an external washing and interior deep cleaning; (ii)The Aircraft shall have had accomplished thereon all outstanding deferred maintenance items. (iii)The Aircraft shall have been maintained by cleaning and treating of all mild corrosion and correcting of all moderate and severe or exfoliated corrosion in accordance with the recommendations of the manufacturer of the Airframe. All fuel tanks shall be free of leaks. (iv)The cockpit shall be clean and pain shall not be cracked or peeled. There shall be no defective items in the Aircraft's interior. (v) The fuselage shall be in good repair, and shall be free of (i) dents, abrasions or scab patches, and (ii) loose or pulled rivets, impact damage to the Aircraft caused by ground handling equipment or impact damage caused by foreign objects. (vi)All Parts shall be serviceable in accordance with CAA standards. -11- (g) Lessee shall use its best efforts to assist Lessor in complying with the conditions set forth in this Section 5.2(f) by submitting, at the request of Lessor, a workscope to Lessor for such compliance work and performing or causing to be performed the portions of such work authorized by Lessor. All costs and expenses of any such work shall be for the account of Lessor and shall be paid promptly upon receipt by Lessor of invoice(s) therefor. In the event Lessor shall fail to meet any of the conditions set forth in Section 5.2(f), the corresponding condition in Section 9 to any such condition shall be deemed to be waived by Lessor. SECTION 6. PAYMENTS. -------- 6.1 Basic Rent. During the Basic Term Lessee shall pay Lessor in ---------- advance, in accordance with the provisions of Section 6.3 hereof Basic Rent in the amount of $100,000 per month. Basic Rent shall be payable on the Lease Commencement Date and thereafter on the same day of each month during each of the five successive calendar months (each such day a "Rent Payment Date"). 6.2 Net Lease: No Set-off or Deductions. (a) This Lease is a net ----------------------------------- lease. Except as set forth in Section 6.2(c) Lessee acknowledges and agrees that its obligations to pay all Rent due and owing under the terms hereof shall not be affected by any circumstance whatsoever, including, without limitation any set-off, counterclaim, recoupment, defense or other right which Lessee may have against Lessor or anyone else for any reason whatsoever, any defect in the airworthiness, eligibility for registration with the CAA, or any damage to or loss or destruction of, the Aircraft, or any interference, interruption or cessation in or prohibition of the use or possession thereof by Lessee for any reason whatsoever, including, without limitation, any such interference, interruption, cessation or prohibition resulting from the act of any governmental authority, any Liens, or rights of others with respect to the Aircraft, the invalidity or unenforceability or lack of due authorization or other infirmity of this Lease or any lack of right, power or authority of Lessor or Lessee to enter into this Lease, any insolvency, bankruptcy, reorganization or similar proceedings by or against Lessee, Lessor, or any other person, or any other cause whether similar or dissimilar to the foregoing, any present or future law notwithstanding, it being the intention of the parties hereto that, except as provided in Section 6.2(c) and (d) all Rent payable by Lessee hereunder shall continue to be payable in all events in the manner and at the times provided herein. Except as set forth in Section 6.2(c), such Rent shall not be subject to any abatement and the payments hereof shall not be subject to any set-off or reduction for any reason whatsoever. (b) To the extent permitted by Applicable Law, each of Lessee and Lessor hereby waives any rights which it may now have or which may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Lease except in accordance with the terms hereof. (c) Notwithstanding anything contained in this Lease to the contrary, if Lessor shall breach its covenant contained in Section 4 hereof, Lessee shall be entitled to suspend payments of Basic Rent required to be made by Lessee hereunder during the period that, as a results of a -12- breach of the covenant of quiet enjoyment set forth in Section 4 hereof, Lessee shall be deprived of possession or use of the Aircraft. Notwithstanding anything contained in this Lease to the contrary, of Lessor shall breach any of its payment obligations contained in Section 8.3 or 8.6 hereof, Lessee shall be entitled to offset against such obligations of Lessor to Lessee Lessee's obligation to pay Rent hereunder. (d) In the event that during the Term maintenance to the Aircraft is required the cost of which will, under the terms of Section 8.3 or 8.6, as the case may be, be for the account of Lessor and if a reputable third-party aircraft maintenance provider selected by Lessee certifies in writing to Lessor and Lessee that the projected costs of such maintenance are an amount which exceeds the amount then in the Escrow Account plus the sum of all unpaid Basic Rent with respect to the remaining balance of the Basic Term (other than any portion of such remaining Basic Rent which Lessee intends to use as an offset of other defaults by Lessor in accordance with Section 6.2(c)), then in any such circumstance and, after five (5) Business Days from Lessor's actual receipt of written notice requesting adequate assurances of Lessor's financial ability to meet the cost of any such maintenance, Lessor has been unable to give adequate assurances to Lessee which in Lessee's reasonable judgment, exercised in good faith, constitutes such adequate assurances, then Lessee may upon not less than ten (10) days' prior written notice to Lessor return the Aircraft to Lessor pursuant to the provisions of Section 9 hereof and all obligations of Lessee to pay Basic Rent shall terminate upon such return. 6.3 Immediately Available Funds. All payments of Rent shall be made --------------------------- in United States Dollars by wire transfer in immediately available funds by 12:00 noon EST or EDT, as the case may be, on the day in question to Lessor at National Westminster Bank USA, 80 Pine Street, New York, NY 10005, ABA No. 021 000 322 Account No. 2181-01-7572, Re: AFG RENT ESCROW, with sufficient information to identify the source and application of such funds. If any Rent is due on a day which is not a Business Day, it shall be due on the immediately preceding Business Day. 6.4 Supplemental Rent. Lessee also agrees to pay to Lessor, in ----------------- accordance with the provisions of Section 6.3 hereof, any and all Supplemental Rent when the same shall become due and owing, and in the event of any failure on the part of the Lessee to pay any Supplemental Rent, Lessor shall have all rights, powers and remedies provided for herein or by law or equity in the case of nonpayment of Basic Rent. Lessee will also pay, on demand, as Supplemental Rent, interest at the Overdue Rate on any part of any installment of Basic Rent not paid when due for any period for which the same shall be overdue and, to the extent permitted by Applicable Law, on any payment of Supplemental Rent not paid when due for the period until the same shall be paid. -13- SECTION 7. DISCLAIMER OF WARRANTIES AND MANUFACTURERS' WARRANTIES. ------------------------------------------------------ 7.1 Disclaimer. THE AIRCRAFT IS TO BE LEASED HEREUNDER "AS IS" ---------- AND "WHERE IS." LESSOR HAS NOT AND SHALL NOT BE DEEMED TO HAVE MADE (WHETHER BY VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER THIS LEASE, OR HAVING ACQUIRED THE AIRCRAFT, OR HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS LEASE OR OTHERWISE), AND LESSOR HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE (EXCEPT AS HEREIN BELOW PROVIDED), CONDITION, DESIGN, OPERATION, MERCHANTABILITY, FREEDOM FROM CLAIMS OF INTERFERENCE OR INFRINGEMENT OR THE LIKE, OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT, THE ABSENCE THEREFROM OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE AIRCRAFT; AND LESSEE HEREBY WAIVES, RELEASES, RENOUNCES AND DISCLAIMS EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR WARRANTIES. LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO LESSEE OR ANY OTHER PERSON, WHETHER ARISING IN CONTRACT OR TORT OUT OF ANY NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE, FOR (I) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH (II) THE USE, OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO, (III) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES OR (IV) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT. THE WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS SECTION 7.1 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND LESSOR SHALL NOT BE DEEMED TO HAVE MADE ANY OTHER WARRANTIES, EXCEPT AND ONLY TO THE EXTENT OF THOSE WARRANTIES SET FORTH IN SECTION 4 OF THIS LEASE. 7.2 Other Warranties. So long as no Event of Default shall have ---------------- occurred, Lessor agrees that if there are any outstanding warranties of manufacturers and suppliers relating to the Aircraft or any of the Engines which would otherwise inure to the benefit of or be enforceable by Lessor during the Term, they shall, notwithstanding title to the Airframe and Engines being vested in Lessor, inure to the benefit of Lessee throughout the Term and Lessor -14- agrees to authorize Lessee to exercise for the account of Lessor such rights as Lessor may have under such warranties. SECTION 8.USE, OPERATION AND MAINTENANCE ------------------------------ 8.1 General. Lessee, subject to the provisions of Sections 8.3 and ------- 8.14 hereof but otherwise at its sole costs and expense, shall service, repair, maintain and overhaul or cause the same to be done to the Airframe and each Engine under the Maintenance Program for so long as the Aircraft is in the possession of Lessee or subject to this Lease with the same or better care as used by Lessee with similar aircraft and engines, if any, owned by it or if Lessee does not own any such aircraft in at least as good manner and with at least as much care as used by Lessee with similar aircraft and engines leased from others. By way of expansion and not in limitation of the foregoing, Lessee agrees to (i) cause the Airframe and each Engine to be in as good operating condition as when delivered to Lessee hereunder, ordinary wear and tear excepted, (ii) keep the Aircraft in such condition as is necessary to enable the airworthiness certification of the Aircraft to be maintained in good standing at all times under Applicable Law, (iii) maintain the Manuals and Technical Records in the English language in accordance with such Maintenance Program and in a manner acceptable to the CAA and (iv) cause the Aircraft to be maintained in a manner which will not discriminate against the Aircraft compared with other similar aircraft owned or operated by Lessee. 8.2 Operation and Use. ----------------- (a) Lessee agrees not to operate or locate the Airframe or any Engine, or suffer the Airframe or any Engine to be operated or located, in any area (i) excluded from coverage by any insurance policy required to be maintained hereunder with respect to the Airframe or Engines at the time the Aircraft lands in a particular location or (ii) in any recognized or, in Lessor's reasonable judgment, threatened area of hostilities unless fully covered by war risk insurance meeting the terms of Section 11 hereof, except in the case of a requisition by the United States government, where Lessee obtains indemnity from the United States government against the risks in the amounts required by Section 11 hereof covering such area. In the event a location in which the Aircraft is located ceases to be approved under the terms of the insurance policy required to be maintained hereunder while the Aircraft is located in any such location, Lessee shall utilize its best efforts to cause the Aircraft to be immediately removed from such location. Lessee agrees not to operate the Aircraft, or suffer the Aircraft to be operated during the Term (1) unless the Aircraft is covered by insurance as required by the provisions of Section 11 hereof or Lessee obtains indemnity from the United States government as set forth above or (2) contrary to the terms of such insurance as required by the provisions of Section 11 hereof. (b) Lessee agrees not to (i) operate the Airframe or any Engine or permit the Airframe or any Engine to be operated during the Term except in a passenger configuration, in commercial or other operations for which Sublessee is duly authorized by the CAA or otherwise in accordance with Applicable Law; or (ii) use or permit the Aircraft to be used for a -15- purpose for which the Aircraft is not designed or reasonably suitable. Lessee will not permit the Airframe or any Engine to be maintained, used or operated during the Term in violation of any Applicable Law, or contrary to any manufacturer's operating manuals or instructions. 8.3 Maintenance in General. (a) Lessee agrees it has the obligation ---------------------- to maintain and repair the Airframe and Engines utilizing the maintenance program of BA as approved by the CAA ("Maintenance Program"), so as to keep the Aircraft in at least as a good a condition during the Term as on Delivery Date and until the Aircraft is redelivered to Lessor pursuant to Section 9 hereof, ordinary wear and tear excepted, provided however that the costs of the -------- ------- following maintenance activities shall be for the account of Lessor and shall be paid promptly upon receipt by Lessor of invoice(s) therefor: (i) any and all off-wing Engine maintenance and repairs excluding any and all off-wing Engine maintenance and repairs required by negligence, abuse, mis-use by Lessee or Sublessee or elective alterations or elective Parts replacement by Lessee or Sublessee; (ii) any and all off-fuselage APU maintenance and repairs excluding any and all off-fuselage APU maintenance and repairs attributable to negligence, abuse, mis-use or elective Parts replacement by Lessee; (iii)landing gear overhauls or partial overhauls; (iv) "C" checks, "D" checks or their equivalent in accordance with the BA maintenance program. (b) The following procedures shall be followed with respect to maintenance and repair work to be paid for by Lessor: (i) Lessee will forward to Lessor a quote for any such work from a CAA and FAA approved maintenance repair station, APU overhaul and repair station and engine overhaul and repair station, whichever is applicable; (ii) Lessor will, within 3 business days grant its consent for Lessee to undertake such work and provide reasonable evidence to Lessee that appropriate funds are available or will be made available to reimburse Lessee for its costs in performing such work, or alternatively Lessor will provide Lessee with a similar quote from its own sources and direct Lessee to have the work performed at the station of Lessor's choice provided that Lessor's choice meets all CAA and FAA requirements with respect to the Maintenance Program and provided that Lessor's choice of station can perform the work within the same time frame as any alternative station that Lessee may propose; -16- (iii) With respect to any APU and Engine workscopes to be performed pursuant to the obligations of Lessor set forth in Section 8.3 (a) (i) and (ii), Lessor may at its sole discretion elect at its expense to furnish a replacement APU and/or Replacement Engine provided such equipment meets all requirements and have enough remaining Days, Hours, Cycles prior to any scheduled overhaul to enable the Lessee to fully utilize the Aircraft without limitations throughout the remaining Basic Term of the Lease. 8.4 Specific Items of Maintenance. Lessee and Lessor agree that ----------------------------- maintenance and repairs shall include, but shall not be limited to, the following specific items: (a) to perform or have performed in accordance with Section 8.2(a) all routine maintenance work, including on-line maintenance on the Aircraft, and to ensure that all such maintenance shall be in accordance with the regulations and directives of the CAA or other applicable government authority. Lessee shall have all maintenance and repairs performed at repair facilities approved by the CAA; (b) to correct promptly and diligently any deficiences revealed at any time by any inspection of Lessor which under the Maintenance Program require proper repair, replacement, overhaul and adjustment; (c) to maintain all Aircraft documentation, including, without limitation, the Manuals and Technical Records, in compliance with CAA regulations and in up-to-date status, (if necessary, through manufacturers' revision service) and to make these available for review and copying by Lessor on reasonable notice at Lessee's principal maintenance base. 8.5 Parts. ----- (a) Unless the Airframe or an Engine has suffered a Total Loss, Lessee, at its own cost and expense, will during the Term promptly replace all Parts pursuant to Section 8.3 that may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever and shall replace such Parts as promptly as practicable with replacement Parts. All replacement Parts shall be made by the same manufacturer and of the same model number and modification status, or be CAA-approved substitutes normally used by BA, shall be free and clear of all Liens except Permitted Liens and shall be in at least as good operating condition as, and shall have a value, utility, and useful life at least equal to the Parts replaced assuming such replaced Parts were in the condition and repair required to be maintained by the terms thereof. (b) All Parts at any time removed from the Airframe or any Engine shall remain the property of Lessor and subject to this Lease, no matter where located, until such time as such Parts shall be replaced by Parts that have been incorporated or installed in or attached to such Airframe or Engine and that meet the requirements for replacement Parts specified in clause (a) of this Section 8.5. Immediately upon any replacement Part becoming incorporated or -17- installed in or attached to such Airframe or Engine as provided in clause (a) hereof, without further act, (i) title to such replacement Part shall thereupon vest in Lessor; (ii) such replacement Part shall become subject to this Lease and be deemed part of such Airframe or Engine, as the case may be, for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to such Airframe or Engine; and (iii) title to the replaced Part shall thereupon vest in Lessee, free and clear of all rights of Lessor and shall no longer be deemed a Part hereunder. (c) Title to all Parts incorporated or installed in or attached or added to the Airframe or any Engine as the result of any alteration, modification or addition effected by Lessee shall, without further act vest in Lessor and become subject to this Lease. 8.6 Airworthiness Directives. ------------------------ (a) During the Term hereof Lessee agreees to comply with any airworthiness directive, Federal Aviation Regulations and Special Federal Aviation Regulations, manufacturers' mandatory service bulletin or any other mandatory regulation, directive or instruction ("Airworthiness Directive") which the FAA may from time to time issue (whether prior to or subsequent to the commencement of the Term) and with respect to which compliance is required during the Term in order to meet the requirements of Applicable Law for the public transport of passengers and/or cargo. All Airworthiness Directives shall be accomplished in accordance with all applicable bulletins and manuals published by the manufacturer of the Airframe or Engines or Parts. (b) Lessor shall hold title to any Parts included in a new system installed on the Aircraft pursuant to an Airworthiness Directive which is required by such Airworthiness Directive to be installed during the Term. (c) The cost of performing terminating action with respect to Rolls-Royce service bulletin 72-9569 and 72-9594 (both relating to the Engines) with current compliance date of July 31, 1994 (or any equivalent airworthiness directive that reflects the workscope of the above-referenced service bulletins) shall be for the account of Lessor and shall be paid promptly upon receipt by Lessor of invoice(s) therefor. Notwithstanding the provisions of Section 8.3 hereof, the cost of any other terminating action with respect to any other single Airworthiness Directive required to be performed pursuant to Section 8.6(a) are entirely for the account of Lessee if any such terminating action costs $50,000 or less; if such cost exceeds $50,000 but is less than $100,000, the amount by which such cost exceeds $50,000.00 shall be for the account of Lessor; if the cost of such terminating action exceeds $100,000.00, Lessor and Lessee shall share equally such cost to the extent it exceeds $100,000.00 or by written notice given to the other pursuant to Section 17 hereof either Party may terminate this Lease pursuant to the provisions of Section 9 hereof on the last day the Aircraft may be lawfully operated without complying with such Airworthiness Directive (it being understood that Lessee's compliance with the provisions of Section 9 shall be waived to the extend that such provisions require that such Airworthiness Directive be complied with); in any such event, no Basic Rent shall be due after -18- the return of the Aircraft to Lessor and any per diem Basic Rent theretofore paid with respect to the period from the date of return of the Aircraft to the next Rent Payment Date (or if there is no next Rent Payment Date, the end of the Basic Term) shall be promptly repaid by Lessor to Lessee. (d) In the event an Airworthiness Directive can be complied with by both more frequent inspection of such Part or the Aircraft than had theretofore been the case or by terminating action, Lessee, unless otherwise directed by Lessor, shall comply with such Airworthiness directive by terminating action. 8.7 Modification Payments by the Government. In the event that, --------------------------------------- during the Term, Applicable Law shall provide for the payment to Lessee from a governmental entity (a "Modification Payment") with respect to a modification of the Aircraft, including without limitation, in whole or in part with respect to the retrofitting or replacement of the Engines in order for Lessee or Sublessee to comply with any laws or regulations relating to emissions, noise, or other pollution, environmental or fuel economy standards and requirements, Lessee shall comply with such law or regulation by performing upon the Aircraft such modifications as are required thereby, and only under such circumstances may Lessee or Sublessee retain such Modification Payment. In the event that Lessee is not required by such law or by this Agreement to perform any such modification upon the Aircraft and Lessee has not theretofore given to Lessor its irrevocable written commitment to perform such modification, Lessee shall pay Lessor, within 30 days of Lessee's receipt thereof the Modification Payment. 8.8 Corrosion Control. Lessee shall carry out such work as may be ----------------- required for the control or corrosion, including, without limitation, periodic inspections for penetration of fuel tanks, periodic inspections and clean-up under galleys, forward and aft cargo pit areas and lavatories, periodic treatment of all mild and moderate corrosion and correcting of all severe or exfoliated corrosion, in accordance with the Maintenance Program. 8.9 Modifications. ------------- (a) Lessee, at its own expense, may from time to time make such alterations and modifications in and additions to the Airframe or any Engine as Lessee may deem desirable in the proper conduct of its business provided that no such alteration, modification or addition shall diminish the value or utility of the Aircraft, or impair the condition or airworthiness thereof, below the value, utility, condition and airworthiness thereof prior to such alteration, modification or addition assuming the Aircraft met the requirements of this Lease prior to such alteration, modification or addition. In addition, Lessee may, at any time during the Term remove any Part (a "Removable Improvement") pursuant to this paragraph, provided that (1) such Part is in addition to, and not in replacement of or substitution for, any part originally incorporated or installed in or attached to the Aircraft at the time of delivery thereof hereunder or any Part in replacement of, or substitution for any such Part, and (2) such Part can be removed from the Aircraft without diminishing or impairing the value, utility, condition or airworthiness required to be maintained by the terms of this Lease which the Aircraft would have had at such -19- time had such alteration, modification or addition not occurred. Upon removal of a Removable Improvement from the Aircraft, title thereto without further act shall vest in the Lessee. Notwithstanding the foregoing, Lessee shall not, without Lessor's prior written consent, make any modifications, alterations or additions not required by applicable law or the terms of this Lease, (collectively, "Optional Modifications") to the Aircraft. For the purposes of this section Optional Modifications shall exclude the modifications made by Lessee or Sublessee to standardize the Aircraft to Sublessee's fleet, but shall include all other Optional Modifications to the Aircraft with a cost of $25,000. All Optional Modifications shall be accomplished by Lessee at its own expense. (b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS LEASE, NO OPTIONAL MODIFICATION SHALL BE MADE WITHOUT LESSOR'S PRIOR WRITTEN CONSENT (WHICH CONSENT MAY BE WITHHELD FOR ANY REASON WHATSOEVER) IF SUCH OPTIONAL MODIFICATION HAS THE EFFECT OF DECREASING THE UTILITY OR VALUE OF THE AIRCRAFT OR ADVERSELY AFFECTS ITS AIRWORTHINESS OR USE FOR TRANSPORTING PASSENGERS IN COMMERCIAL SERVICE. 8.10 Possession. Lessee shall not sublease the Aircraft except to ---------- Sublessee or otherwise in any manner deliver, relinquish or transfer possession of the Airframe or any Engine to any person or install any Engine, or permit any Engine to be installed, on any airframe other than the Airframe, during the Term, without the prior written consent of Lessor, such consent not to be unreasonably withheld, provided, however, that so long as Lessee shall comply with the provisions of Section 11 hereof Lessee may, without the prior written consent of Lessor: (a) permit Sublessee to enter into an ACMI Lease in the ordinary course of Sublessee's business; (b) deliver possession of the Airframe or an Engine to BA or the manufacturer thereof for testing or other similar purposes or to any other qualified organization for service, repair, maintenance or overhaul work on the Airframe or Engines or for alterations or modifications in or additions to the Airframe or Engines, to the extent required or permitted by the terms of this Lease; (c) Notwithstanding any transfers of possession of the Airframe or any Engine permitted pursuant to this Section 8.10, Lessee shall at all times during the Term of this Lease remain fully liable and obligated to perform all of the terms of this Lease to the same extent as if such transfer had not occurred. 8.11 Reports. Lessee shall furnish to Lessor, on a monthly basis, the ------- Hours and Cycles of operation for the Airframe and Engines and such other information concerning the condition of the Aircraft as Lessor may hereafter request. -20- 8.12 Right to Inspect. (a) Lessor and its agents shall have the right ---------------- to inspect the Aircraft at any time reasonably selected so as not to interfere with Lessee's or Sublessee's normal passenger-carrying use of the Aircraft, upon giving Lessee reasonable notice, to ascertain the condition of the Aircraft and to satisfy Lessor that the Aircraft is being repaired and maintained in accordance with the requirements of this Lease. Lessee shall, at the request of Lessor, provide Lessor with such information concerning the location of the Aircraft as may be necessary to facilitate such inspection and shall permit any duly authorized representative of Lessor to be present during any overhaul or the performance of any major scheduled maintenance check of the Aircraft. The cost of the inspection or survey shall be paid by Lessee if the Aircraft, or any part thereof, is not in the condition required by this Lease but shall otherwise be for the account of Lessor. All repairs which shall be shown by the inspection or survey to be required shall be made at Lessee's or Lessor's expense, as the case may be, in accordance with the provisions of Section 8.3. All required repairs shall be performed as soon as practicable thereafter. In the event of a dispute between Lessor and Lessee as to the proper performance by Lessee of the repairs required hereunder, the decision of a publicly-recognized aircraft appraiser selected by Lessor and reasonably acceptable to Lessee of the Airframe, Engine or Part, as the case may be, shall control. The non-prevailing party shall be responsible for payment of all expenses of such appraiser incurred in connection with the rendering of its decision. Lessor shall have no duty to make any such inspection and shall not incur any liability or obligation by reason of not making such inspection. (b) Lessee shall make available to Lessor for its review or shall cause Sublessee to make available to Lessor for its review (1) such records as it may have in its possession which Lessor may request in the course of an inspection by Lessor as contemplated by subsection (a), above; (2) such other written communication with the CAA or other regulatory authority or any manufacturer as it may have in its possession relating to defects or malfunctions of the Aircraft or Parts or any other matters relating to the Aircraft; and (3) Sublessee's most recent CAA-approved operations specifications, including any amendments or additions made thereto. 8.13 Aircraft Records. Lessee shall maintain or cause to be maintained ---------------- all records during the term of this Lease relating to the service, inspection, maintenance, modification, repair and overhaul of the Airframe, Engines and Parts installed therein as required by the CAA and the Maintenance Program which records will at all times be kept current and up-to-date. 8.14 Maintenance Reserves. Within 5 business days following the day of -------------------- each month during the Term as the date of the month on which the Delivery Date falls, Lessee shall pay into the Escrow Account, maintenance reserves in the total amount of $725.00 for each Hour of use of the Aircraft during the preceding month ("Maintenance Reserve"). The amount in the Escrow Account shall be made available to Lessee for the ordinary and reasonable expenses of Lessee in performing the maintenance activities Lessor is required to pay for pursuant to Section 8.3. All Maintenance Reserve payments made by Lessee, including the advance payment made by Lessee under Section 5.1(f), will be held by Lessor in the Escrow Account. The balance -21- in the Escrow Account will, during the Term, be used only to fulfill the obligation of Lessor under Section 8.3. Notwithstanding the foregoing, at the time the last Maintenance Reserve payment of Lessee under this Lease would be made, Lessee shall report the actual number of Hours flown by the Aircraft during the final 30 or 31 day period (as the case may be) of the Term ("Final Month Hours") and if such Final Month Hours are less than 200, then Lessor shall promptly remit it to Lessee, whether from the Escrow Account or otherwise, an amount equal to $725 multiplied by the number by which the Final Month Hours are less than 200. If such Final Month Hours exceed 200 Hours, Lessee shall promptly remit to Lessor in the manner set forth in Section 6.3 hereof, an amount equal to $725 multiplied by the number of Hours by which the Final Month Hours exceed 200. In the event that there is a remaining positive balance in the Escrow Account after all payments required to be made pursuant to this Section 8.14 have been made, any such balance shall be for the sole account of Lessor. SECTION 9. RETURN OF AIRCRAFT ------------------ 9.1 Return Location, Notices, Costs, Taxes and Fees. The return of ----------------------------------------------- the Aircraft at the expiration or earlier termination of this Lease shall be subject to the following provisions: (a) Return. At the end of the Term or upon the earlier ------ termination of this Lease pursuant to Section 8.6 or 14 hereof, Lessee shall return the Airframe and Engines to Lessor at Roswell, New Mexico or at such location as Lessor in its sole discretion shall determine not to exceed the distance between London, U.K. and Roswell, New Mexico (the "Return Location"). In the event Lessee is returning the Aircraft to Lessor at the expiration of the Term, Lessor shall five Lessee at least 15 days advance written notice of such Return Location. The Aircraft at the time of its return shall be free and clear of all Liens other than Lessor's Liens. At the time of return of the Aircraft to Lessor, and provided Lessee is in compliance with the terms of this Lease, Lessor and Lessee shall execute an Acceptance Certificate (Return) at the Return Location. (b) Costs of Return. Lessee and Lessor agree that Lessee shall --------------- pay all costs of returning the Aircraft to Lessor including, but not limited to, fuel, oil, crew, inspections, insurance, maintenance, repairs, service and other costs of the Aircraft to the Return Location. (c) Taxes and Fees. Lessee shall pay all Taxes and fees arising -------------- out of the return of the Aircraft at the Return Location: in the event the Return Location selected by Lessor would create an extraordinary Tax liability for Lessee arising out of its obligations under this Section 9.1(c), Lessor at Lessee's request will designate another Return Location provided Lessee agrees to indemnify Lessor for any loss or damage suffered by Lessor because of the changed Return Location. 9.2 Return of Other Engines. In the event any engine not owned by ----------------------- Lessor shall be returned with the Airframe, it shall be a Replacement Engine, and Lessee shall, at its own expense and concurrently with such return, furnish Lessor with a full warranty bill of sale, in form and substance satisfactory to Lessor, with respect to each such Replacement Engine and -22- shall take such other actions conveying title to the Replacement Engine to Lessor free and clear of all liens other than Lessor's Liens and such additional documents, including an opinion of counsel acceptable to Lessor, as Lessor may request in order that title to such Replacement Engine shall be duly and properly in Lessor. Upon passage of title to Lessor such Replacement Engine shall be deemed to be an Engine for all purposes hereof and thereupon Lessor shall transfer to Lessee, without recourse or warranty except a warranty as to title and as to no Lessor's Liens, all of Lessor's right, title and interest in and to any Engine not installed on such Airframe at the time of the return thereof. 9.3 Condition of Aircraft. The Aircraft at the time of the return --------------------- to Lessor shall have been maintained and repaired in accordance with the Maintenance Program and this Lease, and shall meet the following requirements: (a) Operating Condition. The Aircraft shall be in at least as ------------------- good operating condition as on the Delivery Date, ordinary wear and tear from normal airline passenger operations excepted. (b) Cleanliness Standards. The Aircraft shall be clean by --------------------- United States commercial airline standards and shall have received an exterior washing and an interior deep cleaning since its last commercial flight. (c) Certificate of Airworthiness. The Aircraft shall have, and ---------------------------- be in compliance with a current valid Standard Certificate of Airworthiness issued by the CAA without any corrections, repairs, modifications, alterations or overhauls having to be performed by Lessor to meet such standards and rules. If required by Lessor, Lessee shall at Lessee's expense request in the name of Lessor a Swedish Certificate of Airworthiness for Export so as to allow Lessor to place the Aircraft on the U.S. registry. (d) Compliance with Governmental Requirements. The Aircraft ----------------------------------------- shall be in compliance with all Airworthiness Directives affecting the Aircraft and requiring performance during the Term, or as otherwise required under this Lease. In the event Lessee has obtained a waiver or deviation from the CAA having to comply with any such Airworthiness Directives, Lessee shall, irrespective of such waiver or deviation, fully comply with all such Airworthiness Directives covered by such waiver or deviation pursuant to the provisions of Section 8.6 prior to the return of the Aircraft to Lessor as if such waiver or deviation did not exist. (e) Deferred Maintenance. The Aircraft shall have had -------------------- accomplished thereon all outstanding deferred maintenance items. Items deferred because of maintenance concessions (i.e., and exemption to operate beyond the normal limits by monitoring) shall be brought up-to-date as if such maintenance concessions or exemptions did not exist. Parts whose time status exceeds the conditions or requirements imposed by this Lease shall be brought into compliance with such conditions or requirements pursuant to the provisions of Section 8.3 hereof. -23- (f) Corrosion Treatment. The Aircraft shall have been maintained ------------------- by cleaning and treating of all mild corrosion and correcting of all moderate and severe or exfoliated corrosion in accordance with the recommendations of the manufacturer of the Airframe. All fuel tanks shall be free of leaks. (g) Configuration and Condition. The Aircraft shall be returned --------------------------- having the same configuration and in the same or better condition with all Parts installed therein as on the Delivery Date, expecting only Modifications, additions, replacements and substitution of Parts as may have been properly made by Lessee pursuant to Section 8 and as specifically otherwise set forth in this Section 9. 9.4 Condition of Airframe. The Airframe at the time of its return to --------------------- Lessor shall meet the requirements set forth below, all at Lessee's expense, except as otherwise provided herein: (a) The cockpit shall be clean and paint shall not be cracked or peeled. Lessee shall insure that any items which are found to be defective in the Aircraft's interior will be replaced or repaired in accordance with the Maintenance Program; (b) Lessee shall permanently repair the fuselage, including but not limited to (i) dents, abrasions, and scab patches; and (ii) loose or pulled rivets, impact damage to the Aircraft caused by ground handling equipment or impact damage caused by foreign objects. The exterior of the Airframe shall be clear of all names, logos and other special marings, which markings the Lessee shall remove. (c) All Parts shall be serviceable in accordance with CAA standards and have a value, modification status and condition equivalent to the Parts installed in the Aircraft when acquired by Lessor, reasonable wear and tear expected. 9.5 APU. Lessee will return the Aircraft's installed APU in good --- and efficient operating condition in accordance with the manufacturer's specifications and those of the Maintenance Program, ordinary wear and tear alone excepted. Immediately prior to the return of the Aircraft the APU shall be inspected and all items requiring repair or replacement shall be repaired or replaced as provided in Section 8.3 hereof. Any operational discrepancies of the APU shall be corrected in accordance with the Maintenance Program pursuant to the provisions of Section 8.3 prior to the return of the Aircraft to Lessor. 9.6 Borescope Inspection. A borescope inspection shall be performed -------------------- in the presence of a representative of Lessor by BA at Lessor's expense at the time of the Aircraft's return, and Lessee shall provide evidence satisfactory to Lessor that no discrepancies exist beyond the applicable shop repair limits of the manufacturer of the Engines including no abnormal repetitive inspection limits. -24- 9.7 Inspection. ---------- (a) Lessor may, from time to time, wish to make the Aircraft available for inspection to Persons evaluating the Aircraft for use after the Term. Lessor agrees to give Lessee not less than 3 Business Days' advance notice of any such inspection, which shall not unreasonably interfere with Lessee's commercial use of the Aircraft and Lessee agrees to cooperate with Lessor's requests in making the Aircraft and the Manuals and Technical Records available to such Persons. (b) The Aircraft (including the Manuals and Technical Records to be returned therewith as set forth in this Section 9) shall be made available to Lessor for ground inspection by Lessor at Lessee's facilities within the five days preceding the end of the Term. In the event the Aircraft (including the Manuals and Technical Records) is not in the condition required by the provisions of this Section 9, Lessee at its sole cost and expense shall promptly correct any discrepancies from the condition required by the provisions of this Section 9. 9.8 Operational Ground Check. Promptly after completion of any ------------------------ corrections required under Section 9.7, Lessee shall conduct an operational ground check in accordance with the requirements of the Maintenance Program and shall correct any discrepancies disclosed by such check. 9.9 Operational Check Flight. Promptly after completion of all ------------------------ corrections required under Section 9.7 and 9.8 above, the Aircraft shall be check flown by Lessee for a flight of up to two hours in length which may be the first two hours of the ferry flight, using qualified flight personnel demonstrating to Lessor the satisfactory operation of the Aircraft and its equipment and systems. Lessor's employees or representatives may participate in such flight as observers. Such flight shall be flown using standard air carrier operational check flight procedures requested by Lessor's representative and be sufficient to demonstrate the proper operation of all systems for normal passenger use. Upon completion of such operational check flight, the representatives of Lessee and Lessor participating in such flight shall agree in writing upon any discrepancies in such Aircraft required to be corrected by Lessee in order to comply with provisions of this Section 9 and Lessee shall promptly correct or cause to be corrected at Lessee's expense any such discrepancies. If any of the discrepancies referred to in Sections 9.7 and 9.8 or 9.9 continue to persist, Lessor may (but shall not be obligated to) accept delivery of the Aircraft and apply the procedure set forth in Section 9.12 for such discrepancies. 9.10 Acceptance. Upon completion of the operational check flight ---------- specified in Section 9.10, after Lessee has corrected the discrepancies as specified therein and after Lessee has delivered the Aircraft to the Return Location and the Aircraft is in the condition required by this Section 9, the Aircraft shall be technically accepted by Lessor's representatives at the Return Location and Lessor's representatives shall thereupon execute the Acceptance Certificate (Return). -25- 9.11 Deferred Return Condition Discrepancy Correction. If, ------------------------------------------------ notwithstanding Lessee's best efforts to fully comply with the provisions of Section 9 hereof, any return condition discrepancies are found during the ground inspection, operational ground check and operational check flight set forth in Sections 9.7, 9.8 and 9.9 above, which were not corrected by Lessee prior to return of the Aircraft to Lessor, at the election of Lessor such discrepancies may be corrected by Lessor or its designee after return of the Aircraft and Lessee shall reimburse Lessor for all costs and expenses incurred by Lessor or its designee for accomplishing such discrepancy corrections or, in the alternative, Lessor may reasonably determine the cost of performing such maintenance and repairs (subject to Lessee's reasonable concurrence in Lessor's determination) and in either event Lessee shall, upon receipt of Lessor's invoice, pay Lessor for all such costs and expenses. Any late payments shall be subject to interest at the Overdue Rate. 9.12 Costs. All flights pursuant to Section 9.9 shall be made at ----- Lessee's expense and Lessee shall pay for any and all costs associated with such flights including, but not limited to, costs for crew, fuel, oil, airport fees, insurance, takeoff/landing fees, airway communication fees, and ground handling fees. At the option of Lessor, Lessee's obligations under this Lease, including but not limited to Lessee's obligations under Sections 11 and 15 hereof and its obligation to pay per diem Basic Rent shall remain in effect until the Aircraft satisfies the redelivery conditions of this Section 9. 9.13 Manuals and Technical Records. Lessee at its sole cost and ----------------------------- expense shall return to Lessor, at the time the Aircraft is returned to Lessor, all of the Manuals and Technical Records and other data described in Acceptance Certificate (Final), originally received from Lessor, and subject to CAA retention time limits, updated and maintained by Lessee through the date of return of the Aircraft. In addition, Lessee shall also provide Lessor, at the time the Aircraft is returned to Lessor, all records, documents, authorizations, drawings and data in English (or with English translations thereof) which were developed or caused to be developed by Lessee and required by the CAA or any other regulatory entity having authority over the Aircraft, updated and maintained by Lessee for the Aircraft and through the date of return of the Aircraft in an accurate and correct condition. At the time of return of the Manuals and Technical Records for the Aircraft and the other documents required to be delivered by Lessee pursuant to this Section 9.13 to Lessor and provided such documents are in the condition they are required to be in hereunder, Lessee and Lessor shall execute the Acceptance Certificate (Return). 9.14 Lessee's Special Exterior Markings. At the time of the return of ---------------------------------- the Aircraft, Lessee shall, at Lessor's election, remove or paint over all of Lessee's logos and other exterior markings painted on the Aircraft by Lessee. In the event that, notwithstanding Lessee's obligation to do so, Lessee does not remove such markings, Lessor shall have no obligation to remove such markings prior to the sale, lease, or other disposition of the Aircraft by Lessor after its return. 9.15 Ownership. Any documents, equipment and any other property --------- returned to Lessor pursuant to this Section 9 which are not already owned by Lessor shall thereupon and without further act become the property of Lessor. -26- 9.16 Early Termination. Notwithstanding any other provision of this ----------------- Lease to the contrary, if the Lessee elects to terminate this Lease pursuant to Section 6.2(d), then Lessee shall not be obligated to comply with the return conditions of this Section 9 to the extent but only to the extent that such return conditions are not satisfied because of Lessor's failure to pay the amounts required of it by Section 8.3 or 8.6. SECTION 10. TITLE: REGISTRATION; LIENS. -------------------------- 10.1 Title. Lessee acknowledges that legal title to the Aircraft shall ----- remain vested in Lessor, notwithstanding the possession and the use thereof by Lessee, and Lessee shall do all acts and things Lessor may reasonably require to evidence the interest of Lessor in the Aircraft or to protect such interest against the claims of any other person. Lessee shall not attempt to hold itself out as having any power to sell or dispose of the Aircraft or any Engine. 10.2 Registration. Lessee acknowledges that, throughout the Term, the ------------ Aircraft shall be registered in the U.K. in the name of Lessee and Lessee shall not do, and shall further use its best endeavors to ensure that no third party does, any act or things which might prejudice or cancel such registration. 10.3 Liens. Lessee shall not directly or indirectly create, incur, ----- assume or suffer to exist any Lien on or with respect to the Airframe or any Engine other than Permitted Liens. Lessee shall promptly, at its own expense, take such action as may be necessary to duly discharge any Lien other than a Permitted Lien if the same shall arise at any time, which obligations of the Lessee shall survive the termination of this Lease. 10.4 Notice of Ownership. Within 10 Business Days after the Delivery ------------------- Date, Lessee shall (i) remove from the Aircraft all notices of the ownership interest of any prior owner of the Aircraft and (ii) affix in a reasonably prominent position on the flight deck or cockpit, and on each of the Engines, a legible notice reading as follows: "United States Trust Company of New York, as Trustee of the "AFG/British Airways Trust", Owner and Lessor Leased to Internationale Nederlanden Aviation Lease B.V., Lessee" Once affixed as aforesaid, such notice shall not be defaced, covered or removed during the Term, unless Lessor instructs Lessee to change such notice. Lessee shall not allow the name of any person other than Lessor or any assignee of Lessor's interest hereunder to be placed on the Airframe or any Engine as a designation that might be interpreted as a claim of ownership or any interest therein, provided, however, that Lessee may operate the Aircraft in its livery, including its name and logo. -27- SECTION 11 INSURANCE. --------- On or before the Delivery Date and throughout the Term, Lessee shall without cost or expense to Lessor obtain, maintain and keep in full force and effect the following insurance with respect to Aircraft, carried with responsible insurers of recognized and good reputation in the aviation industry which may contain deductibles in no event greater than standard market deductible in effect from time to time in the worldwide aviation insurance market place in relation to the Aircraft an such type of insurance. 11.1 All-Risk Insurance. "All-risk" hull, ground and flight insurance ------------------ on the Aircraft (with flight, taxiing and ingestion coverage) in an amount not less than the Stipulated Loss Value. In addition, Lessor may request such greater amounts of coverage as Lessor may determine necessary or desirable from time to time if reasonably available (and for which Lessor shall reimburse Lessee for its cost of increased premium, if any, for such greater amounts of insurance). Such hull insurance shall cover Engines or engines and Parts temporarily removed from the Airframe pending installation of the same or similar Engines, engines or Parts on the Airframe in an aggregate amount not less than their replacement cost. 11.2 War Risk Insurance. War risk and allied perils insurance on the ------------------ Aircraft in an amount not less than the Stipulated Loss Value covering the perils of: (a) war, invasion, act of foreign enemies, hostilities (whether war be declared of not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power, or attempts at usurpation of power; (b) strikes, riots, civil commotions or labor disturbances; (c) any act or one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage therefrom is accidental or intentional; (d) any malicious act or act of sabotage; (e) confiscation, nationalization, seizure, restraint, detention, appropriation, requisition of title or use by or under the order of any government (whether civil, military or de facto) or public or local authority other than the government or any public or local authority of the country of registration; and (f) hijacking or any unlawful seizure or wrongful seizure or wrongful exercise of control of the Aircraft or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the Aircraft acting without the consent of Lessee or Sublessee. -28- 11.3 Liability Insurance. Public liability insurance for a combined ------------------- single limit of not less than $500,000,000 per occurrence or such greater amounts as Lessee may carry from time to time on other aircraft in its fleet similar to the Aircraft, which shall: (a) include public liability insurance, passenger liability insurance and property damage liability insurance; and (b) provide that all the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each such insured. In the event that Lessee increases its public liability insurance coverage, it shall do so with respect to the Aircraft contemporaneously with increasing its insurance coverage on other aircraft similar to the Aircraft which it owns or operates. 11.4 Additional Requirements: Loss Payment. The insurance required ------------------------------------- under this Section 11 shall be provided on an agreed value basis, and the policies shall: (a) name Lessor, Beneficiaries, and any assignee of their interests hereunder as additional insured and (with respect to Lessor) as sole loss payee for insurance proceeds in excess of $50,000 up to the Stipulated Loss Value for total loss of the Aircraft; (b) provide that the insurance shall not be invalidated by any action or inaction by Lessee and insure the interest of Lessor regardless of any breach or violation by Lessee or any other named insured of any warranty, declaration or condition contained in such policies; (c) provide that the insurers shall waive any right of subrogation to any right of Lessor or against Lessor; (d) provide that in the event of separate insurance being arranged to cover the all-risk hull insurance and the war risk and allied perils insurance, the underwriters subscribing to such insurance agree to a 50/50 claim funding arrangement in the event of any dispute as to which insurance is applicable; (e) be primary and without right of contribution from other insurance which may be available to Lessor; (f) extend to, and the underwriters thereof have agreed to insure, the indemnification provided in Section 15.1 hereof to the extent that such insurance is available and carried by Lessee or Sublessee and subject to the exclusions and limitations of Lessee's or Sublessee's policies; -29- (g) be of the type usually carried by corporations engaged in the same or a similar business, similarly situated with Sublessee and owning and operating similar aircraft and engines, and covering risks of the kind customarily insured against by such corporations; (h) provide that Lessor shall have not liability for premiums, commissions, calls or assessments with respect to such policies; (i) provide in the case of the insurance required by Sections 11.1 and 11.2 hereof that, so long as the insurers shall not have received written notice that an Event of Default has occurred and is continuing, any proceeds of less than $50,000 shall be payable to Lessee; and any proceeds in excess of $50,000, and any and all proceeds in respect of a Total Loss, or if the insurers shall have received written notice that an Event of Default has occurred and is continuing, any single loss regardless of the amount, shall be payable to Lessor. 11.5 No Set-off. Each insurance policy to be maintained under this Section ---------- 11 shall contain a waiver of any right of the insurers to any set-off or counterclaim or any other deduction against except for unpaid premiums. 11.6 Notice of Material Alteration or Cancellation. Each insurance policy --------------------------------------------- to be maintained under this Section 11 shall provide that no cancellation or lapse of coverage for nonpayment of premium or otherwise, and no material change of coverage which adversely affects Lessor shall be effective as to Lessor until not less than 30 days (7 days in the case of war risk policies, subject to exceptions uniformly applied in war risk policies then available) after sending written notice to Lessor from the insurers of such cancellation, lapse or change. 11.7 Application of Hull Insurance Proceeds. As between Lessor and Lessee, -------------------------------------- any payments received under policies of insurance required to be maintained by Lessee pursuant to Sections 11.1 or 11.2, shall be applied as follows: (a) if such payments are received by Lessor with respect to loss or damage (including a Total Loss with respect to an Engine) not constituting a Total Loss with respect to the Airframe such payments shall be paid over to Lessee upon Lessee's performance of its repair or replacement obligations under this Lease pursuant to Section 12.3 hereof; and (b) if such payments are received with respect to a Total Loss with respect to the Airframe, so much of such payments as shall not exceed the amount required to be paid by Lessee pursuant to Section 12.1 hereof shall be applied in reduction of Lessee's obligation to pay such amount if not already paid by Lessee, and to reimburse Lessee if it shall have paid all or part of such amount, and the balance, if any, of such payments shall be paid over to or retained by Lessor. 11.8 Insurance for Own Account. Nothing in this Section 11 shall prohibit ------------------------- Lessor or Lessee from obtaining insurance for its own account and any proceeds payable thereunder shall be payable as provided in the insurance policy relating thereto, provided that no -30- such insurance may be obtained which would limit or otherwise adversely affect the coverage or payment of any insurance required to be obtained or maintained pursuant to this Section 11. 11.9 Reports. Lessee shall furnish to Lessor not later than the ------- Delivery Date a report signed by a firm of independent insurance brokers satisfactory to Lessor stating the opinion of such firm that the insurance then carried and maintained on the Aircraft complies with the terms hereof. Lessee shall during the Term furnish to Lessor evidence of renewal of the insurance policies required pursuant to this Section 11 prior to the cancellation, lapse or expiration of such insurance policies and, on the renewal dates of the insurance policies carried by Lessee pursuant to this Section 11, a report signed by a firm of independent aircraft insurance brokers, similar to that required by the preceding sentence. Lessee will cause such firm to advise Lessor in writing promptly of any default in the payment of any premium and of any other act or omission on the part of Lessee in which they have knowledge and which would in such firm's opinion invalidate or render unenforceable, in whole or in any material part, any insurance on the Aircraft. Lessee will also cause such firm to advise Lessor in writing at least 30 days prior to the termination or cancellation of, or material adverse change in, such insurance carried and maintained on the Aircraft pursuant to this Section 11. 11.10 Continuing Insurance. Lessee's insurance coverage shall cover -------------------- all liabilities which arise during the Term, regardless of the date on which any claim is made with respect to such occurrence and Lessee at Lessor's request shall provide evidence of the existence of such insurance following the expiration or earlier termination of this Lease. Lessee shall in any event be responsible for any and all liabilities to which Lessor may be exposed as a result of Lessee's lease, use, possession, or operation of the Aircraft but only to the extent set forth in Section 15. SECTION 12. LOSS, DAMAGE OR REQUISITION. --------------------------- 12.1 Total Loss of Airframe. (a) Upon the occurrence of a Total Loss ---------------------- with respect to the Airframe during the Term, Lessee shall give Lessor prompt written notice of such Total Loss. Lessee shall pay or cause to be paid to Lessor in immediately available funds within 90 days following the Total Loss, an amount equal to (i) the Basic Rent, if any, due and payable on or before the date the Total Loss occurred, plus (ii) all unpaid Supplemental Rent due on or before such payment date, (including the Stipulated Loss Value for the Aircraft) plus (iii) an amount equal to the interest at the Overdue Rate minus 3% on all amounts payable pursuant to Subsections (i) and (ii) above for each day during the period commencing the day after the date of the Total Loss up to and including such payment date. Lessee may deduct from all amounts payable pursuant to the preceding sentence, and retain, an amount equal to the daily equivalent of Basic Rent multiplied by the number of days from but excluding the date the Total Loss occurred to and including the day prior to the due date of the next payment of Basic Rent or the last day of the Basic Term (but for the occurrence of the Total Loss), as the case may be, together with interest on such amount at the Overdue Rate minus 3% from and including the day following the date the Total Loss occurred to but excluding the date payment is made by Lessee to Lessor as provided in the immediately preceding sentence. -31- (b) In the event of a payment in full of the Stipulated Loss Value for the Aircraft and other Rent payable as provided above, (i) this Lease and the obligations of Lessee to pay Basic Rent and Supplemental Rent (except for Supplemental Rent obligations surviving pursuant to Section 15 hereof or which have otherwise accrued but not been paid as of the date of such payment and the insurance to be provided pursuant to Section 11.10) shall terminate; and (ii) Lessor shall convey to Lessee all of Lessor's right, title and interest, as-is, where-is without recourse or warranty, express or implied, except to warrant as to title and that it is free and clear of Lessor's Liens, in and to the Airframe and Engines. 12.2 Engine Loss. (a) Upon the occurrence during the Term of a Total ----------- Loss with respect to an Engine whether or not installed on the Airframe and not involving a Total Loss with respect to the Airframe, Lessee shall give Lessor written notice thereof within 10 Business Days of such loss and shall within 120 days of the occurrences of such Total Loss and on at least 5 days' prior written notice to Lessor substitute a Replacement Engine for such Engine. In such event, immediately upon the effectiveness of such substitution on the date set forth in such notice and without further act, (i) title to the Replacement Engine shall thereupon vest in Lessor (subject only to Permitted Liens), (ii) title to the replaced engine shall thereupon vest in Lessee, in as-is, where-is condition, free and clear of all rights of Lessor and shall no longer be deemed an Engine hereunder, and (iii) such Replacement Engine shall become subject to this Lease and be deemed part of the Aircraft for all purposes hereof to the same extent as the Engine originally installed on or attached to the Airframe. (b) Upon such substitution, Lessee shall execute and deliver to Lessor such bills of sale, opinions of counsel and other documents and instruments as Lessor shall reasonably request, in form and substance acceptable to Lessor, to evidence the interest of Lessor and conveyance to Lessor of good and marketable title to such Replacement Engine. Upon such substitution, (i) Lessor shall execute and deliver to Lessee such bills of sale and other documents and instruments, prepared at Lessee's expense, as Lessee shall reasonably request to evidence such transfer and vesting of title in and to the replaced Engine in Lessee, free and clear of all rights of Lessor and (ii) Lessee shall receive all insurance proceeds and proceeds in respect of any Total Loss causing such replacement to the extent not previously applied to the purchase price of the Replacement Engine as provided in Section 12.3 hereof. No Total Loss with respect to an Engine under the circumstances contemplated by this Section 12.2 shall result in any reduction of Lessee's obligations to pay Rent hereunder. 12.3 Repairable Damage: Use of Insurance Proceeds. In the event of -------------------------------------------- repairable damage to the Aircraft or any of the Engines, or any Engine Loss (when no Total Loss of the Aircraft has occurred), Lessor shall forthwith either pay any insurance proceeds received by it to -32- Lessee upon Lessee's furnishing evidence to Lessor that such damage has been made good or repaired such that the condition of the Aircraft shall be at least equivalent to its condition, assuming compliance with the provisions of this Lease, immediately prior to the event of damage or, in case of an Engine loss, evidence that Lessee has purchased or otherwise acquired and installed a Replacement Engine. 12.4 Payment from Governmental Authorities for Requisition of Title or ----------------------------------------------------------------- Use: Requisition. - ---------------- In the event of a requisition for use by any government, so long as it does not constitute a Total Loss of the Airframe, Lessee shall promptly notify Lessor of such requisition and all Lessee's obligations under this Lease shall continue to the same extent as if such requisition had not occurred; including, without limitation, that Lessee's obligations for the payment of Rent and its obligations under Section 11 hereof shall in no way be affected, reduced or delayed by such requisition. Any payments received by Lessor or Lessee from such government with respect to such requisition shall be paid over to or retained by, Lessee. In the event of the requisition for use by a government of any Engine (but not the Airframe), Lessee shall replace such Engine hereunder by complying with the terms of Section 12.2 hereof to the same extent as if a Total Loss had occurred with respect to such Engine. Any payments received by Lessor or Lessee from such government with respect to such requisition shall be paid over to, or retained by, Lessor until Lessee's replacement of such Engine pursuant to Section 12.2 hereof, at which point it shall be paid over to Lessee. 12.5 Application of Payments During Existence of Event of Default. ------------------------------------------------------------ Any amount referred to in Sections 11 or 12 hereof which is payable to Lessee shall not be paid to Lessee, or, if it has been previously paid directly to Lessee, shall not be retained by Lessee, if at the time of such payment an Event of Default shall have occurred and be continuing, but shall be paid to and held by Lessor as security for the obligations of Lessee under this Lease. SECTION 13. EVENTS OF DEFAULT ----------------- Each of the following events shall be an Event of Default: 13.1 Failure to Make Payments. If Lessee shall fail to make any ------------------------ payment of Basic Rent within three Business Days after the same is due or if Lessee shall fail to make a payment of Supplemental Rent within five Business Days after notice from Lessor; or 13.2 Failure to Obtain or Maintain Insurance. If Lessee fails to --------------------------------------- obtain or maintain any insurance required by Section 11 of this Lease or operates or locates or permits operation or location of the Airframe in violation of Section 8.2(a) hereof, 13.3 Failure to Perform Other Obligations. If Lessee fails to duly ------------------------------------ observe or perform any of its other obligations or agreements under any Lease Document to which Lessee is -33- a party and such failure shall not have been remedied within a period of 30 days after written notice specifying the same from Lessor; 13.4 Representations and Warranties Untrue. If any representation or ------------------------------------- warranty made by Lessee in any Operative Document shall prove to be untrue in any material respect when made; 13.5 Guaranty. If any Event of Default, as defined therein shall -------- occur and remain unremedied. 13.6 Insolvency or Bankruptcy. ------------------------ (a) If Lessee shall consent to the appointment of or taking possession by a receiver, assignee, custodian, sequestrator, trustee or liquidator (or other similar official) of itself or of a substantial part of its property, or Lessee shall fail to pay its debts generally as they come due, or shall make a general assignment for the benefit of its creditors, or Lessee shall commence a voluntary case or other proceeding seeking liquidation, reorganization other relief with respect to itself or its debts under the Federal bankruptcy laws, as now or hereafter constituted or any other applicable bankruptcy, insolvency or other similar laws or shall consent to the entry of an order for relief in an involuntary case under any such law or Lessee shall file an answer admitting the material allegations of a petition filed against Lessee in any such proceedings or otherwise seek relief under the provisions of any now existing or future bankruptcy, insolvency or other similar laws providing for the reorganization or winding-up of corporations, or providing for an agreement, composition, extension or adjustment with its creditors. (b) If an order, judgment or decree shall be entered in any proceedings by any court of competent jurisdiction appointing, without the consent of Lessee, a receiver, trustee or liquidator of Lessee, or of any substantial part of its property, or any substantial part of the property of Lessee shall be sequestered, and any such order, judgment or decree or appointment or sequestration shall remain in force undismissed, unstayed or unvacated for a period of 60 days after the date of entry thereof; (c) If a petition against Lessee in a proceeding or case under the bankruptcy laws or other insolvency laws shall be filed and shall not be withdrawn or dismissed within 60 days thereafter, or, in case the approval of such petition by a court of competent jurisdiction is required, the petition as filed or amended shall be approved by such a court as properly filed and such approval shall not be withdrawn or the proceeding dismiss within 60 days thereafter, or a decree or order for relief in respect of Lessee shall be entered by a court of competent jurisdiction in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable bankruptcy, insolvency or other similar laws, as now or hereafter constituted and such decree or order shall remain unstayed in effect for a period of 60 days, or if, under the provisions of any law providing for reorganization of winding-up of corporations which may apply to Lessee any court of competent jurisdiction shall assume jurisdiction, custody or control -34- of Lessee or of any substantial part of its property and such jurisdiction, custody or control shall remain in force unrelinquished, unstayed or unterminated for a period of 60 days. SECTION 14. REMEDIES. -------- Upon the occurrence of any Event of Default and at any time thereafter so long as the same shall be continuing, Lessor may, at its option, declare this Lease to be in default; and at any time thereafter, Lessor may do, and Lessee shall comply with, any one or more of the following with respect to all or any part of the Aircraft, as Lessor in its sole discretion shall elect: (a) Cause Lessee, upon the written demand of Lessor and at Lessee's expense, to, and Lessee shall, promptly return the Aircraft to Lessor at such location as selected by Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of, Section 9 hereof as if such Airframe or such Engines were being returned at the end of the Term; or Lessor, at its option, may enter upon the premises where the Airframe or any or all Engines are located or believed to be located and take immediate possession of and remove such Airframe or Engines without the necessity for first instituting proceedings, or by summary proceedings or otherwise, and Lessee shall comply therewith, all without liability to Lessor for or by reason of such entry or taking possession, whether for the restoration of damage to property caused by such taking otherwise; (b) Sell or otherwise dispose of any or all of the Aircraft, at public or private sale and with or without notice to Lessee or advertisement, as Lessor may determine or hold, use, operate, lease to others or keep idle all or any part of the Airframe or any Engine as Lessor, in its sole discretion, may determine, in any such case free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or for any proceeds with respect thereto; (c) Whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under paragraph (a) or paragraph (b) above with respect to the Aircraft, Lessor, by written notice to Lessee specifying a payment date may cause Lessee to pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty, any installment of Basic Rent with respect to the Aircraft due on or before such payment date plus an amount equal to 120% of all Rent due thereafter during the remaining portion of the Term or the date Lessor obtains possession of the Aircraft in the condition on the amount of such excess, if any, from such payment date specified in Section 9 hereof, whichever shall be later, together with interest at the Overdue Rate on the amount of such excess, if any, from such payment date specified pursuant to this paragraph (c) to the date such amount is actually received by Lessor in cash; (d) Rescind this Lease as to the Aircraft or exercise any other right or remedy which may be available under Applicable Law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof. In addition, Lessee shall be liable for any and all Supplemental Rent due hereunder before or after any termination hereof, -35- including all costs and expenses (including reasonable attorneys' fees and disbursements) incurred by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto including all costs and expenses incurred in connection with the return of the Airframe or any Engine in accordance with the terms of Section 9 hereof or any appraisal of the Aircraft. No remedy referred to in this Section 14 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all such other remedies. No express or implied waiver by Lessor of any Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default. To the extent permitted by Applicable Law, Lessee hereby waives any rights now or hereafter conferred by statute or otherwise which may require Lessor, otherwise than in accordance with the provisions of this Section 14, to sell, Lease or otherwise use the Airframe or any Engine in mitigation of Lessor's damages or which may otherwise limit or modify any of Lessor's rights or remedies under this Section 14. SECTION 15. INDEMNITIES. ----------- 15.1 General Indemnification and Waiver of Certain Claims. ---------------------------------------------------- (a) Claims Defined. For the purposes of this Lease, -------------- "Claims" shall mean any and all liabilities (including strict or absolute costs, actions or suits and all legal proceedings whether civil or criminal, fines and other sanctions, which may be imposed on, incurred by, suffered by, or asserted against Lessor its successors and assigns and the officers, directors, agents, partners and employees of Lessor, its successors and assigns, and, the Beneficiaries and its or their officers, directors, agents, partners and employees, (individually, an "Indemnified Person" for purposes of this Section 15.1) and, except as otherwise expressly provided in this Section 15.1, shall include all reasonable costs, disbursements and expenses (including attorneys' fees and expenses) of an Indemnified Person in connection therewith or related thereto. (b) Claims Indemnified. Lessee agrees to indemnify, ------------------ defend and hold harmless each Indemnified Person against Claims resulting from, arising out of, or related to: (i) the operation, possession, use, non-use, maintenance, storage, overhaul, testing or disposition of the Aircraft, Airframe or any Engine, or any engine used in connection with the Airframe, or any Part or part thereof by Lessee or any other Person whatsoever, whether or not such operation, possession, use, non-use, maintenance, storage, overhaul or testing is in compliance with the terms of the Lease, including, without limitation, Claims for death, personal injury or property damage or other loss or harm to any Person whatsoever, including, without limitation, any passengers, shippers or other persons whatever located, and Claims relating to any laws, rules or regulations, including, without limitation, environmental control, noise and pollution laws, rules or regulations; -36- (ii) the manufacture, design, sale, purchase, acceptance, rejection, delivery, condition, repair, modification, servicing, rebuilding, airworthiness, performance, nondelivery, sublease, merchantability, fitness for use, substitution or replacement of the Airframe, an Engine or part under the Lease, or other transfer of use or possession of the Aircraft, Airframe, Engine or Part, and registration of the Aircraft, Airframe or any Engine, including, without limitation, latent and other defects, whether or not discoverable, and patent, trademark or copyright infringement; and (iii) any breach of or failure to perform or observe, or any other non-compliance with, any covenant or agreement to be performed, or other obligation of Lessee under any Lease Document. (c) Claims Procedure. An Indemnified Person shall notify Lessee ---------------- of any Claim as to which indemnification is sought. Lessee shall have the right to investigate and the right to defend, and with the prior written consent of such Indemnified Party, such consent not to be unreasonably withheld, compromise any Claim for which indemnification is sought under this Section 15.1, and the Indemnified Person shall cooperate with all reasonable requests of Lessee in connection therewith; provided that at such time no Event of Default shall have occurred and be continuing. In discharging its obligations, under this Section 15.1 Lessee agrees to utilize counsel reasonably acceptable to such Indemnified Person. An Indemnified Person may participate at its own expense in any judicial proceeding controlled by Lessee pursuant to the preceding provisions, and such participation shall not constitute a waiver of the indemnification provided in this Section 15.1. Nothing contained in this Section 15.1(c) shall be deemed to require an Indemnified Person to contest any Claim or to assume responsibility for or control of any judicial proceeding with respect thereto. (d) Indemnification on After-Tax Basis. In the event Lessee is ---------------------------------- required to indemnify any Indemnified Person under this Section 15.1 or 15.2, Lessee shall pay to such Indemnified Person an amount which, after deduction of all taxes actually required to be paid by such Indemnified Person in respect of the receipt of such amount under the Applicable Laws of any government or taxing jurisdiction, shall be equal to the amount of the indemnification required. (e) Waiver of Certain Claims. Lessee hereby waives and releases ------------------------ any Claim now or hereafter existing against any Indemnified Person arising out of death or personal injury to personnel of the Lessee, loss or damage to property of Lessee, or the loss of use of any property of Lessee, which may result from or arise out of the condition, use or operation of the Aircraft during the term, including without limitation any latent or patent defect whether or not discoverable. (f) Conflicting Provisions. The general indemnification ---------------------- provisions of this Section 15.1 are not intended to waive or supersede any specific provisions of this Lease to the extent such provisions apply to any Claim. -37- 15.2 Taxes and Other Charges. ----------------------- (a) Lessee shall pay, indemnify and hold Lessor harmless from all Taxes which relate to the leasing of the Aircraft pursuant hereto which may be levied or assessed against, or imposed on Lessor, the Aircraft or any Part or part thereof upon or with respect to or as a result of (i) the interest of Lessee or Lessor in the Aircraft, (ii) any Rent, (iii) this Lease or the interest of Lessee or Lessor hereunder, (iv) the manufacture, purchase, delivery, leasing, operation, return, possession, use, occupancy, installation, construction, maintenance, repair, renewal or modification of the Aircraft, the Airframe, the Engines, the Parts or any part of any of the foregoing, (v) receipts from the Aircraft during or with respect to the Term, or (vi) the earnings arising from the possession, use or occupancy thereof during the Term. Without limitation of the foregoing, Lessee shall also pay and discharge, as and when due and payable without penalty, all Taxes which may be levied or assessed against or payable by Lessee or Lessor on account of the ownership, leasing, or use of the Aircraft. Notwithstanding the foregoing provisions of this Section 15.2(a), Lessee shall not be required to pay any Tax levied or based on Lessor's net income and imposed on Lessor by any taxing jurisdiction in which Lessor is subject to such tax by reason of activities unrelated to the acquisition, ownership, financing, installation, construction, leasing or use of the Aircraft unless any such Tax or a portion thereof is, by its express terms, imposed or levied upon or assessed against Lessor in substitution for or in place of any other Tax required to be paid by Lessee pursuant to this Section 15.2 (b) Lessee shall furnish to Lessor, upon Lessor's written request, proof of the payment of any such Tax which is payable by Lessee pursuant to Section 15.2(a). (c) Whenever the term "Lessor" is used in this Section 15.2, such term shall include Lessor, its successors, transferees, assigns and partners, and if any Lessor is a trust, the beneficiary and the owner of such trust and the partners of each such beneficiary and owner. 15.3 Continuing Indemnification. The agreements and indemnities -------------------------- contained in this Section 15 shall survive the end of the Term. SECTION 16. TRANSFER, ASSIGNMENT AND SUBLEASE. --------------------------------- 16.1 Assignment or Encumbrance by Lessor. Lessor may, without ----------------------------------- notice to or the consent of Lessee, sell the Aircraft and assign any of its rights hereunder whether as collateral security or otherwise, subject only to the condition that any such assignment or security interest be expressly made subject to Lessee's rights under Section 4 hereof. In connection with any such assignment, Lessee further agrees to take all actions as may be reasonably requested by Lessor to secure such assignee's interest, including without limitation: (i) indemnifying any assignee to the same extent as Lessor under Section 15 hereof; (ii) adding any assignee as additional insureds and loss payees to all insurance policies so naming the Lessor in accordance with Section 11 hereof; (iii) executing, recording and filing and filing all agreements, certificates, financing statements, opinions and other documents or instruments as may be reasonably necessary or -38- desirable to recognize, evidence, secure or perfect any assignees ownership or security interest in the Aircraft and this Lease; (iv) permit the Liens created by security interests granted pursuant hereto; and (v) to recognize all rights of such any assignee to exercise any and all rights of Lessor hereunder. 16.2 Sublease of Aircraft or Assignment by Lessee. Lessor and Lessee -------------------------------------------- agree that Lessee may sublease the Aircraft to the Sublessee pursuant to sublease agreements with substantially the same terms and conditions as those set forth herein. Sublessee may enter into in the ordinary course of Sublesse's business an ACMI Lease. No other sublease of the Aircraft, including the Airframe or any of the Engines, shall be permitted, and no assignment of the Aircraft or any of Lessee's rights or obligations under the Lease to any other party shall be permitted, in either case without the prior written consent of Lessor. 16.3 Consolidation, Merger or Transfer by Lessee. Lessee shall not, ------------------------------------------- without the prior written consent of Lessor, consolidate with or merge into any other corporation or convey, transfer or lease all or substantially all of its assets as an entity to any Person unless, following such merger, conveyance, transfer or lease the successor entity shall have assumed the due and punctual performance of Lessee hereunder pursuant to an agreement in form and substance reasonably satisfactory to Lessor. 16.4 Nonrecourse As to Trustee. Neither the United States Trust ------------------------- Company of New York nor any entity acting as successor trustee shall be personally liable for, or for any loss in respect of, any of the statements, representations, warranties, agreements, actions, failures to act or obligations of Lessor hereunder; Lessee hereby agrees to look solely to the trust estate of the owner trust created by the trust agreement pursuant to which the Aircraft and this Lease are held by Lessor in the event of any default by Lessor of its obligations hereunder or otherwise. SECTION 17. NOTICES. ------- Unless otherwise specifically provided herein, all notices required or permitted by the terms hereof shall be in writing. Any written notice shall become effective the earlier of when received or five days after the deposit of such notice in the U.S. mail. Any written notice shall either be mailed, certified or registered mail, return receipt requested, with proper first class postage prepaid, or sent in the form of a telex, telegram, or telecopy, or by overnight delivery service or delivered by hand. Any written notice shall be addressed as follows: If to Lessor: United States Trust Company of New York 114 West 47th Street New York, NY 10036 Attn: Louis P. Young Fax: (212) 852-1626 -39- With a copy to: American Finance Group Exchange Place Boston, MA 02109 Attn: General Counsel Fax: (617) 523-1410 If to Lessee: ING Aviation Lease BV Karspeldreef 14, 1101 CK Amersterdam-Zuidoost The Netherlands Attention: Managing Director Fax: (3120) 652-5704 with a copy to: David Schmidt, Esq. Whitman, Breed, Abbott & Morgan Metlife Building 200 Park Avenue New York, NY 10166 Such persons and addresses may be changed, from time to time, by means of a notice given in the manner provided in this Section 17. SECTION 18. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to make ------------------------------------ any payment of Rent required to be made by it hereunder, or fails to perform or comply with any of its agreements contained herein, then Lessor may itself make such payment or perform or comply with such agreement, and the amount of such payment and the amount of the reasonable expenses of Lessor incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Overdue Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand. SECTION 19. MISCELLANEOUS. ------------- 19.1 Waivers, Headings. No term or provision of this Lease may be ----------------- changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. The headings contained herein are for convenience and reference only and are not intended to define or limit the scope of any provisions of this Lease. -40- 19.2 Counterparts. This Lease may be signed in one or more ------------ counterparts with the same effect as if the signatures to each counterpart were upon a single instrument. 19.3 Agreement of Lease. This Lease shall constitute an agreement to ------------------ lease, and nothing contained herein shall be construed as conveying to Lessee any right, title or interest in any Aircraft except as a lessee only. 19.4 Governing Law. This Lease shall in all respects be governed by, ------------- and construed in accordance with English law, including all matters of construction, validity and performance but without giving effect to its choice of law provisions. 19.5 Benefit and Binding Effect. The terms and provisions of this -------------------------- Lease shall inure to the benefit of and be binding on Lessor its successors and assigns and Lessee and its successors and permitted assigns. 19.6 Further Assurances. Lessor and Lessee shall, from time to time, do and perform such other and further acts and execute and deliver any and all such other and further instruments as may be required by law or reasonably requested by the other party to establish, maintain and protect the respective rights and remedies of the other party and to carry out the intent and purpose of this Lease. In furtherance of and not in limitation of the foregoing and notwithstanding any breach or alleged breach by Lessor of its obligations hereunder, Lessee agrees that upon the expiration or earlier termination of this Lease to promptly execute upon Lessor's request a lease termination certificate or similar instrument in a form suitable for recordation with the CAA. [This space intentionally left blank] -41- IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease by their duly authorized representatives as of the date first above written. UNITED STATES TRUST COMPANY INTERNATIONALE NEDERLANDEN OF NEW YORK, not in its AVIATION LEASE B.V. individual capacity but solely as Trustee of the "AFG/British Airways Trust" By:__[SIGNATURE APPEARS HERE]___ By:_____________________________ Title:___VICE PRESIDENT_________ Title:__________________________ THIS LEASE IS COUNTERPART NO. 1 OF THREE SERIALLY NUMBERED ORIGINAL --- EXECUTED COUNTERPART COPIES OF THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL EXECUTED COUNTERPART MARKED COUNTERPART NO.1. -42- IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease by their duly authorized representatives as of the date first above written. UNITED STATES TRUST COMPANY INTERNATIONALE NEDERLANDEN OF NEW YORK, not in its AVIATION LEASE B.V. individual capacity but solely as Trustee of the "AFG/British Airways Trust" By: By: [signature appears here] ------------------------ ---------------------------- Title: Title: [signature appears here] --------------------- ------------------------- THIS LEASE IS COUNTERPART NO. 1 OF THREE SERIALLY NUMBERED ORIGINAL EXECUTED COUNTERPART COPIES OF THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL EXECUTED COUNTERPART MARKED COUNTERPART NO. 1. EXHIBIT A --------- DESCRIPTION OF AIRCRAFT ----------------------- Model Serial CAA Manufacturer Configuration Number Reg. Mark - ------------ ------------- ------ --------- Lockheed Aircraft L-1011-385-50 1145 G-BEAL Corporation Number and Type Serial of Engines Number - ------------- ------ Rolls-Royce RB211-22B Engine 1 10453 Engine 2 10456 Engine 3 10532 EXHIBIT B ACCEPTANCE CERTIFICATE (INTERIM) This Acceptance Certificate (Interim) ("Certificate") is by and between United States Trust Company of New York, not in its individual capacity but solely as trustee of the "AFG/British Airways Trust" ("Lessor") and Internationale Nederlanden Aviation Lease B.V. ("Lessee") and relates to that certain Lockheed L-1011-385-50 aircraft MSN 1145, UK Registration Mark G-BEAL ("Aircraft"). WHEREAS, Lessor and Lessee are entering into that certain Lease Agreement (G-BEAL) dated as of April 30, 1994 relating to the lease by Lessee of the Aircraft from Lessor; and WHEREAS, the Aircraft is currently stored at the facilities of Aero Tech in Roswell, New Mexico; and WHEREAS, Lessee has preliminarily inspected the Aircraft and based on such inspection believes that the Aircraft is substantially in condition required by Lessee to fully accept it for lease under the Lease but that Lessee will be unable to verify such conclusion until the Aircraft has been flown to the U.K., and an Integration Check by BA ("Integration Check") has been performed; and NOW THEREFORE, Lessor and Lessee hereby certify and agree as follows: 1. Acceptance. Lessee hereby provisionally accepts the Aircraft from ---------- Lessor and hereby agrees to promptly fly the Aircraft to London - Gatwick Airport (part of which flight will be used as a test flight of the Aircraft) and to there cause BA to perform the Integration Check, at Lessor's expense, to ascertain the condition of the Aircraft and its suitability for integration into the BA maintenance system. 2. The Lease. Lessor and Lessee hereby agree that except as otherwise set --------- forth herein, from and after the execution of this Certificate, Lessee's possession and operation of the Aircraft shall be pursuant to all of the terms and conditions in the Lease, provided however that during the flight from ---------------- Roswell, New Mexico to London - Gatwick Airport, no maintenance reserve shall be payable with respect to such flight pursuant to Section 8.14 and that no Basic Rent shall be payable as provided in Section 6.1 of the Lease until the Acceptance Certificate (Final) is executed by Lessee. 3. Final Acceptance. Upon the successful conclusion of the Integration ---------------- Check, as provided in Section 2.2 of the Lease, Lessee shall execute the Acceptance Certificate (Final) thereby accepting the Aircraft for lease under the Lease in all respects. 4. Failure to Accept. In the event the Aircraft proves in the course of ----------------- the Integration Check not be in substantially the condition required for lease under the Lease, Lessee agrees to cause the Aircraft, at Lessor's expense, to be promptly repaired so that it meets such standards. In the event that it is determined that the Aircraft cannot be repaired on or before May 28, 1994 or that the aggregate, ordinary and reasonable costs of such repairs would exceed $500,000, either Lessee or Lessor may conclude upon written notice given to the other that the Aircraft cannot be accepted for lease and Lessee shall cause the Aircraft to be returned to Aero Tech at Roswell, New Mexico at the expense of the party making such determination. Upon its return to Aero Tech, Lessee shall have no further liability to Lessor under the Lease or otherwise with respect to the proposed leasing of the Aircraft by Lessee. 5. Defined Terms. Capitalized terms not otherwise defined herein shall ------------- have the meaning given to such terms in the Lease. IN WITNESS WHEREOF, Lessee and Lessor have executed this certificate on May ____, 1994. United States Trust Company of New York, Trustee as aforesaid. By:____________________________ Title:_________________________ Internationale Nederlanden Aviation Lease B.V. By:____________________________ Title:_________________________ -2- EXHIBIT C --------- to Lease Agreement (G-BEAL) ------------------------ dated as of April 30, 1994 ACCEPTANCE CERTIFICATE (FINAL) ------------------------------ Internationale Nederlanden Aviation Lease B.V. ("Lessee") hereby acknowledges that on the ___ day of May, 1994, United States Trust Company of New York, as Trustee of the "AFG/British Airways Trust" ("Lessor"), delivered for inspection to Lessee one (1) Lockheed L-1011-385-50 Aircraft, bearing Manufacturer's Serial Number 1145 and CAA Registration Mark G-BEAL, together with three (3) Rolls-Royce RB211-22B Engines, bearing manufacturer's serial numbers 10453, 10456 and 10532, together with all instruments, parts, and other equipment attached hereto or installed therein ("Parts"), in accordance with the Lease Agreement (G-BEAL) between Lessor and Lessee, dated as of April 30, 1994 (the "Lease"). The undersigned hereby further acknowledges that: (i) it did conduct an inspection of the aforementioned Aircraft, Engines, and Parts as evidenced by Schedule 1 hereto; (ii) the same are technically acceptable to it and in the condition for delivery and acceptance as required under the Lease; and (iii) the execution and delivery of this Acceptance Certificate (Final) signifies the technical acceptance by Lessee of the Aircraft under the Lease as reflected by Schedule 1 and the acceptance of the Aircraft in all respects for lease under the Lease. Any outstanding discrepancies between the condition of the Aircraft at delivery and the condition of the Aircraft as required by the Lease Agreement as described in the Lease are noted in Schedule 3 hereto. IN WITNESS WHEREOF, this Acceptance Certificate (Final) has been executed and delivered at Gatwick Airport, United Kingdom, this ___ day of May, 1994. INTERNATIONALE NEDERLANDEN AVIATION LEASE B.V. (Lessee) By: ___________________________ Title: ________________________ SCHEDULE 1 TO ACCEPTANCE CERTIFICATE (FINAL) Aircraft Status Just Prior to Delivery Date --------------------------- 1. Airframe Heaviest Check ("D" Check or Equivalent): ------------------------------------------------- Interval: Time Remaining: 2. Airframe "C" Check (or Equivalent) (Phase C): -------------------------------------------- Interval: Time Remaining: 3. Landing Gear Overhaul: --------------------- Interval: Time Remaining: Hrs. Left Gear Hrs. Right Gear Hrs. Nose Gear 4. Engines: ------- Interval: On Condition -2- Hot Section Inspection ("HSI"): ============================================================ S/N Time Since HSI* Cycle since HSI* - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ ============================================================ *Times and cycles since Acceptance Borescope -3- Interval: On Condition Cold Section Inspection ("CSI"): ======================================================= S/N Time Since CSI* Cycles Since CSI* - ------------------------------------------------------- - ------------------------------------------------------- - ------------------------------------------------------- ======================================================= * Times and cycles since Acceptance Borescope 5. Engines Time Remaining to First Restriction: ------------------------------------------- Engine S/N: ---------- Limiter: Hours: ---------- ---------- Cycles: ---------- ---------- Engine S/N: ---------- Limiter: Hours: ---------- ---------- Cycles: ---------- ---------- Engine S/N: ---------- Limiter: Hours: ---------- ---------- Cycles: ---------- ---------- 6. Auxiliary Power Unit: -------------------- On Condition Time Since Last APU ------------- Heavy Shop Visit: Date of Last APU ------------- Heavy Shop Visit: -4- SCHEDULE 2 TO ACCEPTANCE CERTIFICATE (FINAL) Manuals and Technical Records ----------------------------- -5- SCHEDULE 3 TO ACCEPTANCE CERTIFICATE (FINAL) Discrepancies (Append additional pages as required and initial each such page): - ------------- INTERNATIONALE NEDERLANDEN UNITED STATES TRUST COMPANY AVIATION LEASE B.V. OF NEW YORK AS TRUSTEE OF "AFG/ BRITISH AIRWAYS TRUST" By _________________________ By _________________________ Title ______________________ Title ______________________ Date _______________________ Date _______________________ -6- EXHIBIT D --------- to Lease Agreement (G-BEAL) ------------------------ dated as of April 30, 1994 ACCEPTANCE CERTIFICATE (RETURN) ------------------------------- United States Trust Company of New York, as Trustee of the "AFG/British Airways Trust" ("Lessor"), hereby acknowledges that on the__day of_____, 199_, Internationale Nederlanden Aviation Lease B.V. ("Lessee") delivered for inspection to Lessor one (1) Lockheed L-1011-385-50 Aircraft, bearing Manufacturer's Serial Number 1145 and CAA Registration Mark G-BEAL, together with three (3) Rolls-Royce RB211-22B Engines, bearing manufacturer's serial numbers 10453, 10456 and 10532, together with all instruments, parts, and other equipment attached hereto or installed therein ("Parts"), in accordance with the Lease Agreement (G-BEAL) between Lessor and Lessee, dated as of April 30, 1994 (the "Lease"). The undersigned hereby further acknowledges that: (i) it did conduct an inspection of the aforementioned Aircraft, Engines, and Parts as evidenced by Schedule 1 hereto; (ii) the same are technically acceptable to it and in the condition for return and acceptance as required under the Lease; and (iii) the execution and delivery of this Acceptance Certificate (Return) signifies the technical acceptance by Lessor fo the Aircraft under the Lease as reflected by Schedule 1 and the acceptance of the Aircraft as meeting in all respects (except as noted on the attached Schedule 1) the return conditions applicable to the Aircraft under the Lease. Any outstanding discrepancies between the condition of the Aircraft at delivery and the condition of the Aircraft as required by the Lease Agreement as described in the Lease are noted in Schedule 2 hereto. IN WITNESS WHEREOF, this Acceptance Certificate (Return) has been executed and delivered at Gatwick Airport, United Kingdom, this__day of___,199_. United States Trust Company of New York as Trustee of the "AFG/British Airways Trust" (Lessor) By: ------------------------------------- Title: ---------------------------------- SCHEDULE 1 TO ACCEPTANCE CERTIFICATE (RETURN) Aircraft Status Just Prior to Delivery Date --------------------------- 1. Airframe Heaviest Check ("D" Check or Equivalent): ------------------------------------------------ Interval: Time Remaining: 2. Airframe "C" Check (or Equivalent) (Phase C): -------------------------------------------- Interval: Time Remaining: 3. Landing Gear Overhaul: --------------------- Interval: Time Remaining: Hrs. Left Gear Hrs. Right Gear Hrs. Nose Gear 4. Engines: ------- Interval: On Condition -2-
Hot Section Inspection ("HSI"): ============================================================ S/N Time Since HSI* Cycles Since HSI* - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ ============================================================
* Times and cycles since Acceptance Borescope -3- Interval: On Condition
Cold Section Inspection ("CSI"): ============================================================ S/N Time Since CSI* Cycles Since CSI* - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ ============================================================
* Times and cycles since Acceptance Borescope 5. Engines Time Remaining to First Restriction: ------------------------------------------- Engine S/N: Limiter: ------- Hours: ------- ------- Cycles: ------- ------- Engine S/N: Limiter: ------- Hours: ------- ------- Cycles: ------- ------- Engine S/N: Limiter: ------- Hours: ------- ------- Cycles: ------- ------- 6. Auxiliary Power Unit: -------------------- On Condition Time Since Last APU ---------- Heavy Shop Visit: Date of Last APU ---------- Heavy Shop Visit: -4- SCHEDULE 2 TO ACCEPTANCE CERTIFICATE (RETURN) Discrepancies (Append additional pages as required and initial each such page): - ------------- INTERNATIONALE NEDERLANDEN UNITED STATES TRUST COMPANY AVIATION LEASE B.V. OF NEW YORK AS TRUSTEE OF "AFG/ BRITISH AIRWAYS TRUST" By ____________________ By _____________________ Title _________________ Title __________________ Date __________________ Date ___________________ -5- EXHIBIT E GUARANTY OF THE OBLIGATIONS OF INTERNATIONALE --------------------------------------------- NEDERLANDEN AVIATION LEASE B.V. ------------------------------- This Guaranty of the Obligations of Internationale Nederlanden Aviation Lease B.V ("Guaranty"), dated as of April 30, 1994, made by Internationale Nederlanden Lease Holding N.V., a Netherlands corporation ("Guarantor"), W I T N E S S E T H: WHEREAS, Internationale Nederlanden Aviation Lease B.V., a Netherlands corporation ("Lessee") is desirous of leasing that certain Lockheed L-1011-385-50 Aircraft manufacturer's serial No. 1145 and U.K. Registration Mark (G-BEAL) (together with the Engines and related parts and records, the "Aircraft") from United States Trust Company of New York, not in its individual capacity but solely as Trustee of the "AFG/British Airways Trust" ("Lessor"); and WHEREAS, Lessor is willing to lease the Aircraft to Lessee under that certain Lease Agreement (G-BEAL) dated as of April 30, 1994 (the "Lease") but only if Lessee's obligations under the Lease are guaranteed by Guarantor. NOW, THEREFORE, in consideration of the premises and in order to induce Lessor, as requested by Guarantor, to enter into the Lease, Guarantor does hereby represent, covenant and agree with Lessor as follows: 1. GUARANTY OBLIGATIONS -------------------- 1.1 Guarantor hereby absolutely and unconditionally, guarantees to Lessor the punctual and faithful payment and performance of all and singular of the Liabilities (as hereinafter defined) of Lessee to Lessor under the Lease (whether such Liabilities are now existing or arise hereafter); and the strict performance and observance by Lessee of all of the terms, covenants and conditions contained in the Lease, without reduction, deduction, diminution or offset of any kind. The obligations of Guarantor with respect to payments made hereunder shall be the same as those of the Lessee set forth in Section 15.2 of the Lease with respect to payments made under the Lease. As used herein, the term "Liabilities" includes, without limitation, any and all Rent, (including Supplemental Rent), Stipulated Loss Value, indemnity payments and other payments, indebtedness, liabilities, obligations and undertakings of Lessee to Lessor of every kind and description under the Lease (including, also, without limitation, costs and expenses incurred by Lessor in attempting to collect or enforce any of the foregoing) accrued in each case to the date of payment hereunder. 1.2 This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance by Lessee of the Liabilities and not of their collectibility only. The Liabilities and obligations of Guarantor hereunder may be enforced in full without any suit or action against Lessee or any other guarantor of any of the Liabilities, without regard or resort to any security or other means of obtaining payment of the Liabilities which Lessor may now or hereafter have or hold, and without the performance or occurrence of any other condition or contingency whatsoever; provided, however, that the exercise or attempted exercise, at any time or times, of any or all of such rights and remedies as Lessor may have against Lessee, or with respect to any security for liabilities or under any other guaranty of Liabilities shall not affect, reduce, modify or impair, in any manner whatsoever, the liabilities and obligations of Guarantor hereunder. Guarantor hereby expressly waives any right of set-off it may have with respect to its obligations hereunder. Upon the occurrence of any "Event of Default," as defined in Section 3.1 hereof (hereinafter an "Event of Default"), the liabilities and obligations of Guarantor hereunder shall, at the option of Lessor, become forthwith due and payable to Lessor, without demand or notice of any nature (except as set forth in Section 3.1.4), all of which are expressly waived by Guarantor. Guarantor waives notice of acceptance of this Guaranty, presentment, demand of payment, notice of nonpayment, protest and notice of protest with respect to the Liabilities and giving of notice of default or other notice to, or making any demand on, any party liable in any manner for the payment of the Liabilities. 1.3 Guarantor hereby waives any and all suretyship defenses and defenses in the nature thereof; and agrees that enforcement of this Guaranty shall not be affected, reduced, modified or impaired by: (i) any dealing by Lessor with Lessee or anyone else who may now or hereafter become liable in any manner for any of the Liabilities, in such manner as Lessor, in its sole discretion, may deem fit; or (ii) if for any reason Lessee has no legal existence or is under no legal obligation to discharge any of the Liabilities; or (iii) if any bankruptcy, insolvency, reorganization or similar proceeding in respect of Guarantor or the Lessee shall have been commenced; or (iv) if, by operation of law or for any other reason, moneys included in the Liabilities have become recoverable from Lessee, or (v) if any security for any of the Liabilities or if any other guaranty thereof is invalid, ineffective or unenforceable. This Guaranty shall be binding upon Guarantor to the same extent as if Guarantor were at all times primarily obligated on the Liabilities. -2- 1.4 No setoff, counterclaim, reduction or diminution of any Liabilities, or any defense of any kind or nature, which Guarantor has or may have against Lessee, shall be available hereunder to Guarantor against Lessor. 1.5 This Guaranty shall remain in full force and effect regardless of any payment hereunder or of any reduction in, or modification or alteration of the Liabilities including, without limitation, the extension of the maturity of any of the Liabilities, until such time as all the Liabilities and all liabilities and obligations of Guarantor hereunder has been paid and performed in full. Guarantor's obligations under this Guaranty shall be immediately extinguished upon the full, complete and faithful performance by Lessee or Guarantor of all of the Liabilities, provided however, so long as this Guaranty remains in force, -------- ------- as aforesaid, Guarantor will not, by paying any sum recoverable hereunder (whether or not demanded by Lessor) or by any means or on any other ground, claim any set-off or counterclaim against Lessee in respect of any liability of Guarantor to Lessor or, in bankruptcy or insolvency proceedings of any nature, prove in competition with Lessor in respect of any payment hereunder or be entitled to have the benefit of any counterclaim or proof of claim or dividend or payment by or on behalf of Lessee or the benefit of any other security for any of the Liabilities which , now or hereafter, Lessor may hold or in which it may have any share. All payments by Guarantor hereunder shall by made in lawful money of the United States of America in immediately available funds. 1.6 If for the purpose of Lessor obtaining judgment in any court in any country with respect to the Liabilities it becomes necessary to convert into any currency (herein called a "Judgment Currency") other than United States dollars -------- -------- any amounts payable hereunder or other sum payable by Guarantor under this Guaranty, then such conversion shall be made at the Rate of Exchange (as defined herein) prevailing one banking day before the day on which judgment is given. For this purpose, "Rate of Exchange" means in respect of the Lessor the rate at ---------------- which the Lessor is able on the relevant date of conversion to purchase the relevant sum of United States dollars as aforesaid with the Judgment Currency. In the event that there is a change in the Rate of Exchange prevailing between the banking day before the day on which the judgment is given and the actual date of payment of the amount due, Guarantor agrees to pay such additional and/or lesser amounts as the case may be (if any) as may be necessary to ensure that the amount thus paid on such date is the amount in the Judgment Currency which when computed at the Rate of Exchange prevailing on the date of payment is the amount then due and payable under the Guaranty in United States dollars before conversion into the Judgment Currency was made. Any amount due from Guarantor under this Section shall be due and payable as a -3- separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Guaranty. 1.7 Guarantor agrees that notwithstanding the payment of the Liabilities, the liability of Guarantor hereunder shall continue and remain in full force and effect in the event all or any part of any such payment is recovered from Lessor as a preference or fraudulent transfer under any bankruptcy or other applicable law. 1.8 Guarantor shall have no right of subrogation with respect to any rights Lessor may have against Lessee or against any security which the Lessor may hold unless and until the Liabilities have been paid or performed in full. 1.9 Guarantor consents that, without the necessity of any reservation of rights against it and without notice to or further assent by it (i) the obligations and liabilities of Lessee and any other party or parties for or upon any of the Liabilities, or any collateral security therefor may, from time to time, in whole or in part, be renewed, extended, modified, accelerated, compromised or released by Lessor; (ii) any and all collateral security at any time held by Lessor for payment of the Liabilities may be sold, exchanged or released, all without notice to or further assent by the Guarantor, who will remain bound hereunder, notwithstanding any such renewal, extension, modification, acceleration, compromise, sale or exchange or release; and (iii) the covenants and agreements of Lessee contained in the Lease may at any time be amended, modified, supplemented or terminated in whole or in part; all as Lessor may deem advisable from time to time without impairing, abridging, releasing or affecting the obligations of the Guarantor hereunder. II. REPRESENTATIONS AND WARRANTIES ------------------------------ Guarantor hereby represents and warrants to Lessor as follows that as of the date hereof: 2.1 (a) Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of the Netherlands, is duly qualified to do business and is in good standing in each jurisdiction where the character of its business and the ownership of its property, as now conducted or owned or as proposed to be conducted or owned, requires such qualification; has all requisite power and authority, corporate and otherwise, to conduct its business and to own its property, as now conducted or owned or as proposed to be conducted or owned; -4- (b) The execution, delivery and performance by Guarantor of this Guaranty has been duly authorized by all necessary corporate action on the part of Guarantor, has been duly executed and delivered by Guarantor,, are not inconsistent with its charter documents or By-Laws, do not violate any law or governmental rule, regulation or order applicable to Guarantor, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is bound and, upon execution and delivery hereof, will constitute a legal, valid and binding agreement of Guarantor, enforceable in accordance with its terms; (c) No consent or approval by any governmental authority or agency is required with respect to the execution, delivery and performance by Guarantor of this Guaranty; (d) There are no litigations or proceedings pending or, to the knowledge of Guarantor threatened against it which may have a materially adverse effect on Guarantor or which would prevent or hinder the performance by it of its obligations hereunder; (e) Guarantor is not in material default under any agreement, contract, ordinance, decree, bond, note, mortgage, indenture, order or judgment to which it is a party or by which any of its properties or assets owned by it or used in the conduct of its business is affected; and (f) There has been no material adverse change in the operating or financial condition of Guarantor since the financial statements of Guarantor dated December 31, 1993. III. DEFAULT ------- 3.1 The following described events shall constitute "Events of Default" hereunder: 3.1.1 An "Event of Default" as defined in the Lease shall occur and remain unremedied. 3.1.2 Guarantor shall: (a) admit its inability to pay its debts generally as they become due or otherwise acknowledging its insolvency; (b) file a petition in bankruptcy or for reorganization or for the adoption of an arrangement under the bankruptcy law of the United States of America, or any other jurisdiction which relates to the liquidation or reorganization of companies or the modification or alteration of the rights of creditors, (each such law, as from time to time in effect, being sometimes referred to as a "bankruptcy act", each as now or in -5- the future amended) or an answer or other pleading admitting or failing to deny the material allegations of such a petition or seeking, consenting to or acquiescing in the relief therein provided; (c) make an assignment, or so-called trust mortgage or the like, for the benefit of its creditors or by its making a proposal to its creditors under any bankruptcy act; (d) consent to the appointment of a receiver or a trustee (or other person performing a similar function) for all or a substantial part of its property; (e) be adjudicated a bankrupt; (f) suffer the entry of, or be the subject of, a court order which shall not be vacated, set aside or stayed within 60 days from the date of entry, (i) appointing a receiver or a trustee for all or a substantial part of its property, or (ii) approving a petition filed or application made against or for, or effecting an arrangement in bankruptcy or for a reorganization or other relief pursuant to any bankruptcy act or for any other judicial modification or alteration of the rights of creditors; (g) have all or a substantial part of its property taken into custody or be sequestrated by a court of competent jurisdiction, which custody or sequestration shall not be suspended or terminated within 60 days (or such longer period as the Lessor may agree in writing) from its inception. 3.1.3 Any representation or warranty made in writing by Guarantor in this Guaranty, or in any certificate or written disclosure delivered in connection with this Guaranty shall prove to have been false or incorrect in any material respect on the date of such representation or warranty. 3.1.4 Guarantor shall be in default in the observance or performance or any other covenant, condition or agreement to be observed or performed by Guarantor hereunder five (5) days after written notice thereof from Lessor. 3.2 Upon the occurrence of an Event of Default, Lessor may, by notice to Guarantor, declare this Guaranty to be in default and may exercise any of the following remedies: Lessor may: (a) Proceed by appropriate court action either at law or in equity to enforce performance by Guarantor of the covenants and terms of this Guaranty and to recover damages for the breach thereof; and -6- (b) Guarantor shall be liable for all attorneys' fees and disbursements and other costs and expenses whatsoever incurred by the Lessor by reason of the occurrence of any Event of Default or by reason of the exercise by the Lessor of any remedy hereunder, including without limitation thereto, any costs and expenses incurred by the Lessor in connection with any retaking of the Aircraft and the placement of the Aircraft in the condition required by Section 9 of the Lease. Lessor's remedies are, except as indicated herein, cumulative and not exclusive, and are in addition to all remedies at law or in equity. No failure by Lessor to declare a default shall constitute a waiver of such default or restrict Lessor's ability to declare a default at a later date. IV. MISCELLANEOUS ------------- 4.1 No provision of this Guaranty can be changed, waived, discharged or terminated except by an instrument in writing signed by Lessor and Guarantor expressly referring to the provision of this Guaranty to which such instrument is related; and no such waiver shall extend to, affect or impair any right with respect to any liability or obligation which is not expressly dealt with therein. No course of dealing or delay or omission on the part of Lessor in exercising any right or remedy hereunder, shall operate as a waiver thereof or otherwise be prejudicial thereto. The rights and remedies of Lessor hereunder are cumulative and not exclusive of any other rights and remedies under any other guaranty by Guarantor or under applicable law, and all such rights and remedies may be exercised singly or concurrently. 4.2 Any demand or notice hereunder to Lessor or Guarantor shall be in writing and shall be effective when delivered to Lessor or Guarantor, as the case may be, or when sent by certified or registered mail, return receipt requested, or delivered to a telegraph company, or sent by telex or facsimile, addressed to Lessor at its address for notices set forth in the Lease or to Guarantor at its address specified below, or if Lessor or Guarantor has received written notice of a change of address of the other, to the last address of which notice has actually been received by Lessor or Guarantor. 4.3 This Guaranty shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts and shall be binding upon Guarantor and its successors and assigns, and shall inure to the benefit of Lessor and its successors and assigns. -7- 4.4 This Guaranty can be assigned by Lessor if the Lease is assigned pursuant to its terms and shall be fully enforceable to the same extent as if made to Lessor's assignee. This Guaranty cannot be assigned by Guarantor without the prior written consent of Lessor. 4.5 Guarantor agrees to execute and deliver at Lessor's cost all documents and perform all acts reasonably requested by Lessor so as to permit Lessor to exercise and enjoy its rights hereunder, including, without limitation the delivery of opinions, certificates and consents to assignment. 4.6 All capitalized terms not otherwise defined herein shall have the meaning given to such terms in the Lease. 4.7 Guarantor hereby agrees that any legal action or proceeding with respect to this Guaranty, or to enforce any judgment obtained against the Guarantor with respect to the Guaranty, may be brought by the Lessor in the courts of the Commonwealth of Massachusetts, in the United States federal courts of the Commonwealth of Massachusetts, or in the courts of any other appropriate jurisdiction as Lessor may elect and by execution and delivery of this Guaranty the Guarantor irrevocably submits to each such jurisdiction and service of process as provided by law but only for the purpose of bringing any legal action or proceeding with respect to this Guaranty or enforcing any judgment obtained against the Guarantor with respect to this Guaranty. In addition, with respect to any action or proceeding within the jurisdictions of the courts of the Commonwealth of Massachusetts and of the United States federal courts in the Commonwealth of Massachusetts, the Guarantor hereby irrevocably consents to the service of process out of said Massachusetts or United States courts in any such action or proceeding by the mailing thereof by United States registered mail to it at c/o ING Aviation Lease, Corner Office, Karspeldreef 14, 1101 CK AMsterdam-Zuidoost, The Netherlands. Final judgment against the Guarantor (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Guarantor therein described) in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment. -8- IN WITNESS WHEREOF, Guarantor by its duly authorized representative has executed this Guaranty as of the day and year first above written. Internationale Nederlanden Lease Holding N.V. By: ------------------------ Title: --------------------- -9- EXHIBIT F to Lease Agreement (G-BEAL) ------------------------ dated as of April 30, 1994 ACCEPTANCE FLIGHT REPORT ------------------------ DATE_______STATION_________TIME OUT________IN__________AIRCRAFT NO.__________ REASON FOR FLIGHT____________________________________________________________ _________________________________REQUESTED BY________________________________ CHECK ITEMS AND RECORD DATA APPROPRIATE TO FLIGHT AND TYPE. INDICATE CHECKS PERFORMED WITH "[check mark]" IF SATISFACTORY OR "X" OF UNSATISFACTORY. PREFLIGHT - --------- 1. BATTERY(IES) AND EMERGENCY/STANDBY POWER CHECK..................... _______ 2. FIRE/O'HEAT WARNING TEST........................................... _______ 3. FUELING, CONTROLS AND INDICATORS................................... _______ ======================================= ================================ 4. FUEL QUANTITY/TEMP__________ 5. ALTIMETERS (SET QNH) --------------------------------------- -------------------------------- TANK STICK EXT. GAGE F/S GAGE QNH --------------------------------------- -------------------------------- FIELD ELEV. --------------------------------------- -------------------------------- CAPT. #1 --------------------------------------- -------------------------------- CAPT. #2 --------------------------------------- -------------------------------- STANDBY --------------------------------------- -------------------------------- F/O --------------------------------------- -------------------------------- CAPT. RADIO --------------------------------------- -------------------------------- TOTAL F/O RADIO ======================================= ================================ ========================= ======================== ======================= 6. HYDRAULIC FLUID 7. OIL 8. APU - ------------------------- ------------------------ ----------------------- SYSTEM QUANTITY ENGINE QUANTITY EGT - ------------------------- ------------------------ ----------------------- 1 N\\1\\/N\\2\\ - ------------------------- ------------------------ ----------------------- 2 VOLTS - ------------------------- ------------------------ ----------------------- 3 FREQ. - ------------------------- ======================== ----------------------- LOAD ========================= ----------------------- ======================= 2 =============== ================== ========================= 9. OXYGEN PRESS 10. RAIN REPELLENT 11. RECORDER VOICE FLT --------------- ------------------ ------------------------- CREW OPERATION --------------- ------------------ ------------------------- PAX TAPE =============== ================== ========================= 12. ADI SLIP INDICATORS ==================== ==================== ==================== ==================== CAPT. CAPT. A. EXTERIOR CONDITION, AERODYNAMIC CLEANNESS AND APPEARANCE ............................................ ____ B. INTERIOR CONDITION AND APPEARANCE ..................... ____ C. SEATS, BELTS AND HARNESSES ............................ ____ D. WINDOWS, WINDSHIELDS, VISORS AND SHADES ............... ____ E. DOORS, HATCHES, STAIRS AND SLIDES ..................... ____ F. GALLEYS AND LAVATORIES ................................ ____ G. LANDING GEAR VIEWERS AND INDICATORS ................... ____ H. PLACARDS, DOCUMENTS, MANUALS, LOGBOOKS, CHARTS AND .... ____ CHECKLISTS ........................................... ____ I. EMERGENCY EQUIPMENT ................................... ____ J. OXYGEN MASKS AND OPERATION ............................ ____ K. LIGHTS, NORMAL AND EMERGENCY .......................... ____ L. PROBES, SENSORS, VORTEX GENERATORS AND STATIC DISCHARGES ............................................ ____ M. PITOT/STATIC PORTS, DRAINS AND BLOWOUT DISCS .......... ____ 14. LANDING GEAR, BRAKES AND ACCUMULATORS .................. ____ 15. FLIGHT CONTROLS, TRIM FLAPS AND SLATS (MTC) ............ ____ 16. ELECTRICAL SYSTEM ...................................... ____ 17. HYDRAULIC SYSTEM ....................................... ____ 18. FUEL SYSTEM ............................................ ____ 19. AIR CONDITIONING/BLEEDS/PRESSURIZATION ................. ____ 20. ICE AND RAIN PROTECTION ................................ ____ 21. ALTITUDE ALERT SYSTEM .................................. ____ 22. GPWS TEST .............................................. ____ 23. STALL WARNING .......................................... ____ 24. AURAL WARNINGS ......................................... ____ 25. COMMUNICATIONS ......................................... ____ 26. INSTRUMENTS AND SWITCHING .............................. ____ 27. NAVIGATION SYSTEMS ..................................... ____ 28. AFCS ................................................... ____ 3 ENGINE START/TAXI - ----------------- 1. ENGINE START AND IDLE OAT ______ PA _______ APU START AIR PRESS ______
================================================================================ MIN STARTER EGT OIL OIL FLT ENG AIR CUTOUT PEAK/STABLE N\\1\\ N\\2\\ F/F PRES TEMP IDLE CDE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================
2. HYDRAULICS AND BRAKES............................................. _______ 3. STEERING CONTROL WHEEL AND RUDDER PEDAL........................... _______ 4. YAW DAMPERS....................................................... _______ 5. FLIGHT CONTROLS AND POSITION INDICATORS........................... _______ 6. WING TAI GROUND TEST.............................................. _______ 7. PRESSURIZATION.................................................... _______ 8. AUTO PACK TRIP.................................................... _______ 9. CSD OIL COOLER.................................................... _______ 10. T.O. CONFIGURATION WARNING........................................ _______ 11. EPR/N\\1\\ COMPUTER............................................... _______ 12. ENGINE ACCELERATION CHECK......................................... _______
================= ENG. SECS. NOTE: ----------------- 1 . TIME TO 90% N\\1\\ ----------------- 2 . BLEEDS OFF ----------------- 3 . ONE SECOND THROTTLE ADVANCE =================
TAKEOFF AND CLIMB - ----------------- 1. TAKEOFF OAT. ______ PA ______ CHART EPR/N\\1\\ ______
================================================================== ============ OIL OIL THROTTLE ENG EPR N\\1\\ EGT N\\2\\ F/F PRESS TEMP BLEED STAGGER - ------------------------------------------------------------------ ------------ - ------------------------------------------------------------------ ------------ - ------------------------------------------------------------------ ------------ 1 2 3 ================================================================== ============
4 2. GEAR RETRACTION ____ SECS. TAIL SKID ____........... ____ 3. ENGINE ANTI-ICE ..................................... ____ 4. WINGS/TAIL ANTI-ICE ................................. ____ 5. INSTRUMENT SWITCHING ................................ ____ 6. FLIGHT CONTROLS, NORMAL/ABNORMAL OPERATION AND TRIM . ____ 7. YAW DAMPERS ......................................... ____ 8. PRESSURIZATION ...................................... ____ 9. FUEL SYSTEM AND HEAT ................................ ____ 10. ALTERNATIVE STATIC SOURCES .......................... ____ 11. COMPASS HEADINGS .................................... ____ ================================== CAPT HSI 090 180 270 360 ---------------------------------- F/O HSI ---------------------------------- STANDBY ================================== CRUISE AND DESCENT - ------------------ 1. STABILIZE AT NORMAL CRUISE M _____ FL310 OR ABOVE, A/P ON PA _____ GW _____ RAT/TAT _____ SAT _____ CHART EPR _____ N\\1\\ _____ IAS _____ CAPT IAS _____ M _____ CAPT #1 ALT _____ F/O ALT _____ F/O IAS _____ M _____ CAPT #2 ALT _____ STDBY ALT _____ ========================================================== =========== OIL OIL THROTTLE ENG EPR N\\1\\ EGT N\\2\\ F/F PRESS TEMP BLEED STAGGER - ---------------------------------------------------------- ----------- - ---------------------------------------------------------- ----------- - ---------------------------------------------------------- ----------- 1 2 3 ========================================================== =========== 2. ELECTRICAL ======================================= ===================== KW IDG/CSD ------- AC LOAD KVAR VOLTS FREQ IN R DC VOLTS LOAD - --------------------------------------- --------------------- 1 - --------------------------------------- --------------------- 2 - --------------------------------------- --------------------- 3 ======================================= --------------------- --------------------- ===================== 5 3. HYDRAULIC 4. PRESSURIZATION ================================== ========================================= SYS PRESS QUAN AUTO (ISOBARIC) - ---------------------------------- ----------------------------------------- AUTO MAX/STDBY - ---------------------------------- ----------------------------------------- RELIEF - ---------------------------------- ----------------------------------------- ALTITUDE WARNING - ---------------------------------- ----------------------------------------- ALTITUDE LIMITING ================================== ----------------------------------------- RATE CONTROL ----------------------------------------- ALTITUDE SEL CALIBRATION ========================================= NOTE: IF OXYGEN MASK DORP REQUIRED TAPE DOORS (B727) 5. CABIN LEAKAGE CHECK, SINGLE PACK OPERATION ........................ _______ 6. AIR CONDITIONING, AUTO, MANUAL AND DISTRIBUTION ................... _______ 7. APFDS, TURNS, MANUAL, HEADING, NAV CAP AND TRACK .................. _______ 8. NAVIGATION, VOR, ADF .............................................. _______ 9. FLIGHT INSTRUMENTS ................................................ _______ 10. COMMUNICATIONS, VHF, HF AND SELCAL ................................ _______ 11. ATC TRANSPONDERS, ALT REPORTING ................................... _______ 12. AIRCRFT TRIM ....... CLEAN CONFIGURATION .......................... _______ . FUEL LOAD BALANCED AND THRUST EVEN . TRIM AIRCRAFT TO FLY HANDS OFF ..... SPOILERS FLUSH? ______ . RECORD TRIM POSITIONS (CIRCLE L or R) . AILERON ______ UNIT(S) L R _______ RUDDER _______ UNIT(S) L R . IF MORE THAN ONE UNIT AILERON OR RUDDER TRIM REQUIRED ...... PERFORM FOLLOWING CHECK AND RECORD DATA ================================================================================ USE CAPT BOTH TRIM ZERO RUDDER TRIM ZERO AILERON TRIM ZERO ADI BALL CONTROL WHEEL TILT AILERON TRIM (UNITS) RUDDER TRIM (UNITS) - -------------------------------------------------------------------------------- ___ *LR WING DOWN ___ *LR WING DOWN ___ *LR NOSE --------------------------------------------------------------------- 200K - -------------------------------------------------------------------------------- ___ *LR WING DOWN ___ *LR WING DOWN ___ *LR NOSE --------------------------------------------------------------------- 250K - -------------------------------------------------------------------------------- ___ *LR WING DOWN ___ *LR WING DOWN ___ *LR NOSE --------------------------------------------------------------------- 300K ================================================================================ 6 13. MMO/VMO WARNING .... KIAS 14. STICK SHAKER .... KIAS OW_______ ============================================= =============================== FL350 TO 300 BELOW FL 250 FLAPS CHART CAPT F/O - --------------------------------------------- ------------------------------- ALT____CHART____ ALT____CHART____ - --------------------------------------------- ------------------------------- CAPT A CAPT A - --------------------------------------------- ------------------------------- B B - --------------------------------------------- ------------------------------- F/O A F/O A - --------------------------------------------- ------------------------------- B B ============================================= =============================== 15. SPEED BRAKES....................................................... ______ 16. DESCENT ENGINE IDLE AND ACCELERATION............................... ______ 17. RADAR, STABILIZATION, PITCH, MAPPING............................... ______ APPROACH/LANDING/TAXI - --------------------- 1. WARNING HORNS AND CUTOUTS.......................................... ______ 2. ALTERNATE LANDING GEAR EXTENSION................................... ______ 3. ALTERNATE FLAP EXT______RET______.................................. ______ 4. SPEED COMMAND, SRS, AUTOTHROTTLES.................................. ______ 5. APFDS, APPROACH AND AUTOLAND....................................... ______ 6. RADIO ALTIMETERS................................................... ______ 7. GPWS............................................................... ______ 8. WINDSHIELD WIPERS/WASHERS AND RAIN REPELLENT....................... ______ 9. RUDDER LIMITING.................................................... ______ 10. NORMAL GEAR EXTENSION AND NOSE STEERING............................ ______ 11. SPOILER ACTUATION.................................................. ______ 12. BRAKES, AUTO, ANTI-SKID, ALTERNATE................................. ______ 13. THRUST REVERSERS................................................... ______ 14. APU................................................................ ______ 15. PARKING BRAKES, APPLICATION AND RELEASE............................ ______ 16. TOTAL FUEL REMAINING............................................... ______ - -------------------------------------------------------------------------------- FLIGHT CREW COMMENTS CORRECTIVE ACTION ACCOMPLISED BY: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- FLIGHT CREW COMMENTS CORRECTIVE ACTION ACCOMPLISHED BY: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ALL ITEMS SIGNED ---------------------------- COMPLETED BY:__________________________ APPROVED BY:___________________________ 8 -----END PRIVACY-ENHANCED MESSAGE-----