-----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, UsrptAtvQMucfK5/9K3cpn7W8fzBxsR/DdxPjn6NUUQrpC+jg731ajmHzzDNvQ/s nPxCOSp5q0baYU/Kgjpi7g== 0000846729-98-000002.txt : 19980504 0000846729-98-000002.hdr.sgml : 19980504 ACCESSION NUMBER: 0000846729-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980430 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN FREIGHTWAYS CORP CENTRAL INDEX KEY: 0000846729 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 742391754 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17570 FILM NUMBER: 98605210 BUSINESS ADDRESS: STREET 1: 2200 FORWARD DR CITY: HARRISON STATE: AR ZIP: 72601 BUSINESS PHONE: 5017419000 MAIL ADDRESS: STREET 1: 2200 FORWARD DR CITY: HARRISON STATE: AR ZIP: 72601 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 34-0-17570 AMERICAN FREIGHTWAYS CORPORATION (Exact name of registrant as specified in its charter) Arkansas 74-2391754 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 2200 Forward Drive, Harrison, Arkansas 72601 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (870) 741-9000 Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of shares of common stock outstanding at March 31, 1998: 31,567,689. PART I. FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (000's omitted) MARCH 31, December 31, 1998 1997 ------------------------- (UNAUDITED) (Note) ASSETS Current assets Cash and cash equivalents $ 3,812 $ 1,755 Trade receivables, less allowance for doubtful accounts (1998-$1,846; 1997-$1,774) 85,417 78,700 Operating supplies and inventories 3,067 2,882 Prepaid expenses 14,108 8,671 Deferred income taxes 15,104 13,306 Income taxes receivable - 1 ----------- ----------- Total current assets 121,508 105,315 Property and equipment 720,295 699,176 Accumulated depreciation and amortization (244,481) (230,870) ----------- ----------- 475,814 468,306 Other assets 2,038 1,952 ----------- ----------- $ 599,360 $ 575,573 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $ 14,420 $ 12,910 Accrued expenses 63,362 54,114 Federal and state income taxes 1,026 - Current portion of long-term debt 11,498 11,497 ----------- ----------- Total current liabilities 90,306 78,521 Long-term debt, less current portion (Note B) 216,511 210,411 Deferred income taxes 61,955 59,225 Shareholders' equity Common stock, par value $.01 per share-- authorized 250,000 shares; issued and outstanding 31,568 in 1998 and 1997 316 316 Additional paid-in capital 104,832 104,832 Retained earnings 125,440 122,268 ----------- ----------- 230,588 227,416 ----------- ----------- $ 599,360 $ 575,573 =========== ===========
Note: The condensed consolidated balance sheet at December 31, 1997, has been derived from the audited consolidated financial statements at that date. See notes to condensed consolidated financial statements. AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (000's omitted, except per share data) Three Months Ended March 31 1998 1997 ----------------- OPERATING REVENUE $230,649 $193,051 OPERATING EXPENSES AND COSTS Salaries, wages and benefits 143,430 118,305 Operating supplies and expenses 20,017 18,512 Operating taxes and licenses 9,995 8,601 Insurance 7,142 6,682 Communications and utilities 3,955 3,495 Depreciation and amortization 13,808 12,846 Rents and purchased transportation 13,019 9,890 Other 9,978 8,318 --------- --------- 221,344 186,649 --------- --------- OPERATING INCOME 9,305 6,402 OTHER INCOME (EXPENSE) Interest expense (4,086) (4,086) Interest income 63 55 Gain on disposal of assets 21 16 Other, net 28 11 --------- --------- (3,974) (4,004) INCOME BEFORE INCOME TAXES 5,331 2,398 --------- --------- FEDERAL AND STATE INCOME TAXES Current 1,227 1,293 Deferred (credit) 932 (353) --------- --------- 2,159 940 --------- --------- NET INCOME $ 3,172 $ 1,458 ========= ========= PER SHARE (NOTE D) Net income-basic $ 0.10 $ 0.05 Net income-assuming dilution $ 0.10 $ 0.05 ========= ========= AVERAGE SHARES OUTSTANDING (NOTE D) Basic 31,568 31,258 Assuming dilution 31,625 31,490 ========= =========
See notes to condensed consolidated financial statements. AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (000's omitted) Three Months Ended March 31 1998 1997 ---------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 17,319 $ 16,091 INVESTING ACTIVITIES Proceeds from sales of equipment 26 47 Capital expenditures (21,389) (10,514) ----------- ----------- Net cash used by investing activities (21,363) (10,467) FINANCING ACTIVITIES Principal payments on long-term debt (5,606) (35) Proceeds from notes payable and long-term borrowings 11,707 - Proceeds from issuance of common stock - 161 ----------- ----------- Net cash provided by financing activities 6,101 126 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 2,057 $ 5,750 =========== ===========
See notes to condensed consolidated financial statements. AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 1998 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results of the three month period ended March 31, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the Company's consolidated financial statements and footnotes thereto included in Form 10-K for the year ended December 31, 1997. NOTE B - LONG-TERM DEBT As of March 31, 1998, the Company has outstanding borrowings of $69,200,000 under its existing $175,000,000 unsecured revolving line of credit. The proceeds of these borrowings were used for the purchase of revenue equipment and for the purchase and construction of Customer Center facilities. At March 31, 1998, the amount available for borrowing under the line of credit was $105,800,000. In addition to this credit facility, the Company has obtained letters of credit totaling $3,976,000 to provide collateral on its self-insurance plan. As of March 31, 1998, the Company has outstanding borrowings of $131,250,000 under an uncommitted Master Shelf Agreement which provides for the issuance of up to $140,000,000 of senior promissory notes with an average life not to exceed twelve years. In addition, the Company has outstanding an unsecured senior note for $20,000,000 payable in equal annual installments of $5,000,000 through November 2001. NOTE C - COMMITMENTS Commitments for the purchase of revenue equipment and the purchase or construction of terminals aggregated approximately $39,793,000 at March 31, 1998. NOTE D - EARNINGS PER SHARE Net income for purposes of basic earnings per share and earnings per share--assuming dilution was $3,172,000 and $1,458,000 for the three months ended March 31, 1998 and 1997, respectively. A reconciliation of average shares outstanding for both periods is presented below: Three Months Ended March 31, 1998 1997 ------------------------- (In Thousands) Average shares outstanding-basic 31,568 31,258 Effect of dilutive stock options 57 232 ----------- ----------- Average shares outstanding -assuming dilution 31,625 31,490 =========== ===========
NOTE E - RECENT ACCOUNTING PRONOUNCEMENTS The impact of adoption of Financial Accounting Standards Board Statement No. 130, Reporting Comprehensive Income, which was required for the first quarter of 1998 was not material. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table sets forth, for the periods indicated, the percentages of operating expenses and other items to operating revenue: Three Months Ended March 31 1998 1997 --------------------- Operating revenue 100.0% 100.0% Operating expenses and costs Salaries, wages and benefits 62.2% 61.3% Operating supplies and expenses 8.7% 9.6% Operating taxes and licenses 4.3% 4.5% Insurance 3.1% 3.5% Communications and utilities 1.7% 1.8% Depreciation and amortization 6.0% 6.6% Rents and purchased transportation 5.7% 5.1% Other 4.3% 4.3% --------------------- Total operating expenses and costs 96.0% 96.7% --------------------- Operating income 4.0% 3.3% Interest expense 1.8% 2.1% Other income, net 0.1% 0.1% --------------------- Income before income taxes 2.3% 1.3% Income taxes 0.9% 0.5% --------------------- Net income 1.4% 0.8% =====================
RESULTS OF OPERATIONS Operating Revenue Operating revenue for the three months ended March 31, 1998 was $230,649,000, up 19.5%, compared to $193,051,000 for the three months ended March 31, 1997. The growth in operating revenue was primarily the result of increased tonnage from new and existing customers and increased revenue per hundred weight. Tonnage handled by the Company during the three months ended March 31, 1998 increased 16.8% over levels handled during the three months ended March 31, 1997. This increase in tonnage was mainly a result of the following: - - The Company continued to increase its market penetration into existing service territories, particularly those geographic areas added during 1995 and 1996. During 1995, the Company expanded its all-points coverage to the states of Colorado, Florida, Iowa, Nebraska, North Carolina, South Carolina and Wisconsin. 1996 expansions included the states of Delaware, Maryland, Minnesota, Virginia and West Virginia. - - The continued increase in intrastate tonnage following the deregulation of intrastate commerce effective January 1, 1995. - - Effective January 1, 1998, the Company increased its all- points coverage to 28 states with the addition of the state of Michigan. Revenue per hundred weight for the three months ended March 31, 1998 was up 1.7% from levels experienced in the three months ended March 31, 1997. Factors which most impacted revenue per hundred weight were: - - A general rate increase of approximately 5.5% effective January 1, 1998. General rate increases initially affect approximately 45% of the Company's customers. The remaining customers' rates are determined by contracts and guarantees and are negotiated throughout the year. - - A fuel surcharge was in effect during the first quarter of 1997, but not in effect for the majority of the first quarter of 1998. The Company initiated a fuel surcharge beginning September 6, 1996 to help recover the increased costs of fuel. This surcharge is tied to the Department of Energy's National Diesel Fuel Index and was 1.0% for LTL shipments during the three months ended March 31, 1997. The surcharge is designed to suspend at the time this national index moves below $1.15 per gallon. Effective January 7, 1998, the fuel surcharge was suspended and remains suspended as of March 31, 1998. - - The percentage of the Company's total revenue that was derived from truckload shipments (greater than 10,000 pounds) declined to 5.7% during the three months ended March 31, 1998 as compared to 5.9% during the three months ended March 31, 1997. Management expects that growth in operating revenue is sustainable in the near term. Although the Company's planned expansions of service territory during 1998 are more aggressive than those initiated in 1997, the primary focus for growth in operating revenue in the near term will be further penetration of existing markets. As a result, any near-term percentage growth in operating revenue will likely be less than that experienced in recent years. The foregoing statement concerning the sustainability of revenue growth is subject to a number of factors, including LTL industry capacity, increased tonnage and general economic conditions. Operating Expenses Operating expenses as a percentage of operating revenue improved to 96.0% in the three months ended March 31, 1998 from 96.7% in the three months ended March 31, 1997. This overall improvement was primarily attributable to: - - Operating supplies and expenses as a percentage of operating revenue decreased to 8.7% in the three months ended March 31, 1998 from 9.6% in the three months ended March 31, 1997. This improvement was due to reduced fuel costs resulting from lower fuel prices and the increased use of purchased transportation. This improvement in fuel costs was partially offset by increased costs of maintaining equipment and facilities. Maintenance expenses, the other primary component of operating supplies and expenses, continued to gradually increase. In the near term, management expects this gradual upward trend in maintenance costs to continue as the Company's fleet ages. - - Depreciation and amortization as a percentage of operating revenue improved to 6.0% in the three months ended March 31, 1998 from 6.6% in the three months ended March 31, 1997. This improvement was largely due to the increased usage of purchased transportation and operating lease financing of revenue equipment. - - Insurance as a percentage of operating revenue decreased to 3.1% in the three months ended March 31, 1998 from 3.5% in the three months ended March 31, 1997. This improvement was largely due to improved experience involving vehicle accidents and cargo claims. Management does not expect this downward trend to continue. Rather, it is expected that insurance costs as a percentage of operating revenue will stabilize or gradually increase during 1998. These improvements in operating expenses as a percentage of operating revenue were partially offset by increases in the following areas: - - Salaries, wages and benefits as a percentage of operating revenue increased to 62.2% in the three months ended March 31, 1998 from 61.3% in the three months ended March 31, 1997. This increase was largely the result of increased costs in the areas of workmen's compensation and health care. After benefiting from relatively low claims in these areas during the first quarter of 1997, the level of claims returned to a level more typically experienced by the Company. Management expects that during the remainder of 1998, these expenses will remain at current levels. Comparing the first quarter of 1998 to the same period of 1997, salaries and wages as a percentage of operating revenue remained flat despite a general wage increase of 3.5% in March 1998. During the remainder of 1998, management anticipates that ongoing educational programs and changes in operations will result in productivity gains in the form of improved pickup and delivery density, increased line haul load factor and more direct line haul schedules. However, these gains cannot be assured and are subject to a variety of factors which may or may not be within the control of management. - - Rents and purchased transportation as a percentage of operating revenue increased to 5.7% in the three months ended March 31, 1998 from 5.1% in the three months ended March 31, 1997. This increase was primarily a result of the utilization of purchased transportation in selected line-haul lanes in order to improve asset utilization and decrease overall costs of operations. Management expects rents and purchased transportation as a percentage of operating revenue to remain flat or gradually increase due to two principal reasons: 1) the Company plans to continue the strategic use of purchased transportation in selected line-haul lanes and 2) the increased usage of operating lease financing of revenue equipment (See Liquidity and Capital Resources). Other Interest expense as a percentage of operating revenue decreased to 1.8% in the three months ended March 31, 1998, compared to 2.1% in the three months ended March 31, 1997. This improvement is primarily the result of lower interest rates and of reducing total debt to $228,009,000 as of March 31, 1998 from $238,203,000 as of March 31, 1997. The effective tax rate of the Company was 40.5% for the three months ended March 31, 1998, up from 39.2% for the three months ended March 31, 1997. This increase was due to increased federal tax rates on higher levels of income, as well as higher state tax rates. Net income for the three months ended March 31, 1998 was $3,172,000, up 117.6%, from $1,458,000 for the three months ended March 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Capital requirements during the three months ended March 31, 1998 consisted of $21,363,000 in investing activities. The Company invested $21,389,000 in capital expenditures during the three months ended March 31, 1998 comprised of $4,084,000 in additional revenue equipment, $10,430,000 in new Customer Center facilities or the expansion of existing facilities and $6,875,000 in other equipment. Management expects capital expenditures for the full year of 1998 will be approximately $100,000,000, consisting primarily of anticipated investments in new and existing Customer Center facilities. However, the actual amount of capital expenditures required in 1998 will be dependent on the growth rate of the Company and the timing and size of any future expansions of service territory. At March 31, 1998, the Company had commitments for land, Customer Centers, revenue and other equipment of approximately $39,793,000. The Company provided for its capital resource requirements in the three months ended March 31, 1998 predominantly with cash from operations. Cash from operations totaled $17,319,000 during the three months ended March 31, 1998 compared to $16,091,000 provided by operations during the three months ended March 31, 1997. Net financing activities provided an additional $6,101,000 of cash flow in the three months ended March 31, 1998. Two primary sources of credit financing were available to the Company: the revolving line of credit and the Master Shelf facility. - - The Company experiences periodic cash flow fluctuations common to the industry. Cash outflows are heaviest during the first part of any given year while cash inflows are normally weighted towards the last two quarters of the year. To smooth these fluctuations and to provide flexibility to fund future growth, the Company utilizes a variable-rate, unsecured revolving line of credit of $175,000,000 provided by NationsBank of Texas, N.A. (agent), Chase Bank of Texas, N.A., Wachovia Bank of Georgia, N.A., ABN-AMRO Bank N.V., The First National Bank of Chicago and Credit Lyonnais. At March 31, 1998, $69,200,000 was outstanding on the revolving line of credit, leaving $105,800,000 available for borrowing. The Company also had $10,000,000 available under its short-term, unsecured revolving $10,000,000 line of credit with NationsBank of Texas, N.A. In addition, the Company maintains a $10,000,000 line of credit with NationsBank of Texas, N.A. to obtain letters of credit required for its self-insurance program. At March 31, 1998, the Company had obtained letters of credit totaling $3,976,000 for this purpose. - - To assist in financing longer-lived assets, the Company has an uncommitted Master Shelf Agreement with the Prudential Insurance Company of America which provides for the issuance of up to $140,000,000 in medium to long-term unsecured notes at an interest rate calculated at issuance. At March 31, 1998, the Company had $131,250,000 outstanding under this facility. Management expects that the Company's existing working capital and its available lines of credit are sufficient to meet the Company's commitments as of March 31, 1998, and to fund current operating and capital needs. However, if additional financing is required, management believes it will be available. The Company uses off-balance sheet financing in the form of operating leases primarily in the following areas; land and structures, revenue equipment and other equipment. At March 31, 1998, future rental commitments on operating leases were $72,811,000. The Company prefers to utilize operating leases for these areas and plans to use them in the future when such financing is available and suitable. Future rental commitments on operating leases are as follows: Land and Revenue Other Total Structures Equipment Equipment -------------------------------------------- 1998 $17,421 $ 3,903 $ 5,203 $ 8,315 1999 18,846 3,261 6,938 8,647 2000 16,547 2,087 6,938 7,522 2001 9,526 1,483 6,162 1,881 Thereafter 10,471 1,731 8,740 --- ------------------------------------------ Total $72,811 $ 12,465 $33,981 $26,365 ------------------------------------------
YEAR 2000 ISSUES The Company has assessed the impact of the Year 2000 issues on its computer software systems and applications, and determined that although many of its applications are already compliant the Company will have to modify or replace other applications. The Company expects to have all applications fully compliant by the end of 1998. The Company also has initiated discussions with its significant customers and suppliers to determine the extent to which the Company's interface systems would be vulnerable to those third parties' failure to remediate their own Year 2000 issues. There is no assurance that the systems of other companies on which the Company's systems rely will be timely converted and would not have an adverse effect on the Company's systems. Expenditures related to the Company's Year 2000 initiatives have not been and are not expected to be material to the Company's results of operations or financial position. ENVIRONMENTAL At March 31, 1998, the Company had no outstanding inquiries with any state or federal environmental agency. INDEX AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets--March 31, 1998 and December 31, 1997 Condensed consolidated statements of income--Three months ended March 31, 1998 and 1997 Condensed consolidated statements of cash flows--Three months ended March 31, 1998 and 1997 Notes to condensed consolidated financial statements--March 31, 1998 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders a) The Annual Meeting of Shareholders was held April 23, 1998. c) Listed below is the proposal voted on and number of votes cast at the 1998 Annual Shareholders' Meeting: 1. TO ELECT THREE (3) DIRECTORS TO THE CLASS WHOSE TERM WILL EXPIRE IN 2001: FOR ABSTAIN BROKER NON-VOTES F.S. (Sheridan) Garrison 25,591,756 324,151 500 Ken Reeves 25,588,160 327,747 500 Doyle Z. Williams 25,589,291 326,616 500 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: (10) Master Lease Agreement with BancBoston Leasing dated March 23, 1998 (27) Financial Data Schedule (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three month period ended March 31, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN FREIGHTWAYS CORPORATION (Registrant) Date: April 29, 1998 /s/Frank Conner Frank Conner Executive Vice President-Accounting & Finance and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary finanical information extracted from the March 31, 1998 quaterly consolidated financial statements and is qualified in its entirety by reference to such finanical statements. 1,000 3-MOS DEC-31-1998 JAN-1-1998 MAR-31-1998 3,812 0 87,263 1,846 3,067 121,508 720,295 244,481 599,360 90,306 216,511 0 0 316 230,272 599,360 0 230,649 0 221,344 0 0 4,086 5,331 2,159 3,172 0 0 0 3,172 .10 .10 Provision for Doubtful accounts included in costs and expenses applicalbe to revenues.
EX-10 3 MASTER LEASE AGREEMENT WITH BANCBOSTON LEASING BancBoston Leasing a BANK OF BOSTON company MASTER LEASE AGREEMENT This MASTER LEASE AGREEMENT, dated as of the 23rd day of March, 1998 ("Lease Agreement") is made at Boston, Massachusetts by and between AFI Leasing Trust ("Lessor"), a Massachusetts corporation with its principal place of business at 100 Federal Street, Boston, Massachusetts 02110 and American Freightways, Inc. ("Lessee"), an Arkansas corporation with its principal place of business at 2200 Forward Dr., Harrison, AR 72602. IN CONSIDERATION OF the mutual promises and covenants contained herein, Lessor and Lessee hereby agree as follows: 1. Property Leased. At the request of Lessee and subject to the terms and conditions of this Lease Agreement, Lessor shall lease to Lessee and Lessee shall lease from Lessor such personal property ("Equipment") as may be mutually agreed upon by Lessor and Lessee. The Equipment shall be selected by or ordered at the request of Lessee, identified in one or more equipment schedules substantially in the form of Exhibit A attached hereto ("Equipment Schedule") and accepted by Lessee in one or more certificates of acceptance ("Certificate of Acceptance") in the form of Exhibit B attached hereto. Each Equipment Schedule executed by Lessor and Lessee and each Certificate of Acceptance executed by Lessee shall constitute a part of this Lease Agreement. 2. Certain Definitions. 2.1 The "Acquisition Cost" shall mean the total cost of the Equipment paid by Lessor as set forth in the applicable Equipment Schedule. 2.2 The "Commencement Date" shall mean the date on which the Equipment identified in the applicable Equipment Schedule is accepted and placed in service by Lessee under this Lease Agreement. Each Commencement Date shall be evidenced by the Certificate of Acceptance applicable to such Equipment Schedule. 2.3 The "Rent Start Date" shall mean either (i) the first day of the month following the month in which the Commencement Date occurs or (ii) the Commencement Date, if the Commencement Date occurs on the first day of the month. 2.4 The "Monthly Rent" shall mean the amount set forth in the applicable Equipment Schedule as Monthly Rent for the Equipment identified on such Equipment Schedule. 2.5 The "Daily Rent" shall mean one-thirtieth (1/30) of the Monthly Rent. 2.6 The words "herein", "hereof", and "hereunder" shall refer to this Lease Agreement as a whole and not to any particular section. All other capitalized terms defined in this Lease Agreement shall have the meanings assigned thereto. 3. Initial Term of Lease; Payment of Rent. 3.1 The term of lease for the Equipment ("Initial Term") shall begin on the Commencement Date set forth in the applicable Certificate of Acceptance and shall continue during and until the expiration of the number of full calendar months set forth in the applicable Equipment Schedule, measured from the Rent Start Date. The Initial Term may not be cancelled or terminated except as set forth in Section 10.2 below. 3.2 At the expiration of the Initial Term, Lessor and Lessee may extend the lease of the Equipment for any period as they may agree upon in writing ("Extended Term") at the then fair market rental value of the Equipment, as determined in good faith by Lessor. 3.3 Aggregate Daily Rent shall be due and payable by Lessee on the Rent Start Date in an amount equal to the Daily Rent multiplied by the actual number of days elapsed from, and including, the Commencement Date to, but excluding, the Rent Start Date. The Monthly Rent shall be due and payable on the Rent Start Date and, thereafter on the first day of each month of the Initial Term or any Extended Term. All Daily Rents and Monthly Rents shall be paid to Lessor at its office in Boston, Massachusetts. 4. Acceptance of Equipment; Exclusion of Warranties. 4.1 Lessee shall signify its acceptance of the Equipment identified in the applicable Equipment Schedule by promptly executing and delivering to Lessor a Certificate of Acceptance. Lessee acknowledges that its execution and delivery of the Certificate of Acceptance shall conclusively establish, as between Lessor and Lessee, that the Equipment has been inspected by Lessee, is in good repair and working order, is of the design, manufacture and capacity selected by Lessee, and is accepted by Lessee under this Lease Agreement. 4.2 In the event the Equipment is ordered by Lessor from a manufacturer or supplier at the request of Lessee, Lessor shall not be required to pay the Acquisition Cost for such Equipment unless and until the applicable Certificate of Acceptance has been received by Lessor. Lessee hereby agrees to indemnify, defend and hold Lessor harmless from any liability to any manufacturer or supplier arising from the failure of Lessee to lease any Equipment which is ordered by Lessor at the request of Lessee or for which Lessor has assumed an obligation to purchase. 4.3 Lessor leases the Equipment to Lessee and Lessee leases the Equipment from Lessor "AS IS" and "WITH ALL FAULTS". Lessee hereby acknowledges that (i) Lessor is not a manufacturer, supplier or dealer of such Equipment nor an agent thereof; and (ii) LESSOR HAS NOT MADE, DOES NOT MAKE, AND HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT INCLUDING, BUT NOT LIMITED TO, ITS DESIGN, CAPACITY, CONDITION, MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE. Lessee further acknowledges that Lessor is not responsible for any repairs, maintenance, service, latent or other defects in the Equipment or in the operation thereof, or for compliance of any Equipment with requirements of any laws, ordinances, governmental rules or regulations including, but not limited to, laws with respect to environmental matters, patent, trademark, copyright or trade secret infringement, or for any direct or consequential damages arising out of the use of or inability to use the Equipment. 4.4 Provided no Event of Default, as defined in Section 16 below, has occurred and is continuing, Lessor agrees to cooperate with Lessee, at the sole cost and expense of Lessee, in making any claim against a manufacturer or supplier of the Equipment arising from a defect in such Equipment. At the request of Lessee, Lessor shall assign to Lessee all warranties on the Equipment available from any manufacturer or supplier to the full extent permitted by the terms of such warranties and by applicable law. 5. Ownership; Inspection; Maintenance and Use. 5.1 The Equipment shall at all times be the sole and exclusive property of Lessor. Any Equipment subject to titling and registration laws shall be titled and registered by Lessee on behalf of and in the name of Lessor at the sole cost and expense of Lessee. Lessee shall cooperate with and provide Lessor with any information or documents necessary for titling and registration of the Equipment. Upon the request of Lessor, Lessee shall execute any documents or instruments which may be necessary or appropriate to confirm, to record or to give notice of the ownership of the Equipment by Lessor including, but not limited to, financing statements under the Uniform Commercial Code. Lessee, at the request of Lessor, shall affix to the Equipment, in a conspicuous place, any label, plaque or other insignia supplied by Lessor designating the ownership of the Equipment by Lessor. 5.2 The Equipment shall be located at the address specified in the applicable Equipment Schedule and shall not be removed therefrom without the prior written consent of Lessor. Lessor, its agents or employees shall have the right to enter the premises of Lessee, upon reasonable notice and during normal business hours, for the purpose of inspecting the Equipment. 5.3 Lessee shall pay all costs, expenses, fees and charges whatsoever incurred in connection with the use and operation of the Equipment. Lessee shall, at all times and at its own expense, keep the Equipment in good repair and working order, reasonable wear and tear excepted. Any maintenance contract required by a manufacturer or supplier for the care and upkeep of the Equipment shall be entered into by Lessee at its sole cost and expense. Lessee shall permit the use and operation of the Equipment only by personnel authorized by Lessee and shall comply with all laws, ordinances or governmental rules and regulations relating to the use and operation of the Equipment. 6. Alterations and Modifications. Lessee may make, or cause to be made on its behalf, any improvement, modification or addition to the Equipment with the prior written consent of Lessor, provided, however, that such improvement, modification or addition is readily removable without causing damage to or impairment of the functional effectiveness of the Equipment. To the extent that such improvement, modification or addition is not so removable, it shall immediately become the property of Lessor and thereupon shall be considered Equipment for all purposes of this Lease Agreement. 7. Quiet Enjoyment; No Defense, Set-Offs or Counterclaims. 7.1 Provided no Event of Default, as defined in Section 16 below, has occurred and is continuing, Lessee shall have the quiet enjoyment and use of the Equipment in the ordinary course of its business during the Initial Term or any Extended Term without interruption by Lessor or any person or entity claiming through or under Lessor. 7.2 Lessee acknowledges and agrees that ANY DAMAGE TO OR LOSS, DESTRUCTION, OR UNFITNESS OF, OR DEFECT IN THE EQUIPMENT, OR THE INABILITY OF LESSEE TO USE THE EQUIPMENT FOR ANY REASON WHATSOEVER, SHALL NOT (i) GIVE RISE TO ANY DEFENSE, COUNTERCLAIM, OR RIGHT OF SET-OFF AGAINST LESSOR, OR (ii) PERMIT ANY ABATEMENT OR RECOUPMENT OF, OR REDUCTION IN DAILY OR MONTHLY RENT, OR (iii) RELIEVE LESSEE OF THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS LEASE AGREEMENT INCLUDING, BUT NOT LIMITED TO, ITS OBLIGATION TO PAY THE FULL AMOUNT OF DAILY RENT AND MONTHLY RENT, WHICH OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL, unless and until this Lease Agreement is terminated with respect to such Equipment in accordance with the provisions of Section 10.2 below. Any claim that Lessee may have which arises from a defect in or deficiency of the Equipment shall be brought solely against the manufacturer or supplier of the Equipment and Lessee shall, notwithstanding any such claim, continue to pay Lessor all amounts due and to become due under this Lease Agreement. 8. Adverse Claims and Interests. 8.1 Except for any liens, claims, mortgages, pledges, encumbrances or security interests created by Lessor, Lessee shall keep the Equipment, at all times, free and clear from all liens, claims, mortgages, pledges, encumbrances and security interests and from all levies, seizures and attachments. Without limitation of the covenants and obligations of Lessee set forth in the preceding sentence, Lessee shall immediately notify Lessor in writing of the imposition of any prohibited lien, claim, levy or attachment on or seizure of the Equipment at which time Lessee shall provide Lessor with all relevant information in connection therewith. 8.2 Lessee agrees that the Equipment shall be and at all times shall remain personal property. Accordingly, Lessee shall take such steps as may be necessary to prevent any person from acquiring, having or retaining any rights in or to the Equipment by reason of its being affixed or attached to real property. 9. Indemnities; Payment of Taxes. 9.1 Lessee hereby agrees to indemnify, defend and hold harmless Lessor, its agents, employees, successors and assigns from and against any and all claims, actions, suits, proceedings, costs, expenses, damages and liabilities whatsoever arising out of or in connection with the manufacture, ordering, selection, specifications, availability, delivery, titling, registration, rejection, installation, possession, maintenance, ownership, use, leasing, operation or return of the Equipment including, but not limited to, any claim or demand based upon any STRICT OR ABSOLUTE LIABILITY IN TORT and upon any infringement or alleged infringement of any patent, trademark, trade secret, license, copyright or otherwise. All costs and expenses incurred by Lessor in connection with any of the foregoing including, but not limited to, reasonable legal fees, shall be paid by Lessee on demand. 9.2 Lessee hereby agrees to indemnify, defend and hold Lessor harmless against all Federal, state and local taxes, assessments, licenses, withholdings, levies, imposts, duties, assessments, excise taxes, registration fees and other governmental fees and charges whatsoever, which are imposed, assessed or levied on or with respect to the Equipment or its use or related in any way to this Lease Agreement ("Tax Assessments") except for taxes on or measured by the net income of Lessor determined substantially in the same manner as under the Internal Revenue Code of 1986, as amended. Lessee shall file all returns, reports or other such documents required in connection with the Tax Assessments and shall provide Lessor with copies thereof. If, under local law or custom, Lessee is not authorized to make the filings required by a taxing authority, Lessee shall notify Lessor in writing and Lessor shall thereupon file such returns, reports or documents. Without limiting any of the foregoing, Lessee shall indemnity, defend and hold Lessor harmless from all penalties, fines, interest payments, claims and expenses including, but not limited to, reasonable legal fees, arising from any failure of Lessee to comply with the requirements of this Section 9.2. 9.3 The obligations and indemnities of Lessee under this Section 9 for events occurring or arising during the Initial Term or any Extended Term shall continue in full force and effect, notwithstanding the expiration or other termination of this Lease Agreement. 10. Risk of Loss; Loss of Equipment. 10.1 Lessee hereby assumes and shall bear the entire risk of loss for theft, damage, seizure, condemnation, destruction or other injury whatsoever to the Equipment from any and every cause whatsoever. Such risk of loss shall be deemed to have been assumed by Lessee from and after such risk passes from the manufacturer or supplier by agreement or pursuant to applicable law. 10.2 In the event of any loss, seizure, condemnation or destruction of the Equipment or damage to the Equipment which cannot be repaired by Lessee, Lessee shall immediately notify Lessor in writing. Within thirty (30) days of such notice, during which time Lessee shall continue to pay Monthly Rent, Lessee shall, at the option of Lessor, either (i) replace the Equipment with equipment of the same type and manufacture and in good repair, condition and working order, transfer title to such equipment to Lessor free and clear of all liens, claims and encumbrances, whereupon such equipment shall be deemed Equipment for all purposes of this Lease Agreement, or (ii) pay to Lessor an amount equal to the present value of both the aggregate of the remaining unpaid Monthly Rents and the anticipated residual value of the Equipment plus any other costs actually incurred by Lessor. Lessor and Lessee agree that the residual value of the Equipment at the expiration of the Initial Term is reasonably anticipated to be not less than twenty (20) percent of the Acquisition Cost of the Equipment. The present value shall be determined by discounting the aggregate of the remaining unpaid Monthly Rents and the anticipated residual value of the Equipment to the date of payment by Lessee at the rate of five (5) percent per annum. When and as requested by Lessor, Lessee shall also pay to Lessor amounts due pursuant to Section 18 below, if any, arising as a result of the loss, seizure, replacement, condemnation or destruction of the Equipment. Any insurance or condemnation proceeds received by Lessor shall be credited to the obligation of Lessee under this Section 10.2 and the remainder of such proceeds, if any, shall be paid to Lessee by Lessor in full compensation for the loss of the leasehold interest in the Equipment by Lessee. 10.3 Upon any replacement of or payment for the Equipment as provided in Section 10.2 above, this Lease Agreement shall terminate only with respect to the Equipment so replaced or paid for, and Lessor shall transfer to Lessee title only to such Equipment "AS IS," "WITH ALL FAULTS", and WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE. Lessee shall pay any sales or use taxes due on such transfer. 11. Insurance. 11.1 Lessee shall keep the Equipment insured against all risks of loss or damage from every cause whatsoever occurring during the Initial Term, or any Extended Term for an amount not less than the higher of the full replacement value of the Equipment or the aggregate of unpaid Daily Rent and Monthly Rent for the balance of the Initial Term, or the Extended Term. Lessee shall also carry public liability insurance, both personal injury and property damage, covering the Equipment, and Lessee shall be liable for any deductible portions of all required insurance. 11.2 All insurance required under this Section 11 shall name Lessor as additional insured and loss payee. Such insurance shall also be with such insurers and shall be in such forms and amounts as are satisfactory to Lessor. All applicable policies shall provide that no act, omission or breach of warranty by Lessee shall give rise to any defense against payment of the insurance proceeds to Lessor. Lessee shall pay the premiums for such insurance and, at the request of Lessor, deliver to Lessor duplicates of such policies or other evidence satisfactory to Lessor of such insurance coverage. In any event, Lessee shall provide Lessor with endorsements upon the policies issued by the insurers which evidence the existence of insurance coverage required by this Section 11 and by which the insurers agree to give Lessor written notice at least twenty (20) days prior to the effective date of any expiration, modification, reduction, termination or cancellation of any such policies. 11.3 The proceeds of insurance required under this Section 11 and payable as a result of loss or damage to the Equipment shall be applied as set forth in Section 10.2 above. Upon the occurrence of an Event of Default as defined in Section 16 below, Lessee hereby irrevocably appoints Lessor as its attorney-in- fact, which power shall be deemed coupled with an interest, to make claim for, receive payment of, execute and endorse all documents, checks or drafts received in payment for loss or damage under any insurance policies required by this Section 11. 11.4 Notwithstanding anything herein, Lessor shall not be under any duty to examine any evidence of insurance furnished hereunder, or to ascertain the existence of any policy or coverage, or to advise Lessee of any failure to comply with the provisions of this Section 11. 12. Surrender To Lessor. Immediately upon the expiration of the Initial Term or any Extended Term or at any other termination of this Lease Agreement, Lessee shall surrender the Equipment to Lessor in good repair and working order, reasonable wear and tear excepted, by assembling and delivering the Equipment, ready for shipment, to a place or carrier, as Lessor may designate, within the state in which the Equipment was originally delivered to Lessee or to which the Equipment was thereafter moved with the written consent of Lessor. All costs of removal, assembly, packing and delivery of such Equipment to the place designated by Lessor shall be borne by Lessee. 13. Fair Market Value Purchase Option. Lessor hereby grants to Lessee the option to purchase all, but not less than all, Equipment set forth on any Equipment Schedule at the expiration of the applicable Initial Term or Extended Term. Any such purchase shall be for cash in an amount equal to the then fair market value of such Equipment, as determined in good faith by Lessor. This purchase option may be exercised by Lessee, provided that no Event of Default, as defined in Section 16 below, has occurred and is continuing. Lessee shall notify Lessor in writing of its intention to exercise its purchase option at least thirty (30) days prior to the expiration of the Initial Term or any Extended Term. Upon payment of the fair market value by Lessee to Lessor, Lessor shall transfer title to the Equipment to Lessee "AS IS", "WITH ALL FAULTS", and WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE. 14. Financial Statements. Lessee shall annually, within ninety (90) days after the close of the fiscal year for Lessee, furnish to Lessor financial statements of Lessee, including a balance sheet as of the close of such year and statements of income and retained earnings for such year, prepared in accordance with generally accepted accounting principles, consistently applied from year to year, and certified by independent public accountants for Lessee. If requested by Lessor, Lessee shall also provide quarterly financial statements of Lessee, similarly prepared for each of the first three quarters of each fiscal year, certified (subject to normal year-end audit adjustments) by the chief financial officer of Lessee and furnished to Lessor within sixty (60) days following the end of the quarter, and such other financial information as may be reasonably requested by Lessor. 15. Delayed Payment Charge. Lessee shall pay to Lessor interest upon the amount of any Daily Rent, Monthly Rent or other sums not paid by Lessee when due and owing under this Lease Agreement, from the due date thereof until paid, at the rate of one and one half (1-1/2) percent per month, but if such rate violates applicable law, then the maximum rate of interest allowed by such law. 16. Default. 16.1 The occurrence of any of the following events shall constitute an event of default ("Event of Default") under this Lease Agreement. (a) Lessee fails to pay any Daily Rent or any Monthly Rent when due and such failure to pay continues for ten (10) consecutive days; or (b) Lessee fails to pay any other sum required hereunder, and such failure continues for a period of ten (10) days following written notice from Lessor; or (c) Lessee fails to maintain the insurance as required by Section 11 above and such failure continues for ten (10) days after written notice from Lessor; or (d) Lessee violates or fails to perform any other term, covenant or condition of this Lease Agreement or any other document, agreement or instrument executed pursuant hereto or in connection herewith, which failure is not cured within thirty (30) days after written notice from Lessor; or (e) Lessee ceases to exist or terminates its independent operations by reason of any discontinuance, dissolution, liquidation, merger, sale of substantially all of its assets, or otherwise ceases doing business as a going concern; or (f) Lessee (i) applies for or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar official for itself or for all or a substantial part of its property, (ii) is generally not paying its debts as such debts become due, (iii) makes a general assignment for the benefit of its creditors, (iv) commences a voluntary case under the United States Bankruptcy Code, as now or hereafter in effect, seeking liquidation, reorganization or other relief with respect to itself or its debts, (v) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vi) takes any action under the laws of its jurisdiction of incorporation or organization similar to any of the foregoing, or (vii) takes any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case is commenced, without the application or consent of Lessee, in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up of Lessee or composition or readjustment of the debts of Lessee, (ii) the appointment of a trustee, receiver, custodian, liquidator or similar official for Lessee or for all or any substantial part of its assets, or (iii) similar relief with respect to Lessee under any law providing for the relief of debtors; or an order for relief is entered with respect to Lessee in an involuntary case under the United States Bankruptcy Code, as now or hereafter in effect, or an action under the laws of the jurisdiction of incorporation or organization of Lessee, similar to any of the foregoing, is taken with respect to Lessee without its application or consent; or (h) Lessee makes any representation or warranty herein or in any statement or certificate at any time given in writing pursuant to or in connection with this Lease Agreement, which is false or misleading in any material respect; or (i) Lessee* defaults under any promissory note, credit agreement, loan agreement, conditional sales contract, guaranty, lease, indenture, bond, debenture or other material obligation whatsoever, and a party thereto or a holder thereof is entitled to accelerate the obligations of Lessee* thereunder; or Lessee* defaults in meeting any of its trade, tax or other current obligations as they mature, unless such obligations are being contested diligently and in good faith; or * or Guarantor (j) Any party to any guaranty, letter of credit, subordination or credit agreement or other undertaking, given for the benefit of Lessor and obtained in connection with this Lease Agreement, breaches, fails to continue, contests, or purports to terminate or to disclaim such guaranty, letter of credit, subordination or credit agreement or other undertaking; or such guaranty, letter of credit, subordination agreement or other undertaking becomes unenforceable; or a guarantor of this Lease Agreement shall die, cease to exist or terminate its independent operations. 16.2 No waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or of the same Event of Default at any other time. 17. Remedies. 17.1 Upon the occurrence of an Event of Default and while such Event of Default is continuing, Lessor, at its sole option, upon its declaration, and to the extent not inconsistent with applicable law, may exercise any one or more of the following remedies: (a) Lessor may terminate this Lease Agreement whereupon all rights of Lessee to the quiet enjoyment and use of the Equipment shall cease; (b) Whether or not this Lease Agreement is terminated, Lessor may cause Lessee, at the sole cost and expense of Lessee, to return any or all of the Equipment promptly to the possession of Lessor in good repair and working order, reasonable wear and tear excepted. Lessor, at its sole option and through its employees, agents or contractors, may peaceably enter upon the premises where the Equipment is located and take immediate possession of and remove the Equipment, all without liability to Lessor, its employees, agents or contractors for such entry. LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO NOTICE AND/OR HEARING PRIOR TO THE REPOSSESSION OR REPLEVIN OF THE EQUIPMENT BY LESSOR, ITS EMPLOYEES, AGENTS OR CONTRACTORS; (c) Lessor may proceed by court action to enforce performance by Lessee of this Lease Agreement or pursue any other remedy Lessor may have hereunder, at law, in equity or under any applicable statute, and recover such other actual damages as may be incurred by Lessor; (d) Lessor may recover from Lessee damages, not as a penalty but as liquidation for all purposes and without limitation of any other amounts due from Lessee under this Lease Agreement, in an amount equal to the sum of (i) any unpaid Daily Rents and/or Monthly Rents due and payable for periods prior to the repossession of the Equipment by Lessor plus any interest due thereon pursuant to Section 15 above, (ii) the present value of all future Monthly Rents required to be paid over the remaining Initial Term or any Extended Term after repossession of the Equipment by Lessor, determined by discounting such future Monthly Rents to the date of payment by Lessee at a rate of five (5) percent per annum, and (iii) all costs and expenses incurred in searching for, taking, removing, storing, repairing, restoring, refurbishing and leasing or selling such Equipment; or (e) Lessor may sell, lease or otherwise dispose of any or all of the Equipment, whether or not in the possession of Lessor, at public or private sale and with or without notice to Lessee, which notice is hereby expressly waived by Lessee, to the extent permitted by and not inconsistent with applicable law. Lessor shall then apply against the obligations of Lessee hereunder the net proceeds of such sale, lease or other disposition, after deducting therefrom (i) the present value of the residual value of the Equipment at the expiration of the Initial Term, which is anticipated by Lessor and Lessee to be not less than twenty (20) percent of the Acquisition Cost, such present value to be determined by discounting the residual value to the date of sale, lease or other disposition at a rate of five (5) percent per annum, and (ii) all costs incurred by Lessor in connection with such sale, lease or other disposition including, but not limited to, costs of transportation, repossession, storage, refurbishing, advertising or other fees. Lessee shall remain liable for any deficiency, and any excess of such proceeds over the total obligations owed by Lessee shall be retained by Lessor. If any notice of such sale, lease or other disposition of the Equipment is required by applicable law, ten (10) days written notice to Lessee shall be deemed reasonable. 17.2 No failure on the part of Lessor to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof. No single or partial exercise of any right or remedy hereunder shall preclude any other or further exercise thereof or the exercise of any other right or remedy. Each right and remedy provided hereunder is cumulative and not exclusive of any other right or remedy including, without limitation, any right or remedy available to Lessor at law, by statute or in equity. 17.3 Lessee shall pay all costs and expenses including, but not limited to, reasonable legal fees incurred by Lessor arising out of or in connection with any Event of Default or this Lease Agreement. Lessee shall also be liable for any amounts due and payable to Lessor under any other provision of this Lease Agreement including, but not limited to, amounts due and payable under Section 18 below. 18. Tax Indemnification. 18.1 Lessee represents and warrants that the Equipment is and will remain, during the entire Initial Term and any Extended Term, property used in a trade or business or for the production of income within the meaning of Section 167 of the Internal Revenue Code of 1986, as amended ("Code"). Lessee further acknowledges and agrees that, pursuant to the Code, Lessor or its affiliated group, as defined in Section 1504 of the Code ("Affiliated Group"), shall be entitled to deductions for the recovery of the Acquisition Cost of the Equipment over the recovery period as set forth in the applicable Equipment Schedule, using the Accelerated Cost Recovery System as provided by Section 168 (b) (1) of the Code ("ACRS Deductions"). 18.2 If as a result of any reason or circumstance whatsoever, except as specifically set forth in Section 18.3 below, Lessor or its Affiliated Group shall not be entitled to, shall not be allowed, shall suffer recapture of or shall lose any ACRS Deductions, then Lessee shall pay to Lessor, upon demand, a sum to be computed by Lessor in the following manner. Such sum, after deduction of all federal, state and local income taxes payable by Lessor as a result of the receipt of such sum, shall be sufficient to restore Lessor or its Affiliated Group to substantially the same position, on an after-tax basis, as it would have been in but for the loss of such ACRS Deductions. In making its computation, Lessor or its Affiliated Group shall Considers but shall not be limited to, the following factors: (i) the amounts and timing of any net loss of tax benefits resulting from any such lack of, entitlement to or loss, recapture, or disallowance of ACRS Deductions but offset by any tax benefits derived from any depreciation or other capital recovery deductions or exclusions from income allowed to Lessor or its Affiliated Group with respect to the same Equipment; (ii) penalties, interest or other charges imposed; (iii) differences in tax years involved; and (iv) the time value of money at a reasonable rate determined, in good faith, by Lessor. For purposes of computation only, the amount of indemnification payments hereunder shall be calculated on the assumption that Lessor and its Affiliated Group have or will have, in all tax years involved, sufficient taxable income and the tax liability to realize all tax benefits and incur all losses of tax benefits at the highest marginal Federal corporate income tax rate in each year. Upon request, Lessor shall provide Lessee with the methods of computation used in determining any sum that may be due and payable by Lessee under this Section 18. 18.3 Lessee shall not be obligated to pay any sums required under this Section 18 in the event that lack of entitlement to, or loss, recapture or disallowance of any ACRS Deductions results from one or more of the following events: (i) a disqualifying disposition due to the sale of the Equipment by Lessor when no Event of Default, as defined in Section 16 above, has occurred, (ii) a failure of Lessor or its Affiliated Group to timely claim any ACRS Deductions for the Equipment in its tax return, and/or (iii) the fact that Lessor or its Affiliated Group does not have, in any taxable year or years, sufficient taxable income or tax liability to realize the benefit of any ACRS Deductions that are otherwise allowable to Lessor or its Affiliated Group. 18.4 The representations, obligations and indemnities of Lessee under this Section 18 shall continue in full force and effect, notwithstanding the expiration or other termination of this Lease Agreement. 19. Assignment; Sublease. 19.1 Lessor may sell, assign or otherwise transfer all or any part of its right, title and interest in and to the Equipment and/or this Lease Agreement to a third-party assignee, subject to the terms and conditions of this Lease Agreement including, but not limited to, the right to the quiet enjoyment of the Equipment by Lessee as set forth in Section 7.1 above. Such assignee shall assume all of the rights and obligations of Lessor under this Lease Agreement and shall relieve Lessor therefrom. Thereafter, all references to Lessor herein shall mean such assignee. Notwithstanding any such sale, assignment or transfer, the obligations hereunder shall remain absolute and unconditional as set forth in Section 7.2 above. 19.2 Lessor may also pledge, mortgage or grant a security interest in the Equipment and assign this Lease Agreement as collateral. Each such pledgee, mortgagee, lienholder or assignee shall have any and all rights as may be assigned by Lessor but none of the obligations of Lessor hereunder. Any pledge, mortgage or grant of security interest in the Equipment or assignment of this Lease Agreement shall be subject to the terms and conditions hereof including, but not limited to, the right to the quiet enjoyment of the Equipment by Lessee as set forth in Section 7.1 above. Lessor, by reason of such pledge, mortgage, grant of security interest or collateral assignment, shall not be relieved of any of its obligations hereunder which shall remain absolute and unconditional as set forth in Section 7.2 above. Upon the written request of Lessor, Lessee shall acknowledge such obligations the pledgee, mortgagee, lienholder or assignee. 19.3 LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE, CONVEY OR PLEDGE ANY OF ITS INTEREST IN THIS LEASE AGREEMENT OR ANY OF THE EQUIPMENT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Any such sale, transfer, assignment, sublease, conveyance or pledge, whether by operation of law or otherwise, without the prior written consent of Lessor, shall be void. 20. Optional Performance By Lessor. If an Event of Default, as defined in Section 16 above, occurs and is continuing, Lessor in its sole discretion may pay or perform such obligation in whole or in part, without thereby becoming obligated to pay or to perform the same on any other occasion or to pay any other obligation of Lessee. Any payment or performance by Lessor shall not be deemed to cure any Event of Default hereunder. Upon such payment or performance by Lessor, Lessee shall pay forthwith to Lessor the amount of such payment or an amount equal to all costs and expenses of such performance, as well as any delayed payment charges on such amounts as set forth in Section 15 above. 21. Compliance and Approvals. Lessee warrants and agrees that this Lease Agreement and the performance by Lessee of all of its obligations hereunder have been duly authorized, do not and will not conflict with any provision of the charter or bylaws of Lessee or of any agreement, indenture, lease or other instrument to which Lessee is a party or by which Lessee or any of its property is or may be bound. Lessee warrants and agrees that this Lease Agreement does not and will not require any governmental authorization, approval, license or consent except those which have been duly obtained and will remain in effect during the entire Initial Term and any Extended Term. 22. Miscellaneous. 22.1 The section headings are inserted herein for convenience of reference and are not part of and shall not affect the meaning or interpretation of this Lease Agreement. 22.2 Any provision of this Lease Agreement which is unenforceable in whole or in part in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such unenforceability without invalidating any remaining part or other provision hereof and shall not be affected in any manner by reason of such enforceability in any other jurisdiction. The validity and interpretation of this Lease Agreement and the rights and obligations of the parties hereto shall be governed in all respects by the laws of The Commonwealth of Massachusetts without giving effect to the conflicts of laws provisions thereof. 22.3 This Lease Agreement, including all Equipment Schedules and Certificates of Acceptance, constitutes the entire agreement between Lessor and Lessee. Lessor and Lessee agree that this Lease Agreement shall not be amended, altered or changed except by a written agreement signed by the parties hereto. LESSEE ACKNOWLEDGES THAT THERE HAVE BEEN NO REPRESENTATIONS, EXPRESS OR IMPLIED, BY LESSOR OTHER THAN AS SET FORTH HEREIN AND LESSEE EXPRESSLY CONFIRMS THAT IT HAS NOT RELIED UPON ANY REPRESENTATIONS BY LESSOR, EXCEPT THOSE SET FORTH HEREIN, AS A BASIS FOR ENTERING INTO THIS LEASE AGREEMENT. 22.4 Any notice required to be given by Lessee or Lessor hereunder shall be deemed adequately given if sent by registered or certified mail, return receipt requested, to the other party at their respective addresses stated herein or at such other place as either party may designate in writing to the other. 22.5 Lessee agrees to execute and deliver such additional documents and to perform such further acts as may be reasonably requested by Lessor in order to carry out and effectuate the purposes of this Lease Agreement. Upon the written request of Lessor, Lessee further agrees to execute any instrument necessary for filing or recording this Lease Agreement or to confirm the ownership of the Equipment by Lessor. Lessor is hereby authorized to insert in any Equipment Schedule the serial numbers of the Equipment and other identifying marks or similar information and to sign, on behalf of Lessee, any Uniform Commercial Code financing statements. 22.6 This Lease Agreement cannot be cancelled or terminated except as expressly provided herein. 22.7 Whenever the context of this Lease Agreement requires, the singular includes the plural and the plural includes the singular. Whenever the word Lessor is used herein, it includes all assignees and successors in interest of Lessor. If more than one Lessee are named in this Lease Agreement, the liability of each shall be joint and several. 22.8 All agreements, indemnities, representations and warranties of Lessee made herein and all rights and remedies of Lessor shall survive the expiration or other termination of this Lease Agreement, whether or not expressly provided herein. 22.9 Any waiver of any power, right, remedy or privilege of Lessor hereunder shall not be effective unless in writing signed by Lessor. 22.10 This Lease Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized officer or agent, have duly executed and delivered this Lease Agreement, which is intended to take effect as a sealed instrument, as of the day and year first written above. American Freightways, Inc. By /s/ Stephen Bruffett Title Director - Finance Accepted at Boston, Massachusetts AFI LEASING TRUST By /s/ Annmare L. Warren Title Trustee By /s/ Susan Gallagher Title Trustee FORM I (REV 9-87) -----END PRIVACY-ENHANCED MESSAGE-----