Lease Financing: Some Possibly Surprising Implications of Article 9 and Suretyship Law

By Robert W. Ihne Equipment lessors are often motivated to finance the leases they originate, whether to fund the acquisition of the leased equipment or to generate immediate income. Such financing transactions are often documented as either a loan secured by the lease or an outright sale of the lease. There are a number of possible variations in the structure of these transactions. For example, a secured loan may be with full recourse to the owner of the lease, where such owner is personally liable to repay the loan, or with recourse limited to the collateral securing the loan – i.e., limited to the lessor’s rights under the lease and in many cases also the lessor’s interests in the equipment being leased. An outright sale can be structured with or without recourse with respect to a lessee’s ability to pay (though, in a case of such recourse, there could well be an issue regarding whether a “true sale” has occurred), and might include as well either a grant of a security interest in the equipment and or a sale of the equipment. The object of this article is to explore certain implications of secured transactions law and of the law of suretyship and guaranty for such forms of lease financing. While many involved in the structuring and documentation of lease financing are aware of some of these implications, a number of the points to be made here may come as a surprise, but nonetheless have important legal and practical consequences. The following is a list of questions to be addressed. The answers to these questions should guide the everyday practice of lease financers. The reasons for these answers – deriving from a detailed analysis of secured transactions law and the law of suretyship and guaranty – will be set forth in the remainder of this article.

• What does Article 9 have to do with the financing of leases? • If an equipment lease is “chattel paper” under Article 9, does it matter if the

lease also includes the financing of software to be used in the equipment? • Does Article 9 provide any hope for recovering the value of software being

financed under a lease and, if so, what should the lease document include? • What advantages does Article 9 afford to lease financers with respect to

protection against other creditors of the lessor, and are there differences between competing creditors having interests in the lessor’s leases and those having interests in the lessor’s inventory?

• What protections are suggested by suretyship law for lease financers who obtain a security interest in the equipment from the lessor to secure obligations of the lessee?

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• Do lease financers need to worry about restrictions in a lease imposed by the lessee upon the ability of the lessor to transfer its interests in the lease or the equipment?

• Is explicit authorization necessary for (1) the lease financer’s filing of a financing statement against the lessor, or (2) the lease financer’s assigning to itself the financing statement filed by the lessor against the lessee?

• Does a lease financer who is purchasing only a participation interest in a lease need to be concerned about perfecting such an interest, as it does when purchasing the entire lease?

Some Article 9 Basics In addition to covering security interests in personal property, Article 9 of the Uniform Commercial Code (UCC) applies to sales of accounts, chattel paper, payment intangibles and promissory notes.1 Equipment leases will ordinarily fall into that category of collateral known as “chattel paper.” As applicable to equipment leases this definition includes “…a record or records that evidence both a monetary obligation and…a lease of specific goods, or a lease of specific goods and license of software used in the goods. In this paragraph, ‘monetary obligation’ means a monetary obligation…owed under a lease of goods and includes a monetary obligation with respect to software used in the goods.”2 Thus, Article 9 covers both forms of financing mentioned at the outset: outright sales and secured loans. The same terminology and principles generally apply in both contexts. For instance, the term “security interest” is defined in Article 1 to include the interest of a buyer of chattel paper such as leases3 and the terms “debtor” and “secured party” are defined in Article 9 to include those who sell leases and those to whom leases have been sold, respectively, as well as those granting and those granted a security interest in leases.4 This means that the same rules of attachment, perfection and priority generally apply whether one has a security interest in a lease or one has purchased the lease. Expanded Definition of “Chattel Paper” While most financers of leases are aware of Article 9’s coverage of both security interests in and sales of leases, not as many may be aware of the expansion – and the significance of such expansion – in revised Article 9 of the definition of “chattel paper” to include the financing of software5 used in the goods being financed. If a lessor not only leases specific goods, but also pays for the lessee’s right to use related software and includes in the lease payments amounts related to such advance, the lease still qualifies as chattel paper.6 The definition in former Article 9 contained no reference to such software.7 Thus a lease that provided for rental payments that included compensation for the use of the equipment and also reimbursed the lessor for its financing of the lessee’s use of the software (perhaps erroneously listing the software as part of the “equipment”

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being leased) would not have qualified as chattel paper.8 Revised Article 9 clearly permits such leases to be treated as chattel paper – but only if the software covered by the lease is software used in the equipment being leased. As will be explained in greater detail later, financers of chattel paper are afforded certain special rights and privileges under Article 9 not available to those holding security interests in other sorts of collateral.9 Obtaining a Security Interest in the Lessee’s Rights to the Software Financed Under a Lease Before further discussion of the assigning of leases, a brief detour will be taken for the benefit of financers who need to determine whether there is any value in the software component of such leases. A typical, if not the only, arrangement is one in which the lessor purchases the equipment to be leased and also pays for the lessee’s right to use software used in such equipment. In such a case, the lessor is not the owner or licensor of the software, but is merely paying the price required by such owner or licensor for the lessee to use the software. As either the owner of, or the holder of a security interest in, the equipment,10 the lessor can depend on various rights found in either Article 2A or Article 9 of the UCC to take possession and dispose of the equipment in case the lessee defaults under the lease. In our typical case, however, the lessor does not own the software used in the equipment. What rights, then, can a lessor have with respect to the software that would permit it to recover its investment in the software? Would having a security interest in the lessee’s rights to use the software be of value? This question presumes, first of all, that the lessor has obtained such a security interest. How might that happen? First of all, the lease itself could contain a grant of a security interest by the lessee in its rights to use the software to secure its obligations under the lease.11 An important point of practice in this regard is to note that such a grant has not been given if (1) the lease contains only a precautionary grant of a security interest in both the equipment and the software – i.e., a grant that applies only in the event that the lease is determined to create a security interest, rather than qualify as a “true” lease governed by Article 2A – and (2) the lease turns out to qualify as a “true” lease of the equipment governed by Article 2A of the UCC as opposed to a lease that creates a security interest.

Even if the lease of the equipment clearly creates a security interest in the equipment, such as when the lease provides that the lessee can purchase the equipment at the end of the term for one dollar, it is not so clear that a security interest in the lessee’s rights to the software has been created without an explicit grant. Article 1’s definition of “security interest” offers a fair amount of guidance as to when a lease of goods should be regarded as creating a security interest in those goods.12 The considerations employed tend to focus on the economics of the transaction to determine whether the lessor or the lessee should be considered to own the goods after the lease is entered into.13 The

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software, which could have a useful life much longer than the goods themselves, is owned by neither lessor nor lessee. The fact that a lessee is determined to have created a security interest in the goods subject to a lease does not necessarily, in this author’s view at least, imply that the lessee has created a security interest in its rights to use the software.

Article 1’s definitional guidance concerning a lease’s possible creation of a

security in goods is preceded by this general statement: “Whether a transaction creates a lease or a security interest is determined by the facts of each case….”14 If a security interest has been created in the goods covered by a lease, there may be good reasons to impute as well a grant of a security interest in the lessee/debtor’s rights to the software used in those goods. Nevertheless, the facts that bear upon the goods question, such as the remaining useful life of the goods, are quite different than those that may apply to rights to use software. To the extent that there may be doubt about an automatic extension of the principles of security interest creation in goods to the software used in those goods, the safest practice for a lessor desiring to obtain a security interest in a lessee’s rights to the software would be for the lease to contain an explicit and unqualified grant of a security interest in the lessee’s rights to use the software – whether the lease is a true lease or one that creates a security interest. Assuming the lessor decides to obtain such a security interest, will such a security interest do the lessor any good? In view of the fact that many software licenses prohibit assignment of, and/or the grant of a security interest in, the licensee’s rights to use the software, is such a security interest permissible and can it be enforced in a manner that will bring the lessor some value if the lessee defaults? The somewhat complex answers to these questions can be summarized as follows. Revised Article 9’s Section 9-408 makes ineffective restrictions on or prohibitions of the creation, attachment and perfection of security interests in the rights of a software licensee. However, whether a secured party may enforce its security interest in such rights is subject to law other than Article 9 – whether the applicable law may be the common law of contract or statutory law such as the Uniform Computer Information Transactions Act. Even if such a security interest may not be enforced by the secured party acting on its own, there is the possibility that the secured party may realize some value from its security interest if a sale of the lessee’s rights to use the software is accomplished, for example, with the consent of the software licensor or in a bankruptcy court sanctioned sale of some or all of the bankrupt lessee’s assets.15 A financer of lease chattel paper, therefore, needs to analyze whether the lease effectively creates a security interest in the lessee’s rights to the software used in the leased equipment and whether the applicable law may permit enforcement of such a security interest before attributing any value to such collateral in the event of a lessee default. Unless there is definitely no way to enforce or otherwise realize value from a security interest in a lessee’s rights to use software, having such a security interest is clearly preferable to having no such interest at all.

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Advantages of Superpriority for Chattel Paper Financers As mentioned earlier, certain financers of chattel paper – now clearly including leases of equipment under which the software used in the equipment has also been financed by the lessor – are afforded special treatment under Article 9. Broadly speaking, Section 9-330 provides that if, in the ordinary course of business, in good faith and without knowledge that the financing violates the rights of certain prior secured parties, the financer gives new value and takes possession of the tangible lease document (or obtains control of the electronic lease), the financer will have priority over the prior secured party.16 Whatever the rationale for conferring such special treatment, sometimes referred to as “superpriority,” on financers who meet these criteria,17 there are clear advantages – understood by many chattel paper financers – to taking possession or obtaining control of tangible and electronic leases, respectively.18 One implication is that financers who do so and who meet the other criteria need not search for previously filed UCC financing statements filed by prior secured parties that cover chattel paper as either original collateral or as proceeds of inventory collateral. Official Comment No. 6 to Section 9-330 and PEB (Permanent Editorial Board) Commentary No. 8 (to the Uniform Commercial Code) (December 10, 1991, as amended to apply to Revised Article 9) indicate that the “good faith” requirement itself imposes no duty on chattel paper financers to make a search to determine the existence of prior security interests. If a lease itself does not indicate that it has been assigned to someone else and the lease financer otherwise acts in good faith and without knowledge that the financing violates the rights of certain prior secured parties, the financer can avoid the time and expense of searching and still feel secure that its security interest in the lease will come before prior secured parties once it gives new value and takes possession (or obtains control). Not only does Section 9-330 afford priority in the chattel paper itself to those who qualify, but it also provides for priority in proceeds of the chattel paper – both to the extent that Article 9 generally provides for priority in proceeds and to the extent that “the proceeds consist of the specific goods covered by the chattel paper or cash proceeds of the specific goods, even if the purchaser’s security interest in the specific goods is unperfected.”19 Consider Official Comment Nos. 8 to 10 to Section 9-33020 and the example set forth therein. A financer has been assigned a conditional sales contract (which could have also taken the form of a lease that creates a security interest) by a dealer of equipment and has obtained priority in such chattel paper under Section 9-330(a) or (b). Explaining Section 9-330(c), the Official Comments indicate that the financer maintains that priority in the equipment subject to the chattel paper even if the equipment is returned to the inventory of the dealer – for instance, following a return by the obligor of defective goods or following a default by the obligor and a foreclosure sale of the goods by the financer to the dealer who may be obligated (under a recourse arrangement with the financer) to repurchase the equipment after an obligor default. The financer maintains this priority over prior secured parties having a security interest in the dealer’s inventory even if the financer’s security interest in the equipment – as proceeds of the chattel paper – is not itself otherwise perfected. For example, the financer may not

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have filed at all against the dealer, having perfected its security interest in the chattel paper by possession or control. Thus financers of chattel paper that creates a security interest who qualify for superpriority under Section 9-330 need not worry at all about prior secured creditors of the dealer – either with respect to the paper itself or with respect to the equipment covered by the paper. There is no need for such a financer either to search or to file against the dealer in order to assure itself priority in both the paper and in the equipment covered by the paper.21 Limitations on the Advantages of Superpriority for True Lease Financers Those who finance true leases, as opposed to leases that create a security interest (or other forms of non-true lease chattel paper such as conditional sale contracts), must realize that Section 9-330’s superpriority operates in a somewhat different way when it comes to the financing of true leases. Whether the financer is being assigned only the lease or is purchasing the equipment along with the lease, the true lease financer cannot ignore the possibility of creditors of the original lessor secured by prior interests in the lessor’s inventory, as long as that inventory includes the equipment being leased. In this regard, while examining search results on lessors, financers need especially to remember that equipment either being leased or held for lease is classified as “inventory” by Article 9 – not “equipment.”22 If the chattel paper being financed is a true lease, the equipment is owned by the original lessor – not by the lessee, as would be the case for a lease creating a security interest. In other words, the original lessor has retained a residual interest in the equipment. Some of the implications of this are set forth in Official Comment No. 11 to Section 9-330 (entitled “Assignment of Lease Chattel Paper” following Official Comment No. 10, which is entitled “Assignment of Non-Lease Chattel Paper”). One such implication is that, even if a financer qualifying for superpriority had not obtained a security interest in the equipment from the original lessor, it would nevertheless have priority under Section 9-330 in that equipment, to the extent the equipment is proceeds of the lease paper, over prior secured parties holding a security interest in the original lessor’s inventory. What financers must realize is that this priority extends only to the equipment as proceeds of the chattel paper – not to the original lessor’s residual interest in the equipment. Even if the financer obtains a security interest in the lessor’s residual interest, the priority afforded by Section 9-330(c) does not encompass that residual interest. As expressed in Official Comment No. 11, “The value of the goods represents the sum of the present value of (i) the value of their use for the term of the lease and (ii) the value of the residual interest. SP-2 [the lease financer with superpriority] has priority in the former, but SP-1 [the prior secured party with an interest in the lessor/dealer’s inventory] ordinarily [in the absence of an intercreditor agreement] would have priority in the latter.” Without going into any greater detail, this suggests that in a situation where both the lease financer and the prior secured party have the right to dispose of their equipment collateral – for example, after a lessee default under the lease and after a

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default by the lessor under its agreement with the prior secured party – there would need to be some kind of apportionment of the value of the collateral between the two secured parties. An amount representing the value of the use of the goods during the remaining life of the lease – not necessarily the lease financer’s remaining investment in the lease – would go to the lease financer, while the remaining value would go to the prior secured party. One important practical implication of all this is that financers of true leases should search the original lessor for prior security interests in that lessor’s inventory if the financer hopes to be able to employ the full value – including the residual value – of the equipment in the event of a default by the lessee. The true lease financer does not have to search or file to protect its priority in the lease paper itself, but it does need to do so if it intends to extract the full value of the equipment after a lessee default. In the case of a financer that is being assigned only the lease, to be able to extract value from the lessor’s residual interest, that financer must (1) obtain a security interest from the lessor securing the lessee’s obligations under the lease, and (2) search and obtain all relevant releases or subordinations from prior competing secured parties.

Even where the financer is buying the equipment along with the lease, the purchase of the equipment will be subject to the interests of prior secured parties.23 This presents the awkward and probably unexpected possibility that the prior secured parties could make a claim on the equipment at the time the financer is attempting to sell the equipment to the lessee at the end of the lease term or at some later time. The lessee may well have qualified as a lessee in the ordinary course of business, who “takes its leasehold interest free of a security interest in the goods created by the lessor, even if the security interest is perfected and the lessee knows of its existence,”24 and therefore would not be subject to claims of any prior secured party during the course of its lease. However, any sale of the equipment to the lessee by the financer who bought the equipment from the original lessor would not be free of security interests created by the original lessor. A lease financer that purchases the equipment along with the lease, and who may consider making representations concerning unencumbered title upon the sale of the equipment to the lessee, should search the original lessor and obtain releases from prior secured creditors at the time of its financing of the lease and equipment.

Obtaining a Security Interest from the Lessor: A Case of Suretyship The foregoing discussion explained that superpriority in the chattel paper does not get the financer of true leases “home free” with regard to its ability to look to the full value of the equipment being leased in the event of a lessee default. It is a common practice of those who finance true leases, but do not purchase the equipment, to obtain a security interest in the equipment being leased from the original lessor. Aside from securing any obligations that the original lessor may have to the financer (obligations that may result, for example, from the breach of a representation by the original lessor regarding the lease), such a security interest is ordinarily given to secure the lessee’s obligations under the lease. If the lessee defaults and the financer wishes to dispose of

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the equipment, it is useful to have been granted a security interest by the original lessor, whose residual interest in the equipment may then be foreclosed by the financer. Not so common, however, is the understanding that such a grant of a security interest by the original lessor is a transaction that gives rise to suretyship status.25 In the nomenclature of suretyship, a party traditionally known as a guarantor or surety is called a “secondary obligor.” Often, a secondary obligor promises to perform the underlying obligation of another party known as the “principal obligor” that is owed to an obligee. Common forms of such secondary obligations are guaranties and surety bonds. Another, somewhat less obvious form of suretyship arises when recourse with respect to a lessee’s or debtor’s ability to pay is offered by a lessor or secured party when selling chattel paper. A financer buying lease chattel paper with such recourse becomes the obligee to whom performance is owed primarily by the lessee as principal obligor, whose obligations are supported by the lessor as secondary obligor. Even less obvious is the fact that a party who provides collateral for the obligations of another is a secondary obligor. According to the Restatement (Third), Suretyship and Guaranty, “an obligee has recourse against a secondary obligor or its property with respect to an underlying obligation whenever…pursuant to the secondary obligation…the obligee has recourse against the secondary obligor or its property in the event of the failure of the principal obligor to perform the underlying obligation….”26 More specifically, “the secondary obligation may be created …by contract granting the obligee a security interest in property of the secondary obligor to secure the underlying obligation….”27 In granting a security interest in its equipment to a true lease financer to secure the lessee’s obligations, a lessor becomes a secondary obligor. The significance of this for financers is that the law of suretyship and guaranty applies to the transaction. Secondary obligors have a variety of defenses to performance of their secondary obligations, many of which may be waived.28 Most financers are quite aware of the often numerous waivers of suretyship defenses found in forms of guaranty. It may not occur to them, however, that these same waivers of suretyship defenses could be quite useful in the lease assignment document in which the lessor grants the financer a security interest in the equipment to secure the lessee’s obligations. For example, if (i) the financer grants the lessee an extension of time over which to make its lease payments by extending the term of the lease, (ii) a waiver of the suretyship defense of extension of time was not obtained, and (iii) the extension of the lease term results in the (likely) diminution of the value of the lessor’s residual interest in the equipment, the lessor may have a claim for damages.29 Inclusion of suretyship defense waivers should be seriously considered by financers obtaining security interests from the assignors of leases covering the assignor’s residual interest in the equipment.30

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Evaluating Restrictions on a Lessor’s Ability to Assign Its Interests Lease financers often seek to determine whether the lease documents contain prohibitions or restrictions negotiated by the lessee on the lessor’s ability to assign its interests in the lease or the equipment subject to the lease. Article 9 generally disfavors restrictions on the assignment of personal property rights against other parties, making many such restrictions ineffective as between assignor and assignee and also ineffective to give the party in whose favor the restriction is written rights against the assigning party.31 Section 9-407, in particular, in conjunction with Section 2A-303 (as amended to conform with revised Article 9), strongly disfavors terms in a lease restricting a lessor’s ability either to assign its rights under the lease or to grant a security interest in its residual interest in the equipment.32 Section 2A-303(4) does provide a lessee with remedies in case a transfer by the lessor either materially impairs the lessee’s prospect of obtaining performance by the lessor or materially increases the lessee’s burden of risk – for instance, if the lessor were to delegate its responsibilities to provide services with regard to the equipment under a lease.33 On the other hand, Section 9-407(c) states: “The creation, attachment, perfection, or enforcement of a security interest in the lessor’s interest under the lease contract or the lessor’s residual interest in the goods is not a transfer that materially impairs the lessee’s prospect of obtaining return performance or materially changes the duty of or materially increases the burden or risk imposed on the lessee within the purview of Section 2A-303(4) unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the lessor.” Financers, thus, can take considerable comfort from Section 9-407. Terms in a lease that contain restrictions on the lessor’s ability to assign its interests in the lease or equipment are generally ineffective (assuming a delegation of material performance by the lessor has not occurred) – not only ineffective to prohibit or restrict the assignment to the financer, but also ineffective to provide the lessee with a remedy for breach by the lessor.34 In other words, in many cases of lease financing, such lessee-imposed restrictions can be ignored from a legal point of view. Of course, the financer may still want to consider the practical consequences of a lessee’s learning of such a lessor breach, inasmuch as the lessee’s reaction may not be entirely determined by its rights – or lack thereof – under the law. The Financer’s Authority to File Financing Statements – Different Answers With Regard to Filings Against the Lessor and Those Against the Lessee While lease financers obtain the greatest advantages under Article 9 by perfecting their interests in leases by taking possession (if the leases are tangible) or obtaining control (if the leases are electronic),35 it is also possible for financers to perfect their interests by filing against the assignor of the leases,36 and thus be protected against a trustee in a bankruptcy of the assignor. Revised Article 9 was written to simplify, in many respects, the rules for filing financing statements. Since financing statements are no longer required to be signed by any party, including the debtor, one very important

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consideration is determining who is authorized to do such filings. For the most part, the answers are to be found in Section 9-509. The filing of an initial financing statement (or amendments to filings that add either collateral or a debtor) must, in general, be authorized by the debtor. Not only may secured parties obtain that authorization in a record authenticated by the debtor, but a debtor is deemed to have given its authorization by authenticating a security agreement, whether or not that security agreement contains express authorization for a filing covering the collateral described in that security agreement.37 While perhaps not intuitively obvious, this rule authorizes a lease financer to file a financing statement against its assignor (oftentimes, the lessor under the lease) as soon as the assignor has executed the agreement that assigns the lease to the financer, whether or not that assignment agreement includes express authorization for such a filing. Harkening back to the discussion at the outset of this article38, a lessor assigning its lease (whether granting a security interest in the lease or selling it outright) to a financer is a “debtor” that is authorizing, by virtue of signing an assignment agreement (which is a “security agreement” providing for a “security interest” in the lease) and Section 9-509, the filing of a financing statement naming the financer as “secured party” and listing the lease as “collateral”.39 The business of financing leases usually includes another sort of UCC filing as well: the financing statement filed by the original lessor against the lessee. To the extent the lease is a true lease, such a filing is not necessary; however, realizing that lessors may want to take precautionary measures in case what they believe to be a true lease is determined instead to create a security interest, Article 9 provides for the filing of financing statements as such a precaution.40 An important practice point in this regard is realizing that a true lease (or some other record authenticated by the lessee) must contain express authorization by the lessee for the lessor to file a financing statement against the lessee, since a true lease does not qualify as a security agreement that itself entitles the secured party to file. Having been assigned a lease transaction (whether a true lease or one that creates a security interest) in which the lessor filed a financing statement against the lessee, the financer may well desire to have that financing statement assigned to itself (unless the assignment to the financer is intended to be on a non-notification – i.e., to the lessee – basis). In so doing, the financer will become the “secured party of record”41, which, with certain exceptions, is the only one authorized to file amendments to financing statements such as continuations and terminations.42 Since an assignment of a financing statement is considered one type of amendment (along with continuations, terminations, changes in collateral description, and changes in information regarding the debtor or secured party)43 and since only the secured party of record may authorize an amendment that assigns its financing statement,44 what does the financer need to do to have the financing statement assigned so that the financer will become the secured party of record? It would be helpful if Article 9 provided explicit authority for the financer to assign the filing against the lessee

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to itself simply in virtue of the financer’s having been assigned the lease transaction. Such a provision would not seem very controversial. Unfortunately, Article 9 does not contain anything analogous to Section 9-509(b)’s deemed authorization for filings against the assignor stating that the financer is authorized to assign itself the filing against the lessee. While a reasonable argument can be made that general rules of agency45 should entitle a financer to assign the lessee filing to itself, the best way to avoid disputes would be to obtain explicit authorization for such an assignment from the assignor in the assignment agreement or in some other document. Perfecting the Purchase of Lease Participation Interests There is one last point to be made, arising from Article 9, which may not be widely understood. In addition to the assignment of all of an assignor’s interests in a lease, lease financing sometimes takes the form of a purchase and sale of a participation interest in a lease. Lease financers who realize that the sale of a lease is subject to Article 9 may or may not be aware that Article 9 applies as well to the sale of a partial interest in that lease. As explained in Official Comment No. 5 to Section 9-109, “A ‘sale’ of an account, chattel paper, a promissory note, or a payment intangible includes a sale of a right in the receivable, such as a sale of a participation interest.” Some readers may be aware that one respect in which revised Article 9 differs from former Article 9 is the addition of a newly defined term, “payment intangible,”46 and a provision that the sale of a payment intangible is automatically perfected.47 According automatic perfection to the sale of payment intangibles derived primarily from concerns regarding the long-standing practice of banks selling participation interests in their loans. The fear was that bringing the sale of loan participations under Article 9 would necessitate the filing of financing statements by participants against the original lenders in order to perfect the interests of the participant. Defining “payment intangible” in a way that would include many loan agreements, and participation interests therein, and granting automatic perfection to their sale was the solution.48 While a loan agreement, either unsecured or secured by an interest in collateral other than simply specific goods, might well be classified as a payment intangible by Article 9, an equipment lease is not. The usual equipment lease is chattel paper. Just as a lease financer taking assignment of all its assignor’s interests in a lease needs either to take possession of a tangible lease, obtain control of an electronic lease or to file a financing statement against the assignor with respect to either kind in order to perfect its interests in the lease, so a lease financer purchasing a participation interest in a lease needs to take one of these same steps in order to perfect its interests. To fail to do so places the financer at risk with respect to other creditors of the assignor asserting an interest in the same lease – and at risk with respect to a trustee in bankruptcy of the assignor.

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Summary and Conclusion In summary, consider a financer who is contemplating the purchase of a lease of specific equipment that also includes non-embedded software that was paid for by the lessor. Notwithstanding the software, the lease qualifies as chattel paper under Article 9 and the purchase of the lease will be covered by Article 9. In evaluating its options in case of a lessee default, the financer should determine whether there has been a grant of a security interest in the lessee’s rights to use the software and, if so, it should consider its ability to enforce such a security interest. The financer should consider whether the lease may be a true lease or one that creates a security interest. To the extent the former is the case, the financer should obtain a security interest from the lessor in the equipment to secure the lessee’s obligations, should search the lessor and decide how to deal with any conflicting security interests in the lessor’s inventory, and should obtain suretyship waivers from the lessor in the assignment agreement. On the other hand, if the lease clearly is not a true lease, but instead creates a security interest, the financer need not do any of these things if it otherwise qualifies for superpriority in the lease paper and can be confident of obtaining either possession or control of such chattel paper. The financer should evaluate whether the lessor has obligations under the lease that might make restrictions in the lease against assignment by the lessor enforceable by the lessee. The financer should also determine whether a UCC filing by the lessor against the lessee was authorized under Article 9 and should obtain authorization to assign that filing to itself (unless purchasing the lease on a non-notification basis). Lastly, if the financer is considering purchasing only a participation interest in the lease, it needs to consider whether and how it will perfect such a purchase. Financers of equipment leases need to understand the ways in which Article 9 – particularly as recently revised – applies to their business. Some of these applications are fairly apparent, while others may not be generally understood and appreciated. Even more surprising may be the realization that certain uses of secured transactions law implicate the law of suretyship and guaranty. This article is intended to be of assistance to financers in structuring, documenting and negotiating their transactions. Acknowledgements The author would like to thank Donald J. Rapson, retired Assistant General Counsel of CIT Group Inc., lecturer-in-law at Columbia Law School and an American Law Institute representative on the drafting committee for revised Article 9, and Edward K. Gross, chair of the commercial finance department of Ober, Kaler, Grimes & Shriver, for their helpful suggestions during the preparation of this article. The opinions expressed herein, as well as any errors, are attributable solely to the author.

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Endnotes 1 Section 9-109(a)(1) and (3). Unless otherwise indicated, references to Article 9 will be to the Official Text approved by The American Law Institute and the National Conference of Commissioners on Uniform State Laws, initially in 1998 with subsequent amendments to date (sometimes referred to herein as “revised Article 9” as opposed to the preceding “former Article 9” in effect). Some version of revised Article 9 is presently in effect in all fifty states, the District of Columbia and the U.S. Virgin Islands. 2 Section 9-102(a)(11). The use of the word “record” (itself defined in Section 9-102(a)(69)) indicates that chattel paper, despite retaining “paper” as part of the term, can take either tangible or electronic form. In fact, revised Article 9 contains separate definitions for “tangible chattel paper” (Section 9-102(a)(78)) and “electronic chattel paper” (Section 9-102(a)(31)). As will be noted later in this article (note 18 and accompanying text), revised Article 9 provides for different methods of perfecting a security interest in these two forms of chattel paper. 3 Section 1-201(37). 4 Section 9-102(a)(28)(A) and (B) and Section 9-102(a)(72)(A) and (D). This article will generally refer to those who finance leases in either of these ways as “financers” to avoid the confusion that sometimes occurs when assignees of leases are referred to as either secured parties or purchasers (or both). 5 Revised Article 9’s Section 9-102(a)(75) provides a definition of “software” – a term that was not defined in former Article 9. Revised Article 9 – and this article – uses this term to refer only to computer programs that are not so embedded in goods as to be considered part of the goods themselves. See Section 9-102(a)(44) for the definition of “goods” that includes embedded computer programs and Official Comment Nos. 4.a. and 25 to Section 9-102 for discussions of the “mutually exclusive” definitions of “goods” and “software.” 6 In addition to the definition of “chattel paper” referenced above, see also Official Comment No. 5.b. to Section 9-102. 7 Former Section 9-105(1)(b). 8 Not falling into any other former Article 9 category, such a lease would have been classified as a “general intangible” under former Section 9-106. 9 See infra text around notes 16-21. 10 This would depend upon whether the lease is a lease governed by Article 2A, Leases, of the UCC (commonly, and in this article, referred to as a “true” lease) or a lease that creates a security interest according to the definition of “security interest” found in Section 1-201(37) of the UCC. 11 It is important to note that the only rights in which a security interest could be granted by the lessee are its rights to use the software – i.e., typically, its rights as licensee under the software license. In this connection, see Official Comment No. 6 to Section 9-203 in which it is made clear that a debtor may grant a security interest in collateral even if the debtor is not itself the owner of the collateral but merely has certain limited rights such as rights of use. 12 Section 1-201(37). A revised version of Article 1, approved by The American Law Institute and the National Conference of Commissioners on Uniform State Laws in 2001 and being considered for enactment by the States, contains a much briefer definition of “security interest” in Section 1-201(37) that refers to a new Section 1-203, Lease Distinguished From Security Interest, containing provisions substantially identical to the present definition regarding determining when something called a lease creates a security interest. 13 See especially Official Comment No. 37 to Section 1-201. 14 Section 1-201(37). In the revised version, this language reads: “Whether a transaction in the form of a lease creates a ‘security interest’ is determined pursuant to Section 1-203.” Revised Section 1-201(37). 15 These issues are discussed in much greater detail in Robert W. Ihne, Article 9 and Secured Financing of the Software User, 35 Uniform Commercial Code L.J. 31 (2002). 16 This broad generalization admittedly glosses over a potentially important distinction between a prior secured party claiming an interest in the lease merely as proceeds of inventory and one claiming its interest other than merely as proceeds. It also fails to note that a financer of chattel paper is deemed to have given new value if it holds a purchase-money security interest in the inventory of which the chattel paper is proceeds. The reader is advised to review Section 9-330(a), (b) and (e) and Official Comment No. 2 thereto carefully with respect to these issues. The emphasis of this article is on other aspects of superpriority.

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17 An interesting and informative discussion of the reasons for chattel paper financer superpriority can be found in Donald J. Rapson, “Receivables” Financing Under Revised Article 9, 73 The American Bankruptcy Law Journal 133 (1999) (which article also can be found in The Secured Lender (September/October 1999)). 18 On the subject of what it means to take possession of tangible chattel paper, Official Comment No. 4 to Section 9-330 offers some useful guidance to those who buy and sell chattel paper that may be documented as a schedule to a master agreement and that may include more than one originally signed copy. With regard to obtaining control over electronic chattel paper, Section 9-105 provides a set of criteria for gaining such control that contemplates the development of technology that would prove itself to be practically attainable and legally satisfactory. The author is unaware whether such technology has been developed yet. To the extent a financer is unsure whether it can successfully either obtain possession or control, Section 9-312(a) permits filing as a means to perfect its interests in either tangible or electronic chattel paper. 19 Section 9-330(c). 20 These Official Comments, plus the one that follows (No. 11), replace PEB Commentary No. 5 dealing with the same subject matter. 21 Priority with respect to possible secured creditors of the obligor is another matter. Since the obligor under this type of chattel paper (a conditional sale contract or lease creating a security interest) has become the owner of the equipment, the financer will need to search the obligor for prior liens – unless the financer is willing to rely on representations from the dealer that the dealer’s security interest under the paper is a first priority, perfected security intererst. 22 See the definitions of “equipment” and “inventory” in Section 9-102(a)(33) and (48) and Official Comment No. 4.a. to Section 9-102. 23 Section 9-315(a) provides the general rule that a security interest in collateral will continue notwithstanding its disposition unless the prior secured party authorized the disposition free of its security interest. Unfortunately, the financer will not be able to take advantage of the exception found in Section 9-320(a) for a buyer in the ordinary course of business who would be entitled to take free of security interests created by the seller (the original lessor) because the definition of “buyer in ordinary course of business” found in Article 1’s Section 1-201(9) states that “Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under Article 2 may be a buyer in ordinary course of business.” Even if the original lessor satisfies the definition’s requirement of being in the business of selling goods of that kind, the financer will not be taking possession of the goods, which are possessed by the lessee. 24 Section 9-321(c). See Section 2A-103(1)(o) for the definition of “lessee in ordinary course of business.” 25 See generally Restatement (Third) of Suretyship and Guaranty (1996) for a more complete discussion of suretyship status and the definitions of suretyship-related terms. 26 Id. at Section 1(2)(b)(ii). 27 Id. at Section 2(c). See also Comment on Paragraph (c) to Section 2 for some discussion of this principle, including mention of Article 9 security interests. 28 See generally Id. at Sections 34, 37-49. 29 Id at Section 40. 30 Suretyship defense waivers may appear on assignment documents for a number of reasons. As mentioned earlier, the assignee could have bargained with the assignor for recourse as to the obligor’s financial ability to pay. Such recourse can be essentially the equivalent of a guaranty, whether full or limited, in which case the value of suretyship defense waivers is obvious. Even when this broad kind of recourse was not offered, assignees who obtained more limited recourse to assignors for breaches of representations regarding the transaction (such as enforceability of the underlying obligation, perfection of security interests, etc.) may have thought that inclusion of such waivers would be useful insofar as this more limited recourse could be considered to give rise to suretyship status. Comment i. to Section 1 of the Restatement of Suretyship and Guaranty, however, indicates that these types of warranties do not create a secondary obligation. Thus suretyship waivers would not be useful in such a context. What warrants their inclusion in the case of a without-recourse true lease financing is simply the grant of a security interest by the lessor given to secure the lessee’s obligations. 31 See generally Sections 9-406 to 408. One example of this policy mentioned above relates to making ineffective restrictions on a software licensee’s ability to grant a security interest in its rights to use the software. See supra text around note 15.

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32 Section 9-407 is much more liberal with regard to permitting a lessor effectively to restrict a lessee’s ability to transfer the right to possession or use of the goods or to delegate its responsibilities under the lease. This liberality is qualified by Section 2A-303(7)’s requirement that such restrictions be specific, in writing and conspicuous if the lease is a consumer lease. 33 Section 9-407(b)(2) countenances the effectiveness of lease provisions giving a lessee remedies against a lessor for violating a lease prohibition against the lessor’s “delegation of a material performance.” Official Comment No. 3 to 2A-303 (as amended to conform to revised Article 9) explains that examples of such performance owing by a lessor under what is commonly called an “operating” lease might be agreements by the lessor to maintain and service the equipment or to provide “upgrades” of the equipment periodically to avoid obsolescence. 34 Section 9-407(a)(1) and (2). 35 See supra the discussion regarding Section 9-330 and superpriority at text around notes 16-21. 36 Section 9-312(a). Of course, Section 9-330 grants priority over those who perfect only by filing to financers who either take possession or obtain control as long as the other requirements of such Section are satisfied. 37 Section 9-509(a) and (b). 38 See supra notes 3 and 4 and the accompanying text. 39 Section 9-102(a)(73) defines “security agreement” as “an agreement that creates or provides for a security interest,” which includes the interest of a buyer of a lease (as noted in the text around note 3 above) and Section 9-102(a)(12)(B) defines “collateral” to include leases that have been sold. 40 Section 9-505 provides for such precautionary filings and indicates that such a filing is not itself to be considered a factor in determining whether a security interest has been created. Section 9-521(a) contains the form for an initial financing statement, on which is a box number 5 where the alternative designation of “LESSEE/LESSOR” may be checked. 41 See Section 9-511. 42 Section 9-509(d). 43 See, e.g., Official Comment No. 2 to Section 9-512 and the form of UCC Financing Statement Amendment contained in Section 9-521(b). 44 See Section 9-514 and Section 9-509(d). 45 Section 1-103, applicable to all the Articles of the UCC, states that other principles of law such as the law of principal and agent shall supplement the UCC unless displaced by particular provisions. 46 Section 9-102(a)(61) defines “payment intangible” to mean “a general intangible under which the account debtor’s principal obligation is a monetary obligation. For the definitions of “general intangible” and “account debtor” see Section 9-102(a)(42) and (3), respectively. 47 Section 9-309(3). Former Article 9 did not apply to the sale of payment intangibles at all. Revised Article 9 includes only the sale of payment intangibles, as opposed to the sale of any other kind of general intangible, within its scope. 48 A very interesting discussion of the history of these deliberations can be found in Rapson, supra note 17 at 136-42. Copyright 2002 by Robert W. Ihne Robert W. Ihne is Vice President and Associate Chief Counsel for CIT Group Inc., which has its headquarters in Livingston, New Jersey and which engages in many types of asset-based financing. Mr. Ihne was a member of the Legal Committee of the Equipment Leasing Association from 1995 through 1997, and has served on the ELA Software Financing and Consumer Leasing Subcommittees. He is also a member of the Business Law Section of the American Bar Association. Mr. Ihne organized a series of workshops entitled “Preparing for Revised Article 9,” sponsored by the Equipment Leasing Association and held between October, 2000, and February, 2001. He has also participated on panels discussing Article 9 sponsored by ALI-ABA. He is the author of a number of articles concerning secured transactions and leasing that have appeared in the Uniform Commercial Code Law Journal, the UCC Bulletin, ALI-ABA Business Law Course Materials Journal and Equipment Leasing Today. Mr. Ihne is a graduate of Amherst

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College, Columbia University Graduate School of Arts and Sciences and Yale Law School and is licensed to practice law in New Jersey and New York. .

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SAMPLE LEASE PROVISIONS AND COMMONLY NEGOTIATED ISSUES

For purposes of highlighting the most frequently negotiated provisions in a typical “middle market” lease which: (1) is a “true lease” governed by UCC 2A (not a “lease intended as security” governed by UCC 2 and 9), and (2) is being provided by a “finance lessor” as per UCC 2A-103 (not an equipment vendor), there is set out below in the left column sample lease provisions from a typical Master Lease Agreement (the “MLA”) and in the right column are: (i) typical lessee-requested changes to the MLA, (ii) typical lessee justifications for such changes and (iii) typical lessor responses to these requests, including, in certain cases, the justification for an absolute refusal. All comments, justifications and responses appear opposite their corresponding sections in the MLA. Please note that any changes that are specific to a given transaction, rather than general in nature, should be made in the transaction Schedule, not in the MLA.

MLA LEASE PROVISIONS 1. PROPERTY LEASED. Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor the personal property together with any replacements, additions, repairs, now or hereafter incorporated therein or affixed or attached thereto and any and all proceeds of the foregoing, including, without limitation, insurance recoveries (collectively, the “Property”) as described in any Schedule, now or hereafter executed by the parties hereto, (the “Schedule”) pursuant to this Master Lease Agreement (the “Lease”). The terms of the Lease are deemed to be incorporated into each Schedule hereunder. In case of conflict between the Schedule and the Lease, the Schedule shall govern. 2. TERM. This Lease shall become effective on the execution hereof by Lessor. The Term of this Lease shall consist of an “Interim Term” and a “Base Term” in regard to each Schedule. The Interim Term for each Schedule shall begin on the date that Lessee executes a Delivery and Acceptance Certificate in connection with any item of Property listed on each Schedule or provides to Lessor written approval for payment for such item of Property. The Interim Term shall continue until the Base Term Commencement Date set forth in each Schedule. The Base Term shall begin on the Base Term Commencement Date and shall continue for the period specified in each Schedule. During the Interim Term, if any, Lessee shall pay rental (“Pro Rata Rental”) in the amount set forth in each Schedule plus applicable tax thereon. 3. RENT, PAYMENT AND TAXES. Rental payments are specified in each Schedule. All rents shall be payable by Lessee on or before the payment date shown in each Schedule at Lessor’s address herein, or as otherwise directed by Lessor, without notice or demand and without abatement, set-off, deferment, reduction, counterclaim, recoupment or deduction of any amount whatsoever for any reason. For any payment due hereunder which is not paid within ten (10) days after the date such payment is due, Lessee agrees to pay a late charge calculated thereon at a rate of five percent (5.0%) of such overdue amount. Payments received shall be applied first to delinquent amounts due, including late charges, then to current installments. If any such rental payment is made by check and such check is

returned to Lessor for any reason, including without

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COMMENTS. JUSTIFICATIONS & RESPONSES RENT/LATE CHARGES (Section 3). LESSEE COMMENTS. Lessor must provide Lessee with timely invoices for each rental payment. In the event any scheduled rent payment date is not a business day in the city in which either Lessee or Lessor is located, Lessee must be permitted to pay on the next business day, without interest. Lessee will not pay late charges in excess of the implicit rate in the transaction. LESSEE JUSTIFICATION. Lessee is a major corporation, with a countless number of account payables. Lessee requires invoicing from all of its vendors because it is concerned that any failure to make a timely rent payment might result in a default under this Lease and a cross default under its line of credit. Lessee is unwilling to pay a penalty rate or late charge. LESSOR RESPONSES. Lessor will not want to condition, or give the appearance that it is willing to condition, Lessee’s

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MLA LEASE PROVISIONS limitation, insufficient funds in Lessee’s account, then Lessee shall be assessed a fee of $50.00 in addition to any other late charge or any other fee which may be applicable.

Lessee shall pay when due all taxes, fees, assessments, or other charges, however designated, now or hereafter levied or based upon the rentals, ownership, use, possession, leasing, operation, control, or maintenance of the Property, whether or not paid or payable by Lessor, excluding Lessor’s income, franchise and business or occupation taxes, and shall supply Lessor with proof of payment satisfactory to Lessor upon request. At its option, Lessor may pay any tax, assessment, insurance premium, expense, repair, release, confiscation expense, lien, encumbrance, or other charge or fee payable hereunder by Lessee, and any amount so paid shall be repayable by Lessee on demand. If the Property is located in a jurisdiction which imposes any “Sales,” “Use,” or “Rental” tax, Lessor shall collect such tax from Lessee and remit such tax to the appropriate taxing authority or Lessee shall remit such tax directly to the appropriate taxing authority. Such requirement may only be waived if Lessee is exempt from such tax under applicable laws or regulations. Lessee is responsible for ensuring that such exemption is properly documented in accordance with such laws and regulations and that such documentation is provided to Lessor at the inception of each Schedule. If the Property is subject to Personal Property Taxes, Lessee agrees to advise the proper taxing authorities of all leased property. Lessee agrees that it will report the Property as having an original cost as set forth on the Schedule and as Property leased from Lessor. Lessor may also advise and report in connection with such taxes. If Lessor receives an invoice from the taxing authorities for applicable Personal Property Taxes, Lessor shall pay any such taxes directly and Lessee agrees to reimburse Lessor for all such taxes paid by Lessor. If Lessee receives such invoice, Lessee agrees to promptly remit such tax directly to the taxing authority and maintain proof of payment. Upon termination of this Lease, Lessor will, if applicable, estimate accrued Personal Property Taxes on the Property based upon the most recent tax assessment of the Property or on the tax rates and taxable value calculations as available from the appropriate taxing jurisdiction, and upon receipt of an invoice for such estimated taxes, Lessee will pay such taxes to Lessor. In the event that the actual Personal Property Tax bill is within $500 of such estimate, then Lessor shall not

COMMENTS, JUSTIFICATIONS & RESPONSES obligation to pay rent on its receipt of an invoice. An invoice is a courtesy only. Lessor is willing to reduce the late charge to the implicit rate in the transaction, plus a negotiated number of basis points (e.g., 200-500). (Note: Some Lessors stand firm by citing high collection costs for refusing to reduce the incentive late rate interest.) GENERAL TAX INDEMNITY (Section 3) – cont’d. LESSEE COMMENTS. Exclusions: The general tax indemnity provided for in this section must exclude all of the following: (a) taxes based upon, measured by or with respect to Lessor’s net or gross income, items of tax preference or minimum tax or excess profits, receipts, capital, franchise, net worth or other similarly-based taxes, (b) taxes on items of tax preference or any minimum tax or alternative minimum tax, (c) taxes imposed with respect to any period after either (i) Lessee’s payment of the casualty value under the Lease, or (ii) the expiration or earlier termination of the lease term (including any renewals) and either (A) the return of the Property pursuant to the Lease or (B) the transfer of Lessor’s interest in the Property pursuant to any purchase or termination option, (d) taxes resulting from the misconduct, negligence or breach by Lessor, (e) taxes which become payable by reason of any transfer by Lessor of its interest in the Property or the Lease, other than in connection with its exercise of any remedies under the Lease, (f) taxes subject to any other indemnification under the Lease, (g) taxes imposed on a successor, assignor or other transferee of Lessor to the extent that such taxes would not have been imposed on the original Lessor or exceed the amount of taxes that would have been imposed and would have been indemnifiable pursuant to this indemnity had there not been a succession, assignment or other transfer by such original Lessor, (h) taxes imposed by any jurisdiction that would not have been imposed on Lessor but for its activities or status in such jurisdiction unrelated to the transactions contemplated by the Lease and (i) any taxes included in the purchase price. Notice and Contest: Additionally, the Lease must include Lessee’s right to notice of any claim to which Lessor is indemnified pursuant to the indemnity, and the option to contest in its own name, or to require Lessor to contest in good faith, with due diligence and at Lessee’s expense the validity, applicability or amount of such taxes. LESSEE JUSTIFICATION. Exclusions: Lessee is unwilling to be responsible for taxes associated with the circumstances addressed in the proposed exclusions, either because they are (a) outside of Lessee’s control (e.g., taxes attributable to periods after lease expiration or the return or other disposition of the Property), (b) the result of Lessor’s conduct (e.g., Lessor’s negligence), (c) the result of Lessor’s personal circumstances or other business activities (e.g., taxes in jurisdictions imposed as a result of activities unrelated to the Lease), (d) the result of Lessor’s syndication or other transfer of its interest in the Lease and/or the related Property for its own gain (i.e., where Lessor is not compelled to make the transfer pursuant to any exercise of remedies or Lessee options) or (e) otherwise covered under the Lease (e.g., because it is a tax covered under the income tax indemnity, or included in the amounts to be financed under the Lease). Notice and Contest: The obligation to indemnify Lessor for a

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MLA LEASE PROVISIONS seek reimbursement from Lessee for any underpayment, and Lessor may retain any overpayment. If the difference between such estimate and the actual tax bill exceeds $500, Lessor shall refund or Lessee shall remit the entire difference. 4. OWNERSHIP, USE AND INSPECTION; PERSONAL PROPERTY. Lessee transfers to Lessor all right, title and interest, including any and all ownership interest, which Lessee may have in or to the Property. Lessee represents and warrants that it has the legal right to make such transfer and that such transfer does not constitute a transfer of all or substantially all of the assets of Lessee, and that such transfer does not constitute all or a portion of a “bulk transfer” under the Uniform Commercial Code. It is agreed between the parties hereto that Lessor shall be the owner of, and hold title to, the Property for all purposes throughout this Lease. So long as Lessee shall not be in default, Lessee shall be entitled to the possession, use, and quiet enjoyment of the Property during the Term specified in each Schedule. At its own risk, Lessee shall use or permit the use of the Property at the location specified in each Schedule

COMMENTS. JUSTIFICATIONS & RESPONSES tax obligation may be avoidable, in whole or in part, because the imposition of the subject tax may be successfully contested. In order for Lessee to avoid liability under the tax indemnity, it needs timely notice of an intended imposition, with a meaningful opportunity to contest, or have Lessor contest, the validity, applicability or amount of such imposition. GENERAL TAX INDEMNITY (Section 3) – cont’d. LESSOR RESPONSE. Exclusions: The referenced exceptions will be acceptable, except that (a) with respect to taxes payable after the Lease term, the responsibility for those taxes should remain with Lessee until the later of (i) the Lease expiration or earlier termination or cancellation and (ii) the return of the Property in accordance with the return provisions of the MLA [Note - often Lessors will further require that the condition of the Property also conform to the return provisions, but sophisticated Lessees resist this requirement]; and (b) the indemnity must cover all dispositions contemplated by the Lease (i.e., not only pursuant to a remedy, but also pursuant to any applicable Lessee option), other than Lessor’s syndication activities. Notice and Consent: Notices can be provided. However, Lessor’s failure to provide a notice, either promptly or at all, must not result in any release or waiver by Lessor to make a claim under the indemnity except to the extent such failure is directly prejudicial to Lessee’s ability to avoid the subject tax, in whole or in part. Contests will also be permitted, so long as (a) the contest is unobtrusive to Lessor (i.e., it will not have to expend its resources or pay any costs), (b) the continuing existence of any imposition during such a contest will not result in any material risk of forfeiture, etc. and (c) Lessor will not be required to take any position or reveal any information which might have adverse consequences to Lessor unrelated to the Lease. [Note - Lessees will often require Lessor to waive its right to an indemnity in the event that the Lessor wants either to terminate, or refuse to permit, a contest if the Lessor’s motivation is related to its own general business purposes.] QUIET ENJOYMENT. SUBLEASING. INSPECTIONS & LIENS (Section 4). LESSEE COMMENTS. Quiet Enjoyment: The “quiet enjoyment” text in the third sentence of this Section must be revised so as to make it clear that unless an Event of Default has occurred and is continuing, neither Lessor nor anyone claiming by, through or under Lessor may interfere with Lessee’s quiet use and enjoyment of the Property. Relocation/Subleasing: Lessee must have the flexibility to move the Property to its various locations without Lessor’s consent. Additionally, Lessee must be permitted to sublease the Property, without Lessor’s consent, to both its affiliates and third parties, so long as Lessee remains primarily liable. Inspection: Lessor will not be permitted access to the Property or any of Lessee’s records unless Lessor has afforded Lessee five business days notice prior to undertaking such inspection, such inspection does not interfere with Lessee’s normal business operations and Lessor signs a confidentiality agreement acceptable in form and substance to Lessee. Lessor

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MLA LEASE PROVISIONS (unless the Property is mobile in nature) and, Lessee shall not, without Lessor’s prior written consent: i) remove the Property from such location (unless the Property is mobile in nature); ii) loan, sublet, part with possession of or otherwise dispose of the Property; iii) permit use or operation of the Property by any one other than Lessee’s qualified employees; or, change or alter the Property. Lessee shall at its sole expense maintain the Property in good repair, appearance and functional order; and shall not use or permit the use of the Property in any unintended, injurious or unlawful manner. At any reasonable time during normal business hours, Lessee will make available to Lessor the Property and all manuals, records, certificates and documents regarding its use, maintenance, and repair, for such testing and inspection as Lessor may reasonably require. Lessee shall not create, cause, or permit any kind of claim, levy, lien or legal process on the Property, and shall forthwith satisfy, remove and procure the release thereof. The Property is and always shall remain personal property. Lessee shall not cause or permit the Property to be used or located in such a manner that it might be deemed a fixture. Lessee shall secure from each person not a party hereto who might secure an interest, lien or other claim in the Property, a waiver thereof. Lessee shall affix and maintain, at its expense, in a prominent and visible location, all reasonable notices or markings supplied by Lessor and which reflect Lessor’s interest in the Property.

COMMENTS, JUSTIFICATIONS & RESPONSES will be responsible for all costs and risks associated with inspections. Permitted Liens: This provision must be revised to recognize that certain permitted liens may exist without causing Lessee to be in default. Examples of such permitted liens would include certain tax liens, material men’s liens, certain judgment liens, etc. LESSEE JUSTIFICATIONS. Quiet Enjoyment: The occurrence of a “default” (i.e., an unmatured “Event of Default”) does not entitle Lessor to exercise its right to repossession or any other remedies. Therefore, the occurrence of a mere default should not entitle Lessor to disturb Lessee’s quiet enjoyment. Relocation/Subleasing: Lessee has an absolute obligation to pay rent, even if the Property becomes superfluous to its needs. Therefore, in order to generate sufficient revenue to satisfy this rent obligation, Lessee may need to make it available to its affiliates or third parties. If Lessee, or an equally creditworthy obligor retains or assumes (as the case may be) primary liability for the rent obligations, Lessor is no worse off. Inspection: Lessee is concerned that unannounced, unsupervised inspections will have an adverse impact on its ability to conduct its business and cause confidentiality risks. Lessee is unwilling to be responsible for the costs of any such inspection. Permitted Liens: Certain liens are unavoidable in the conduct of any business. As an example, liens may be imposed as a result of taxes that have been assessed, or repair costs that have been incurred, which have not been paid because they are not yet due, or because there is a valid contest pending or to be made. The MLA provision, as presently drafted, would require Lessee to pay the amount that is the subject of the lien, either prior to the date that such amount is scheduled to be paid by Lessee, or without regard to Lessee’s ability to avoid part or all of the obligation. LESSOR’S RESPONSE. Quiet Enjoyment: Agreed (See UCC §2A-211). Relocation/Subleasing: So long as no default has occurred and is continuing, or will result there from, relocation will be permitted (a) within the same UCC filing jurisdiction, with notice (promptly after such relocation), (b) outside of the UCC filing jurisdiction (but within the continental United States), with notice (either before, or concurrently with or promptly after such relocation, but in no event later than 2 months after such relocation; See 4 month grace period in UCC §9-316) or (c) elsewhere, only with Lessor’s prior written consent. Lessee must execute, or cause to be executed, delivered and/or filed all appropriate UCCs, real property waivers, fixture filings and other documents required by Lessor in connection with such relocation, all at Lessee’s expense. Subleasing. So long as no default has occurred and is continuing, Lessee may sublease the Property to any solvent, domestic business entity, subject to the following conditions (a) Lessee remains primarily liable (See UCC §2A-303(6)), (b) the sublease is subject and subordinate to the Lease (which status, and Lessor’s right to recover the Property from the sub lessee upon an Event of Default under the Lease, are explicitly detailed in the sublease; See UCC §2A-305), (c) the

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MLA LEASE PROVISIONS 5 NET LEASE. This is a fully net, noncancelable contract of lease which may not be terminated for any reason except as otherwise specifically provided herein. Lessee hereby acknowledges that the Property was selected by Lessee from Supplier(s) chosen by Lessee. Lessee is familiar with all Supply Contract rights provided by the Supplier(s) and is aware that the Supplier(s) may be contacted for a full description of any rights Lessee may have under any Supply Contract. Provided no Event of Default shall occur and continue hereunder, Lessor hereby assigns to Lessee without recourse, all rights arising under any warranties applicable to the Property provided by the manufacturer or any other person. All proceeds of any warranty claim from the manufacturer or any other person shall first be used to repair the affected Property.

Except as specifically provided in any Schedule, nothing herein or in any other document executed in conjunction herewith shall be construed as conveying or granting to Lessee any option to acquire any right, title or interest, whether legal or equitable, in or to the Property, other than the use, possession and quiet enjoyment of the Property, subject to and upon full compliance with the provisions hereof. Lessee and Lessor agree that this Lease is a “Finance Lease” as defined by the Uniform Commercial Code Article 2A, the Uniform Personal Property Leasing Act. No filing made under the Uniform Commercial Code (the “UCC”) or similar law in any jurisdiction shall be a factor in any determination as to whether this Lease is a “lease

COMMENTS, JUSTIFICATIONS & RESPONSES sublease is collaterally assigned to Lessor (and Lessor is provided a chattel paper copy of the sublease, and an acknowledgment of such assignment and Lessor’s right has been prepared, signed by Lessee and delivered to Lessor; See UCC §9-206 and 9-305), (d) the sublease is at least as protective of Lessor’s interests as the Lease; and the sub lessee is prohibited from further subleasing or assigning its interests, and (e) Lessee obtains, executes or causes to be executed all UCC and other filings, waivers, insurance certificates, evidence of sublessee’s corporate authority, opinions, etc. requested by Lessor, all at Lessee’s sole cost and expense. Inspections: Lessor will agree to the proposed restrictions to its right to inspect, except that no such restrictions shall be applicable to any inspection conducted after an Event of Default has occurred and is continuing. Permitted Liens: Lessor will permit Lessee to suffer the existence of certain inchoate and other similar liens relating to obligations (a) that are either not yet due or are being contested, appealed, etc., (b) for which Lessee has adequate reserves, and (c) the continuing existence of which pose no material risk of seizure, repossession, foreclosure, etc. with respect to the Property (See UCC §2A-306). HELL OR HIGH WATER OBLIGATION (Section 5). LESSEE COMMENTS. Lessee will not pay any rent or other amounts under this Lease at any time during which Lessor has breached its warranty of quiet enjoyment. LESSEE JUSTIFICATION. Lessor has only one significant obligation under the Lease. If Lessor breaches this obligation, Lessee will not get the benefit of its bargain, and a suit against Lessor will be an inadequate remedy. LESSOR RESPONSE. No (Note: this point is rarely conceded by a Lessor) Lessor is not an equipment provider. Lessor is a funding source only. Lessor’s only obligation under the Lease is to fund the equipment selected by Lessee and provided by a third-party vendor. (See “Finance Lease” UCC 2A-103 (1)(g) and 2A-407).

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MLA LEASE PROVISIONS intended as security.” Notwithstanding the foregoing, Lessee authorizes UCC and fixture filings, and to the extent that this Lease is or shall be construed as a “lease intended as security,” Lessee hereby grants to Lessor a security interest in and to the Property and any and all proceeds thereof (including insurance proceeds) as security for all Lessee’s obligations to Lessor of every kind and nature. 6. LESSEE’S REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants to Lessor that as of the date of this Lease and of each Schedule: (a) Lessee has adequate power and capacity to enter into this Lease and any other documents required to be delivered in connection herewith (collectively, the “Documents”); (b) the Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms; (c) there are no proceedings presently pending or threatened against Lessee which will impair its ability to perform under the Lease; (d) Lessee’s entering into the Lease and leasing the Property does not and will not: (i) violate any judgment, order, or law applicable to the Lease, Lessee or Lessee’s organizational documents; or (ii) result in the creation of any lien, security interest or other encumbrance upon the Property; (e) all information and representations furnished or to be furnished by Lessee to Lessor are complete, accurate and correct; (d) all financial data delivered to Lessor pertaining to Lessee or any consolidated group of companies of which Lessee is a member (“Lessee Group”) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis with prior periods and fairly present the financial position and results from operations of Lessee, or of the Lessee Group, as of the stated date and period(s); (f) since the date of the most recently delivered financial data, there has been no material adverse change in the financial or operating condition of Lessee or of the Lessee Group; and, (g) if Lessee is a corporation, limited liability company or partnership, it is and will be validly existing and in good standing under laws of the state of its incorporation or organization; the persons signing the Documents are acting with the full authority of its board of directors, members or partners and hold the offices indicated below their signatures which are genuine. 7. INDEMNIFICATION, INSURANCE AND RISK OF LOSS. Lessee assumes liability for, and agrees to defend, indemnify and hold Lessor harmless from any claim, liability, loss, cost, expense, or damage of every nature (including, without limitation, fines, forfeitures, penalties,

settlements, and attorneys’ fees) by or to any person

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COMMENTS, JUSTIFICATIONS & RESPONSES

REPRESENTATIONS AND WARRANTIES (Section 6). LESSEE COMMENTS. The enforceability representation in clause (b) must be qualified with the standard bankruptcy, equitable principles, etc. qualifier. The representation in clause (e) regarding information and representations furnished or to be furnished, should be qualified by adding the phrase “in all material respects.” Additionally, add representations and warranties by Lessor in favor of Lessee including representations: (i) similar in scope to the representations and warranties required of Lessee in Section 6, and (ii) that Lessor owns the Property, free and clear of liens attributable to Lessor or anyone claiming by through or under Lessor. LESSEE JUSTIFICATION. The enforceability representation cannot be made without the qualification since it will be, as a matter of law, incorrect when made, and therefore constitute an immediate incurable default on the closing date. By adding the materiality qualifier to the accurate information representation, Lessee is merely reflecting the reality of the preparation and dissemination of any public information. Lessee is requiring Lessor’s representations because it is equally concerned about the matters pertaining to the enforceability of the Lease against Lessor, and Lessor's right to lease the Property to Lessee. LESSOR RESPONSE. The requested changes to the enforceability and information representation are acceptable (See UCC §2A-30 1). Lessor will not make any additional representations to Lessee [Note - Lessors rarely make any representations to lessees, except in big ticket transactions (especially if there are other parties to the transaction; e.g., a leveraging lender or syndication partner). The lessor’s argument is typically that the lessee should not be concerned about the lessor’s authority to enter into the lease, since participating in lease financings is the very nature of the lessor’s business purpose, and receipt of the lessor’s funds should be adequate evidence of its authority to participate in the transaction.] Lessor will not give any ownership/free and clear representation, since Lessee’s concerns are already adequately addressed by the quiet enjoyment warranty (See UCC §2A-211 and 2A-307(2) & (3)).

INDEMNIFICATION (Section 7). LESSEE COMMENTS. Exclusions: Lessee will not indemnify Lessor for its wrongful, negligent or improper acts or misuse of the Property. Other exceptions to the general indemnity should include any claims, etc. to the extent the same: (a) are attributable to acts or events which occur after the expiration of the Lease term, or to acts or events which

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MLA LEASE PROVISIONS whomsoever, regardless of the basis, including any wrongful, negligent or improper act or misuse by Lessor, which directly or indirectly results from or pertains to the purchase, leasing, manufacture, delivery, ownership, use, possession, selection, performance, operation, inspection, condition (including without limitation, latent or other defects, and whether or not discoverable), improvements, removal, return or storage of the Property except arising while the Property is in the possession of Lessor or its agents. Upon request of Lessor, Lessee shall assume the defense of all demands, claims, or actions, suits and all proceedings against Lessor for which indemnity is provided and shall allow Lessor to participate in the defense thereof. Lessor shall be subrogated to all rights of Lessee for any matter which Lessor has assumed obligation hereunder, and may settle any such demand, claim, or action without Lessee’s prior consent, and without prejudice to Lessor’s right to indemnification hereunder.

Lessee shall fully insure the Property against all risks which are customarily insured against on the type of property leased hereunder. This requirement shall be waived if Lessee participates in Lessor’s “Insurance Waiver Program.” Pursuant to such program, Lessor would purchase satisfactory insurance for the mutual benefit of Lessor and Lessee as their interests may appear. Should Lessee decline to participate in such Program, then, at its expense, Lessee shall maintain in force, at all times from shipment of the Property to Lessee until surrender thereof, all risk property damage insurance for not less than the full replacement cost of the Property with such deductible and from such insurance carrier as shall be satisfactory to Lessor. Lessee shall also maintain liability insurance coverage of not less than $1,000,000.00 per occurrence. Such insurance policies must name Lessor as an additional insured and loss payee, and provide for thirty (30) days advance written notice to Lessor of modification or cancellation. Lessee shall, upon request, deliver to

COMMENTS, JUSTIFICATIONS & RESPONSES occur after the return or relinquishment of possession of the Property by Lessee pursuant to the Lease; (b) are covered by the tax indemnities; (c) result from any breach by Lessor of any of its representations, warranties or agreements under the Lease; (d) are attributable to any transfer by Lessor of any of its interests in the Property (other than pursuant to Lessor’s exercise of appropriate remedies); (e) result from any amendment to the Lease or any related documents; (f) result from any inspection by Lessor; or (g) constitute loss of future profits or consequential damages. Notices, Recoveries, Defense, etc.: Lessor must give Lessee prompt written notice of any potential liability as a condition to Lessee’s responsibility for such liability under this indemnity. If Lessor obtains a recovery of any of the amounts which Lessee shall have paid to Lessor pursuant to the indemnity, Lessor shall pay to Lessee the amount of such recovery, plus interest until paid. Whether or not requested, Lessee should have the right to investigate and control the defense of any claim covered by insurance for which indemnification is sought, and any participation by Lessor in such defense shall be at Lessor’s sole cost and expense. Lessor shall not be permitted to enter into any settlement or other compromise with respect to any claim covered by the indemnity without Lessee’s prior written consent. LESSEE JUSTIFICATION. Essentially the same justifications relating to the proposed exclusions and right to notices and contests from the general tax indemnity (see Section 3 above), except that this set of exclusions also carves out consequential damages for which Lessee is unwilling to bear responsibility because Lessee feels that this responsibility is too open ended. LESSOR RESPONSE. The exclusions are generally acceptable. However, Lessor would revise the exclusions in essentially the same manner as suggested in Lessor’s response to Lessee’s comments to the general tax indemnity. Lessor would accept the exclusion of consequential damages. Also, Lessee’s defense and settlement rights will be limited after the occurrence and continuation of any Event of Default.

INSURANCE AND RISK OF LOSS (Section 7) – cont’d. LESSEE COMMENTS. Insurance: Lessee intends to self-insure with respect to any casualties to the Property. Lessee will provide the liability insurance required under the Lease, subject to a deductible of $250,000 per occurrence. If Lessee is forced to obtain casualty insurance, it must be a co-loss payee, and be entitled to (a) maintain a deductible of $250,000 and (b) receive all insurance payments up to $500,000 with respect to any casualty not constituting an Event of Loss. Risk of Loss: Lessee must have the right to either replace, or pay the applicable stipulated loss value (“SLV”) with respect to, the item of Property that suffers a casualty on the later of the receipt of the applicable casualty insurance proceeds (unless Lessee has self-insured against such risk) or the payment date which is at least 90 days from the date of the casualty. Lessor will transfer to Lessee any item of Property replaced by Lessee, or the subject of any stipulated loss value payment. Additionally, Lessee must be entitled to receive all of the casualty insurance proceeds to the extent it has paid the SLV, or if not yet paid, the excess of such proceeds over the SLV (after Lessor has applied such proceeds to Lessee’s

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obligation to pay the SLV).

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MLA LEASE PROVISIONS Lessor satisfactory evidence of such insurance coverage. In the event Lessee fails to do so, Lessor may, at Lessor’s option, in addition to any other rights available to Lessor, obtain coverage, and any sum paid therefore by Lessor (including any charges assessed by Lessor for such service) shall be immediately due and payable to Lessor by Lessee. No loss or damage to the Property shall impair any obligation of Lessee hereunder. Lessee assumes all risk of damage to or loss of the Property, however caused, while in transit and during the term hereof. If any Property is totally destroyed, Lessee shall immediately discharge its obligations hereunder by paying Lessor the amounts specified in Section 13 (e) or in any Stipulated Loss Table prepared in connection with any Schedule, less the amount of any recovery received by Lessor from any insurance or other source. 8. INCOME TAX INDEMNITY. Lessee hereby represents, warrants, and covenants to Lessor as follows: This Lease will be a lease for Federal and applicable state income tax purposes; Lessor will be treated as the purchaser, owner, lessor, and original user of the Property and Lessee will be treated as the lessee of the Property for such purposes. Lessor shall be entitled to depreciation deductions with respect to each item of Property as provided by Section 167(a) of the Internal Revenue Code of 1986, as amended (the “Code”), determined under Section 168 of the Code by using the applicable depreciation method, the applicable recovery period, and the applicable convention, all as specified on the applicable Schedule for the Property, and Lessor shall also be entitled to corresponding state depreciation

COMMENTS, JUSTIFICATIONS & RESPONSES LESSEE JUSTIFICATION. Insurance: Lessee is a rated credit, so it should be permitted to self insure and maintain deductibles. Risk of Loss: If Lessee replaces the item of Property suffering the casualty, Lessor will be no worse off. If Lessee either replaces or pays the SLV, Lessee should be entitled to the scrap value of the lost Property. If Lessee pays premiums for casualty insurance coverage in excess of its SLV obligation, it should receive the excess proceeds. LESSOR RESPONSE. Insurance: Agreed, except that Lessor will condition Lessee’s right to self insure and/or maintain a sizable deductible on Lessee’s maintaining its status’ as a rated credit. If Lessee is obligated to obtain and maintain casualty insurance, it may be entitled to receive the proceeds of such insurance so long as no default or Event of Default then exists, and subject to Lessee’s providing Lessor with evidence that Lessee has caused all damages to which such proceeds relate to be repaired. In all other circumstances, Lessor will be the sole loss payee of such casualty proceeds. Risk of Loss: Agreed, except that (a) Lessee’s right to replace the lost Property will be conditioned upon the following: (i) no Event of Default shall have occurred and be continuing, (ii) Lessee will convey to Lessor good title to the Property, free and clear of liens, etc., (iii) Lessee will execute and deliver bills of sale, lease supplements, UCCs and other filings relating to the replacement Property (which filings will be filed in the appropriate filing offices at Lessee’s expense), (iv) the replacement Property must be in as good condition and have the same fair market and residual value, utility, and remaining useful life as the replaced Property (assuming it was in the condition and repair required by the Lease), in each such case, as evidenced by an appraisal acceptable to Lessor and (v) Lessee indemnifies Lessor against any adverse tax consequences relating to such replacement; and (b) Lessee’s right to have conveyed to it the Property that suffered the casualty will be subject to (i) there not being any Event of Default, (ii) there not being any claim against the Property by the insurer or any other third party, and (iii) the conveyance being made on an “AS IS” basis; and (c) Lessee’s right to the excess insurance proceeds will be conditioned upon there not being any Event of Default. INCOME TAX INDEMNITY (Section 8). LESSEE COMMENTS. Lessee will not indemnify Lessor for any adverse state income tax consequences. Lessee will indemnify Lessor with respect to any loss, etc. of Lessor’s MACRs deductions directly resulting from any wrongful act or omission by Lessee or Lessee’s breach of its representation that (a) the Property will constitute “ X-year Property” within the meaning of the applicable section of the Code, (b) during the applicable recovery period, the Property will not be (i) tax-exempt use Property or (ii) used predominately outside of the United States, within the meaning of the applicable sections of the Code, (c) Lessee will not make any alterations or improvements to the Property so as to cause it to constitute “limited use property” and (d) during the Lease term Lessee will not claim any of the MACRS deductions. Additionally, Lessee will not be responsible for

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MLA LEASE PROVISIONS deductions. For purposes of determining depreciation deductions, the Property shall have an income tax basis equal to Lessor’s cost for the Property specified on the applicable Schedule, plus such expenses of the transaction incurred by Lessor as may be included in basis under Section 1012 of the Code, and except as provided below, the maximum Federal and state income tax rates applicable to Lessor in effect on the date of execution of a Schedule with respect to an item or items of Property will not change during the lease term applicable to such Property. If for any reason whatsoever any of the representations, warranties, or covenants of Lessee contained in this Lease or in any other agreement relating to the Property shall prove to be incorrect and (i) Lessor shall determine that it is not entitled to claim all or any portion of the depreciation deductions in the amounts and in the taxable years determined as specified above, or (ii) such depreciation deductions are disallowed, adjusted, re-computed, reduced, or recaptured, in whole or in part, by the Internal Revenue Service or the state department of revenue (such determination, disallowance, adjustment, recomputation, reduction, or recapture being herein called a “Loss”), then Lessee shall pay to Lessor as an indemnity and as additional rent such amount as shall, in the reasonable opinion of Lessor, cause Lessor’s after-tax economic yield (the “Net Economic Return”) to equal the Net Economic Return that would have been realized by Lessor if such Loss had not occurred. The amount payable to Lessor pursuant to this section shall be payable on the next succeeding rental payment date after written demand therefore from Lessor, accompanied by a written statement describing in reasonable detail such Loss and the computation of the amount so payable. Further, in the event that prior to the commencement date of this Lease with respect to any Property, or if at any other time there shall be any change, amendment, addition, or modification of any provision of state law or of the Code or regulations thereunder or interpretation thereof with respect to the maximum applicable federal and state income tax rates as set forth above, which results in a decrease in Lessor’s Net Economic Return, then Lessor shall recalculate and submit to Lessee the modified rental rate required to provide Lessor with the same Net Economic Return as it would have realized absent such change and the lease shall thereupon automatically be deemed to be amended to adopt such rental rate and values. 9. INSPECTION AND REPORTS. Lessor shall have the right, at any reasonable time, to enter on Lessee’s premises or elsewhere and inspect the Property or observe its use. Upon Lessor’s request, but in no event later than thirty (30) days after such request, Lessee will deliver all information requested

COMMENTS, JUSTIFICATIONS & RESPONSES any adverse tax consequences to the extent arising from one or more of the following (a) any disposition of any item of Property, or any interest therein, other than pursuant to an exercise of remedies under the Lease, (b) events which require Lessee to pay the casualty value for the Property, (c) a failure by Lessor to claim timely or properly the MACRS deduction, (d) the failure of Lessor to have sufficient taxable income or tax liabilities to benefit from the MACRS deduction, (e)Lessor’s failure to take timely action contesting any claim in accordance with any mutually agreed to contest provisions, (f) the failure of the Lease to be treated as a “true lease” for Federal income tax purposes, (g) application of Section 467(b)(2) of the Code, (h) any negligence, willful misconduct, breach or misrepresentation by Lessor, or (i) any tax law change. Lessee will require Lessor to contest any adjustments proposed by the IRS (to the extent covered under this indemnity), in good faith and at Lessee’s expense (including any appeals of an adverse judicial determination). LESSEE JUSTIFICATIONS. Essentially the same justifications for the exclusions and contest rights relating to the general tax indemnity (see Section 3 above), except that these exclusions also reflect (a) that Lessor’s personal income tax situation might preclude it from enjoying the otherwise anticipated depreciation benefits and (b) Lessee’s limiting its indemnity to any “acts or omissions” (i.e., not structural) indemnity. LESSOR RESPONSE. Essentially the same response to Lessee’s comments to the general tax indemnity (see Section 3 above), except that the nature of the indemnity (i.e., structural or acts and omissions) should typically be determined by Lessor when a specific Schedule is documented or at the commitment letter stage of the transaction. Tax issues can often be handled more efficiently in specific Schedules rather than in the Master Lease Agreement. INSPECTIONS AND CONFIDENTIALITY (Section 9). LESSEE COMMENTS. See the earlier comments regarding inspections and confidentiality. Also, there needs to be a materiality qualifier with respect to the notices and copies required in the last sentence of Section 9.

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MLA LEASE PROVISIONS by Lessor which Lessor deems necessary to determine Lessee’s current financial condition or faithful performance of the terms hereof. Lessee shall give Lessor notice and copy of all tax notices, reports, or inquiries, and of all seizure, attachment, or judicial process affecting or relating to the use, maintenance, operation, possession, or ownership of the Property. 10. ASSIGNMENT. LESSEE SHALL NOT ASSIGN OR IN ANY WAY DISPOSE OF ALL OR ANY OF ITS RIGHTS OR OBLIGATIONS UNDER THIS LEASE OR ENTER INTO ANY SUBLEASE OF ALL OR ANY PART OF THE LEASED PROPERTY WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR WHICH SHALL NOT BE UNREASONABLY WITHHELD. IN CONNECTION WITH THE GRANTING OF SUCH CONSENT AND THE PREPARATION OF NECESSARY DOCUMENTATION, A FEE SHALL BE ASSESSED EQUAL TO ONE PERCENT (1%) OF THE TOTAL REMAINING BALANCE THEN DUE HEREUNDER. LESSEE AGREES THAT LESSOR MAY ASSIGN OR TRANSFER THIS LEASE OR LESSOR’S INTEREST IN THE LEASED PROPERTY WITHOUT NOTICE TO LESSEE. Any assignee of Lessor shall have all of the rights, but none of the obligations, of Lessor under this Lease, and Lessee agrees that it will not assert against any assignee of Lessor, but may assert against Lessor, any defense, counter claim or offset that Lessee may have against Lessor. Lessee acknowledges that any assignment or transfer by Lessor will not materially change Lessee’s duties or obligations under this Lease nor materially increase the burdens or risks imposed on Lessee. Lessee shall cooperate with Lessor in executing any documentation reasonably required by Lessor or any assignee of Lessor to effectuate any such assignment.

COMMENTS, JUSTIFICATIONS & RESPONSES LESSEE JUSTIFICATIONS. See the earlier justifications regarding inspections and confidentiality. With respect to notices, Lessee is concerned that this administerial responsibility might be overlooked due to a clerical mistake, and, therefore, it does not want to risk a default because of its failure to provide some immaterial notice or copy. LESSOR RESPONSES. See the earlier responses regarding Lessee’s comments in Section 4 regarding inspection and confidentiality. Agreed with respect to the materiality request. ASSIGNMENT AND SUBLEASING (Section 10). LESSEE COMMENTS. Assignment/Subleasing by Lessee: Lessee must be permitted to assign the Lease to any of its affiliates, so long as it remains liable for its obligations under the Lease. As previously mentioned, Lessee must have reasonable subleasing rights. Assignment by Lessor: Lessor’s right to assign any part or all of its interest in the Lease shall be subject to Lessor’s having obtained Lessee’s prior written consent: i) unless part of a syndication, or ii) if sold outright, unless (a) the assignee is a national bank or leasing company having a combined capital and surplus (or, if applicable, consolidated tangible net worth or its equivalent) of not less than $75,000,000.00, (b) such assignee expressly assumes all of Lessor’s obligations under the Lease, (c) such assignee provides representations, warranties and covenants substantially similar to those contained in this Lease (including the warranty of quiet enjoyment), and (d) the assignee is not a competitor of Lessee. Additionally, no assignment shall increase the amount of the liability of Lessee under the Lease (including any indemnity contained in the Lease). Lessee will not be required to sign any consent, amendment or other document, except an acknowledgment of the assignment and a representation regarding the number and amount of the remaining rental payments due under the Lease. Lessor will be responsible for, and pay, all of Lessee’s costs incurred in connection with any such assignment. LESSEE JUSTIFICATIONS. Assignment/Subleasing by Lessee: See Lessee’s justifications regarding these rights in Section 4 above. Assignment by Lessor: Lessee agreed to enter into this Lease with Lessor because it was comfortable with Lessor’s creditworthiness, industry reputation, and personal relationships between the respective business decision makers at Lessee and Lessor, and is not inclined to accept any equity transferee that does not have all of the same positive qualities. Additionally, Lessee is unwilling to accept any change in lessors if there will be (a) any costs to Lessee, (b) any additional risks or burdens to Lessee or (c) any requests for additional documentation, including officers certificates, opinions or lease amendments. LESSOR RESPONSE. Assignment/Subleasing by Lessee: See Lessor’s responses with respect to Lessee’s request for assignment and subleasing rights in Section 4 above. Assignment by Lessor: Lessor is willing to be bound by reasonable restrictions regarding its right to assign the Lease, including (a) an assignee will meet minimum creditworthiness and sophistication requirements, (b) the conveyance will not

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result in any material burdens or risks to Lessee, (c) Lessor

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MLA LEASE PROVISIONS 11. SURRENDER. On the expiration or termination of the Term set forth in each Schedule or at any other time that Lessee is required to deliver the Property to Lessor, Lessee shall, at its risk and expense and according to manufacturers recommendations, assemble, prepare for delivery, and deliver the Property and all manuals, records, certificates and documents regarding its use, maintenance, and repair to any location specified by Lessor within the continental United States. The Property shall be delivered unencumbered and free of any liens, charges, or other obligations (including delivery expense and sales or use taxes, if any, arising from such delivery) and shall be in working order, in the same condition, appearance, and functional order as when first leased hereunder, reasonable wear excepted. Any upgrades, parts or improvements may only be removed from the Property if their removal shall not impair the operation or value of the Property. Any upgrades or improvements which cannot be removed in accordance herewith shall become the property of Lessor. Holdover Rental shall be due and owing for each month beyond the Term hereof that Lessee fails to either surrender the Property or to remit the Purchase Option or TRAC Amount specified in the applicable Schedule. Any and all rental payments pursuant to this Section shall be deemed solely to be payments for possession and use of the Property after the expiration of the Term, and shall not be credited to any other obligation of Lessee to Lessor. 12. DEFAULT. Time is of the essence under this Lease, and Lessee shall be in default in event of any of the following: (“Event of Default”): (a) any failure to pay when due the full amount of any payment required hereunder, including, without limitation, rent, taxes, liens, insurance, indemnification, repair or other charge; or (b) any misstatement or false statement in connection with, or non-performance of any of Lessee’s obligations, agreements, or affirmations under or emanating from, this Lease; or (c) upon Lessee’s death, dissolution, termination of existence; or (d) if any of the following actions or proceedings are not dismissed within sixty (60) days after commencement: Lessee’s insolvency; becoming the subject of a petition in bankruptcy, either voluntary or involuntary; any other proceeding under federal bankruptcy laws; making an assignment for benefit of creditors; Lessee being named in, or the Property being subjected to a suit for the appointment

of a receiver; or (f) any failure to

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COMMENTS, JUSTIFICATIONS & RESPONSES will bear the costs of any conveyance, and (d) if Lessor is back leveraging the Lease, or otherwise conveying less than all of its interest in the Lease and Property, Lessor will remain liable for its obligations under the Lease, notwithstanding the assignment (See UCC §2A-303). REDELIVERY (Section 11). LESSEE COMMENTS. Lessee’s obligation to bear the risk and expense of redelivering the Property shall be limited to the risk and cost of delivering the same to any location within five hundred miles of the then existing location of the Property. Lessee will agree to redeliver the Property free of liens, etc. only if they are attributable to Lessee. Lessee must be permitted to remove any alteration, etc. not required by the Lease or not permanently attached to the Property. LESSEE JUSTIFICATION. Lessee is unwilling to support Lessor’s residual expectations beyond the redelivery costs referenced above. Lessee is unwilling to be responsible for liens that are not attributable to Lessee or otherwise the responsibility of Lessee under the Lease. If Lessee has paid for an attachment or other improvement to the Property, it is unwilling to give this valuable property away to Lessor. LESSOR RESPONSE. Lessor will agree to the 500 mile limitation so long as the Property is not being returned in connection with an Event of Default. Lessor agrees with Lessee’s point about liens for which Lessee should not be responsible. Lessor is willing to agree that Lessee need not return attachments or improvements to the Property, so long as: (a) Lessee or a third party owns the property, (b) Lessee can remove the attachment or improvement without causing material damage to the Property and (c) the attachment or improvement is not required by the Lease (e.g., to cause the Property to comply with applicable law). DEFAULT (Section 12). LESSEE COMMENTS. (a) Section 12(a) should be revised so that there is a notice requirement, and expiration of a 10 day grace period after such notice, before Lessee’s failure to pay rent will result in an Event of Default. (b) Section 12(b) must be revised so that only material misstatements, etc. and material nonperformance of Lessee’s obligations, etc. will constitute an Event of Default, if such breaches are not cured within thirty (30) days after Lessee’s receipt of Lessor’s written notice of such breach, or, if such breach is not susceptible to being cured within

thirty (30) days, there should be an extension of the grace period so long as Lessee is diligently undertaking to cure the breach. (c) Section 12(f) relating to cross-defaults should be deleted. (d) Section 12(g) relating to casualties should be deleted. LESSEE JUSTIFICATION. (a) Lessee is a very large company ... (see Lessee’s justification in Section 3 above with respect to late charges). (b) Lessee is unwilling to risk that an Event of Default will occur with respect to an immaterial misrepresentation, or a misrepresentation that can be cured. (c) If Lessee is otherwise performing its obligations under this

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MLA LEASE PROVISIONS pay, as and when due, any obligation of Lessee, whether or not to Lessor, arising independently of this Lease; or (g) if the Property should be lost, damaged, totally destroyed, removed, sold, transferred, sublet, encumbered, seized or levied upon or if Lessor shall determine that the Property is at risk; or (h) bankruptcy, insolvency, termination, or default of any guarantor for Lessee. No express or implied waiver by Lessor of any default shall constitute a waiver of any other default by Lessee or a waiver of Lessor’s rights. 13. REMEDIES. Upon the occurrence of any Event of Default arising pursuant to Sections 12 (b) and 12 (g) or not less than ten (10) days after the occurrence and failure to cure of any other Event of Default and at any time thereafter, Lessor shall have all remedies provided by law or equity; and, without limiting the generality of the foregoing and without terminating this Lease, Lessor, at its sole option, shall have the right at any time to exercise concurrently, or separately, without notice to Lessee (unless specifically stated), any one or all of the following remedies: (a) Request Lessee to assemble the Property and make it available to Lessor at a reasonable place designated by Lessor and put Lessor in possession thereof on demand; (b) Immediately and without legal proceedings, enter the premises, take possession of, remove and retain the Property or render it unusable (any such taking shall not terminate this Lease); (c) Declare the entire amount of rent and other sums payable hereunder immediately due and payable; however, in no event shall Lessor be entitled to recover any amount in excess of the maximum permitted by applicable law; (d) Terminate the leasing of any or all items of Property. Such termination shall occur only upon notice by Lessor and only as to such items of Property as Lessor specifically elects to terminate. This Lease shall continue in full force and effect as to any remaining items; (e) Recover the sum of: (i) any accrued and unpaid rent; plus, (ii) the present value of all future rentals reserved in the Lease and contracted to be paid over the unexposed term of the Lease, discounted at the rate of six percent (6%); plus, (iii) the anticipated residual value of the Property as of the expiration of this Lease or any

COMMENTS, JUSTIFICATIONS & RESPONSES Lease, Lessee is unwilling to have its relationship with its other lenders, lessors and contract parties have any bearing on its right to use the Property. (d) The risk of loss of any item of Property is addressed in Section 7, and the other risks (unpermitted transfers and liens) are covered in Sections 4 and 10; and, in any event, casualties are not volitional and Lessee is unwilling to risk cross defaults under its other material agreements as a result of a non-volitional default under this Lease. LESSOR RESPONSE. (a) No notices, however, Lessor is willing to afford Lessee a 10 day grace period. (b) With respect to breaches of (i) representations and warranties, Lessor is willing to add a materiality qualifier, and permit Lessee a reasonable opportunity to cure any curable consequences of such a breach (e.g., 30 days after notice); and (ii) covenants, etc., Lessor is unwilling to add a materiality qualifier, but will agree to a “diligently undertaking” cure extension if Lessee is reasonably capable of curing such breach within the extended period. (c) Lessor might consider removing the cross-default provision if it is not a requirement of Lessor’s credit committee. (d) Lessor agrees that casualties will not constitute Events of Default (See UCC §2A-501 & 502). REMEDIES (Section 13). LESSEE COMMENTS. (a) Section 13(b) must be revised to reflect that Lessor may not enter Lessee’s premises without a court order. (b) Section 13(c) containing the acceleration clause should be deleted. (c) Section 13(e) must be revised by (i) changing the discount rate (in sub clause (ii)) to the implicit rate in the Lease, (ii) deleting the obligation to pay the anticipated residual value of the Property if the Property has been recovered by Lessor, (iii) deleting sub clause (iv), and (iv) reducing the amount of liquidated damages payable under sub clause (ii) by an amount which is the greater of any re-lease rentals or the fair market rental value of the Property, during the remaining lease term, discounted at the same discount rate. Additionally, Lessor’s obligation to pay “default rate interest” on the outstanding balance should be limited to interest at the implicit rate plus 200 basis points. Lessor must agree to use its best efforts to mitigate its damages by selling or releasing the Property. LESSEE JUSTIFICATION. (a) Section 13(b): Lessee is concerned about any attempt by Lessor or its assignee to recover the Property at a time when Lessor or such assignee is under the mistaken impression that an Event of Default exists. (b) Section 13(c): this acceleration clause is punitive (and should be difficult to enforce) since it fails to reflect Lessee’s right to mitigation, and fails to recognize the time value of money. (c) Section 13(e): (i) the discount rate is unfairly low, and therefore will result in Lessor receiving a windfall; (ii) Lessor will receive a windfall if it recovers the Property and is paid an amount of money that includes an amount that is intended to compensate Lessor for the fair market sales value of the Property; (iii) the amounts covered in sub clause (iv) are already covered in the indemnification section; and (iv) Lessee should be entitled to the same mitigation credit as is afforded under the liquidated damage formulae in Article 2A. Default rate interest may be higher than the implicit rate, so that it

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serves as an incentive to pay the accelerated and other

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MLA LEASE PROVISIONS renewal thereof; (iv) any indemnity payment, if then determinable; and, (v) all commercially reasonable costs and expenses incurred by Lessor in any repossession, recovery, storage, repair, sale, re-lease or other disposition of the Property, including reasonable attorneys’ fees (whether incurred at trial, on appeal or in any other proceeding) and costs incurred in connection therewith or otherwise resulting from Lessee’s default; plus interest on each of the foregoing at a rate of eighteen percent (18.0%) per annum; and, (f) Lessor may, but is not required to, re-lease or sell any or all of the Property at a public or private sale on such terms and notice as Lessor shall deem reasonable. The proceeds of any sale or lease will be applied in the following order of priorities: (i) to pay all of Lessor’s expenses in taking, removing, holding, repairing and disposing of Property; then (ii) to pay any late charges and interest accrued at the rate set forth in this section; then (iii) to pay accrued but unpaid rent together with the anticipated residual value, future rent, interest and all other due but unpaid sums (including any indemnification and sums due under other Leases or agreements in default). Any remaining proceeds will reimburse Lessee for payments which it made to reduce the amounts owed to Lessor in the preceding sentence. Lessor will keep any excess. If the proceeds of any sale or lease are not enough to pay the amounts owed to Lessor under this Section, Lessee will pay the deficiency. No remedy referred to in this section is intended to be exclusive, but shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at law or in equity. 14. LESSEE’S WAIVERS. To the extent permitted by applicable law, Lessee hereby waives any and all rights and remedies now or hereafter conferred by statute or otherwise including but not limited to Lessee’s rights to: (i) cancel or repudiate this Lease; (ii) reject or revoke acceptance of the Property; (iii) recover damages from Lessor for any breaches of warranty; (iv) claim, grant or permit a security interest in the Property in Lessee’s possession or control for any reason; (v) deduct all or part of any claimed damages resulting from Lessor’s default, if any, under this Lease; (vi) accept any partial delivery of the Property; (vii) “cover” by making any purchase or lease of or contract to

COMMENTS, JUSTIFICATIONS & RESPONSES amounts when due, but not so much higher that the interest obligation / constitutes a penalty. Lessor must act with commercial reasonableness when enforcing its rights against Lessee after an Event of Default. It is reasonable for Lessor to reduce the extent of the harm suffered by it as a result of Lessee’s breach, and thereby reduce the amount of Lessee’s exposure. LESSOR RESPONSE. (a) Section 13(b): Agree. (Note: since Lessors are not permitted to breach the peace in connection with any repossession, Lessee could force Lessor to obtain a court order merely by refusing to allow Lessor on Lessee’s premises to recover the Property) (See UCC §2A-523 & 525). (b) Sections 13(c) and 13(e): Lessor would be willing to replace the existing text with Article 2A style liquidated damage remedies (e.g., an amount equal to the aggregate of (i) all rent and other amounts then due, (ii) the present value of all rents payable during the balance of the term (the “remaining term”), discounted at an agreed to discount rate (the “agreed rate”), less the present value of either (A) all re-lease rentals or (B) fair market rentals, in each such case, with respect to any Property returned or otherwise recovered by Lessor, for a period equal to the remaining term, and discounted at the agreed rate, (iii) all enforcement, refurbishment and/or disposition costs, (iv) if the Property has not been returned or repossessed, the present value of the casualty value of the Property as of the scheduled Lease expiration, discounted at the agreed rate, (v) all consequential damages not accounted for in clauses (a) through (d), and (vi) interest at the late charge rate on such aggregate amount, accruing from the acceleration date until paid in full (See UCC §§2A-523, 530 and 532). Although Lessor will not agree to dispose of the Property so as to mitigate its damages, it will agree to afford Lessee a credit in the manner provided in the previous sentence (See UCC §2A-527). If the remedy also requires that Lessee pay Lessor the casualty value of the Property, Lessor would afford lessee a credit for either any net sales proceeds, or the fair market sales value of any item of Property that is returned or otherwise recovered. Any determination of the fair market sales or rental value of the Property would take into account the actual condition and location of that Property, and the date on which the Property was recovered (See UCC 2A-507). WAIVERS (Section 14). LESSEE COMMENTS. Lessee is unwilling to make these waivers. LESSEE JUSTIFICATION. Lessee is generally unfamiliar with Article 2A, and does not intend to have its counsel become educated about the referenced sections. LESSOR RESPONSE. If this is a “finance lease” under Article 2A-103, Lessor will have these same general waivers by statute. (The same protections are automatically afforded to Lessor by the favorable treatment of finance lessors under Article 2A), but it is worth educating the Lessee to keep these waivers in place in the MLA.

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MLA LEASE PROVISIONS purchase or lease property in substitution for the Property; (viii) commence legal action for specific performance, replevin, sequestration, claim and delivery or the like for the Property. 15. NOTICES, PAYMENTS AND GOVERNING LAW. All notices and payments shall be mailed or delivered to the respective parties at the addresses specified in the Schedule, or such other address as a party may provide in writing from time to time. This Lease shall be considered to have been made in the State of ______ and shall be interpreted, and the rights and liabilities of the parties determined, in accordance with applicable Federal Law and the Laws of the State of ______. In the event of suit enforcing this Lease, Lessee agrees that venue may, at Lessor’s option, be laid in the county of Lessor’s address below. LESSOR AND LESSEE EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING FROM OR RELATED TO THIS LEASE. 16. SEVERABILITY, NO UNLAWFUL INTENT, SURVIVAL. If any of the provisions of this Lease are contrary to, prohibited by, or held invalid under applicable laws, regulations or public policy of any jurisdiction in which it is sought to be enforced, then that provision shall be considered inapplicable and omitted but shall not invalidate the remaining provisions. In no event shall this Lease be enforced in any way which permits Lessor to collect interest in excess of the maximum lawful rate. Should interest collected exceed such rate, Lessor shall refund such excess interest to Lessee. In such event, Lessee agrees that Lessor shall not be subject to any penalties provided by law for contracting for or collecting interest in excess of the maximum lawful rate. All of Lessor’s rights, privileges and indemnities contained herein shall survive the expiration or other termination of the Lease and the rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns.

COMMENTS, JUSTIFICATIONS & RESPONSES GOVERNING LAW (Section 15). LESSEE COMMENTS. If either Delaware or New York law will govern the rights and liabilities of the parties under the Lease, Lessee will agree to the nonexclusive jurisdiction of the federal or state courts in either state.

LESSEE JUSTIFICATIONS. Lessee does not intend to be bound by the laws of, or be forced to litigate in the courts of, _______, since its counsel is unfamiliar with the laws of that state, and it would be inconvenient for it to conduct litigation.

LESSOR RESPONSE. Lessor would accept either Delaware or New York governing law and jurisdiction. Lessor feels comfortable with the application of either state’s law and the courts of either state because the judges should be well versed in the issues arising in sophisticated commercial transactions.

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MLA LEASE PROVISIONS 17. LESSOR’S DISCLAIMERS. The Property has been acquired based on specifications furnished by the Lessee. Lessor is acting as a funding source only and does not deal in property of this kind or otherwise hold itself or its agents out as having knowledge or skill peculiar to the Property. Lessee acknowledges that it has relied on its own skill and experience in selecting property suitable to the Lessee’s particular needs or purposes and has neither relied upon the skill or judgment of Lessor nor believes that Lessor or its agents possess any special skill or judgment in the selection of property for Lessee’s particular purposes. Further, Lessee has not notified Lessor of Lessee’s particular needs in using the Property. Lessee understands and agrees that neither the Supplier(s) nor any salesperson or any agent of the Supplier(s) is an agent of Lessor. No salesperson or agent of supplier is authorized to waive or alter any term or condition of this Lease, and no representation as to the Property or any other matter by the Supplier shall in any way affect Lessee’s duty to pay the rent and perform its obligations as set forth in this Lease. Lessor shall not be liable to Lessee for any incidental, consequential, or indirect damages or for any act, neglect, omission, breach or default by any Supplier or other third party. 18. LESSOR ASSUMES NO RESPONSIBILITY FOR AND MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SAFETY, SUITABILITY, ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE PROPERTY OR AS TO ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE VALIDITY OF THIS LEASE. LESSOR SHALL NOT BE LIABLE TO LESSEE FOR ANY REPRESENTATION, CLAIM, BREACH OF WARRANTY, EXPENSE OR LOSS DIRECTLY OR INDIRECTLY CAUSED BY ANY PERSON, INCLUDING LESSOR, OR IN ANY WAY RELATED TO THE PROPERTY.

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MLA LEASE PROVISIONS 19. ENTIRE AGREEMENT, WAIVERS, SUCCESSORS. This Lease and each Schedule contain the entire agreement of the parties and shall not be qualified or supplemented by course of dealing. No waiver or modification by Lessor of any of the terms or conditions hereof shall be effective unless in writing signed by an officer of Lessor. No waiver or indulgence by Lessor of any deviation by Lessee of any required performance shall be a waiver of Lessor’s right to subsequent or other full and timely performance. This Lease shall be binding on the parties hereto and their respective successors and assigns and shall inure to the benefit of such successors and assigns. Section headings shall not be considered a part of this Lease.

BY INITIALING AND DATING THIS SECTION, LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THE ABOVE SECTIONS CAPTIONED “LESSOR’S DISCLAIMERS” AND “ENTIRE AGREEMENT,” AND FULLY UNDERSTANDS AND ACCEPTS THEIR CONTENTS. INITIALED:_____________ 20. POWER OF ATTORNEY. Lessee hereby authorizes and appoints Lessor as its attorney-in-fact to complete, execute and file on Lessee’s behalf UCC financing statements in connection with this Lease and to conform the description of the Property (including serial numbers) in any such financing statements or other documentation. Lessee will also promptly execute and deliver to Lessor such further documents and take further action as Lessor may request to protect Lessor’s title to and interest in the Property and to more effectively carry out the intent and purpose of this Lease.

COMMENTS, JUSTIFICATIONS & RESPONSES See UCC 2A-208 (2) for requirements that this provision be “separately signed.” See also UCC 2A-202 and 214. POWER OF ATTORNEY (Section 20). LESSEE COMMENTS. Lessee will not agree to any power of attorney.

LESSEE JUSTIFICATIONS. Lessee is unwilling to empower Lessor with the ability to take actions in Lessee’s name because it fears that this power may be abused.

LESSOR RESPONSE. Lessor will require that it be granted at least a limited power of attorney relating to the insurance policies required to be maintained under the Lease, and any related proceeds. In addition, Lessor must require express authorization from the Lessee in the MLA to make UCC filings against the Lessee.