Master Equipment Lease Agreement Dated - 7/3/96

MASTER EQUIPMENT LEASE AGREEMENT


THIS AGREEMENT, dated July 3, 1996, is made between MELODI LANE INVESTMENTS, LLC, a Wyoming limited liability company, having its address at Two Midtown Plaza, Suite 1990, 1360 Peachtree Street, N.E., Atlanta, Georgia, 30309 (together with any permitted assignee of any of the Equipment, the "Lessor"), and AIR DRILLING SERVICES, INC., a Wyoming corporation having its principal place of business at 13111 East Briarwood, Englewood, Colorado (the "Lessee").


SECTION 1. DEFINITIONS.


"Acceptance Date" means the date on which Lessee executes a Certificate of Acceptance with respect to any Items of Equipment to be leased by Lessee pursuant to this Agreement.


"Agreement" means this Equipment Lease Agreement.


"Agreement Date" means the date as of which this Agreement is dated.


"Authorized Signatories" means such officers of Lessee as may be duly authorized and designated in writing by Lessee to execute documents, agreements and instruments on behalf of Lessee.


"Certificates of Acceptance" means those certain Certificates of Acceptance to be executed by Lessee on the Agreement Date and thereafter, substantially in the form attached hereto as Exhibit A.


"Equipment" means and includes the aggregate of all Items of Equipment described on the Equipment Schedules.


"Equipment Lease Applications" means those certain Equipment Lease Applications, to be made by Lessee and, in its sole discretion, accepted by Lessor, from time to time with respect to certain Items of Equipment, substantially in the form of Exhibit C attached hereto and made a part hereof.


"Equipment Schedules" means those certain Equipment Schedules, numbered 1 through 3, which are attached to this Agreement, and any Equipment Schedules subsequently attached to this Agreement with the mutual consent of Lessor and Lessee, and includes any Certificate of Acceptance or other attachment to any such Equipment Schedule; and "Equipment Schedule" means any one of the foregoing Equipment Schedules.


"Event of Default" means any of the events specified in Section 20, provided that any requirement for notice or lapse of time, or both, has been satisfied. 2
"Event of Loss" means, with respect to any of the Equipment, any loss or damage of any type or degree whatsoever, including without limitation, any destruction, theft or governmental taking, however caused or occasioned, whether partial or complete, and whether or not covered by insurance.


"Indemnified Parties" means the Lessor and any assignee of Lessor, including but not limited to any Person to whom Lessor grants a security interest in any Lease; and "Indemnified Party" means any one of the Indemnified Parties.


"Items of Equipment" means and includes all of the items of equipment described on any Equipment Schedule.


"Lease" means any individual Lease of any Items of Equipment created pursuant to the terms of this Agreement and the particular Equipment Schedule pertaining to such Items of Equipment.


"Lease Documents" means, without limitation, this Agreement, the Equipment Lease Applications, the Equipment Schedules, the Certificates of Acceptance, and any other document, instrument or agreement executed in connection herewith or therewith or contemplated hereby or thereby.


"Litigating Party" means that party to this Agreement who resorts to litigation to enforce any Manufacturer's warranty; and the "Nonlitigating Party" means the other party to this Agreement.


"Loss" shall have the meaning ascribed to it in Section 16 hereof.


"Manufacturer" means, with respect to any Items of Equipment, the manufacturer or distributor which sold such Items of Equipment to Lessor to be leased to Lessee pursuant to this Agreement.


"Materially Adverse Effect" means any materially adverse effect upon the business, assets, liabilities, financial condition, results of operations or business prospects of Lessee or upon the ability of Lessee to perform its obligations under this Agreement or any Lease Document.


"Modifications" means any modifications or alterations to the physical condition of any Items of Equipment.


"Net Proceeds" means (i) the proceeds received by Lessor from a sale of any Items of Equipment repossessed under Section 20 hereof, or the aggregate rent paid to Lessor pursuant to a new lease of such Items of Equipment discounted at the Discount Rate, whichever is greater, less (ii) all costs and expenses (including attorneys' fees and disbursements) incurred by Lessor as a result of Lessee's-default and Lessor's exercise of its remedies with respect thereto.


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"Overdue Rate" means, at any time, an interest rate equal to the greater of (i) 12% percent per annum or (ii) 3% percent above the Prime Rate.


"Person" means any individual, corporation, partnership, trust or unincorporated organization, or a government or any agency or political subdivision thereof.


"Prime Rate" means the rate of interest adopted by First Interstate Bank of Denver, N.A. as its "prime rate".


"Rent" means the obligation of Lessee to pay Basic Rent, Supplemental Rent and all other amounts due under the Lease Documents.


"Return Condition" means the condition in which the Equipment shall be returned to Lessor by Lessee pursuant to Section 9(b) hereof.


"Supplemental Rent" means all amounts other than Basic Rent which are due and payable or which become due and payable by Lessee to Lessor pursuant to the terms of this Agreement or any Lease Document.


"Term" means, with respect to any Lease, the period between and including the Acceptance Date and the Expiration Date, unless otherwise provided herein or in any of the Lease Documents.


The terms "Overdue Rate," "First Basic Rent Date," "Last Basic Rent Date," "Expiration Date," and "Casualty Value," when used with respect to the leasing of any Items of Equipment, shall have the meanings set forth in the applicable Equipment Schedule or Certificate of Acceptance attached to such Equipment Schedule for such Items of Equipment.


SECTION 2. AGREEMENT FOR LEASE OF EQUIPMENT.


Subject to, and upon all of the terms and conditions contained in this Agreement and in the Equipment Schedules attached hereto, Lessor hereby agrees to lease to Lessee and Lessee hereby agrees to lease from Lessor all of the Equipment which is delivered to and accepted by Lessee in the manner described in Section 4 below. Each Equipment Schedule, with the attached Certificate of Acceptance and all other documents attached thereto, when fully executed by Lessor and Lessee as provided therein, shall constitute a separate Lease of the Items of Equipment described on such Equipment Schedule. The terms and provisions of this Agreement shall be incorporated by reference in each Equipment Schedule, and such terms and provisions are intended to govern and be applied to the rights and obligations of Lessor and Lessee regarding each of the Items of Equipment and the Lease pertaining thereto.


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SECTION 3. CONDITIONS PRECEDENT.


The obligation of Lessor to sign this Agreement and to lease any Items of Equipment to Lessee is subject to the fulfillment of each of the following conditions:


(a) the delivery by Lessee to Lessor on or prior to the Agreement Date of each of the following documents in form and substance satisfactory to Lessor:


(i) certified resolutions of Lessee's Board of Directors, authorizing the lease of all of the Equipment and Lessee's execution, delivery and performance of this Agreement, the other Lease Documents, and all other related documents, which resolutions shall be in form and substance satisfactory to Lessor;


(ii) an incumbency certificate for the Authorized Signatories of Lessee, in form and substance satisfactory to Lessor;


(iii) certificates or other evidence of the insurance coverage required under Section 12 hereof pertaining to the relevant Items of Equipment;


(iv) such landlord's or mortgagee's waivers as may be required by Lessor pursuant to Section 8 hereof, in form and substance satisfactory to Lessor; and


(v) such other documents as Lessor may request, including, without limitation, Uniform Commercial Code Financing Statements, certified by an appropriate governmental official or an Authorized Signatory of Lessee if so requested.


(b) written certification by an Authorized Signatory of Lessee that, as of each applicable Acceptance Date:


(i) no event which is, or with notice or lapse of time or both would become, an Event of Default hereunder has occurred and is continuing; and


(ii) there has been no Materially Adverse Effect since the date of the last financial statements of Lessee submitted to Lessor prior to the applicable Acceptance Date.


SECTION 4. ACCEPTANCE OF EQUIPMENT.


Immediately upon delivery to Lessee of any Items of Equipment, Lessee shall (i) inspect such Items of Equipment, and (ii) execute and deliver to Lessor the Certificate of Acceptance attached to the Equipment Schedule for such Items of Equipment. Lessee's execution of such Certificate of Acceptance shall constitute (i) Lessee's unconditional acceptance of such Items of Equipment for lease from Lessor on the Acceptance Date specified in such Certificate of Acceptance, and (ii) Lessee's acknowledgment and certification that such Items of Equipment have been delivered to and inspected by Lessee,


4 5 have been installed to Lessee's satisfaction, are in good working order, repair and condition.


SECTION 5. TERM OF LEASE.


The Lease Term for any Items of Equipment shall commence on the Acceptance Date for such Items of Equipment, provided that each of the conditions precedent set forth in Section 3 hereof has been fulfilled to Lessor's satisfaction as of that date. The Lease Term for any Items of Equipment shall expire on the Expiration Date specified in the relevant Certificate of Acceptance, unless sooner terminated or unless extended pursuant to the provisions of the Lease for such Items of Equipment.


SECTION 6. RENTAL CHARGES.


Lessee shall pay to Lessor as rent for any Items of Equipment during the Lease term therefor the following amounts (collectively, the "Rent"):


(a) On the Acceptance Date, an amount equal to the Interim Rent;


(b) Commencing on the First Basic Rent Date and on each Basic Rent Date thereafter to and including the Last Basic Rent Date, an amount equal to the Basic Rent;


(c) As Supplemental Rent, on or before the date required by the terms hereof (or upon Lessor's demand if no such date is specified herein), any other amount which Lessee is obligated to pay hereunder with respect to such Items of Equipment including indemnity payments and payments of Casualty Value; and


(d) If Lessee shall fail to pay when due all or any portion of any payment of Rent, to the extent permitted by law such unpaid amount shall bear interest for each day from the date it became so due until paid in full, payable on demand, at the Overdue Rate.


SECTION 7. NET LEASE.


Each Lease created hereunder for any Items of Equipment shall be a net lease and Lessee acknowledges that Lessee's obligations thereunder, including, without limitation, its obligation to pay all Rent, shall be absolute and unconditional and, except as provided in Section 13 hereof, Lessee shall not be entitled to any abatement, reduction, defense, counterclaim, set-off or recoupment, including, without limitation, abatements, deductions or set-offs due or alleged to be due by reason of any past, present or future claim of Lessee under any Lease, or any other agreement, contract or undertaking, against Lessor, any assignee of Lessor, or any vendor or Manufacturer of Equipment. Except as otherwise expressly provided herein, such Leases shall not terminate, nor the obligations of Lessee or Lessor thereunder be otherwise affected, for any reason whatsoever, including, without limitation, (i) any defect in the Equipment or any part or Items of Equipment thereof or Lessor's title thereto, or any damage or destruction to, loss of or interference with the


5 6 possession or use of any Items of Equipment from any cause whatsoever; (ii) any liens, encumbrances or rights of others with respect to all or any part of the Equipment; (iii) the invalidity or unenforceability or lack of due authorization of this Agreement or any Lease; (iv) any insolvency of or any bankruptcy, reorganization or similar proceeding against Lessee or Lessor; or (v) any other cause similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. It is the intention of the parties hereto that all Rent and other amounts payable by Lessee hereunder shall continue to be payable in all events in the same manner and times herein provided, unless the obligation to pay them shall be terminated pursuant to the express provisions of this Agreement. To the extent permitted by applicable law, Lessee hereby waives any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to cancel, quit or surrender this Agreement, any Lease or any of the Equipment, except in accordance with the express provisions hereof. Each payment of Rent made by Lessee hereunder shall be final, and Lessee shall not seek to recover all or any part of such payment from Lessor or any assignee of Lessor for any reason whatsoever.


SECTION 8. OWNERSHIP OF EQUIPMENT.


The Equipment shall at all times remain the property of Lessor and any Items of Equipment may be removed from Lessee's premises or any other location by Lessor or its representatives at any time after termination of the Lease with respect thereto. Lessee shall, at its sole cost and expense, affix tags, decals or plates to each of the Items of Equipment indicating ownership by Lessor or Lessor's assignee, which type of tag, decal or plate and location may be specified by Lessor, and Lessee shall not permit their removal or concealment. In addition, Lessee shall, at its sole cost and expense, cause all Items of Equipment to display the serial numbers specified in the Equipment Schedules. Lessee agrees, at its sole cost and expense, to execute and deliver such Uniform Commercial Code financing statements and other instruments, including, without limitation, landlord's or mortgagee's waivers, as may be necessary to protect the right, title and interest of Lessor and any assignee of Lessor in and to this Agreement or the Equipment or any Items of Equipment thereof. Lessee shall, at its own expense, protect and defend Lessor's title in the Equipment and any Items of Equipment thereof against all claims and liens of Lessee's creditors or any other person or entity whatsoever and shall at all times keep all Items of Equipment free and clear of all claims, liens and encumbrances except those running in favor of Lessor. Lessee shall not claim any income tax deduction for depreciation with respect to the Equipment, nor, unless specifically provided to the contrary in the relevant Equipment Schedule(s), any investment tax credit with respect thereto.


SECTION 9. POSSESSION.


(a) Lessor warrants to Lessee that Lessee shall be entitled, as against all persons claiming by, through or under Lessor, to possess each of the Items of Equipment, subject to the terms of the individual Lease for such Items of Equipment and the terms of this Agreement, so long as Lessee is not in default hereunder or under such Lease.


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(b) Upon the expiration or earlier termination of each such Lease, Lessee shall, at its sole cost and expense and subject to the terms of this Agreement, return the Items of Equipment leased thereunder to Lessor at the place within the continental United States designated by Lessor in as good condition and operating order as when delivered to Lessee, reasonable wear and tear excepted.


SECTION 10. MAINTENANCE.


(a) Lessee at all times shall keep, repair, maintain and preserve the Equipment in good order and operating condition.


(b) All repair, maintenance and service charges related to the Equipment shall be borne by Lessee.


SECTION 11. LOCATION AND USE OF EQUIPMENT.


(a) During the term of each Lease for Items of Equipment, such Items shall be located at the address indicated in the relevant Certificate of Acceptance, or such other location as may be approved by the Lessor from time to time. Items of Equipment may be removed from such address only with the prior written consent of Lessor and any assignee of Lessor, and with the prior execution and filing by Lessor, any assignee of Lessor and Lessee, of such Uniform Commercial Code financing statements and other filings in such new locations as are necessary to preserve the right, title and interest of Lessor and any assignee of Lessor in the Items of Equipment.


(b) Lessee covenants and warrants that during the period that any Equipment is leased to Lessee hereunder, such Equipment will be used and operated at all times in compliance with the laws of the jurisdiction(s) in which it is located, and in compliance with all actions, rules, regulations and orders of any commission, board or other legislative, administrative, or judicial body or officer having power to regulate or supervise the use or operation of the Equipment. Lessee shall not install or use the Equipment or any items thereof in such manner or in such circumstances that such Equipment or any items thereof are deemed to be an accession to other personal property or are deemed to be real property or a fixture thereon.


SECTION 12. INSURANCE.


During the period that any Equipment is leased to Lessee hereunder, Lessee will, at all times and at its sole expense, carry and maintain, or cause to be carried and maintained, the following insurance, satisfactory to Lessor in form, substance and insurance carrier: (a) insurance for loss of or damage to the Equipment caused by fire, lightning, rust, tornado and windstorms, explosion, smoke and smudge, aircraft and motor vehicle damage, strikes, riots and civil commotion, burglary and theft, vandalism and malicious mischief, and other casualty events customarily insured against with respect to similar equipment, in an amount not less


7 8 than the Casualty Value of the Equipment; and (b) public liability insurance covering the Equipment, in such amounts and against such risks as is customary with respect to similar equipment. Such policies will provide that (i) the policies may not be invalidated against Lessor or any assignee of Lessor by reason of any violation of a condition or breach of warranty of the policies or the application therefor by Lessee, (ii) the policies may be cancelled or materially altered or reduced in coverage by the insurer only after thirty (30) days' prior written notice to Lessor and any assignee of Lessor, and (iii) the insurer will give written notice to Lessor and any assignee of Lessor in the event of nonpayment of premium by Lessee when due. On the Agreement Date, and thereafter not less than thirty (30) days prior to their expiration, Lessee shall deliver to Lessor or its assignees, as appropriate, originals of all insurance policies covering the Equipment as required by this Section; provided, however, that Lessor or any assignee of Lessor, as appropriate may, in its sole discretion, agree to accept copies of the policies, certificates of insurance, or other satisfactory evidence in lieu of original policies. Such policies may be blanket policies covering other equipment not subject to the Leases created hereunder and under the Equipment Schedules, provided that any such blanket policy or certificate of insurance issued with respect thereto shall specifically describe the Equipment as being included therein and covered thereby to the full extent of the coverages and amounts required hereunder. If Lessee shall fail to obtain or maintain the insurance required under this Section, Lessor or any assignee of Lessor may obtain such insurance and Lessee shall reimburse Lessor or any such assignee of Lessor, as the case may be, upon demand, for the cost thereof as Supplemental Rent hereunder. With respect to those insurance policies required by Section 12(a) above, Lessor and any assignee of Lessor shall be named as the sole loss payees, as their interest may appear; all insurance proceeds payable thereunder shall be payable and paid solely to Lessor and to any assignee of Lessor, as their interests may appear. With respect to those insurance policies referred to in Section 12(b), Lessor and any assignee of Lessor shall be named as additional insureds.


SECTION 13. RISK OF LOSS; EVENT OF LOSS.


(a) Lessee hereby assumes and shall bear the entire risk of all Events of Loss. No Event of Loss shall relieve Lessee of any of its obligations under this Lease including, without limitation, its obligation to pay Rent. Lessee shall immediately notify Lessor of any Event of Loss involving the Equipment or any Items of Equipment or part thereof.


(b) If an Event of Loss occurs with respect to any Items of Equipment, Lessee, at the option and direction of Lessor, shall: (i) repair or restore the Items of Equipment to good repair, condition and working order; or (ii) replace the Items of Equipment with identical equipment in good repair, condition and working order, title to which shall be transferred to Lessor free and clear of all liens, claims and encumbrances whatsoever; or (iii) pay Lessor in cash the Casualty Value for any such Items of Equipment as set forth in the relevant Certificate of Acceptance.


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(c) If Lessor has directed Lessee to repair, restore or replace any Item of Equipment pursuant to clause 13(b)(i) or 13(b)(ii) above and Lessee has done so in accordance with the terms thereof, then, if Lessee is not in default hereunder, Lessor shall pay to Lessee any insurance proceeds received by it in connection with the Event of Loss affecting such Item of Equipment. In the event of an election by Lessor pursuant to clause 13(b) (iii) above, and upon payment by Lessee of the Casualty Value and any accrued and unpaid Rent and all other amounts due under the Lease for such Items of Equipment, Lessee's obligation to pay Rent with respect to such Items of Equipment shall terminate, and Lessee shall become entitled to possession and ownership of such Items of Equipment, or parts or components thereof, AS IS, WHERE IS, and without any warranty by Lessor, express or implied, and all insurance proceeds from such Event of Loss with respect thereto shall be paid to Lessee.


SECTION 14. ENFORCEMENT OF WARRANTY.


(a) Upon receipt of written request from Lessee, and so long as this Agreement and the relevant Leases for Items of Equipment shall remain in force, Lessor shall take all reasonable action requested by Lessee to enforce any Manufacturer's warranty, express or implied, issued on or applicable to any Items of Equipment, which is enforceable only by Lessor in its own name, or only in conjunction with Lessor in its own name, provided, however, that Lessor shall not be obligated to resort to litigation to enforce any such warranty unless Lessee shall pay all expenses in connection therewith.


(b) Similarly, if any such warranty for any Items of Equipment shall be enforceable only by Lessee in its own name, or only in conjunction with Lessee in its own name, Lessee hereby agrees, upon receipt of written request from Lessor and so long as this Agreement and the relevant Leases for Items of Equipment shall remain in force, to take all reasonable action requested by Lessor to enforce any such warranty, provided, however, that Lessee shall not be obligated to resort to litigation to enforce any such warranty unless Lessor shall pay all expenses in connection therewith.


(c) Lessor hereby assigns to Lessee any warranty rights which Lessor may have against the Manufacturer with respect to any Items of Equipment, to the extent such warranty rights are assignable. With respect to such warranty rights as are not assignable, Lessor hereby appoints Lessee as its agent and attorney-in-fact for the purpose of enforcing such warranty rights at Lessee's expense for so long as no Event of Default hereunder shall have occurred and be continuing.


(d) In the event that either Lessor or Lessee resorts to litigation to enforce any warranty, it is agreed that the Litigating Party shall have the right to take such action as it deems appropriate to settle, compromise or otherwise dispose of any claim under any such warranty, provided that the Nonlitigating Party shall not be bound by any rulings, judgments, decisions, agreements, compromises and settlements made or handed down with respect thereto or entered into by the Litigating Party unless the Nonlitigating Party shall have agreed in writing to be bound thereby.


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SECTION 15. DISCLAIMER OF WARRANTIES.


Lessor leases the Equipment to Lessee AS IS, WHERE IS, in whatever condition it may be, without any agreement, warranty or representation, express or implied, as to any matter whatsoever respecting the Equipment. Without limiting the generality of the foregoing, Lessor expressly disclaims any implied warranty of merchantability, fitness or adequacy for any particular purpose or use, quality, productiveness or capacity.


SECTION 16. INDEMNIFICATION.


(a) Lessor shall not be liable to Lessee for, and Lessee shall indemnity and hold the Indemnified Parties harmless on an after-tax basis from and against any obligation, liability (including liability for negligence), claim, demand, action, suit, judgment, cost, loss, damage or expense (including litigation expenses and attorneys' fees) of any kind or nature imposed on, incurred by or asserted against Lessor, caused, directly or indirectly, by or relating to: (i) the inadequacy of any Items of Equipment for any purpose, (ii) any deficiency or defect (patent or latent) in any Items of Equipment, (iii) the use, operation or performance of any Items of Equipment, (iv) any interruption or loss of service, use or performance of any Items of Equipment, (v) any patent, trademark or copyright infringement relating to any Items of Equipment, or (vi) any loss of business or other consequential damages whether or not resulting from any of the foregoing. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSOR SHALL NOT BE LIABLE FOR INJURIES TO PERSONS OR DAMAGE TO THE EQUIPMENT OR ANY OTHER PROPERTY UNDER ANY THEORY OF STRICT LIABILITY, AND LESSEE SHALL INDEMNIFY AND SAVE LESSOR AND EACH OTHER INDEMNIFIED PARTY HARMLESS FROM ANY SUCH LIABILITY AND ALL COSTS AND EXPENSES IN DEFENDING AGAINST SUCH LIABILITY. All of Lessor's rights under this Section 16 shall survive the termination of the Leases created hereunder.


Lessee shall give each Indemnified Party prompt written notice of any occurrence, event or condition known to Lessee as a consequence of which any Indemnified Party may be entitled to indemnification hereunder. Lessee shall forthwith upon demand by any such Indemnified Party reimburse such Indemnified Party for amounts expended by it in connection with any of the foregoing or pay such amounts directly. Lessee shall be subrogated to the rights of each Indemnified Party to the extent Lessee has reimbursed such Indemnified Party or paid directly expenses arising under this Section 16. If any action, suit or proceeding is brought against any Indemnified Party in connection with any claim indemnified against hereunder, such Indemnified Party will ...