Appendix – Getting the Best Equipment Lease Deal

Appendix

Definitions of Leasing Terms

Sample Request for Bids Letter

Suggested Additional Reference and Research Material:

Books:

The Handbook of Equipment Leasing, by Shawn D. Halladay and Sudhir P. Amenbal

Equipment Leasing, by Frank Fabozzi

Equipment Leasing – Leveraged Leasing, various authors, published by the Practicing Law Institute

The Complete Handbook of Equipment Leasing, Second Edition, 2015, Richard M. Contino, Esq., published by York House Press

Business Resources:

First Lease Advisors (https://firstleaseadvisors.com)

Equipment Leasing and Financing Industry Contacts:

Equipment Leasing and Finance Association (https://elfaonline.org/)

Lease Evaluation and Pricing Consultants:

Ivory Consulting Corporation, Walnut Creek, California (https://ivorycc.com/)

Fairfield Capital Group, LLC (https://fairfieldcapital.net)

Legal Sources:

Martindale Hubble (https://martindale.com)

Contino + Partners (https://continopartners.com)

Equipment Lease Terminology—The Definitions

When entering into a leasing transaction, you may encounter unfamiliar terms that have developed along with the leasing industry. This following is a listing of various terms used in the leasing industry and their definitions according to their industry usage.

  • Acceptance certificate: A document in which a lessee acknowledges that certain specified equipment is acceptable for lease. Generally used in transactions where the parties enter into the lease document well in advance of the equipment’s delivery date, it serves to notify the lessor that the equipment has been delivered, inspected, and accepted for lease as of a specified date. The typical form requires the lessee to list certain pertinent information, including the equipment manufacturer, purchase price, serial number, and location.
  • Acceptance supplement: The same as an acceptance certificate.
  • Advance rental: Any payment in the form of rent made before the start of the lease term. The term is also sometimes used to describe a rental payment arrangement in which the lessee pays all rentals, on a per period basis, at the start of each rental payment period. For example, a quarterly, in advance, rental program requires the lessee to pay one-fourth of the annual rental at the start of each consecutive three-month period during the lease term.
  • Balloon payment: Commonly found in mortgage financings, a balloon payment is a final payment that is larger than the periodic term payments. Usually, it results because the debt has not been fully amortized during the repayment period. For example, a one-year financing arrangement providing for interest-only monthly payments during the year, with the principal plus the last interest payment due on the final payment date, is said to have a balloon payment or simply a balloon due at the end of the term.
  • Bareboat charter party: A net financial lease relating to vessels. Also sometimes referred to simply as a bareboat charter. See Net lease.
  • Base lease term: The primary period that the lessee is entitled to use the leased equipment, without regard to any interim or renewal lease terms. The base lease term of a five-year lease is five years.
  • Base rental: The rental that the lessee must pay during the base, sometimes called primary, lease term.
  • Beneficial interest holder: Refers to a beneficial, as opposed to legal title, owner. For example, when a trust has been created by the equity participants to act as the lessor, the equity participants are deemed the beneficial interest holders. They hold interests in the trust that has title to the equipment.
  • Bond: An instrument that represents a long-term debt obligation. The debt instruments, sometimes referred to as loan certificates, issued in a leveraged lease transaction, are referred to as bonds or notes.
  • Book reporting: The reporting of income or loss for financial as opposed to tax purposes on the financial records of a corporation or other reporting entity.
  • Book residual value: An estimate of the equipment’s residual value that a lessor uses, or books, to calculate its economic return on a lease transaction.
  • Broker: A person or entity who, for compensation, arranges lease transactions for another’s account. A broker is also referred to as a syndicator or underwriter.
  • Call: The right a lessee may have to buy specified leased equipment for a predetermined fixed price, usually expressed as a percentage of original cost. If provided, such an option commonly does not become exercisable until the end of the lease term, and it lapses if the lessee fails to give the lessor timely notice of its intention to exercise it. For example, a lessee may have a right to buy equipment at the end of the lease term for 30 percent of the original cost, notice of intention to exercise the option to be given not less than 90 days before the lease term’s end.
  • Cash flow: In a lease transaction, the amount of cash a lease generates for a lessor.
  • Casualty value: A predetermined amount of money that a lessee guarantees the lessor will receive in the event of an equipment casualty loss during the lease term. Generally, expressed as a percentage of the original cost, the value varies according to the point in time during the lease term that the loss occurs. It is also referred to as a stipulated loss value.
  • Certificate of delivery and acceptance: The same as acceptance certificate.
  • Charter party: A document that provides for the lease (charter) of a vessel or vessels. While the format is basically the same as any other lease, there are certain additions and modifications reflecting the requirements dictated by a vessel transaction.
  • Charterer: The lessee of a vessel.
  • Chattel mortgage: A mortgage relating to personal property. Thus, a mortgage on equipment is a chattel mortgage.
  • Collateral: Assets used as security for the repayment of a debt obligation. In a typical leveraged lease, the lender’s collateral is the leased equipment.
  • Commencement date: The date the base, or primary, lease term begins.
  • Commission agreement: An agreement between a lease broker and a prospective equity participant providing for the payment of a fee to the broker for services in arranging a lease transaction.
  • Commitment fee: Compensation paid to a lender in return for an agreement to make a future loan or to a lessor for its commitment to lease equipment to a lessee in the future.
  • Conditional sale agreement. A contract, also referred to as CSA, that provides for the time financing of asset purchases. The seller typically retains title to (but in any event maintains a security interest in) the asset until the buyer fulfills all specified conditions, such as installment payments. At that time, the title, if retained, automatically vests in the buyer (or, in the case of an existing security interest, is subject to release).
  • Cost of money: Commonly, the cost that a lessor incurs to borrow money. This includes the interest rate and any additional costs related to such borrowing, such as fees or compensating balances. In pricing a lease transaction, a lessor factors this cost into the lessee’s lease payment computation.
  • Cost-to-customer: The simple interest rate on a lease transaction, often called simply the c2c.
  • Debt participant: A long-term lender in a leveraged lease transaction. Frequently, these transactions have more than one debt participant.
  • Debt service: The aggregate periodic repayment amount, including principal and interest, due on a loan.
  • Default: In a lease transaction, when a party breaches certain material lease obligations.
  • Deficiency guarantee: A guarantee given to a lessor by a third party, such as an equipment vendor or manufacturer, to induce a lessor to enter into a lease that they would not otherwise enter into usually because the prospective lessee may be a poor credit risk, or because the future value of equipment may be highly speculative. For example, a deficiency guarantor may agree to pay the lessor for any shortfall below a designated amount, say 20 percent of the original cost, incurred when the equipment is sold at the end of the lease.
  • Delivery and acceptance certificate: The same as an acceptance certificate.
  • Depreciation indemnity: A tax indemnification given by a lessee against the lessor’s loss of anticipated depreciation tax benefits on leased equipment.
  • Discounted cash flow analysis: The process of determining the present value of future cash flows.
  • Equipment certificate of acceptance: The same as an acceptance certificate.
  • Equity participant: The equity investor in a leveraged lease. Frequently, a leveraged lease transaction has more than one equity participant, who jointly own and lease the equipment. An equity participant is also sometimes referred to as an owner participant.
  • Event of default: An event that provides the basis for the declaration of a default. For example, the nonpayment of rent under a lease agreement is typically prescribed as an event of default that gives the lessor the right to declare the lease in default and to pursue permitted remedies, such as terminating the lease and reclaiming the equipment.
  • Fair market purchase value: An asset’s value as determined in the open market in an arm’s length transaction (one in which there is a willing buyer and a willing seller, under no compulsion to act) under normal selling conditions. It is also referred to simply as the asset’s fair market value.
  • Fair market rental value: The rental rate that an asset would command in the open market in an arm’s length transaction (one in which there is a willing lessee and a willing lessor, under no compulsion to act) under normal renting conditions. It is also referred to simply as the asset’s fair rental value.
  • FASB: The Financial Accounting Standards Board, the accounting profession’s guideline setting authority.
  • FAS Statement No. 13, Accounting for Leases: FAS No. 13 sets out the standards for financial lease accounting for lessors and lessees.
  • Finance lease: The same as a full payout lease.
  • Financing agreement: An agreement commonly entered into by the principal parties to a leveraged lease before equipment delivery. The agreement identifies each party’s obligation to the transaction and any conditions that must be satisfied before the obligations are fixed. Typically, it will involve the debt and equity participants, their representatives, and the lessee. It is also referred to as a participation agreement.
  • Floating rental rate: A form of periodic rental payments that change or float upward and downward over a lease’s term with changes in a specified interest rate. Frequently, a designated bank’s prime rate is the measuring interest rate.
  • Full payout lease: A form of lease that will provide the lessor with a cash flow generally sufficient to return their equipment investment; pay the principal, interest, and other financing costs on related debt; cover its related sales and administration expenses; and generate a profit. The cash flow is determined from the rental payments, the ownership tax benefits, and the equipment residual value. The lessee typically has the right to use the leased equipment for most of its actual useful life.
  • Gross income tax: A tax imposed by a state or local taxing authority on gross income generated from sources within its jurisdiction. The tax is deductible by the taxpayer for federal income tax purposes.
  • Grossing up: A concept that any reimbursement for a monetary loss will include sufficient additional monies so that the after-tax amount will equal the loss. The recipient is said to be made whole for their loss because the amount paid must take into account any taxes they will have to pay as a result of the receipt of the payments from the payor.
  • Guaranteed residual value: An arrangement in which, for example, a broker or equipment manufacturer guarantees that a lessor will receive not less than a certain amount for specified equipment when it is disposed of at the end of the lease term. It is also sometimes referred to simply as a guaranteed residual.
  • Guideline lease: A leveraged lease that meets with IRS’s lease guidelines such as set out in Revenue Procedures 2001-28 and 2001-29, as updated. While the guidelines specifically address only private ruling requests, generally a guideline lease should qualify as a true lease for federal income tax purposes.
  • Half-year convention: A concept under the income tax rules for depreciating equipment under which all equipment placed in service during a tax year is treated as having been placed in service at the mid-point of that year, regardless of when during the year it was in fact placed in service.
  • Hell or high-water clause: A lease provision that commits a lessee to pay the rent unconditionally. The lessee waives any right that exists or may arise to withhold any rent from the lessor or any assignee of the lessor for any reason whatsoever, including any setoff, counterclaim, recoupment, or defense.
  • High-low rental: A rental structure in which the rent payments are reduced from a higher to a lower rate at a prescribed point in the lease term.
  • Implicit lease rate: The annual interest rate that, when applied to the lease rental payments, will discount those payments to an amount equal to the cost of the equipment leased.
  • Indemnity agreement: A contract in which one party commits to insure another party against anticipated and specified losses.
  • Indenture: In a leveraged lease transaction, an agreement entered into by an owner trustee (the lessor’s representative) and an indenture trustee (the lender’s representative) in which the owner trustee grants a lien on the leased equipment, the lease rents, and other lessor contract rights as security for repayment of the outstanding equipment loan. It is also referred to as an indenture trust.
  • Indenture trustee: The representative of the lenders where, in a leveraged lease transaction, the debt is provided through a trust arrangement. As the lender’s representative, the indenture trustee may, for example, have to file and maintain a security interest in the leased equipment, receive rentals from the lessee, pay out the proper amounts to the lenders and the lessor, and take certain action to protect the outstanding loan in the event of a loan default.
  • Installment sale: A sale in which the purchase price is paid in an agreed-upon number of installment payments over an agreed-upon period. Typically, the title to what is sold does not transfer to the purchaser until, and only when, the last installment has been paid.
  • Institutional investors: Institutions that invest in lease transactions. They can be, for example, insurance companies, pension funds, banks, or trusts.
  • Insured value: The same as casualty value.
  • Interim lease rental: The equipment rental due for the interim lease term. Typically, for each day during the interim lease term, a lessee must pay as interim lease rent an amount equal to the daily equivalent of the primary lease term rent. In a leveraged lease transaction, the lease sometimes instead permits the lessee to pay an amount equal to the daily equivalent of the long-term debt interest.
  • Interim lease term: The lease term period between the lessee’s acceptance of the equipment for lease and the beginning of the primary, or base, lease term.
  • Investment tax credit (ITC): A credit allowed against federal income tax liability that can be claimed by a taxpayer for certain Section 38 property acquired and placed in service by a taxpayer during a tax year. Under the federal tax laws, ITC is generally not available, other than for certain energy equipment.
  • ITC indemnity: A type of indemnification in which the lessee commits to reimburse the lessor for any financial loss incurred through the loss of, or inability to claim, any or all of the anticipated ITC. If the lessor has passed through the ITC to the lessee, the lessor may have to give the indemnity.
  • ITC pass-through: An election made by the lessor to treat, for ITC purposes, the lessee as the owner of the leased equipment. After the election, a lessee can claim the ITC on the equipment covered by the election.
  • Layoff: The sale by a lessor of their interest in the lease agreement, including the ownership of the leased equipment and the right to receive the rent payments.
  • Lease agreement: A contract in which an equipment owner, the lessor, transfers the equipment’s use, subject to the specified terms and conditions, to another, the lessee, for a prescribed period and rental rate.
  • Lease line: A present commitment by a lessor to lease specified equipment to be delivered in the future. A lease line can cover a variety of types of equipment, at varying rental rates and lease terms. It is also referred to as a lease line of credit.
  • Lease underwriting: The process in which a lease broker arranges a lease transaction for the account of third parties, a prospective lessor, and a prospective lessee. This can be on a best efforts basis or on a firm commitment basis. In a best efforts underwriting, the broker only offers to attempt diligently to arrange the financing on certain proposed terms. In a firm commitment underwriting, the broker in effect guarantees to arrange the financing as proposed.
  • Lessee: The user of equipment that is the subject of a lease agreement.
  • Lessor: The owner of equipment that is the subject of a lease agreement.
  • Level payments: Payments that are the same for each payment period during the payment term. Frequently, rent and debt service payments are paid in level payments over the payment period.
  • Leveraged lease: A lease in which a portion, generally 60 to 80 percent of the equipment acquisition cost is borrowed from a bank or other lending institution, with the lessor paying the balance. The debt is commonly on a nonrecourse basis, and the rental payments are usually sufficient to cover the loan debt service.
  • Limited-use property: Leased property that will be economically usable only by the lessee, or a member of the lessee group, at the lease term’s end because, for example, of its immobility or unique aspects. The IRS will not rule that a lease is a true lease where the leased equipment is limited use property.
  • Loan certificate: A certificate that evidences a debt obligation.
  • Loan participant: A debt participant.
  • Low-high rental: A rental structure in which the rent payments are increased from a lower to a higher rate at a prescribed point in the lease term.
  • Management agreement: A contract in which one party agrees to manage a lease transaction during its term, including, for example, rental payment processing and equipment disposal.
  • Management fee: A fee that a lease transaction manager receives for services performed under a management agreement.
  • Master lease agreement: A lease agreement designed to permit future equipment not contemplated when the lease is executed to be added to the lease later. The document is set up in two parts. The main body contains the general, or boilerplate, provisions, such as the maintenance and indemnification provisions. An annex, or schedule, contains the type of items that usually vary with a transaction, such as rental rates and options.
  • Mid-quarter convention: A concept under the income tax rules for depreciating equipment in which all equipment placed in service during a quarter of a tax year is treated as placed in service at the mid-point of such quarter, regardless of when it was in fact placed in service during the quarter.
  • Modified Accelerated Cost Recovery System (MACRS): A method prescribed for depreciating assets that was introduced by the 1986 TRA. It applies to most equipment placed in service after 1986.
  • Mortgage: An arrangement whereby a lender (mortgagee) acquires a lien on property owned by a taxpayer (mortgagor) as security for the loan repayment. Once the debt obligation has been fully satisfied, the mortgage lien is terminated.
  • Negative spread: The amount by which a value is below a certain prescribed amount. Generally, in a leveraged lease, a negative spread is the amount by which the transaction’s simple interest rate is below the leveraged debt interest rate.
  • Net lease: A lease arrangement in which the lessee is responsible for paying all costs, such as maintenance, certain taxes, and insurance, related to using the leased equipment, in addition to the rental payments. Typically, finance leases are net leases.
  • Nonpayout lease: A lease arrangement that does not, over the primary term of the lease, generate enough cash flow to return substantially all the lessor’s investment, debt financing costs, and sales and administration expenses.
  • Non-recourse debt financing: A loan as to which the lender agrees to look solely to the lessee, the lease rents, and the leased equipment for the loan’s repayment. As security for the loan repayment, the lender receives an assignment of the lessor’s rights under the lease agreement and a grant of a first lien on the equipment. Although the lessor has no obligation to repay the debt in the event of a lessee default, their equity investment in the equipment is usually subordinated to the lender’s rights.
  • Non-utilization fee: A fee that a lessor may impose in return for their present commitment to buy and lease specified equipment in the future. The fee is generally expressed as a percentage of the aggregate unused portion of the initial dollar commitment, for example, 1 percent of the unused balance of a one million U.S. dollar lease line of credit. Thus, if all the commitment is used, no fee is payable.
  • Operating lease: A form of lease arrangement in which the lessor generally commits to provide certain additional equipment related services, other than the straight financing, such as maintenance, repairs, or technical advice. Generally, operating leases are non-payout in nature. The term also refers to a lease classification under FAS 13.
  • Option: A contractual right that can be exercised under the granting terms. For example, a fair market value purchase option in a lease is the right to buy the equipment covered by it for its fair market value.
  • Packager: A person or entity who arranges a lease transaction for third parties. Also referred to as an underwriter, syndicator, or sometimes, a broker.
  • Participation agreement: The same as a financing agreement.
  • Payout lease: The same as a full payout lease.
  • Personal property: The same as Section 38 property. Equipment is considered personal property, but real estate is not so considered.
  • Portfolio lease: The term commonly refers to a lease that is entered into by a professional lessor for their own account and investment.
  • Present value: The term refers to the present worth of a future stream of payments calculated by discounting the future payments at a desired interest rate.
  • Primary lease term: The same as base lease term.
  • Private letter ruling: A written opinion that the IRS issues in response to a taxpayer’s request. The letter sets out IRS’s position on the tax treatment of a proposed transaction. In leveraged lease transactions, for the IRS to issue a favorable private letter ruling, the request must comply with the IRS Guidelines.
  • Progress payments: Payments that may be required by an equipment manufacturer or builder during the construction period toward the purchase price. Frequently required for costly equipment with a long construction period, the payments are designed to lessen the manufacturer’s or builder’s need to tie up their own funds during construction.
  • Purchase option: The right to buy agreed-upon equipment at the times and the amounts specified in the option. Frequently, these options, if specified in a lease, are only exercisable at the end of the primary lease term, although they sometimes can be exercised during the primary lease term or at the end of any renewal term.
  • Put: A right that a lessor may have to sell specified leased equipment to the lessee at a fixed price at the end of the initial lease term. It is usually imposed to protect the lessor’s residual value assumption.
  • Recourse debt financing: A loan under which the lender may look to the general credit of the lessor, in addition to the lessee and the equipment, for repayment of any outstanding loan obligation. The lender is said to have a recourse against the lessor.
  • Renewal option: An option frequently given to a lessee to renew the lease term for a specified rental and period.
  • Residual sharing: A compensation technique sometimes used by syndicators for arranging a lease transaction. Under this, the equity participants must pay a predetermined percentage of what the equipment is sold for at the end of the lease. For example, a syndicator may get 50 percent of any amount realized exceeding 20 percent of the equipment’s original cost on sale.
  • Residual value: The value of leased equipment at the end of the lease term.
  • Right of first refusal: The right of the lessee to buy the leased equipment, or renew the lease, at the end of the lease term, for any amount equal to that offered by an unaffiliated third party.
  • Sale-leaseback: An arrangement in which an equipment buyer buys equipment for the purpose of leasing it back to the seller.
  • Sales tax: A tax imposed on selling equipment, similar to any other sales tax on property sold.
  • Sales-type lease: A classification for a particular type of lease prescribed under the lease accounting guidelines that the FASB set out in FAS 13, applicable to lessors.
  • Salvage value: The amount, estimated for federal income tax purposes, that an asset is expected to be worth at the end of its useful life.
  • Section 38 property: Tangible personal property and certain other tangible property, as defined by Internal Revenue Code, Section 38.
  • Security agreement: An agreement that evidences an assignment by the lessor to the lender, as security for the equipment loan, of the lessor’s rights under the lease agreement and a granting of a security interest in the leased equipment.
  • Sinking fund: A fund frequently established in leveraged lease transactions by the lessor to accumulate funds to pay for future taxes.
  • Sinking fund rate: The interest rate that a sinking fund is deemed to earn on accumulated funds.
  • Special purpose equipment: The same as limited use property.
  • Spread: The difference between two values. In lease transactions, the term is generally used to describe the difference between the lease interest rate and the interest rate on the debt.
  • Stipulated loss value: The same as casualty value.
  • Sublease: The re-lease by a lessee of equipment that is on lease to the lessee.
  • Take or pay contract: An agreement in which one party commits to buy an agreed-upon quantity of goods or material from another at a predetermined price. If the goods or materials are not bought, the party making the purchase commitment must pay the party an amount of money equal to the cost of goods or materials it had committed to buy. For example, a public utility can agree to buy 100 tons of coal annually from a mining company, and if it does not buy this amount in any year, it will pay an amount of money equal to its sale price.
  • Tax lease: The same as a true lease.
  • Tax Reform Act (TRA): The 1986 TRA, a federal income tax act.
  • Termination option: An option entitling a lessee to terminate the lease during the lease term for a predetermined value, termination value, if the equipment becomes obsolete or surplus to the lessee’s needs. The lessor usually requires the lessee to sell the equipment to an unaffiliated third party, and the lessee must pay the lessor any amount by which the sale proceeds are less than the termination value. Typically, any excess sales proceeds go to the lessor.
  • Termination value: The amount that the lessee must pay the lessor if they exercise a lease termination option. Typically, the termination value is set as of each rental payment period and is generally expressed as a percentage of equipment cost. For example, the lessee may be permitted to terminate the lease at the end of the third year of a seven-year lease for an amount equal to 60 percent of cost.
  • Time sale: An installment sale.
  • Total earnings: The amount by which the aggregate rentals due the lessor over the entire lease term exceed the total equipment costs, including equity investment and debt financing costs. This concept does not consider the time value of money.
  • Transition rules: Statutory rules enacted when there is a change in the tax laws. The transition rules allow certain transactions to be exempted from the law change. For example, transition rules permitted ITC to be claimed on certain equipment placed in service after 1985.
  • True lease: An arrangement that qualifies for lease treatment for federal income tax purposes. Under a true lease, the lessee may deduct rental payments, and the lessor may claim the tax benefits accruing to an equipment owner.
  • Trust: An arrangement in which property is held by one party for the benefit of another. It is frequently used in leveraged lease transactions.
  • Trust certificate: A trust document issued on behalf of a trust to evidence the beneficial ownership in the trust estate.
  • Trustee: The person or entity appointed, or designated, to carry out a trust’s terms. In leveraged lease transactions, the trustee is generally a bank or trust company.
  • Trustee fees: Fees payable to a trustee as compensation for services performed.
  • Trustor: An individual or entity who causes the creation of a trust and for whose benefit it is established.
  • Unleveraged lease: A lease in which the lessor puts up 100 percent of the equipment’s acquisition cost from its own funds.
  • Use tax: A tax imposed upon the use, storage, or consumption of tangible personal property within a taxing jurisdiction. For example, in most states, a lessor purchasing equipment has the option of paying an upfront sales tax equal to a specified percentage of the equipment’s purchase price or a use tax equal to a specified percentage of lease rents under the equipment’s lease.
  • Useful life: Commonly, the economic usable life of an asset.
  • Vendor: A seller of property. Commonly, the manufacturer or distributor of equipment.
  • Vendor program: A program in which an equipment lessor provides a lease financing service to customers of an equipment manufacturer.

Sample Request for Bids Letter

A Formal Request for Quotes Letter

Request for Quotations

TO

Lease Equipment

April 12, 20 __

SunTime Corporation is issuing this Request For Quotations (RFQ) to obtain equipment lease bids from perspective lessors. This RFQ is not an offer to contract. SunTime Corporation will not be obligated to lease the specified equipment until a mutually satisfactory written lease has been executed by all parties.

A. Proposal Request - General

In accordance with the terms and conditions specified below, SunTime Corporation wishes to receive proposals from equipment leasing companies (Lessors) to provide lease financing for certain data processing equipment.

In the evaluation of each proposal, SunTime Corporation will rely on all written and verbal representations made by each prospective Lessor and each representation will be incorporated into any and all formal agreements between the parties.

No Lessor receiving this RFQ is authorized to act for, or on behalf of, SunTime Corporation prior to the receipt of written acceptance by SunTime Corporation of a satisfactory lease proposal and then only in accordance with the specific terms, if any, of the acceptance.

B. Proposal Guidelines

  1. Your proposal must be submitted in writing and follow the guidelines in this RFQ. If it does not, it will be rejected.
  2. All RFQ requirements must be addressed. Specifically identify any requirements that cannot be satisfied.
  3. If you can offer any additional benefits not requested in this RFQ, identify them as “Additional Benefits” and state them in a separate section at the end of your proposal.
  4. You must notify SunTime Corporation no later than the Lessor Proposal Intent Notification date specified in the Timetable below if you intend to submit a proposal in response to this RFQ.
  5. SunTime Corporation may, without liability and in its sole discretion, amend or rescind this RFQ prior to the lease award. In such event each Lessor offering to submit a proposal will be supplied, as the case may be, with an RFQ amendment or a notification of our intent not to proceed.
  6. Your proposal will be considered confidential and none of the contents will be disclosed to a competing Lessor.
  7. You shall be responsible for all costs incurred in connection with the preparation of your proposal and any contract(s) in response to this RFQ.
  8. Your proposal must be signed by a duly authorized representative of your company.
  9. Your proposal must be submitted in triplicate and remain in effect at least until the Lessor Proposal Commitment Cut-off date specified in the Timetable below.
  10. Your proposal should be accompanied by (a) a copy of your most recent annual report or financial statements or appropriate bank references with account officer name and telephone number, (b) a description of any material litigation in which you are presently involved, and (c) a statement of any potential conflict of interest, and plan to avoid it, as a result of an award.
  11. SunTime Corporation intends to announce its award decision no later than the Award Announcement date specified in the Timetable below.
  12. Any questions concerning this RFQ, should sent in writing to:

    SunTime Corporation

    1823 Third Avenue

    New York, New York 11020

    Attn. John Peterson

    Telephone Number: (212) 754-2367

    Any questions and answers which we feel would be of assistance to all Lessors submitting proposals, will be promptly distributed to each.

  13. SunTime Corporation may enter simultaneously in negotiations with more than one Lessor and make an award to one or more without prior notification to others we are negotiating with.
  14. Any information supplied to you in this RFQ by SunTime Corporation or otherwise by any representative in connection with this RFQ is confidential and may not be disclosed or used except in connection with the preparation of your proposal. If you must release any such information to any person or entity for the purpose of preparing your proposal, you must obtain an agreement prior to releasing the information that it will be treated as confidential by such person or entity and will not be disclosed except in connection with the preparation of your proposal.
  15. If you are a selected Lessor, prior to our making the award you will be supplied with a copy of our form lease document(s) for your review. Your response to the acceptability of the document provisions, with exceptions noted in writing, will be a condition precedent to any award.

C. Equipment Lease Requirements

1. Equipment Description, Cost and Trade-In

a. The equipment will consist of electronic data processing equipment (Equipment) acquired from the following designated vendor(s):


Vendor

Equipment Description

Cost

StarByte Computer Corp.

(1) Model 423 Computer

$1,850,000

Buffalo, NY

(7) Model 3 Remote Ctrs.

350,000

Micro Tech, Inc.

New York, NY

Material Tracking System

150,000

Installation:

120,000

Total:

$2,470,000


(i) The final cost of the Equipment may vary as much as + (10)% or - (20)%, and your financing offer must permit this leeway without penalty.

b. If you can provide more advantageous financing by supplying equipment you own, have access to, or can acquire through volume discount arrangements with a vendor, please provide the specifics in the Additional Benefits section. If you intend to offer to provide any used equipment, the serial number(s), current location(s) and owner(s) must be stated in your proposal.

(i) Any equipment you offer to supply must be delivered to SunTime Corporation at 937 Secour Drive, Buffalo, New York 11342 no later than the Anticipated Equipment Delivery Date specified in the time table in Section D below and ready for acceptance no later than the specified Anticipated Equipment Acceptance Date. You must provide a firm delivery date commitment with contractual assurances and remedies for failure to meet such date, which should be stated in your proposal.

c. The Equipment will replace equipment under an existing lease of computer equipment and SunTime Corporation would like you to propose an additional financing arrangement which would incorporate the buy-out (pre-payment) of that lease. The specifics of the existing lease are as follows:

Lessor: AmerLease Corp.

Lease Term: 7 Years

Lease Start Date: March 1, 20__

Lease Ending Date: February 28, 20__

Monthly Rent: $21,324, in advance

Lease Termination Amount as of August 31, 20__: $397,000

Equipment: StarByte XTRA Material Tracking Computer System

Original Equipment Cost: $1,253,000

Purchase Option: Fair Market

(i) If you can provide any other arrangement that would be beneficial, such as subleasing the existing equipment to another lessee, please so indicate.

2. Estimated Delivery and Acceptance Date

It is anticipated that the Equipment will be delivered and accepted for lease no later than the anticipated delivery and acceptance date(s) specified in the timetable below.

3. Equipment Payment

The Equipment must be paid for by Lessor no later than thrifty (30) days following acceptance for lease

4. Equipment Location

The Equipment will initially be accepted for lease at our manufacturing plant located at 937 Secour Drive, Buffalo, New York. We must have the right to move the equipment to any location in the United States without the prior consent of Lessor, but upon providing thirty (30) days prior written notice.

5. Primary Lease Term

Your proposal must provide offers to lease the Equipment for Primary Lease Terms of five (5) and seven (7) years.

The Primary Lease Terms must run from the later of the Equipment acceptance for lease or payment by Lessor for the Equipment.

6. Primary Term Rents

Rent payments must be quoted on a monthly, in advance, and quarterly, in arrears, basis.

The rent payments must be expressed as a percentage of Equipment Cost and be on a consecutive, level basis. The nominal lease interest rate must be provided for each rent quote.

SunTime Corporation shall not be obligated for payment of rent until the Equipment vendor has been paid in full.

7. Interim Lease Term

No Interim Lease Term will be permitted that Requires payment of interim rent.

8. Interim Rents

No Interim Lease Term rent payments will acceptable.

9. Options

a. SunTime Corporation must have the option to renew the term of the lease year to year for a total of three (3) years, on a fair market value basis. Offers providing for a fixed-price renewal will also be considered. Any fixed price offers should be included in an “Additional Benefits” section at the end of the Lessor’s proposal.

b. Lessee must have the right to purchase the Equipment at the end of the Primary Lease Term and each Renewal Term for its then fair market value. Offers providing for the right to purchase for a fixed percentage of Equipment Cost will be given favorable consideration and should be included in an “Additional Benefits” section at the end of the Lessor’s offer.

c. SunTime Corporation must have the right, beginning as of the end of the first year of the Primary Lease Term, to terminate the Lease prior to the end of the Primary Lease Term, or any Renewal Term, in the event the Equipment becomes obsolete of surplus to SunTime Corporation’s needs.

(i) In the event of an early termination, SunTime Corporation shall have the right to arrange for the sale or re-lease of the Equipment. Any proceeds from the sale, or anticipated proceeds from the lease, of the Equipment shall reduce any termination penalty payment required.

(ii) A schedule of early termination values must be included with your proposal.

d. SunTime Corporation must have the right to upgrade the Equipment, by adding equipment or replacing components, at any time during the term of the lease and Lessor must provide financing for such upgrade for a term coterminous with the term remaining during the upgrade period at a financing rate which will not exceed Lessor’s transaction nominal after-tax yield.

10. Insurance

The Equipment shall be self-insured.

11. Casualty Value Schedule

A schedule of casualty values, expressed as a percentage of Equipment Cost, for both the Primary Lease Term and any Renewal Term(s) must be submitted with your proposal.

12. Transaction Fees

Lessee will not pay financing commitment or non-utilization fees.

13. Single Source Preference

Preference will be given to Lessors who intend to provide 100% of the funds necessary to purchase the Equipment over those who intend to leverage the purchase with third-party debt. Your proposal must disclose your intent.

(a) In the event you determine it would be advantageous to propose a leveraged lease financing structure, it should be submitted assuming a long-term debt interest rate of 6.75% per annum. In addition, the following terms will apply:

(i) Our investment banker, Chicago First Corporation, will be responsible for securing the third-party leveraged lease debt at a rate satisfactory to SunTime Corporation, within our sole discretion.

(ii) You must provide assurance that the lease will qualify as a true lease for Federal income tax purposes under the current tax rules and guidelines.

(iii) You must state whether your proposal is on a best efforts or firm basis; preference will be given to those on a firm basis.

(iv) At the time of submission of your proposal you must be prepared to identify all lease participants (with contact name and telephone number), including each identified equity and debt participant, so they may be called immediately for verification in the event you are the successful bidder.

14. Broker Disclosure

We will give a preference to lease offers from principal funding sources who do not intend to re-sell or broker the transaction. In the event that you do not intend to act as a principal and purchase the equipment for your own account, you must disclose that in your proposal.

15. Expenses

Lessor shall be responsible for payment of all fees and expenses of the transaction, other than Lessee’s own direct legal fees in connection with documenting the lease transaction, including fees and expenses incurred in connection with the arranging, or documentation, of the Equipment Lease.

D. Timetable

SunTime Corporation will adhere to the following time schedule in connection with evaluating submitted proposals, making the award decision and negotiating the equipment lease document(s):

Action Date

Lessor Proposal Intent Notification Due

Lessor Proposals Due

Lessor Proposal Commitment Cut-Off

Lessor Notification of Initial Qualification

Form Lease Document(s) Sent to Qualified Lessor(s)

Lessor Response to Form Lease Document(s)

Lessor(s) Selection

Award Announcement

Lease Negotiations - Start

Lease Signing

Anticipated Equipment Delivery

Anticipated Equipment Acceptance for Lease

Sincerely,

SunTime Corporation

By: _________________

Its: _________________