Tax-Exempt Lease/Purchase -

Tax-Exempt Lease/Purchase transactions are structured in a manner, which conforms to local constitutional and statutory laws. The following features are inherent in Tax-Exempt Leases:

Each year, the Lessee must appropriate sufficient funds to renew the contract.

If no funds are available to appropriate for the next year, the contract is terminated.

In the event of a non-appropriation, the asset is repossessed, and the Lessee is unable to use an asset which performs the same function for the minimum period of one year.

Due to the fact that the Lessee is obligated on an annual basis only, it is necessary that the asset being financed is essential to the day-to-day operations of the Lessee. This aspect is especially important if an event of non-appropriation occurs.

Under the Lease/Purchase Agreement, the Lessee agrees to make lease rental payments as specified. The Lessee covenants to include in its annual budget an amount sufficient to make the lease rental payment for the ensuing financial year.

The Lessee may terminate the Agreement in three different ways: by prepaying the outstanding principal balance at fiscal year-end, by not appropriating funds sufficient to cover the next fiscal years' aggregate lease payments, or by defaulting on the payments due under the Lease/Purchase Agreement.

Interest paid on the lease qualifies for the same tax-exemption as that permitted for the typical bonds issued by a government unit. In order to qualify for the tax-exemption granted in Section 103(a)(1) of the Internal Revenue Code of 1954.