Note to Exhibit 10.18
The following Lease Agreement is substantially identical in all
material respects to two additional Lease Agreements except as follows:
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Aircraft (Tail No.)
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N588ML*
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N589ML
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N590ML
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* Filed document
EXHIBIT 10.18
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LEASE AGREEMENT N588ML
dated as of September 21, 2000
between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
Owner Trustee,
Lessor,
and
MIDWAY AIRLINES CORPORATION
Lessee.
Covering One Canadair Regional
Jet Series 200 ER Aircraft
Registration Number N588ML
Manufacturer's Serial Number 7368
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This Lease Agreement is subject to a security interest in favor of Allfirst
Bank, as Indenture Trustee, under the Trust Indenture and Security Agreement
N588ML dated as of September 21, 2000, for the benefit of the holders of the
Equipment Notes referred to in such Trust Indenture and Security Agreement.
This Lease Agreement has been executed in counterparts. To the extent, if any,
that this Lease Agreement constitutes chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any jurisdiction), no security
interest in this Lease Agreement may be created through the transfer or
possession of any counterpart other than the counterpart containing the receipt
therefor executed by Allfirst Bank, as Indenture Trustee, on the signature page
thereof.
TABLE OF CONTENTS
Page
Section 1. Interpretation............................................................................. 1
(a) Definitions................................................................................ 1
(b) References................................................................................. 1
(c) Headings................................................................................... 2
(d) Appendices, Schedules and Exhibits......................................................... 2
Section 2. Delivery and Leasing of the Aircraft....................................................... 2
(a) Leasing of the Aircraft.................................................................... 2
(b) Delivery and Acceptance of the Aircraft Under the Lease.................................... 2
Section 3. Term and Rent.............................................................................. 2
(a) Term....................................................................................... 2
(b) Basic Rent................................................................................. 2
(c) Supplemental Rent.......................................................................... 3
(d) Adjustments to Basic Rent, Etc............................................................. 3
(e) Manner of Payment.......................................................................... 5
(f) Minimum Rent............................................................................... 6
(g) Rent Obligations Unconditional............................................................. 7
Section 4. The Lessor's Representations and Warranties................................................ 8
Section 5. Possession, Operation and Use,
Maintenance Registration and Insignia...................................................... 8
(a) General.................................................................................... 8
(b) Possession................................................................................. 8
(c) Operation and Use.......................................................................... 14
(d) Maintenance................................................................................ 15
(e) Registration............................................................................... 16
Section 6. Inspection................................................................................. 16
Section 7. Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines....................................... 18
(a) Replacement of Parts....................................................................... 18
(b) Title to Parts............................................................................. 18
(c) Pooling or Parts Leasing................................................................... 19
(d) Alterations, Modifications and Additions................................................... 19
(e) Substitution of Engines.................................................................... ▇▇
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▇▇▇▇▇▇▇ ▇. Loss, Destruction or Requisition........................................................... 24
(a) Event of Loss with Respect to the Airframe................................................. 24
(b) Effect of Replacement...................................................................... 25
(c) Effect of Termination Value Payment........................................................ 26
(d) Conditions to Airframe Replacement......................................................... 26
(e) Non-Insurance Payments Received on Account of an Event of Loss............................. 29
(f) Requisition for Use........................................................................ 30
(g) Certain Payments to be Held As Security.................................................... 31
Section 9. Insurance.................................................................................. 31
(a) Public Liability and Property Damage Insurance............................................. 31
(b) Insurance Against Loss or Damage to the Aircraft and Engines............................... 32
(c) Additional Insureds; Loss Payment.......................................................... 33
(d) Deductibles and Self-Insurance............................................................. 34
(e) Application of Hull Insurance Proceeds..................................................... 34
(f) Insurance for Own Account.................................................................. 35
(g) Reports, etc............................................................................... 36
(h) Right to Pay Premiums...................................................................... 36
(i) Spares Physical Damage Insurance........................................................... 37
Section 10. Liens...................................................................................... 37
Section 11. Recordation and Further Assurances......................................................... 38
(a) Recordation of Lease....................................................................... 38
(b) Further Assurances......................................................................... 38
(c) Markings................................................................................... 38
Section 12. Return of Aircraft and Records............................................................. 39
(a) Return of Aircraft......................................................................... 39
(b) Return of Other Engines.................................................................... 39
(c) Fuel; Records.............................................................................. 40
(d) Condition of Aircraft...................................................................... 40
(e) Failure to Return.......................................................................... 40
(f) Storage and Related Matters................................................................ 41
Section 13. Renewal Option and Purchase Options........................................................ 41
(a) Renewal Terms.............................................................................. 41
(b) Lessee's Purchase Options.................................................................. 42
(i) Rights to Purchase................................................................ 42
(ii) Option to Assume Equipment Notes.................................................. 43
(iii) Notice of Exercise of Option...................................................... 43
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Section 14. Voluntary Termination for Obsolescence..................................................... 44
(a) Termination by Sale of Aircraft............................................................ 44
(b) Payments Due Upon Sale of Aircraft......................................................... 45
(c) Preemptive Election by Lessor.............................................................. 45
(d) Termination of Lease....................................................................... 46
(e) Effect of No Sale or Preemptive Delivery to Lessor......................................... 46
(f) No Duty on Part of Lessor.................................................................. 47
Section 15. Investment of Security Funds............................................................... 47
Section 16. Events of Default.......................................................................... 47
Section 17. Remedies................................................................................... 50
Section 18. Lessor's Right to Perform for the Lessee................................................... 54
Section 19. Bankruptcy................................................................................. 54
Section 20. Assignment: Benefit and Binding Effect..................................................... 54
(a) Assignment by the Lessee................................................................... 54
(b) Assignment by the Lessor................................................................... 55
(c) Benefit and Binding Effect................................................................. 55
(d) Sublessee's Performance and Rights......................................................... 55
Section 21. Owner Trustee's Limitation on Liability.................................................... 56
Section 22. Certain Agreements of Lessee............................................................... 56
Section 23. Miscellaneous.............................................................................. 56
(a) Notices.................................................................................... 56
(b) Counterparts............................................................................... 57
(c) Amendments................................................................................. 57
(d) Agreement to Lease......................................................................... 57
(e) Governing Law.............................................................................. 57
(f) Severability............................................................................... 58
(g) Survival................................................................................... 59
(h) Article 2A................................................................................. 59
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Appendix A Definitions
Exhibit A Form of Lease Supplement
Exhibit B Certain Economic Information
Exhibit C-1 Basic Rent Payment Schedule
Exhibit C-2 Basic Rent Allocation Schedule
Exhibit D Termination Values
Exhibit E List of Countries
Exhibit F Return Conditions
Exhibit G Special Equity Amount
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THIS LEASE AGREEMENT N588ML, dated as of September 21, 2000,
between FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national banking
association, not in its individual capacity but solely as Owner Trustee, the
Lessor, and MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee.
W I T N E S S E T H:
-------------------
WHEREAS, the Lessor intends to purchase the Aircraft pursuant to
the terms of the Participation Agreement;
WHEREAS, the Lessee desires to lease from the Lessor and the
Lessor is willing to lease to the Lessee the Aircraft upon and subject to the
terms and conditions of this Lease; and
WHEREAS, the parties intend this Lease to constitute a true lease
and not a security agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration the receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound, the parties do
hereby agree as follows:
Section 1. Interpretation.
--------------
(a) Definitions.
-----------
Capitalized terms used herein and defined in Appendix A shall,
except as such definitions may be specifically modified in the body of this
Lease for the purposes of a particular section, paragraph or clause, have the
meanings given such terms in Appendix A and, unless otherwise specified, such
meanings shall be equally applicable to both the singular and the plural forms
of such terms.
(b) References.
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References in this Lease to sections, paragraphs, clauses,
appendices, schedules and exhibits are to sections, paragraphs, clauses,
appendices, schedules and exhibits in and to this Lease unless otherwise
specified. Paragraphs identified with a letter and clauses identified with a
number or letter within a section may be referred to either by section reference
(for example, this is Section l(b)) or by paragraph and clause reference (for
example, this is also paragraph (b) of Section 1) with the same meaning.
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(c) Headings.
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The headings of the various sections, paragraphs and clauses of
this Lease and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof.
(d) Appendices, Schedules and Exhibits.
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The appendices, schedules and exhibits hereto are part of this
Lease.
Section 2. Delivery and Leasing of the Aircraft.
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(a) Leasing of the Aircraft.
-----------------------
Subject to the satisfaction or waiver of the conditions precedent
stated in the Participation Agreement, the Lessor agrees to lease to the Lessee,
and the Lessee agrees to lease from the Lessor, the Aircraft on the terms and
conditions set forth herein, such leasing to be evidenced by the execution and
delivery by the Lessor and the Lessee on the Delivery Date of a Lease
Supplement.
(b) Delivery and Acceptance of the Aircraft Under the Lease.
-------------------------------------------------------
The Lessor hereby authorizes one or more persons designated by
the Lessee as the authorized representative or representatives of the Lessor to
accept delivery of the Aircraft from the Seller. By executing and delivering
Lease Supplement No. 1, the Lessee confirms to the Lessor that the Lessee has
duly and irrevocably accepted delivery of the Aircraft for all purposes of this
Lease.
Section 3. Term and Rent.
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(a) Term.
----
The Aircraft is leased for a Term which shall comprise the Basic
Term and, at the option of the Lessee exercised in accordance with Section
13(a), one or more Renewal Terms. The Basic Term shall commence on the Delivery
Date and continue through the Expiration Date; and each Renewal Term, if any,
shall be for the applicable period provided in Section 13(a), except that the
Term (including the Basic Term or any Renewal Term, as the case may be) shall
end upon any earlier termination of this Lease according to its terms.
(b) Basic Rent.
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The Lessee shall pay Basic Rent in consecutive installments on
each Basic Rent Payment Date during the Basic Term, each such installment to be
in an amount determined by multiplying Lessor's Cost by the percentage set forth
in Exhibit C-1 for the applicable Basic Rent
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Payment Date. The Lessee shall pay Basic Rent during a Renewal Term in the
amounts and at the times provided in Section 13(a) for such Renewal Term. The
parties hereto agree that, irrespective of the Lessee's payment obligations as
shown on Exhibit C-1, the Lessee's liability on account of the use of the
Aircraft during the Basic Term shall be that stated on Exhibit C-2.
(c) Supplemental Rent.
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The Lessee shall pay to the Lessor, or to whoever shall be
entitled thereto, any and all Supplemental Rent when the same shall become due
and owing. Without limiting the foregoing, the Lessee shall pay as Supplemental
Rent:
(i) to the Lessor, on demand, interest at the Past
Due Rate on any part of any installment of Basic Rent not
paid when due for the period for which the same shall be
overdue;
(ii) to whoever shall have been entitled to receive
the relevant payment of Supplemental Rent, on demand,
interest at the Past Due Rate on any payment of Supplemental
Rent (other than interest payable under this clause (ii))
not paid when due for the period for which the same shall be
overdue;
(iii) to the Lessor, an amount equal to any Breakage
Cost as and when such amount is due and payable by the
Lessor under the terms of the Indenture (except in the case
of any prepayment pursuant to Section 2.12 of the
Indenture); and
(iv) to the Lessor, an amount equal to any Increased
Cost or other amount that the Lessor is obligated to pay
pursuant to the Indenture, other than the principal of and
interest on the Equipment Notes.
The obligations of the Lessee to pay Supplemental Rent provided
for in this Section 3(c) shall survive the expiration or other termination of
this Lease.
(d) Adjustments to Basic Rent, Etc.
-------------------------------
All installments of Basic Rent remaining to be paid during the
Basic Term shall be recalculated and adjusted, upwards or downwards as the case
may be (and corresponding adjustments shall be made to the Basic Rent
allocations set forth in Exhibit C-2, the EBO Amount and the Termination Values
applicable during the remaining Basic Term) to maintain the Net Economic Return
and, to the greatest extent consistent with such maintenance of such Net
Economic Return, to minimize the net present value (calculated at a discount
rate equal to the Applicable Rate or such other rate as may be specified by the
Lessee to the Owner Participant) of the remaining Basic
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Rent payments (or, if the Lessee shall have so specified to the Owner
Participant, the remaining Basic Rent Payments to the EBO Date together with the
EBO Amount), if:
(i) there shall be a refinancing or refunding of the debt
evidenced by the Equipment Notes pursuant to Section 13.01 of the
Participation Agreement; or
(ii) there shall be an adjustment of Termination Values as
provided in Section 16 of the Tax Indemnity Agreement.
Adjustments to the installments of Basic Rent (expressed as percentages of
Lessor's Cost) set forth in Exhibit C-1 to the Basic Rent allocations set forth
in Exhibit C-2 and corresponding adjustments to the EBO Amount and the amounts
of Termination Values (expressed as percentages of Lessor's Cost) set forth in
Exhibit D shall be calculated by the Owner Participant in accordance with the
terms of this Section 3(d), and the Owner Participant shall deliver to the
Lessee, the Lessor and the Indenture Trustee schedules setting forth the revised
EBO Amount and the revised percentages that the Owner Participant proposes to
include in Exhibits C-1, C-2 and D, subject to review by the Lessee and
verification as provided herein. In the event of a dispute regarding any such
adjustment which is not resolved by agreement of the Lessee and the Owner
Participant, the adjustments, at the request of the Lessee delivered to the
Owner Participant within 30 days after receipt of the Owner Participant's
proposed adjustments, shall be subjected to verification by a lease advisory
firm or a nationally recognized firm of accountants to be selected by the Owner
Participant and reasonably acceptable to the Lessee. The Owner Participant
shall provide to such firm, but not, in any circumstances, to Lessee or any
representatives of Lessee, on a confidential basis such information as such firm
may reasonably require, including, without limitation, a true copy of this Lease
and a full description of the methodology and assumptions employed by the Owner
Participant in calculating the EBO Amount or Basic Rent payments and allocations
or Termination Value set forth in Exhibits C-1, C-2 and D as in effect on the
Delivery Date and a true copy of the calculations of the same performed by the
Owner Participant at the time, to enable such firm to determine whether the
adjustments proposed by the Owner Participant are mathematically accurate, apply
the same methodology and assumptions (except to the extent changed by the events
giving rise to such recalculation) as were employed in the calculations of the
Basic Rent payments and allocations, EBO Amount and Termination Values in effect
on the Delivery Date, and are otherwise in conformity with the provisions of
this Lease. The Lessee and its financial advisors shall be entitled to submit
such data and views as the Lessee may elect to such firm concerning the proposed
adjustments. The firm shall be requested to deliver to each of the Owner
Participant, the Lessee, the Lessor and the Indenture Trustee within 30 days
after its appointment its determination as to the changes, if any, that are
appropriate with respect to the adjustments proposed by the Owner Participant.
The adjustments proposed by the Owner Participant, if not disputed by the Lessee
as provided above, or the determination of the firm as provided above, as the
case may be, shall be conclusive, final and binding upon the Lessor, the Lessee
and the Owner Participant, and the EBO Amount and Exhibits C-1, C-2 and D shall
be amended to reflect them. No dispute concerning any adjustment shall release
the Lessee from its obligation to pay the EBO Amount or Basic Rent or
Termination Value
-4-
as then set forth in Exhibits C-1 and D. All reasonable fees and expenses
payable to a firm pursuant to this paragraph shall be paid by the Lessee except
that such fees and expenses shall be paid entirely by the Owner Participant if,
as a result of changes determined by the firm, the net present value, discounted
at the Applicable Rate or such other rate as the Lessee may have specified as
provided above in this paragraph, of Basic Rent remaining to be paid is ten
basis points (0.10%) or more lower than it would have been under the adjustments
proposed by the Owner Participant.
Any adjustments made pursuant to this Section 3(d) shall (i) be
made so as to avoid characterization of this Lease as a "disqualified leaseback
or long-term agreement" within the meaning of Section 467 of the Code and/or
regulations thereunder (or any successor or relevant Code provision or
regulations) and (ii) be in compliance with the requirements of Sections 4.02(5)
and 4.07(l) of the Revenue Procedure 75-28 (or any successor relevant
procedure), except to the extent that on the Delivery Date the Lease constituted
such a "disqualified leaseback or long-term agreement" or was not in compliance
with the revenue procedure referred to in clause (ii). Any adjustments made
pursuant to this Section 3(d) as the result of refinancing or refunding of the
debt evidenced by the Equipment Notes pursuant to Section 13.01 of the
Participation Agreement shall be made solely to reflect the change, if any, in
the interest rate resulting from the refinancing or refunding, as the case may
be, as contemplated by, and consistent with, Section 467 of the Code. In
addition, notwithstanding any other provisions herein, in no event shall the EBO
Amount be adjusted to an amount that is less than the greater of (A) the
adjusted Termination Value as of the applicable EBO Date, (B) the estimated fair
market value of the Aircraft on the applicable EBO Date (as set forth in the
appraisal received pursuant to Section 3.01(b)(xiii) of the Participation
Agreement), and (C) the present value as of the applicable EBO Date of (x) the
remaining scheduled Basic Rent through the end of the Basic Term plus (y)
Estimated Value (as identified on Exhibit B) (the present value calculation
described in this clause (C) shall utilize a semi-annual compounded discount
rate no lower than the rate per annum identified on Exhibit B as the Compounded
Discount Rate). All adjustments required pursuant to this Section 3(d) shall be
set forth in a Lease Supplement or in an amendment to this Lease, and promptly
after execution thereof by Lessor and Lessee, Lessee shall give a copy thereof
to the Indenture Trustee. In connection with any such adjustment to Basic Rent
payments pursuant to this Section 3(d), appropriate corresponding adjustments
shall be made to the percentages set forth in Exhibit D in the columns with the
headings "Deferred Basic Rent Amount" or "Prepaid Basic Rent Amount", as the
case may be, and such corresponding adjustments shall also be set forth in such
Lease Supplement or amendment to this Lease.
(e) Manner of Payment.
-----------------
All Rent payable by the Lessee to the Lessor hereunder shall be
paid to the Lessor at its principal office at One ▇▇▇▇▇▇ Square, ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇, Attention: Corporate Trust
Administration, or to such other address as the Lessor shall specify in a notice
to the Lessee, in Dollars in immediately available funds, so that the Lessor
receives the full amount of each payment not later than 11:00 a.m. Eastern Time
on the due date
-5-
thereof, except that the Lessor irrevocably directs the Lessee that so long as
the Indenture shall not have terminated pursuant to its terms, all Rent payable
to the Lessor (other than Excluded Payments) shall be paid to the Indenture
Trustee, in the manner provided above, at its principal office as specified in
Section 12.01 of the Participation Agreement, or as the Indenture Trustee may
otherwise direct by a notice delivered to the Lessee prior to the date of
payment. If any Rent is due on a day that is not a Business Day, such Rent shall
be paid on the next succeeding Business Day with the same force and effect as if
paid on the scheduled date of payment and (if paid on such next succeeding
Business Day) no interest shall accrue on the amount of such payment from and
after such scheduled date to the time of payment on such next succeeding
Business Day; provided that, if by virtue of such extension such Rent will be
paid in the next succeeding calendar month, such Rent shall be paid on the next
preceding Business Day. Whether or not the Indenture remains in effect, Rent
constituting Excluded Payments shall be paid directly to the Person entitled
thereto in the manner and at or before the time specified above.
(f) Minimum Rent.
------------
Anything herein to the contrary notwithstanding,
(i) each installment of Basic Rent, whether or not
such installment has been adjusted pursuant to Section 3(d)
and after giving effect to any adjustments pursuant to
Exhibit C-2 or D, shall be in an amount which is at least
equal to the amount of any principal of and interest on the
Equipment Notes that falls due and is payable by the Lessor
pursuant to the terms of the Indenture (other than by reason
of acceleration of the Equipment Notes) on the date when
such installment of Basic Rent is due, and
(ii) the EBO Amount and Termination Value, whether or
not the EBO Amount and Termination Value has been adjusted
pursuant to Section 3(d) and after giving effect to any
rights of the Lessee pursuant to Section 14(d) and the last
two paragraphs of Section 17, shall be in an amount which
(when taken together with any Basic Rent due and payable in
connection therewith and after giving effect to any
adjustments pursuant to Exhibit C-2 or D) is at least equal
to, as of the applicable date of payment, the aggregate
unpaid principal of and accrued interest on the Equipment
Notes (other than overdue amounts attributable to an
Indenture Event of Default not caused solely by an Event of
Default).
The preceding sentence is intended solely to provide for, and to allocate as
between the Lessor and the Lessee the risk of, the possibility of miscalculation
by the Lessor and the Lessee of amounts of Rent which it is contemplated will be
available to the Indenture Trustee, as the Lessor's security assignee under the
Indenture, for application to the payment of amounts payable by the Lessor on
the Equipment Notes. The Lessee does not guarantee, and nothing in this
paragraph (f) shall be
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construed to be a guarantee by the Lessee, that the Lessor will repay any
principal of or pay any premium or interest on any Equipment Notes or that the
Indenture Trustee will, or will be able to, apply for such purposes any amount
of Rent paid by the Lessee.
(g) Rent Obligations Unconditional.
------------------------------
The Lessee's obligations to pay all Rent due and owing under the
terms hereof shall be absolute and unconditional and shall not be affected by
any circumstance whatsoever including, without limitation, (i) any setoff,
counterclaim, recoupment or other right which the Lessee may have against the
Lessor, the Owner Participant, the Indenture Trustee, the holders of the
Equipment Notes or anyone else for any reason whatsoever, (ii) any defect in the
title, airworthiness, condition, design, operation or fitness for use of, or any
damage to or loss or destruction of, the Aircraft, or any interference,
interruption or cessation in or prohibition of the use or possession thereof by
the Lessee for any reason whatsoever, including, without limitation, any such
interference, interruption, cessation or prohibition resulting from the act of
any governmental authority or any violation by the Lessor of Section 4 hereof,
(iii) any Liens, encumbrances or rights of others with respect to the Aircraft,
(iv) the invalidity or unenforceability or lack of due authorization or other
infirmity or disaffirmance of this Lease or any provision hereof or any other
Operative Agreement or any lack of right, power or authority of the Lessor or
the Lessee to enter into this Lease or any other Operative Agreement, (v) any
insolvency, bankruptcy, reorganization or similar proceedings by or against the
Lessee, or any other Person, or (vi) any other cause whether similar or
dissimilar to the foregoing, any present or future law notwithstanding, it being
the intention of the parties that all Rent payable by the Lessee hereunder shall
continue to be payable in all events in the manner and at the times provided
herein. Such Rent shall not be subject to any abatement and the payments thereof
shall not be subject to any setoff or any reduction for any reason other than
manifest error in the calculation thereof or the documentation of this Lease. To
the extent permitted by Applicable Law, the Lessee waives any rights which it
may now have or which may be conferred upon it by statute or otherwise to
terminate, cancel, quit or surrender this Lease except in accordance with the
terms hereof. If for any reason whatsoever this Lease shall be terminated in
whole or in part by operation of law or otherwise except as specifically
provided in Sections 8, 13, 14 and 17, Lessee nonetheless agrees to pay to
Lessor an amount equal to the Rent payment at the time such payment would have
become due and payable in accordance with the terms hereof had this Lease not
been terminated in whole or in part. Subject to the following sentence, each
payment of Rent made by Lessee to Lessor shall be final as to Lessor and Lessee
and Lessee will not seek to recover all or any part of such payment of Rent for
any reason whatsoever. Nothing herein shall be construed as a waiver by the
Lessee of any claim it may have against any Person arising under any of the
Operative Agreements or otherwise, including, without limitation, any claim that
Rent payments demanded from or paid by the Lessee are or were not due, are or
were erroneous or were paid under mistake or protest, or be construed as a
limitation on any rights of the Lessee to assert any claim in any proceeding at
law, in equity or otherwise against the Lessor or any other Person and to pursue
and obtain relief on such claim in such manner as the Lessee shall deem
appropriate other than by setoff against Rent payments due under the terms
hereof.
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Section 4. The Lessor's Representations and Warranties.
-------------------------------------------
(a) THE LESSOR LEASES THE AIRCRAFT HEREUNDER "AS-IS", "WHERE IS"
AND NEITHER THE LESSOR, TRUST COMPANY INDIVIDUALLY NOR THE OWNER PARTICIPANT
SHALL BE DEEMED TO HAVE MADE, AND HEREBY DISCLAIMS, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE,
DESIGN, OPERATION, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS,
CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR FOR ANY PURPOSE OF THE AIRCRAFT
OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR
NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK
OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON LIABILITY IN TORT,
STRICT OR OTHERWISE, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE
AIRCRAFT OR ANY PART THEREOF OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except
that the Lessor warrants that on the Delivery Date the Lessor shall have
received whatever title was conveyed to it by the Seller and the Lessor warrants
that the Aircraft shall be free of Lessor's Liens during the Term.
(b) The Lessor covenants that during the Term, as long as no
Event of Default has occurred and is continuing, the Lessee's possession, use
and quiet enjoyment of the Aircraft leased hereunder shall not be interrupted by
the Lessor (or any Person lawfully claiming through the Lessor).
Section 5. Possession, Operation and Use,
Maintenance Registration and Insignia.
-------------------------------------
(a) General.
-------
Except as otherwise expressly provided herein, the Lessee (and
any Permitted Sublessee) shall be entitled during the Term to operate, use,
locate, employ or otherwise utilize or not utilize the Airframe, Engines and
Parts leased hereunder in any lawful manner or place in accordance with the
Lessee's (or such Permitted Sublessee's) business judgment.
(b) Possession.
----------
The Lessee shall not sublease, or otherwise in any manner
deliver, relinquish or transfer possession of the Airframe or any Engine leased
hereunder to any Person or install any Engine, or permit any Engine to be
installed, on any airframe other than the Airframe, during the Term, without the
prior consent of the Lessor, which consent may be withheld in its sole
discretion, provided, however, that so long as (A) only in the case of clause
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(x) below, no Default of the type referred to in Section 16(a), (b), (f), (g) or
(h) hereof shall have occurred and be continuing, (B) no
-8-
Event of Default shall have occurred and be continuing, and (C) all approvals,
consents or authorizations required from the Aeronautical Authority in
connection with any such sublease or such delivery, transfer or relinquishment
of possession have been obtained and remain in full force and effect, the Lessee
(or, except in the case of clause (x) below, any Permitted Sublessee) may,
without the prior consent of the Lessor:
(i) enter into a charter or wet lease or other similar
arrangement under which the Lessee (or such Permitted Sublessee) has
operational control of the Airframe and any Engines installed thereon in
the ordinary course of the Lessee's business (which shall not be considered
a transfer of possession hereunder), provided that (x) the Lessee's
obligations under this Lease and such Permitted Sublessee's obligations
under the relevant Sublease shall continue in full force and effect
notwithstanding any such charter or wet lease or other similar arrangement
and (y) the transferee's rights shall be expressly subject and subordinate
to the rights of the Lessor and the Indenture Trustee under the Operative
Agreements;
(ii) deliver possession of the Airframe or any Engine or any
Part to the manufacturer thereof or to any organization for testing,
service, repair, maintenance, overhaul work or other similar purposes or
for alterations or modifications or additions required or permitted by the
terms of this Lease;
(iii) subject the Airframe and any Engines installed thereon
to interchange agreements (provided that (w) such interchange agreement is
applicable to other similar property owned by or leased to the Lessee and
is customary in the airline industry and entered into by the Lessee in the
ordinary course of its airline business, (x) any such interchange agreement
with respect to the Airframe shall not result in the Lessee (or a Permitted
Sublessee) being out of possession of the Airframe for a period of more
than two (2) consecutive days at any one time; (y) such interchange
agreement is entered into with a Permitted Sublessee; and (z) the party to
such interchange agreement is not then subject to a proceeding or final
order under applicable bankruptcy, insolvency or reorganization laws on the
date such interchange agreement is entered into) or any Engine to
interchange or pooling agreements or arrangements which are applicable to
other similar property owned by or leased to the Lessee (or such Permitted
Sublessee) and are customary in the airline industry and entered into by
the Lessee (or such Permitted Sublessee) in the ordinary course of its
airline business with any air carrier, provided, that (A) no such agreement
--------
or arrangement shall under any circumstances result in, contemplate or
require the transfer of title to the Aircraft, Airframe or any Engine and
(B) if the Lessor's title to any Engine shall nevertheless be divested
under any such agreement or arrangement, such
-9-
divestiture shall be deemed to be an Event of Loss with respect to such
Engine as the case may be and the Lessee shall comply with Section 7(e)
hereof in respect thereof;
(iv) install an Engine on an airframe owned by the Lessee
(or such Permitted Sublessee) free and clear of all Liens except (A)
Permitted Liens, (B) those which apply only to the engines (other than the
Engines), appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment (other than Parts) installed on such
airframe (but not to the aircraft as an entirety), and (C) those created by
the rights of other air carriers under normal interchange or pooling
agreements or other arrangements customary in the airline industry which do
not contemplate, permit or require the transfer of title to such airframe
or engines installed thereon;
(v) install an Engine on an airframe, leased to the Lessee (or
such Permitted Sublessee) or purchased by the Lessee (or such Permitted
Sublessee) subject to a conditional sale or other security agreement, but
only if (A) such airframe is free and clear of all Liens, except (i) the
rights of the parties to such lease, or any such secured financing
arrangement, covering such airframe and (ii) Liens of the type permitted by
Section 5(b)(iv) and (B) Lessee (or such Permitted Sublessee) shall have
received from the lessor, mortgagee, secured party or conditional seller,
in respect of such airframe, a written agreement (which may be a copy of
the lease, mortgage, security agreement, conditional sale or other
agreement covering such airframe), whereby such Person agrees that it will
not acquire or claim any right, title or interest in, or Lien on, such
Engine by reason of such Engine being installed on such airframe at any
time while such Engine is subject to this Lease (or, in the case of such
Permitted Sublessee, the relevant Sublease) or is owned by Lessor;
(vi) install an Engine on an airframe, owned by the Lessee
(or such Permitted Sublessee), leased by the Lessee (or such Permitted
Sublessee) or purchased by the Lessee (or such Permitted Sublessee) subject
to a conditional sale or other security agreement under circumstances where
neither clause (iv) nor clause (v) above is applicable, provided that any
--------
such installation (so long as the same shall be continuing) shall be deemed
an Event of Loss with respect to such Engine and the Lessee shall comply
with Section 7(e) hereof;
(vii) transfer possession of the Airframe or Engine to the
United States of America or any instrumentality thereof pursuant to the
Civil Reserve Air Fleet Program (as established and administered pursuant
to Executive
-10-
Order 11490, as amended, as superseded by United States Executive Order No.
12656) or any similar or substitute program ("CRAF Program"), in which
event Lessee (or such Permitted Sublessee) shall promptly notify Lessor and
Indenture Trustee upon transferring possession of the Airframe or any
Engine to the United States of America or any agency or instrumentality
thereof pursuant to such program in writing of any such transfer of
possession and, in the case of any transfer pursuant to the CRAF Program,
in such notification shall identify by name, address and telephone numbers
the Contracting Office Representatives of the Military Airlift Command of
the United States Air Force to whom notices must be given and to whom
requests or claims must be made to the extent applicable under the CRAF
Program;
(viii) transfer possession of the Airframe or any Engine to
the United States of America, or to a foreign government, when required by
Applicable Law in the circumstances referred to in clause (iv) or (v) of
the definition of an Event of Loss (it being understood that nothing in
this clause (viii) shall relieve the Lessee from its obligations under
Section 8(a) if such transfer becomes an Event of Loss), in which event
Lessee shall promptly notify Lessor in writing of any such transfer of
possession;
(ix) Reserved;
(x) subject to the provisions of this Section 5(b), enter into
a sublease with respect to any Engine or the Airframe and Engines or
engines then installed on the Airframe to any Permitted Sublessee if (A)
Lessee shall provide written notice to Lessor, Owner Participant and
Indenture Trustee at least 20 days prior to entering into any such
sublease, (B) in any such case, the sublessee under such sublease is not
subject to a proceeding or final order under applicable bankruptcy,
insolvency or reorganization laws on the date such sublease is entered
into, (C) in the event that the sublessee under such sublease is a foreign
air carrier or Person based in a country other than the United States, the
United States maintains normal diplomatic relations with the country in
which such proposed sublessee is principally based at the time such
sublease is entered into and (D) in the event that the sublessee under such
sublease is a foreign air carrier or Person based in a country other than
the United States, prior to the effectiveness of such sublease Lessor shall
have received an opinion (in form and substance reasonably acceptable to
Lessor) of counsel to Lessee (reasonably acceptable to Lessor) to the
effect that (I) the terms of the proposed sublease will be legal, valid,
binding and (subject to customary exceptions that are commonly accepted by
aircraft financiers in such jurisdiction) enforceable against the proposed
sublessee in the country in which the proposed sublessee is principally
based, (II) there exist no
-11-
possessory rights in favor of the sublessee under such sublease under the
laws of such sublessee's country of domicile that would, upon bankruptcy or
insolvency of or other default by the Lessee and assuming that at such time
such sublessee is not insolvent or bankrupt, prevent the return or
repossession of the Aircraft in accordance with and when permitted by the
terms of Section 17(a) upon the exercise by Lessor of its remedies under
Section 17(a), (III) the laws of such sublessee's country of domicile
require fair compensation by the government of such jurisdiction payable in
currency freely convertible into Dollars for the loss of use of or title to
such Engine or the Aircraft in the event of the requisition by such
government of such use or title (it being understood that in the event such
opinion cannot be given in a form reasonably satisfactory to the Lessor and
the Owner Participant, such opinion will be waived if insurance reasonably
satisfactory to the Lessor and the Owner Participant is provided to cover
such requisition), (IV) the laws of such sublessee's country of domicile
would give recognition to Lessor's title to such Engine or the Aircraft and
to the registry of such Engine or the Airframe in the name of Lessor (or
Lessee, as "lessee", or the proposed sublessee, as appropriate), (V) all
filings, if any, required to be made and necessary actions, if any, have
been taken in such jurisdiction in connection with the execution of such
sublease in order to protect the interest of Lessor in such Engine or the
Aircraft have been made, (VI) it is not necessary for the Owner
Participant, any Noteholder or Lessor to register or qualify to do business
in such jurisdiction, if not already so registered or qualified, as a
result, in whole or in part, of the proposed sublease, (VII) the agreement
of such Permitted Sublessee that its rights under the sublease are subject
and subordinate to all the terms of this Lease is enforceable against such
Permitted Sublessee under Applicable Law of such country, and (VIII) there
is no tort liability for owners not in possession of aircraft in such
country more onerous than under the laws of the United States or any state
thereof (it being agreed that in the event such opinion cannot be given in
a form reasonably satisfactory to the Lessor and the Owner Participant,
such opinion will be waived if insurance reasonably satisfactory to the
Lessor and the Owner Participant is provided to cover the risk of such tort
liability); provided that no such sublease shall be made to a Permitted
--------
Sublessee of the type described in clause (b) of the definition thereof
that is not domiciled in the United States or of the type described in
clause (b) of the definition of Permitted Air Carrier or to any tax exempt
entity within the meaning of Section 168(h) of the Code prior to the end of
the Recovery Period, unless the Lessee prepays on a lump sum basis any
liability due under the Tax Indemnity Agreement as a result of such
sublease based upon the assumption that such sublease will continue for the
full term of such sublease;
-12-
provided that (1) the rights of any transferee who receives possession by reason
--------
of a transfer permitted by this Section 5(b) (other than by a transfer of an
Engine which is deemed an Event of Loss) shall be subject and subordinate to all
the terms of this Lease; (2) the Lessee shall remain primarily liable hereunder
for the performance of all the terms and conditions of this Lease and all of the
terms and conditions of this Lease and the other applicable Operative Agreements
shall remain in effect; (3) no sublease or transfer of possession otherwise in
compliance with this Section 5(b) shall (A) result in any registration or re-
registration of the Aircraft except to the extent permitted by Section 5(e) or
the maintenance, operation or use thereof except in compliance with Sections
5(c) and 5(d), (B) permit any action not permitted to the Lessee hereunder, (C)
extend beyond the end of the Term (except to the extent that the Lessee shall
have irrevocably committed to exercise a purchase option in accordance with the
terms hereof) or (D) contain any purchase option exercisable at an earlier date
or at a lower price than such date or price, as the case may be, as permitted
under Section 13(b) hereof; (4) if any such sublease or transfer of possession
shall, in the reasonable opinion of the Owner Participant, result in any risk of
adverse tax consequences, the Lessee shall, prior to entering into the same,
provide an indemnity satisfactory in form and substance to the Owner Participant
against any such adverse tax consequences; (5) the Lessee shall provide evidence
reasonably satisfactory to Lessor, the Indenture Trustee and Owner Participant
that the insurance required by Section 9 remains in effect and for the purpose
of Lessor's, the Noteholders and Owner Participant's review of such insurance
requirements, the Lessee shall, at least five (5) days prior to the date of any
sublease permitted under this Section 5(b), provide to Lessor, Noteholders and
Owner Participant, forms of the broker's report and insurance certificates
required by Section 9(g); (6) all necessary documents shall have been duly filed
or recorded in applicable public offices and all other necessary action shall be
taken as may be required to preserve the title of Lessor to the Airframe and
Engines; and (7) Lessee shall reimburse Lessor, Owner Participant and Indenture
Trustee, on an After Tax Basis, for all of their reasonable out-of-pocket costs
and expenses (including, without limitation, reasonable counsel fees and
disbursements) in connection with any such sublease or transfer.
In the case of any sublease permitted under this Section 5(b), (i) if
the term of such sublease exceeds one (1) year, the Lessee shall assign its
rights thereunder to Lessor as collateral for its obligations hereunder, such
assignment to be effected pursuant to an agreement in form and substance
reasonably satisfactory to Lessor and duly filed or recorded in all applicable
jurisdictions; provided that, such collateral assignment shall provide that
-------- ----
payments due under such sublease shall only be paid by the Permitted Sublessee
to the Lessor during the continuance of a Specified Default or an Event of
Default; and (ii) the Lessee will include in such sublease appropriate
provisions which (a) make such sublease expressly subject and subordinate to all
of the terms of this Lease and the Indenture, including the rights of the Lessor
and the Indenture Trustee to avoid such sublease in the exercise of their rights
to repossession of the Airframe and Engines hereunder and thereunder; (b)
expressly prohibit any further subleasing of the Airframe and Engines; (c)
require that the Airframe and Engines be maintained in accordance with a
maintenance program approved by the Aeronautical Authority applicable thereto;
(d) require the sublessee to comply with the terms of Section 9 hereof; (e)
limit the term of such sublease (including renewal rights) to a period not
beyond the end of the
-13-
Term unless the Lessee shall then have irrevocably committed to exercise a
purchase option in accordance with the terms hereof; (f) require that the
Airframe and Engines be used in accordance with the limitations applicable to
the Lessee's possession and use provided in this Lease; (g) provide that the
Aircraft will not be operated in any country with which the United States is
then conducting ongoing hostilities; (h) not contain any purchase option in
favor of the Permitted Sublessee or any other terms which would prohibit the
Lessee from performing its obligations hereunder or prohibit the Lessor from
exercising its rights and remedies hereunder and (i) shall include provisions
for the maintenance, operation, possession and inspection of the Aircraft that
are the same in all material respects as the applicable provisions of this
Lease.
Subject to the Lessee's obligations in paragraph (x) above, the Lessee
shall (i) notify the Lessor at least 15 days prior to entering into any Sublease
stating the name of the proposed Permitted Sublessee and providing a copy of the
proposed Sublease, and (ii) deliver a copy of the executed Sublease promptly
(but no later than 10 days) after execution thereof.
The Lessor hereby agrees for the benefit of the lessor or secured
party of any engine (other than the Engines) or of any airframe (other than the
Airframe) leased to the Lessee or purchased by the Lessee subject to a
conditional sale or other security agreement, which lease or conditional sale or
other security agreement (in the case of any such airframe) also covers an
engine or engines (other than the Engines) owned by the lessor under such lease
or subject to a security interest in favor of the secured party under such
conditional sale or other security agreement, that the Lessor will not acquire
or claim, as against such lessor or secured party, any right, title or interest
in any such engine as the result of such engine being installed on the Airframe
at any time while such engine is owned by such lessor or is subject to such
conditional sale or other security agreement or security interest in favor of
such secured party; provided, however, that such agreement of the Lessor shall
-------- -------
not be for the benefit of any lessor or secured party of any airframe leased to
the Lessee or owned or purchased by the Lessee subject to a conditional sale or
other security agreement or for the benefit of any mortgagee of or any other
holder of a security interest in an airframe owned by the Lessee, unless such
lessor, conditional vendor, other secured party or mortgagee has agreed (which
agreement may be contained in such lease, conditional sale or other security
agreement or mortgage and may consist of a paragraph similar to this paragraph)
that neither it nor its successors or assigns will acquire, as against the
Lessor, any right, title or interest in an Engine as a result of such Engine
being installed on such airframe.
(c) Operation and Use.
-----------------
The Lessee shall not (and will not permit any Permitted Sublessee to)
operate, use or locate the Airframe or any Engine, or suffer such Airframe or
any Engine to be operated, used or located (i) in any area excluded from
coverage by any insurance required by the terms of Section 9 hereof, except in
the case of a requisition by the United States of America where the Lessee
obtains (and provides evidence of) indemnity from the Government for the benefit
of the Additional Insureds against substantially the same risks and for at least
the amounts of the insurance required by Section
-14-
9 hereof covering such area, or (ii) outside the United States or Canada in any
recognized or, in the Lessee's reasonable judgment, threatened area of
hostilities unless covered by war risk insurance, or in either case unless the
Airframe or such Engine is operated or used under contract with the Government
under which contract the Government assumes liability for substantially the same
risks in at least the same amounts as would be covered by such insurance. The
Lessee shall not permit the Airframe or any Engine to be maintained, serviced,
repaired, overhauled, used or operated during the Term in violation of any
Applicable Law or in violation of any airworthiness certificate, rule,
regulation, order, license or registration relating to the Aircraft or such
Engines issued by any competent governmental authority, unless (i) the validity
thereof is being contested in good faith and by appropriate proceedings which do
not involve a non-de minimis danger of the sale, forfeiture or loss of the
Airframe or such Engine or the interest of the Lessor, the Owner Participant and
the Indenture Trustee therein or any risk of criminal liability or any material
risk of civil liability against Lessor, the Owner Participant, the Indenture
Trustee or any Noteholders, or (ii) it is not possible for the Lessee (or a
Permitted Sublessee) to comply with the laws of a jurisdiction other than the
United States (or other than any jurisdiction in which the Aircraft is then
registered) because of a conflict with the applicable laws of the United States
(or such jurisdiction in which the Aircraft is then registered), provided,
--------
however, that actions taken under (i) and (ii) above will not result in the
-------
violation of any requirements of insurance pursuant to Section 9.
(d) Maintenance.
-----------
The Lessee, at its own cost and expense, shall during the Term
service, repair, maintain, overhaul and test the Aircraft, the Airframe and each
Engine (and each engine that is not an Engine but is installed on the Aircraft)
or cause the same to be done in accordance with (1)(i) a maintenance program
approved by the Aeronautical Authority and (ii) maintenance standards required
by, or substantially equivalent to those required by, the FAA or the central
civil aviation authority of Canada, France, Germany, Japan, The Netherlands or
the United Kingdom, and shall keep or cause to be kept the Aircraft, the
Airframe and each Engine (or engine) in as good condition as originally
delivered from the Manufacturer, ordinary wear and tear excepted, in accordance
with all applicable FAA regulations for the Aircraft (including all FAA
airworthiness directives applicable to the Aircraft), in accordance with all
mandatory service bulletins and as required to keep all Manufacturer's or Engine
Manufacturer's warranties in effect, in compliance with any requirements under
the policies of insurance required by Section 9, and shall keep or cause to be
kept the Aircraft, the Airframe and each Engine in such operating condition as
may be necessary to enable all certificates, licenses, permits and
authorizations required for the use and operation of the Aircraft and each
Engine in the appropriate category for the nature of the operations of the
Aircraft including the airworthiness certification of the Aircraft to be
maintained in good standing at all times under the applicable rules and
regulations of the Aeronautical Authority, except when aircraft of the same
type, model or series as the Airframe (powered by engines of the same type as
those with which the Airframe shall be equipped at the time of grounding)
registered in the same country have been grounded by the Aeronautical Authority,
provided, however, that if the airworthiness certificate of the Aircraft shall
-------- -------
be withdrawn, then, subject to Section 8 hereof, so long as the Lessee (or a
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Permitted Sublessee) is taking or causing to be taken all necessary action to
promptly correct the condition which caused such withdrawal, no Event of Default
shall arise from such withdrawal and (2) except during periods when a Sublease
is in effect, the same standards Lessee uses with respect to similar aircraft of
similar size in its fleet operated (whether owned or leased) by Lessee in
similar circumstances and during any period in which a Sublease is in effect,
the same standards the Permitted Sublessee uses with respect to similar aircraft
of similar size in its fleet and operated (whether owned or leased) by the
Permitted Sublessee in similar circumstances and without in any way
discriminating against the Aircraft by reason of its leased status. Nothing
herein shall be deemed to prevent the Lessee (or a Permitted Sublessee) from
taking the Aircraft out of service for maintenance or modifications permitted
hereunder or storage in accordance with applicable Aeronautical Authority
requirements, the manufacturer's recommended procedures and sound practice for
such storage. The Lessee shall maintain or cause to be maintained all records,
logs and other documents required by the Aeronautical Authority to be maintained
in respect of the Aircraft in English in the manner as such Aeronautical
Authority requires. Lessee further agrees that the Aircraft, Airframe and
Engines will be maintained, used, serviced, repaired, overhauled or inspected in
compliance with Applicable Law with respect to the maintenance of the Aircraft
and compliance with each applicable airworthiness certificate, license and
registration relating to the Aircraft, Airframe or any Engine issued by the
Aeronautical Authority.
(e) Registration.
------------
Except as otherwise permitted by Section 4.02(b) of the
Participation Agreement, or as otherwise required by the Transportation Code or
rules, regulations, or orders promulgated thereunder, or to the extent that such
registration cannot be effected or continued due to the Lessor's or the Owner
Participant's failure to comply with the citizenship or other eligibility
requirements for registration of commercial aircraft under the Transportation
Code or any rule, regulation or order promulgated thereunder, the Aircraft shall
be duly registered in the name of the Lessor under the Transportation Code at
all times during the Term; provided that the Lessor shall execute and deliver
--------
all such documents as the Lessee may reasonably request for the purpose of
effecting, continuing or (as provided in this Section 5(e) hereof and Section
4.02(b) of the Participation Agreement) changing such registration.
Section 6. Inspection.
----------
At all times during the Term, but upon at least five Business
Days' prior notice to the Lessee (unless an Event of Default shall have occurred
and be continuing, in which event no prior written notice is required) and at a
time and place reasonably acceptable to the Lessee, the Lessor, the Owner
Participant, the Loan Participants and the Indenture Trustee or their authorized
representatives (which may include the Manufacturer) may at their own expense
(unless an Event of Default shall have occurred and be continuing, in which
event the Lessee shall bear such expense) and risk conduct a visual walk-around
inspection of the Aircraft (including on board inspection) and any Engine and
may include inspection of areas exposed by any open panels, bays or the like,
but
-16-
shall not include opening any panels, bays or the like without the express
written consent of an authorized employee of the Lessee (including a visual
walk-around inspection of the Aircraft during any "C" check or other heavy
maintenance) and may inspect the books and records of the Lessee relating to the
operation and maintenance thereof and the Lessee shall provide copies of such
books and records to the inspecting party or their authorized representatives at
its or their reasonable request; provided that (a) any such inspection shall be
--------
subject to the safety, security and workplace rules applicable at the location
where such inspection is conducted and any applicable governmental rules or
regulations, and (b) in the case of an inspection during a maintenance visit,
such inspection shall not interfere with the normal conduct of such maintenance
visit or extend the time required for such maintenance visit or, in any event,
at any time interfere with the use or operation of the Airframe or any Engine or
with the normal conduct of the Lessee's or a Permitted Sublessee's business.
All information obtained in connection with any such inspection shall be held
confidential by the Lessor, the Indenture Trustee, the Owner Participant and the
Noteholders and shall not be furnished or disclosed by them to anyone other than
(i) each other, their bank examiners, auditors, accountants, insurance advisors,
agents and legal counsel, (ii) any prospective and permitted transferees of the
Lessor, the Indenture Trustee, the Owner Participant or any Noteholder who agree
to hold such information confidential and (iii) except as may be required by an
order of any court or administrative agency or by any statute, rule, regulation
or order of any governmental authority (or, in the case of any Noteholder, to
any bank examiner or other regulatory personnel) or as may be necessary to
enforce the terms of the Operative Agreements, provided, however, that the
-------- -------
Lessor, the Owner Participant or the Loan Participants may during any time it is
offering the Aircraft for sale make customary disclosures to prospective
purchasers of the Aircraft or the Equipment Notes as to the then current flight
and maintenance status of the Aircraft. The Lessor, the Owner Participant, the
Indenture Trustee and the Loan Participants shall have no duty to make any such
inspection and shall not incur any liability or obligation by reason of not
making any such inspection.
In addition to any inspection as provided hereunder, upon each request
of Owner Participant or the Indenture Trustee to Lessee made by such Person not
more than four times in a calendar year, Lessee will make available to Owner
Participant or the Indenture Trustee, as the case may be, information with
respect to the cycles and hours of operation of the Airframe and Engines and the
status of the time controlled components of the Engines.
If requested by Lessor, Owner Participant, any Noteholder or Indenture
Trustee, Lessee shall provide, or shall cause any Permitted Sublessee to
provide, the date (if then scheduled) upon which the Airframe undergoes its next
scheduled major check and, with respect to any Engine, the next scheduled off
the Airframe maintenance, and shall advise Lessor, Owner Participant, Indenture
Trustee and the relevant Noteholder of the name and location (if then known) of
the relevant maintenance performer.
The Lessee shall furnish to the Lessor, the Owner Participant, any
Noteholder and the Indenture Trustee such additional information concerning the
location, condition, use and operation
-17-
of the Aircraft as the Lessor, the Owner Participant, such Noteholder or the
Indenture Trustee may from time to time reasonably request.
Section 7. Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines.
----------------------------------------------------
(a) Replacement of Parts.
--------------------
Except as otherwise provided in the proviso to the third sentence
of Section 7(d) or if the Airframe or an Engine to which a Part relates has
suffered an Event of Loss, the Lessee, at its own cost and expense, will during
the Term promptly replace all Parts that may from time to time become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing, the
Lessee (or a Permitted Sublessee), at its own cost and expense, may remove any
Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use, provided that the
--------
Lessee (or such Permitted Sublessee), at its own cost and expense, shall, except
as otherwise provided in the proviso to the third sentence of Section 7(d),
replace such Parts as promptly as practicable with replacement parts or
temporary replacement parts as provided in Section 7(c) hereof. All replacement
parts shall be free and clear of all Liens except for pooling arrangements to
the extent permitted by Section 7(c) and Permitted Liens and shall be in as good
operating condition as, and shall have a value and utility at least equal to,
the Parts replaced assuming such replaced Parts were in the condition and repair
required to be maintained by the terms hereof.
(b) Title to Parts.
--------------
Except as otherwise provided in the proviso to the third sentence
of Section 7(d), all Parts at any time removed from the Airframe or any Engine
shall remain the property of the Lessor and subject to this Lease, no matter
where located, until such time as such Parts shall be replaced by parts that
have been incorporated or installed in or attached to the Airframe or such
Engine and that meet the requirements for replacement parts specified in Section
7(a). Immediately upon any replacement part becoming incorporated or installed
in or attached to the Airframe or an Engine as provided in Section 7(a), without
further act, (i) title to the replaced Part shall thereupon vest in the Lessee
(or the relevant Permitted Sublessee), in "as-is, where-is" condition, free and
clear of all rights of the Lessor and the Indenture Trustee and any Lessor's
Liens and shall no longer be deemed a Part hereunder; (ii) title to such
replacement part shall thereupon vest in the Lessor (subject only to Permitted
Liens); and (iii) such replacement part shall become a Part subject to this
Lease and be deemed part of the Airframe or such Engine, as the case may be, for
all purposes hereof to the same extent as the parts originally incorporated or
installed in or attached to the Airframe or such Engine.
-18-
(c) Pooling or Parts Leasing.
------------------------
Any Part removed from the Airframe or from any Engine as provided in
Section 7(a) may be subjected by the Lessee (or a Permitted Sublessee) to a
pooling or parts leasing agreement or arrangement of a type customary in the
airline industry entered into in the ordinary course of the Lessee's (or such
Permitted Sublessee's) business, provided the part replacing such removed Part
shall be incorporated or installed in or attached to such Airframe or Engine in
accordance with Sections 7(a) and 7(b) as promptly as practicable after the
removal of such removed Part. In addition, any replacement part when
incorporated or installed in or attached to the Airframe or any Engine in
accordance with Section 7(a) may be owned by another airline or vendor as
customary in the airline industry, subject to a pooling or parts leasing
arrangement, provided that the Lessee (or a Permitted Sublessee), at its expense
--------
as promptly thereafter as reasonably practicable, either (i) causes title to
such temporary replacement part to vest in the Lessor in accordance with Section
7(b) by the Lessee (or such Permitted Sublessee) acquiring title thereto for the
benefit of the Lessor free and clear of all Liens except Permitted Liens, at
which time such temporary replacement part shall become a Part and become
subject to this Lease or (ii) replaces such temporary replacement part by
incorporating or installing in or attaching to the Airframe or such Engine a
further replacement part owned by the Lessee (or such Permitted Sublessee) free
and clear of all Liens except Permitted Liens and by causing title to such
further replacement part to vest in the Lessor in accordance with Section 7(b).
(d) Alterations, Modifications and Additions.
----------------------------------------
The Lessee, at its own expense, shall make (or cause to be made)
alterations and modifications in and additions to the Airframe and any Engine as
may be required to be made from time to time during the Term by Applicable Law
or in order to maintain the insurance required under Section 9 regardless of
upon whom such requirements are, by their terms, nominally imposed; provided,
--------
that the Lessee may, in good faith and by appropriate procedure, contest the
validity or application of any such standard in any reasonable manner which does
not materially adversely affect the interests of the Lessor or the Lien of the
Indenture and does not involve any non-de minimis risk of sale, forfeiture or
loss of the Aircraft or the interest of any Participant therein, any material
risk of civil penalty or any risk of criminal liability being imposed on Lessor
or Owner Participant. In addition, the Lessee (or a Permitted Sublessee), at
its own expense, may from time to time make or cause to be made such alterations
and modifications in and additions to the Airframe and any Engine as the Lessee
(or such Permitted Sublessee) may deem desirable in the proper conduct of its
business including, without limitation, removal of Parts which Lessee (or such
Permitted Sublessee) deems are obsolete or no longer suitable or appropriate for
use in the Aircraft, Airframe or such Engine so long as the aggregate value of
such removed Parts (based on their value as of the Delivery Date) does not
exceed $200,000, provided further that no such alteration, modification or
--------
addition (i) diminishes the value, utility, estimated residual value (with
respect to the Airframe only), condition, remaining useful life or airworthiness
of the Airframe or such Engine below the value, utility, estimated residual
value, condition, remaining useful life or airworthiness thereof immediately
prior to such
-19-
alteration, modification or addition, assuming the Airframe or such Engine was
then in the condition required to be maintained by the terms of this Lease or
(ii) causes the Aircraft to be limited use property, except that the value (but
not the utility, estimated residual value, condition, remaining useful life or
airworthiness) of the Aircraft may be reduced by the value of Parts which the
Lessee (or such Permitted Sublessee) has removed as permitted above. Title to
all Parts incorporated or installed in or attached or added to the Airframe or
any Engine as the result of any alteration, modification or addition effected by
the Lessee (or a Permitted Sublessee) shall, without further act, vest in the
Lessor free and clear of any Liens except Permitted Liens and become subject to
this Lease; provided that the Lessee (or such Permitted Sublessee) may, at any
--------
time during the Term, remove any such Part from the Airframe or an Engine if (i)
such Part is in addition to, and not in replacement of or in substitution for,
any Part originally incorporated or installed in or attached to the Airframe or
such Engine at the time of delivery thereof hereunder or any Part in replacement
of, or in substitution for, any such original Part, (ii) such Part is not
required to be incorporated or installed in or attached or added to the Airframe
or such Engine pursuant to the terms of Section 5(d) or the first sentence of
this Section 7(d) or pursuant to the terms of any insurance policies required to
be carried hereunder or under any Applicable Law and (iii) such Part can be
removed from the Airframe or such Engine without diminishing or impairing the
value, condition, utility, estimated residual value, remaining useful life or
airworthiness which such Airframe or Engine would have had at the time of
removal had such alteration, modification or addition not been effected by the
Lessee (or such Permitted Sublessee) assuming the Aircraft was otherwise
maintained in the condition required by this Lease. Upon the removal by the
Lessee (or such Permitted Sublessee) of any such Part as above provided, title
thereto shall, without further act, vest in the Lessee (or such Permitted
Sublessee), in "as-is, where-is" condition, free and clear of all rights of the
Lessor and the Indenture Trustee and any Lessor's Liens and such Part shall no
longer be deemed a Part hereunder. Any Part not removed by the Lessee (or a
Permitted Sublessee) as above provided prior to the return of the Airframe or
respective Engine to the Lessor hereunder shall remain the property of the
Lessor; provided that nothing in this Section 7(d) shall prohibit the Lessee
--------
(or a Permitted Sublessee) from removing any seats from the Aircraft (which
seats while so removed shall remain in the possession of the Lessee (or such
Permitted Sublessee)) so long as the Aircraft when returned to the Lessor
pursuant to Section 12 hereof shall be in the condition required thereby.
(e) Substitution of Engines.
-----------------------
So long as no Specified Default shall have occurred and be continuing,
the Lessee (or a Permitted Sublessee) shall have the right at its option at any
time, on at least 30 days' prior notice to the Lessor, the Owner Participant and
the Indenture Trustee, to substitute, and if an Event of Loss shall have
occurred with respect to an Engine under circumstances in which there has not
occurred an Event of Loss with respect to the Airframe, shall within 90 days of
the occurrence of such Event of Loss and on at least five days' prior notice to
the Lessor substitute, a Replacement Engine for any Engine not then installed or
held for use on the Airframe. In such event, immediately upon the effectiveness
of such substitution on the date set forth in such notice and without further
act, (i) title to the Replacement Engine shall thereupon vest in the Lessor free
and clear of all Liens (other than
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Permitted Liens), (ii) title to the replaced Engine shall thereupon vest in the
Lessee (or its designee), in "as-is, where-is" condition, free and clear of all
rights of the Lessor and the Indenture Trustee and any Lessor's Liens and shall
no longer be deemed an Engine hereunder, and (iii) such Replacement Engine shall
become subject to this Lease and be deemed part of the Aircraft for all purposes
hereof to the same extent as the Engine originally installed on or attached to
the Airframe. Upon the substitution of a Replacement Engine, the following
conditions shall be satisfied at the Lessee's sole cost and expense and the
parties agree to cooperate with the Lessee to the extent necessary to enable it
to timely satisfy such conditions:
(i) the following documents shall be duly authorized, executed
and delivered by the respective party or parties thereto, and an executed
counterpart of each shall be delivered to the Lessor:
(A) a Lease Supplement covering the Replacement Engine,
which shall have been duly filed for recordation with the FAA;
(B) so long as the Indenture shall not have been satisfied
and discharged, an Indenture Supplement covering the Replacement
Engine, which shall have been duly filed for recordation with the FAA;
(C) a full warranty ▇▇▇▇ of sale (as to title), in form and
substance satisfactory to the Lessor and the Owner Participant,
covering the Replacement Engine, executed by the owner thereof in
favor of the Lessor;
(D) as long as the Indenture is in effect, such documents as
may be required under Section 5.06 of the Indenture relating to the
Replacement Engine;
(E) (i) so long as the Indenture shall not have been
satisfied and discharged, such Uniform Commercial Code financing
statements covering the security interests created by the Indenture
(or any similar statements or other documents required to be filed or
delivered pursuant to the laws of the jurisdiction in which the
Replacement Engine may be registered in accordance with Section 5(e)),
and (ii) "precautionary" Uniform Commercial Code financing statements
as are deemed necessary or desirable by counsel for the Owner
Participant or the Indenture Trustee to protect the ownership
interests of the Owner Trustee and the security interests of the
Indenture Trustee in the Replacement Engine;
-21-
(F) an Officer's Certificate of the Lessee certifying that
(i) in the case of a voluntary replacement only, no Specified Default
shall have occurred and be continuing and (ii) (x) in the case of a
voluntary replacement, the Replacement Engine has at least the same
number of hours or cycles (whichever is applicable) of operation on
such Replacement Engine remaining until the next scheduled life
limited part replacement as the Engine it replaces, assuming such
Engine had been maintained in the condition required hereunder; or (y)
in the case of a mandatory replacement, the Lessee has not
discriminated in its selection of the Replacement Engine (based on the
leased status of the Aircraft);
(G) an opinion of qualified FAA counsel as to the due
recordation of the Lease Supplement, the Indenture Supplement and all
other documents or instruments the recordation of which is necessary
to perfect and protect the rights of the Lessor and the Indenture
Trustee in the Replacement Engine;
(H) to the extent that an engine warranty in respect of such
Replacement Engine is available to the Lessee, an engine warranty
assignment covering such Replacement Engine, in substantially the form
of the Engine Warranty Assignment or otherwise in such form and
substance satisfactory to the Lessor and a consent to such engine
warranty assignment, in substantially the form of the Engine Warranty
Assignment or otherwise in such form and substance satisfactory to the
Lessor;
(I) evidence that the insurance requirements of Section 9
with respect to an Engine are satisfied and that the insurance
covering such Replacement Engine shall be of the type usually carried
by the Lessee (or, in the case of a voluntary replacement, such
Permitted Sublessee) with respect to similar engines, and covering
risks of the kind customarily insured against by the Lessee (or, in
the case of a voluntary replacement, such Permitted Sublessee); and
(J) a certificate from an engineer (who may be an employee
of the Lessee) confirming that the Replacement Engine has a value no
less than the engine being replaced (without regard to hours or
cycles).
(ii) the Lessee shall furnish (or cause to be furnished to)
the Lessor, the Owner Participant, the Noteholders and the Indenture
Trustee
-22-
with an opinion, reasonably satisfactory in form and substance to
the Lessor of the Lessee's counsel, which may be the Lessee's
General Counsel or Associate General Counsel, to the effect that
(x) such bills of sale or other documents reasonably requested by
the Lessor are sufficient to convey title to such Replacement
Engine to the Lessor and with respect to the effectiveness of the
interests in the Indenture Estate which the Indenture purports to
create; (y) the Lessor and the Indenture Trustee (as assignee of
Lessor under the Indenture), are entitled to the benefits and
protections of Section 1110 with respect to the Replacement
Engine to the same extent as with respect to the replaced Engine
immediately preceding such replacement, provided that if the
--------
replaced Engine was subject to an Event of Loss, then such
opinion regarding Section 1110 shall be required only in the
event that a replacement engine that can so qualify is available
in the Lessee's fleet or is otherwise available to the Lessee (by
exchange or otherwise) without material cost to Lessee and (z)
the Lease Supplement and Warranty ▇▇▇▇ of Sale have been duly
authorized and delivered; and
(iii) either (x) the Owner Participant shall have received
an opinion of independent tax counsel (selected by the Owner
Participant and reasonably acceptable to the Lessee), reasonably
satisfactory to the Owner Participant, to the effect that there
shall be no risk of adverse tax consequences resulting from such
replacement (and the Owner Participant shall use its best efforts
to cause a timely opinion to be delivered) or (y) the Lessee
shall have provided, or caused to be provided, an indemnity in
respect of any adverse tax consequences reasonably satisfactory
(or, in the case of any voluntary substitution, satisfactory) in
form and substance to the Owner Participant.
Upon satisfaction of all conditions to such substitution, (x) the
Lessor shall, at the expense of the Lessee, execute and deliver, and request the
Indenture Trustee to execute and deliver to the Lessee such bills of sale and
other documents and instruments as the Lessee shall reasonably request to
evidence the transfer to the Lessee and vesting of all right, title and interest
in and to the replaced Engine in the Lessee, in "as-is, where-is" condition,
free and clear of all right, title and interest of the Lessor and the Indenture
Trustee, and any Lessor's Liens; (y) the Lessor shall, at the request and
expense of the Lessee, assign to the Lessee all claims it may have against any
other Person relating to an Event of Loss giving rise to such substitution
(other than those in respect of insurance maintained by the Owner Participant
pursuant to Section 9(f)) and shall exercise such rights as it has to cause such
assignment to be free and clear of the Lien of the Indenture and (z) the Lessee
shall be entitled to receive all insurance proceeds (other than those reserved
to others under Section 9(f) hereof) and proceeds in respect of any Event of
Loss giving rise to such replacement to the extent not previously applied to the
purchase price of the Replacement Engine as provided in Sections 9(e)(i) and
8(e)(ii).
-23-
Section 8. Loss, Destruction or Requisition.
--------------------------------
(a) Event of Loss with Respect to the Airframe.
------------------------------------------
Upon the occurrence of an Event of Loss with respect to the
Airframe, the Lessee shall forthwith (and in any event within 10 days after such
occurrence) give the Lessor, the Owner Participant, each Noteholder and the
Indenture Trustee notice of such Event of Loss. The Lessee shall, within 60 days
after such occurrence, give the Lessor, the Owner Participant, each Noteholder
and the Indenture Trustee written notice of its election to perform one of the
following options (it being agreed that if the Lessee shall not have given the
Lessor such notice of such election, the Lessee shall be deemed to have elected
to perform the option identified in the following clause (ii)):
(i) subject to the satisfaction of the conditions
contained in Section 8(d), on a date not more than 180 days
after the occurrence of the Event of Loss (or, if earlier,
the last day of the Term), convey or cause to be conveyed to
the Lessor, and to be leased by the Lessee hereunder in
replacement of the Airframe and Engines with respect to
which the Event of Loss occurred, a Replacement Airframe
(together with the same number of Replacement Engines as the
number of Engines, if any, which were subject to such Event
of Loss), such Replacement Airframe and Replacement Engines
to be free and clear of all Liens except Permitted Liens not
of record and to have a remaining useful life, estimated
residual value, value and utility at least equal to the
Airframe and Engines, if any, so replaced (assuming such
Airframe and Engines were in the condition and repair
required by the terms hereof) and to be an airframe that is
the same model and same or later vintage as the Airframe to
be replaced thereby, or an improved model; provided that, if
-------- ----
the Lessee shall not perform its obligation to effect such
replacement under this clause (i) during the 180-day period
of time provided herein (or, if earlier, the last day of the
Term), it shall give the Lessor, the Owner Participant and
the Indenture Trustee notice to such effect upon or before
the expiration of such period of time and shall promptly pay
on the first Termination Date next following the thirtieth
(30th) day after the date of such notice to the Lessor (or,
if earlier, the last day of the Term), in immediately
available funds, the amount specified in clause (ii) below;
or
(ii) pay or cause to be paid to the Lessor in
immediately available funds, on a date specified at least 30
days in advance by the Lessee, which date shall be a
Termination Date not more than 180 days after the occurrence
of the Event of Loss, an amount equal to (A) the Basic Rent,
if any, payable on such Termination Date, together with all
unpaid Basic Rent, if any, payable before such Termination
Date plus (B) all unpaid Supplemental Rent (other than
Termination Value) due on or before such payment date, plus
-24-
(C) an amount equal to the excess of (1) the sum of (x) the
Termination Value for the Aircraft determined as of such
Termination Date or, if such Termination Date is beyond the end
of the Term, the Termination Value as of the last Termination
Date of the Term plus (y) the amount, if any, set forth opposite
such Termination Date in Exhibit D in the column with the heading
"Deferred Basic Rent Amount" or, if such Termination Date is
beyond the end of the Term, the amount, if any, set forth
opposite the last Termination Date of the Term in Exhibit D in
the column with the heading "Deferred Basic Rent Amount", over
(2) the amount, if any, set forth opposite such Termination Date
in Exhibit D in the column with the heading "Prepaid Basic Rent
Amount" or, if such Termination Date is beyond the end of the
Term, the amount, if any, set forth opposite the last Termination
Date of the Term in Exhibit D in the column with the heading
"Prepaid Basic Rent Amount" plus (D) all reasonable out-of-pocket
expenses (including reasonable attorneys' fees) incurred by the
Lessor, the Indenture Trustee, the Noteholders or the Owner
Participant in connection with such Event of Loss plus (E) if
such Termination Date is beyond the end of the Term, interest on
the amount of such payment, at a rate per annum equal to the TV
Rate identified on Exhibit B, for the period from and including
the last day of the Term to but excluding such Termination Date.
(b) Effect of Replacement.
---------------------
Should the Lessee have provided a Replacement Aircraft as provided for
in Section 8(a)(i), (i) this Lease shall continue with respect to such
Replacement Aircraft as though no Event of Loss had occurred; (ii) the Lessor
shall, at the expense of Lessee, convey "as-is, where-is", without recourse or
warranty except for a warranty against Lessor's Liens, to the Lessee all right,
title and interest of the Lessor, in and to the Airframe and the Engine or
Engines, if any, installed on the Airframe upon the occurrence of the Event of
Loss by executing and delivering to the Lessee such bills of sale and other
documents and instruments as the Lessee may reasonably request to evidence such
conveyance and shall request that the Indenture Trustee release such Airframe
and Engines and the Purchase Agreement Assignment with respect to such Airframe
and Engines from the Lien of the Indenture; (iii) the Lessor shall, at the
request and expense of Lessee, assign to the Lessee all claims it may have
against any other Person arising from the Event of Loss (except with respect to
insurance obtained in accordance with Section 9(f)) and (iv) the Lessee shall be
entitled to receive all insurance proceeds (other than those reserved to others
under Section 9(f)) and proceeds from any award in respect of condemnation,
confiscation, seizure or requisition, including any investment interest thereon,
to the extent not previously applied to the purchase price of the Replacement
Aircraft as provided in Sections 9(e)(iii) and 8(e)(i).
-25-
(c) Effect of Termination Value Payment.
-----------------------------------
In the event of a payment in full of the Termination Value for the
Aircraft and other Rent payable as provided in Section 8(a)(ii), (i) this Lease
and the obligations of the Lessee to pay Rent (except for Supplemental Rent
obligations which survive pursuant to Section 3(c) and Articles 6 and 7 of the
Participation Agreement or the Tax Indemnity Agreement or which have accrued but
have not otherwise been paid as of the date of such payment) shall terminate and
the Term shall end, (ii) any remaining insurance proceeds (other than those
reserved to others under Section 9(f)), including any investment interest
thereon, shall be promptly paid over to the Lessee; and (iii) the Lessor, at the
expense of Lessee, shall convey, "as-is, where-is" without recourse or warranty,
except for a warranty against Lessor's Liens attributable to Lessor and Owner
Participant, to the Lessee all right, title and interest of the Lessor in and to
the Airframe and Engines and shall execute and deliver to the Lessee such bills
of sale and other documents and instruments as the Lessee may reasonably request
to evidence such conveyance and shall request that the Indenture Trustee release
from the Lien of the Indenture, the Airframe and the Engines and the Purchase
Agreement Assignment with respect to such Airframe and Engines, all claims for
damage to such Airframe and Engines, if any, against third persons arising from
the Event of Loss and any interest of the Lessor in engines (which are not
Engines) installed on the Airframe.
(d) Conditions to Airframe Replacement.
----------------------------------
The Lessee's right to substitute a Replacement Aircraft as provided in
Section 8(a)(i) shall be subject to the fulfillment, at the Lessee's sole cost
and expense, in addition to the conditions contained in such Section 8(a)(i), of
the following conditions precedent:
(i) On the date when the Replacement Aircraft is
delivered to the Lessor (such date being referred to in this
Section 8(d) as the "Replacement Closing Date"), no Specified
Default shall have occurred and be continuing and the Lessor, the
Owner Participant, each Noteholder and the Indenture Trustee
shall have received an Officer's Certificate so certifying;
(ii) On the Replacement Closing Date the following
documents shall have been duly authorized, executed and delivered
by the respective party or parties thereto and shall be in full
force and effect, and an executed counterpart of each thereof
(or, in the case of the FAA ▇▇▇▇ of Sale (or a comparable
document, if any, of another Aeronautical Authority, if
applicable) referred to below, a photocopy thereof) shall have
been delivered to the Lessor, the Owner Participant, each
Noteholder and the Indenture Trustee:
(A) a Lease Supplement covering the Replacement Aircraft, which
shall have been duly filed for recordation with the FAA;
-26-
(B) so long as the Indenture shall not have been discharged and
satisfied, an Indenture Supplement covering the Replacement Aircraft,
which shall have been duly filed for recordation with the FAA;
(C) an FAA ▇▇▇▇ of Sale (or a comparable document, if any, of
another Aeronautical Authority, if applicable) covering the
Replacement Aircraft, executed by the owner thereof in favor of the
Lessor, and dated the Replacement Closing Date;
(D) a full warranty (as to title) ▇▇▇▇ of sale, in form and
substance satisfactory to the Indenture Trustee, the Owner Participant
and the Lessor, covering the Replacement Aircraft, executed by the
owner thereof in favor of the Lessor, dated the Replacement Closing
Date and guaranteed by the Lessee;
(E) as long as the Indenture is in effect, such documents as may
be required under Section 5.06 of the Indenture;
(F) (1) so long as the Indenture shall not have been discharged,
such Uniform Commercial Code financing statements (or any similar
statements or other documents required to be filed or delivered
pursuant to the laws of the jurisdiction in which the Replacement
Aircraft may be registered in accordance with Section 5(e)) covering
the security interests created by the Indenture, and (2) such
"precautionary" Uniform Commercial Code financing statements as are
deemed necessary or desirable by counsel for the Owner Participant or
the Noteholders to protect the ownership interests of the Owner
Trustee and the security interests of the Indenture Trustee in the
Replacement Aircraft; and
(G) an Officer's Certificate of the Lessee certifying that (i)
the Replacement Aircraft is a Canadair Regional Jet Series 200 ER
aircraft or a more advanced model, is in as good operating condition
as, and has a value, remaining useful life, estimated residual value
and utility at least equal to, the Aircraft it replaces, assuming such
Aircraft had been maintained in the condition required hereunder and
(ii) in the event the Event of Loss occurs after the fifth anniversary
of the Delivery Date, the Replacement Airframe shall have no more than
105% of the total hours of operation, as compared to the Airframe it
replaces;
(iii) On or before the Replacement Closing Date, the Lessor and
the Owner Participant shall have received such documents and evidence
with respect to the Lessee, the Lessor, the Owner Participant, the
owner of such Replacement Aircraft or the Indenture Trustee, as the
Lessor, and the Owner Participant may reasonably request in order to
establish the consummation of the transactions contemplated by Section
8(a)(i) and this Section 8(d), the taking of all necessary corporate
action in connection therewith and compliance with the conditions set
forth in this Section
-27-
8(d), in each case in form and substance reasonably satisfactory to
the Lessor and the Owner Participant;
(iv) The Lessor and the Owner Participant shall each have
received satisfactory evidence as to the compliance with Section 9
hereof with respect to the Replacement Aircraft;
(v) On the Replacement Closing Date, (A) the Lessor shall
receive good title to the Replacement Aircraft free and clear of Liens
(other than Permitted Liens not of record), (B) the Replacement
Aircraft shall have been duly certified by the Aeronautical Authority
as to type and airworthiness in accordance with the terms of this
Lease, and (C) application for registration of the Replacement
Aircraft in accordance with Section 5(e) shall have been duly made
with the Aeronautical Authority;
(vi) The Lessor shall have received, to the extent that an
aircraft warranty in respect of such Replacement Aircraft is available
to the Lessee, an aircraft warranty assignment covering such
Replacement Aircraft, in substantially the form of the Aircraft
Warranty Assignment or otherwise in such form and substance
satisfactory to the Lessor and a consent to such aircraft warranty
assignment, in substantially the form of the consent to Aircraft
Warranty Assignment or otherwise in such form and substance
satisfactory to the Lessor;
(vii) The Lessor and the Owner Participant shall have
received an appraisal reasonably satisfactory to each such Person from
an independent aircraft appraisal firm reasonably satisfactory to the
Lessor and the Owner Participant with respect to the Replacement
Aircraft confirming, in any event, the matters specified in paragraph
(ii)(G)(i);
(viii) The Lessor shall have received (A) an opinion,
satisfactory in form and substance to the Lessor of counsel to the
Lessee (which may be the Lessee's General Counsel) to the effect that
(x) the ▇▇▇▇ of sale referred to in clause (ii)(D) above constitutes
an effective instrument for the conveyance of title to the Replacement
Airframe and Replacement Engines, if any, to the Lessor, (y) all
documents executed and delivered by the Lessee pursuant to this
Section 8(d) have been duly authorized, executed and delivered by the
Lessee and constitute legal, valid and binding obligations of, and are
enforceable against, the Lessee in accordance with their respective
terms, and (z) the Lessor and the Indenture Trustee (as assignee of
Lessor under the Indenture), are entitled to the benefits of Section
1110 with respect to such Replacement Aircraft to the same extent as
with respect to the replaced Aircraft immediately preceding such
replacement; and (B) an opinion of qualified FAA counsel (or counsel
in such jurisdiction outside of the United States
-28-
where the Aircraft may be registered in accordance with Section 5(e)),
as to, in the case of FAA counsel, the due recordation of the Lease
Supplement, the Indenture Supplement and all other documents or
instruments the recordation of which is necessary to perfect and
protect the rights of the Lessor and the Indenture Trustee in the
Replacement Aircraft or, in the case of counsel in another
jurisdiction, the taking of all action necessary in such jurisdiction
for such purposes;
(ix) the Lessor and the Indenture Trustee (as assignee of
Lessor under the Indenture), shall be entitled to the benefits of
Section 1110 with respect to such Replacement Aircraft to the same
extent as with respect to the replaced Aircraft immediately preceding
such replacement; and
(x) Either (1) the Owner Participant shall have received
an opinion of independent tax counsel (selected by the Owner
Participant and reasonably acceptable to the Lessee), reasonably
satisfactory to the Owner Participant, to the effect that there shall
be no risk of adverse tax consequences resulting from such replacement
(and the Owner Participant shall use its best efforts to cause a
timely opinion to be delivered) or (2) the Lessee shall have provided,
or caused to be provided, an indemnity in respect of any adverse tax
consequences in form and substance satisfactory to the Owner
Participant.
Lessee shall reimburse the Lessor, the Indenture Trustee, the
Noteholders and the Owner Participant for all reasonable out-of-pocket costs
(including reasonable attorneys' fees) incurred by them in connection with any
substitution of a Replacement Aircraft pursuant to this Section 8.
(e) Non-Insurance Payments Received on Account of an Event of Loss.
--------------------------------------------------------------
As between the Lessor and the Lessee, any payments on account of an
Event of Loss (other than insurance proceeds or other payments the application
of which is provided for in this Section 8 or elsewhere in this Lease, as the
case may be, or payments in respect of damage to the business or property of the
Lessee) with respect to the Aircraft, an Engine or any Part received at any time
by the Lessor or by the Lessee from any governmental authority or other Person
will be applied as follows:
(i) if such payments are received with respect to an Event
of Loss as to the Aircraft, and the Airframe or the Airframe and the
Engines or engines installed thereon are being replaced by the Lessee
pursuant to Section 8(a)(i), such payments shall be paid over to, or
retained by, the Lessee, provided that if the Lessee has not completed
--------
such replacement, such payments shall be paid over to, or retained by,
the Lessor (or, so long as the Lien of the Indenture has not been
discharged, the Indenture Trustee) as
-29-
security, and upon completion of, or in connection with a closing for,
such replacement, be paid over to or retained by the Lessee;
(ii) if such payments are received with respect to an
Event of Loss to an Engine that has been or is being replaced by the
Lessee pursuant to the terms hereof, such payments shall be paid over
to, or retained by, the Lessee, provided that if the Lessee has not
--------
completed such replacement, such payments shall be paid over to, or
retained by, the Lessor (or, so long as the Lien of the Indenture has
not been discharged, the Indenture Trustee) as security, and upon
completion of, or in connection with a closing for, such replacement,
be paid over to or retained by the Lessee; and
(iii) if such payments are received with respect to an
Event of Loss as to the Aircraft, and if the Airframe or the Airframe
and the Engines or engines installed thereon have not been and will
not be replaced as contemplated by Section 8(a), (x) so much of such
payments as shall not exceed the amounts required to be paid by the
Lessee pursuant to Section 8(a) hereof shall be applied in reduction
of the Lessee's obligation to pay such amounts, to the extent not
already paid by the Lessee, and, after such amounts required to be
paid to the Lessor pursuant to Section 8(a)(ii) above shall be paid in
full, shall be applied to reimburse the Lessee for such amounts up to
the full amount thereof, and (y) the balance, if any, of such payment
remaining thereafter shall be applied to reimburse the Lessee, the
Owner Participant, the Noteholders, the Indenture Trustee and the
Lessor for their reasonable costs (including attorney's fees), if any,
of procuring such payments, and (z) the balance remaining, if any,
shall then be distributed between the Lessor and the Lessee as their
interests may appear.
(f) Requisition for Use.
-------------------
In the event of a requisition for use by any government during the
Term of the Airframe and the Engines, if any, or engines installed on the
Airframe (including the Government pursuant to the CRAF Program), the Lessee
shall promptly notify the Lessor, the Owner Participant, the Noteholders, and
the Indenture Trustee of such requisition and, if the same does not constitute
an Event of Loss, all of the Lessee's obligations under this Lease shall
continue to the same extent as if such requisition had not occurred except to
the extent that the performance or observance of any obligation by the Lessee
shall have been prevented or delayed by such requisition, provided that the
--------
Lessee's obligations for the payment of money and under Section 9 (except, in
the case of Section 9, while an assumption of liability by the government of the
United States of the scope referred to in Section 5(c) is in effect) and Section
12 shall not be reduced, delayed or affected by such requisition. Any payments
received by the Lessor or the Lessee from such government with respect
-30-
to the use of such Airframe or Engines during the Term shall be paid over to, or
retained by, the Lessee and any payments received by the Lessor or Lessee from
such government with respect to the use of the Airframe or Engines after the
Term shall be paid over to, or retained by, Lessor. In the event of an Event of
Loss of an Engine resulting from the requisition for use by a government of such
Engine (but not the Airframe), the Lessee will replace such Engine hereunder by
complying with the terms of Section 7(e) and any payments received by the Lessor
or the Lessee from such government with respect to such requisition shall be
paid over to, or retained by, the Lessee.
(g) Certain Payments to be Held As Security.
---------------------------------------
Any amount referred to in this Section 8 or Section 9 hereof
which is payable to the Lessee shall not be paid to the Lessee, or, if it has
been previously paid directly to the Lessee, shall not be retained by the
Lessee, if at the time of such payment a Specified Default shall have occurred
and be continuing, but shall be paid to and held by the Lessor as security for
the obligations of the Lessee under this Lease, unless and until applied by
Lessor to Lessee's obligations and at such time as there shall not be continuing
any such Specified Default, such amount and any gain realized as a result of
Permitted Investments required to be made pursuant to Section 15 or Section 5.08
of the Indenture shall to the extent not so applied be paid over to the Lessee.
Section 9. Insurance.
---------
(a) Public Liability and Property Damage Insurance.
----------------------------------------------
Subject to the rights of the Lessee under Section 9(d), the
Lessee shall, without expense to the Lessor, the Indenture Trustee or the
Participants, maintain or cause to be maintained in effect at all times during
the Term, with insurers of nationally or internationally recognized reputation
and responsibility which normally participate in airline insurance programs,
comprehensive airline public liability insurance (including, without limitation,
aircraft third party liability, baggage and mail and aviation general third
party liability, contractual liability, passenger legal liability, cargo
liability, property damage liability, general third party legal liability,
product liability coverage and standard North American war risk liability
coverage buy-backs, but excluding manufacturer's product liability coverage)
with respect to the Aircraft in an amount not less than the greater of (i) the
amount which Lessee may carry from time to time on other similar aircraft in its
fleet (whether owned or leased) and (ii) the Minimum Liability Amount; provided
--------
that an agreement of the Government for the benefit of the Additional Insureds
to insure against or indemnify for substantially the same risks to at least the
same amount shall satisfy the requirements of this Section 9(a), provided that
--------
on or prior to the date of such agreement, the Lessee shall provide an Officer's
Certificate of the Lessee certifying that any such insurance or indemnity
provides protection no less favorable than insurance coverage that would comply
with this Section 9. Such insurance shall be of the same type and covering the
same risks usually carried by the Lessee with respect to similar aircraft and
engines and shall provide coverage that is in substantially similar form, of
such types and having limits within the range of limits (but no less than the
Minimum Liability Amount) as are
-31-
customarily obtained by similarly situated United States carriers operating
similar aircraft on similar routes.
During any period that the Aircraft is grounded and not in operation
for any reason, the Lessee may modify the insurance required by this Section
9(a) to modify the amounts of public liability and property damage insurance,
the scope of the risks covered and the type of insurance, in all circumstances
to conform to such insurance customary in the United States airlines industry
for regional air carriers similarly situated with the Lessee in respect of
similar aircraft which are grounded, not in operation, and stored or hangared,
except that in all instances, the amounts of coverage and scope of risk covered
and the type of insurance shall be at a minimum no less favorable than the
insurance as from time to time applicable to aircraft owned or leased by Lessee
on the ground, not in operation, and stored or hangared.
(b) Insurance Against Loss or Damage to the Aircraft and Engines.
------------------------------------------------------------
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor, the Indenture Trustee or the Participants,
maintain or cause to be maintained in effect at all times during the Term with
insurers of nationally or internationally recognized responsibility which
normally participate in airline insurance programs (i) all risk (including
standard North America war risk insurance buy-backs covering (but not limited
to) hijacking, strikes, civil commotion, terrorist acts and acts of sabotage
while the Aircraft is operated in the U.S. and Canada), agreed value, ground,
taxiing and flight hull insurance, which may, except as expressly provided in
this Section 9(b), exclude war risks and allied perils, covering the Aircraft
for an amount at all times (even when the Aircraft is grounded or in storage)
not less than the Termination Value from time to time; provided that, neither
-------- ----
the Lessee nor any Permitted Sublessee shall be required to maintain all-risk
flight aircraft hull insurance with respect to any period in which the Aircraft
is grounded and properly stored or hangared. Such insurance shall not provide
insurers with a right to replace the Airframe or any Engine with another
airframe or Engine. Such hull insurance or other personal property insurance of
the Lessee (or a Permitted Sublessee) shall cover Engines or engines and Parts
temporarily removed from the Airframe, pending replacement by installation of
the same or similar Engines, engines or Parts on the Airframe. Such insurance
shall be on a repair cost basis in respect of damage not constituting an Event
of Loss, and on an agreed value basis in respect of an Event of Loss (provided
that, in the case of any Engine, such insurance shall be in an amount at least
sufficient to replace such Engine (without regard to such replaced Engine's
hours or cycles)) and shall be of the same type and covering the same risks
usually carried by the Lessee with respect to similar aircraft and engines and
shall provide coverage that is in substantially similar form, of such types and
having limits within the range of limits (but no less than Termination Value
from time to time) as are customarily obtained by similarly situated United
States carriers operating similar aircraft on similar routes. If and to the
extent that the Lessee or a Permitted Sublessee operates the Aircraft (A) on
routes where it maintains war risk, hijacking or allied perils insurance in
effect with respect to other similar owned or leased aircraft in its fleet, (B)
on routes where the custom in the industry is to carry war risk, hijacking or
allied perils insurance or (C) in any area of recognized
-32-
hostilities, the Lessee or such Permitted Sublessee shall maintain or cause to
be maintained such insurance in effect with respect to the Aircraft in the
amount at least equal to Termination Value from time to time. An agreement by
the Government to insure against or indemnify for substantially the same risks
to at least the same amount will satisfy any of the requirements of this Section
9(b). Notwithstanding the foregoing, the Lessee shall not be required to
maintain war risk insurance (except the standard North America war risk
insurance buy-backs noted above) so long as the Aircraft is operated only within
the United States and Canada.
During any period that the Aircraft is on the ground and not in
operation, the Lessee may carry or cause to be carried, in lieu of the insurance
required by this Section 9(b), insurance otherwise conforming with the
provisions of this Section 9(b) except that the scope of the risks and the type
of insurance shall be in substantially similar form, of such types and having
limits within the range of limits (but no less than Termination Value from time
to time) as are customarily obtained by similarly situated United States
carriers in respect of similar aircraft which are grounded, not in operation,
and stored or hangared, provided that the scope of the risks and the type of
--------
insurance shall be the same as from time to time applicable to aircraft owned by
the Lessee of the same type similarly on the ground and not in operation,
provided further that the Lessee shall maintain insurance against risk of loss
-------- -------
or damage to the Aircraft in an amount equal to the Termination Value from time
to time during such period that the Aircraft is on the ground and not in
operation.
(c) Additional Insureds; Loss Payment.
---------------------------------
The Lessee shall cause all policies of insurance carried in accordance
with this Section 9 to name the Additional Insureds as their respective
interests may appear as additional insureds. Such policies shall provide with
respect to such Additional Insureds that (i) none of their respective interests
in such policies shall be invalidated by any act or omission or breach of
warranty or condition contained in such policies by the Lessee or any other
Person (other than such Additional Insured) or, in the case of any particular
Additional Insured, any other Additional Insured and shall insure the respective
interests of the Additional Insureds regardless of any breach or violation of
any warranty, declaration or condition contained in such policies by the Lessee
or any Permitted Sublessee; (ii) in the case of any particular Additional
Insured, no cancellation or lapse of coverage for nonpayment of premium or
otherwise, and no substantial change of coverage which adversely affects the
interests of any such Additional Insured, shall be effective as to such
Additional Insured until thirty (30) days (or such lesser period as may be
applicable in the case of any war risk coverage) after receipt by such
Additional Insured of written notice from the insurers of such cancellation,
lapse or change; (iii) they shall have no liability for premiums, commissions,
calls, assessments or advances with respect to such policies; (iv) such policies
will be primary without any right of contribution from any other insurance
carried by such Additional Insureds; (v) the insurers waive any rights of set-
off (including for unpaid premiums), counterclaim, deduction or subrogation
whether by attachment or otherwise, against such Additional Insureds; (vi) such
policies shall apply worldwide and have no territorial restrictions or
limitations (except, in the case of war, hijacking or
-33-
related perils insurance, as otherwise permitted hereunder); (vii) shall contain
a 50/50% Clause per Lloyd's Aviation Underwriter's Association Standard Policy
Form AVS 103; and (viii) losses shall be adjusted with the Lessee (or, if an
Event of Default shall have occurred and be continuing, with the Lessee and the
loss payee referred to in the last sentence of this Section 9(c)); provided,
--------
that, in the case of an Event of Loss, no adjustment (including any hull
deductibles) shall reduce the amount payable under such policy to less than the
agreed value required by Section 9(b). Each liability policy shall provide that
all the provisions thereof, except the limits of liability, shall operate in the
same manner as if there were a separate policy covering each insured and each
hull policy shall provide that the exercise by the insurer of rights of
subrogation derived from rights retained by the Lessee will not delay payment of
any claim that would otherwise be payable but for such rights of subrogation.
Each hull policy shall name the Indenture Trustee as sole loss payee as long as
the Indenture shall remain in effect and thereafter shall name the Lessor as
sole loss payee; provided that, so long as the insurers shall not have received
-------- ----
written notice that an Event of Default has occurred and is continuing, if
insurance proceeds under a hull policy in the aggregate equal $1,000,000 or
less, then such proceeds shall be payable to the Lessee and, notwithstanding the
foregoing, any amounts (i) of any proceeds which in the aggregate exceed
$1,000,000, (ii) of any proceeds in respect of a total loss or an Event of Loss
or (iii) if the insurers shall have received written notice that an Event of
Default has occurred and is continuing, any proceeds with respect to any single
loss, shall be payable to such loss payee.
(d) Deductibles and Self-Insurance.
------------------------------
The Lessee may from time to time self-insure, by way of deductible or
premium adjustment provisions in insurance policies or otherwise, the risks
required to be insured against pursuant to this Section 9 under a program
applicable to all aircraft in the Lessee's fleet in such amounts as are then
self-insured with respect to similar owned or leased aircraft in the Lessee's
fleet but in no case shall such self-insurance in the aggregate exceed, on a per
occurrence or on fleetwide basis, an amount equal to 3% of the Lessee's tangible
net worth, calculated as at the end of the Lessee's immediately preceding fiscal
year (but in no event to exceed $10,000,000). A deductible per occurrence that
is not in excess of the prevailing standard market deductible for similar
aircraft shall be permitted, for each aircraft in the Lessee's fleet, in
addition to such self-insurance.
(e) Application of Hull Insurance Proceeds.
--------------------------------------
Subject to Section 8(g), as between the Lessor and the Lessee, any
payments received under policies of hull or other property insurance required to
be maintained by the Lessee pursuant to Section 9(b), shall be applied as
follows:
(i) if such payments are received with respect to loss
or damage (including an Event of Loss with respect to an Engine)
not constituting an Event of Loss with respect to the Airframe,
payments in the aggregate of $1,000,000 or less shall be paid
over to or retained by the Lessee and any
-34-
payments which in the aggregate are greater than $1,000,000 shall
be paid over to or retained by the Lessor (or, for so long as the
Indenture has not been discharged, the Indenture Trustee) for
payment to the Lessee only upon performance of its repair or
replacement obligation;
(ii) if such payments are received with respect to an
Event of Loss with respect to the Airframe and the Airframe is
not being replaced by the Lessee pursuant to Section 8(a)(i), so
much of such payments as shall not exceed the amounts required to
be paid by the Lessee pursuant to Section 8(a)(ii) shall be
applied in reduction of the Lessee's obligation to pay such
amounts if not already paid by the Lessee, and to reimburse the
Lessee if such amounts shall have been paid, and the balance, if
any, of such payments shall be promptly paid over to or retained
by the Lessee; and
(iii) if such payments are received with respect to
the Airframe or the Airframe and Engines or engines installed
thereon and the Airframe is being replaced by the Lessee pursuant
to Section 8(a)(i), such payments shall be paid over to, or
retained by the Lessee, provided that if the Lessee has not
completed such replacement and the performance of all other
obligations under Section 8(d), such payments shall be paid over
to, or retained by, the Lessor (or, for so long as the Indenture
has not been discharged, the Indenture Trustee) as security, and
upon completion of, or in connection with a closing for, such
replacement, be paid over to or retained by the Lessee.
(f) Insurance for Own Account.
-------------------------
Nothing in this Section 9 shall prohibit the Lessor, the Owner
Participant, the Lessee, the Indenture Trustee or the Noteholders or any
Additional Insured from obtaining insurance with respect to the Aircraft for its
own account (including, without limitation, in the case of the Lessee, hull
insurance under the same policies maintained pursuant to this Section 9 in
amounts in excess of those required to be maintained pursuant to this Section 9)
and any proceeds payable thereunder shall be payable as provided in the
insurance policy relating thereto, provided that no such insurance may be
--------
obtained which would limit or otherwise adversely affect the availability of
coverage or payment of any insurance required to be obtained or maintained
pursuant to this Section 9, it being understood that all salvage rights to the
Airframe or the Engines shall remain with the Lessee's insurers at all times.
-35-
(g) Reports, etc.
-------------
Lessee will furnish, or cause to be furnished, to the Lessor, the
Owner Participant, the Noteholders and the Indenture Trustee (A) on or prior to
the Delivery Date, insurance certificates describing in reasonable detail the
insurance maintained by Lessee as required pursuant to this Section 9, (B) prior
to the cancellation, lapse or expiration of the insurance policies required
pursuant to this Section 9, evidence of renewal of such insurance policies, and
(C) on or prior to the Delivery Date and on or before the renewal dates of the
insurance policies carried by the Lessee pursuant to this Section 9, a report
signed by a firm of recognized aircraft insurance brokers of good reputation,
not affiliated with the Lessee, which brokers may be regularly retained by the
Lessee and reasonably satisfactory to the Lessor, stating the opinion of such
firm that (i) all premiums in connection with the insurance then due have been
paid, (ii) the insurance then carried and maintained on the Aircraft complies
with the terms hereof and, in the case of renewal insurance, that such renewal
insurance will on and after the effective date thereof so comply with the terms
hereof, (iii) to the best of such firm's knowledge, such insurance provides
coverage that is in substantially similar form, of such types and having limits
within the range of limits as are customarily obtained by similarly situated
United States carriers operating similar aircraft on similar routes, provided
--------
that all information contained in such report shall be held confidential by the
Lessor, the Indenture Trustee, the Noteholders and the Owner Participant, and
shall not be furnished or disclosed by them to anyone other than (i) each other,
their bank examiners, auditors, accountants, insurance advisors, agents and
legal counsel, (ii) any prospective and permitted transferees of the Lessor, the
Indenture Trustee, the Owner Participant or any Noteholder who agree to hold
such information confidential, and (iii) except as may be required by an order
of any court or administrative agency or by any statute, rule, regulation or
order of any governmental authority (or, in the case of any Noteholder, to any
bank examiner or other regulatory personnel) and (iv) as may be necessary to
enforce the terms of the Operative Agreements. The Lessee will instruct such
firm to give prompt written advice to the Lessor, the Owner Participant, the
Noteholders and the Indenture Trustee of any default in the payment of any
premium and of any other act or omission on the part of the Lessee (or any
Permitted Sublessee) of which it has knowledge and which would in such firm's
opinion invalidate or render unenforceable, in whole or in any material part,
any insurance on the Aircraft. The Lessee will also instruct such firm to
advise the Lessor, the Owner Participant and the Indenture Trustee in writing at
least thirty (30) days prior to the termination or cancellation of, or material
adverse change in, such insurance carried and maintained on the Aircraft
pursuant to this Section 9 (or such lesser period as may be applicable in the
case of war risk coverage), provided, that in respect of war risk or allied
--------
perils coverage, if the notice period specified above is not obtainable, the
insurance broker shall provide for as long a period of prior notice as shall
then be obtainable.
(h) Right to Pay Premiums.
---------------------
The Additional Insureds shall have the rights but not the obligations
of an additional named insured. None of Lessor, Owner Participant, Indenture
Trustee and the other Additional Insureds shall have any obligation to pay any
premium, commission, assessment or call due on any
-36-
such insurance (including reinsurance). Notwithstanding the foregoing, in the
event of cancellation of any insurance due to the nonpayment of premiums, each
of Lessor, Owner Participant, Indenture Trustee and the other Additional
Insureds shall have the option, in its sole discretion, to pay any such premium
in respect of the Aircraft that is due in respect of the coverage pursuant to
this Lease and to maintain such coverage, as Lessor, Owner Participant,
Indenture Trustee or the other Additional Insureds may require, until the
scheduled expiry date of such insurance and, in such event, Lessee shall, upon
demand, reimburse Lessor, Owner Participant, Indenture Trustee and the other
Additional Insureds for amounts so paid by them.
(i) Spares Physical Damage Insurance.
--------------------------------
During any period that an Engine is not attached to the Airframe
or any other airframe and not otherwise subject to coverage by a hull policy
maintained by the Lessee (or a Permitted Sublessee), the Lessee shall maintain
or cause to be maintained spares physical damage insurance covering such Engine
in an aggregate amount not less than the amount commercially available in
aviation insurance markets except that the scope of the risks and the type of
insurance shall be in substantially similar form, of such types and having
limits within the range of limits as are customarily obtained by similarly
situated United States carriers operating similar engines not attached to any
airframe, provided that the scope of the risks and the type of insurance shall
--------
be the same as from time to time applicable to engines owned or leased by the
Lessee of the same type and similarly not attached to any airframe.
Section 10. Liens.
-----
The Lessee shall not during the Term directly or indirectly
create, incur, assume or suffer to exist any Lien on or with respect to the
Aircraft, Airframe, any Engine or any Part or title thereto or any interest
therein or in this Lease except (a) the respective rights of the Lessor and the
Lessee as provided herein, the Lien of the Indenture and the rights of the
parties to the other Operative Agreements; (b) the rights of others under
agreements or arrangements to the extent expressly permitted in Sections 5(b)
and 7(c); (c) Liens for Taxes of the Lessee either not yet due or being
contested in good faith by appropriate proceedings (and for which adequate
reserves have been provided in accordance with generally accepted accounting
principles) so long as such proceedings do not involve any non-de minimis risk
of the sale, forfeiture or loss of the Aircraft, Airframe or an Engine or the
interest of any Participant therein or any risk of criminal liability or any
material risk of civil penalty against Lessor, Indenture Trustee or any
Participant; (d) Liens of suppliers, mechanics, workers, repairers, employees,
airport operators, air traffic control authorities or other like Liens arising
in the ordinary course of business and for amounts the payment of which is
either not yet delinquent or is being contested in good faith (and for the
payment of which adequate reserves have been provided in accordance with
generally accepted accounting principles) by appropriate proceedings, so long as
such proceedings do not involve a non-de minimis risk of the sale, forfeiture or
loss of the Airframe or an Engine or the interest of any Participant therein or
any risk of criminal liability or any material risk of civil penalty against
Lessor or any Participant; (e)
-37-
Liens arising out of judgments or awards against the Lessee with respect to
which an appeal or proceeding for review is being prosecuted in good faith and
with respect to which at the time there shall have been secured a stay of
execution, so long as such proceedings do not involve a non-de minimis risk of
the sale, forfeiture or loss of the Aircraft, Airframe or an Engine or the
interest of any Participant therein; (f) Lessor's Liens and Indenture Trustee's
Liens; (g) salvage and similar rights of insurers under policies of insurance
maintained with respect to the Aircraft; and (h) Liens with respect to which the
Lessee (or any sublessee) has provided a bond or other security adequate in the
good faith opinion of the Lessor. Liens described in clauses (a) through (h)
above are referred to herein as "Permitted Liens." The Lessee shall promptly, at
its own expense, take such action as may be necessary to duly discharge (by
bonding or otherwise) any Lien other than a Permitted Lien arising at any time
during the Term.
Section 11. Recordation and Further Assurances.
----------------------------------
(a) Recordation of Lease.
--------------------
The Lessee shall cause this Lease, any Lease Supplements, and any
and all additional instruments which shall be executed pursuant to the terms
hereof to be kept, filed and recorded and to be re-executed, refiled and re-
recorded at all times during the Term with the FAA or other Aeronautical
Authority to the extent required to perfect and preserve the Lessor's interest
in the Aircraft.
(b) Further Assurances.
------------------
The Lessee and the Lessor will each promptly and duly execute and
deliver to the other such further documents and assurances and take such further
action as the other may from time to time reasonably request in order to more
effectively carry out the intent and purpose of this Lease and to establish and
protect the rights and remedies created or intended to be created in favor of
the Lessor and the Lessee hereunder, including, without limitation, if requested
by the Lessor or the Lessee, the execution and delivery of supplements or
amendments hereto, in recordable form, subjecting any replacement or substituted
aircraft or engine to this Lease and the recording or filing of counterparts
hereof, or of financing statements with respect hereto.
(c) Markings.
--------
On or reasonably promptly after the Delivery Date, Lessee will
cause to be affixed to, and maintained in, the cockpit of the Airframe and on
each Engine, in a clearly visible location (it being understood that the
location of such placard, as identified to the Participants prior to the
Delivery Date, shall be deemed to be in compliance with this requirement), a
placard of a reasonable size and shape bearing the legend, in English, set forth
below:
-38-
Leased from
First Union Trust Company, National Association,
not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
and Mortgaged to
Allfirst Bank,
not in its individual capacity
but solely as Indenture Trustee
Such placard to be replaced, if necessary, with a placard reflecting the name of
any successor Owner Trustee or Indenture Trustee, as the case may be, as
permitted under the Operative Agreements. Such placard may be removed
temporarily, if necessary, in the course of maintenance of the Airframe. If
such placard is damaged or becomes illegible, Lessee shall promptly replace it
with a placard complying with the requirements of this Section 11(c).
Except as above provided, neither the Lessee nor any Permitted Sublessee will
permit the name of any person to be placed on the Airframe or any Engine in a
manner that may be interpreted as a claim of ownership of, or Lien on, the
Airframe or any Engine; provided, however, that nothing herein contained shall
-------- -------
prohibit the Lessee (or any Permitted Sublessee) from placing its customary
colors and insignia on the Airframe or any Engine or from otherwise operating
the Aircraft in its livery.
Section 12. Return of Aircraft and Records.
------------------------------
(a) Return of Aircraft.
------------------
Upon the termination of this Lease at the expiration of the Term
or upon the earlier termination of this Lease pursuant to the terms hereof,
unless the Lessee shall purchase the Aircraft or there shall have been an Event
of Loss with respect to the Aircraft, the Lessee, at its own expense, shall,
except as otherwise expressly provided herein, return the Airframe by delivering
the same to the Lessor in the continental United States of America at a location
on the Lessee's domestic route system chosen by the Lessee and reasonably
acceptable to the Lessor, fully equipped with two Engines or other General
Electric CF34-3B1 Series 200 engines (or engines of the same manufacturer of a
comparable or an improved model and suitable for installation and use on the
Airframe and owned by the Lessee) duly installed thereon.
(b) Return of Other Engines.
-----------------------
In the event any engine not owned by the Lessor shall be returned
with the Airframe, such engine shall satisfy the requirements for a Replacement
Engine, shall be free and clear of all
-39-
Liens other than Lessor's Liens and shall have a value, remaining useful life,
utility and condition at least as great as the Engine replaced (assuming such
Engine was maintained in accordance with the terms thereof) and the Lessee
shall, at its own expense and concurrently with such return, furnish the Lessor
with (i) a full warranty ▇▇▇▇ of sale guaranteed by Lessee, in form and
substance reasonably satisfactory to the Lessor and the Owner Participant, (ii)
an Officer's Certificate as described in Section 7(e)(i)(F), and (iii) an
opinion of counsel to the Lessee as described in Section 7(e)(ii), with respect
to each such engine and shall take such other action as required by Section 7(e)
to cause such engine to be a Replacement Engine or as the Lessor may reasonably
request in order that such engine shall be duly and properly titled in the
Lessor free and clear of all Liens other than Lessor's Liens. Upon passage of
title such engine shall be deemed to be an Engine for all purposes hereof and
thereupon the Lessor will transfer to the Lessee, in "as-is, where is"
condition, without recourse or warranty except a warranty against Lessor's
Liens, all right, title and interest of the Lessor or any Affiliate in and to an
Engine not installed on the Airframe at the time of the return thereof and, if
the Indenture has not been discharged, shall request that the Indenture Trustee
release such Engine from the Lien of the Indenture.
(c) Fuel; Records.
-------------
Upon the return of the Aircraft, (i) the Lessor shall have no
obligation with respect to the amount of fuel or oil contained in the Airframe
and (ii) the Lessee shall deliver to the Lessor all logs, manuals, certificates
and inspection, modification and overhaul records which are required to be
maintained with respect thereto under applicable rules and regulations of the
FAA and DOT.
(d) Condition of Aircraft.
---------------------
The Aircraft when returned to the Lessor shall be in the operating
condition required by Exhibit F hereto.
(e) Failure to Return. If Lessee shall, for any reason whatsoever,
-----------------
fail to return the Aircraft and the documents referred to in Section 12(c)(ii)
at the time and place and in the condition specified herein, all obligations of
Lessee under this Lease shall continue in effect with respect to the Aircraft
until the Aircraft is so returned to Lessor and Lessee shall pay to Lessor an
amount equal to the average daily Basic Rent payable by Lessee during the Term
for each day after the end of the Term to but excluding the day of such return;
provided, however, that this Section 12(e) shall not be construed as permitting
-------- -------
Lessee to fail to meet its obligations to return the Aircraft or the documents
referred to in Section 12(c)(ii) in accordance with the requirements hereof or
constitute, or be deemed to constitute, a waiver of any Event of Default
resulting from Lessee's failure to return the Aircraft or such documents or
otherwise; and provided, further, that Lessee shall not be responsible for
-------- -------
Lessor's failure to accept return of the Aircraft and the documents referred to
in accordance with the requirements hereof in a timely manner or for any rent
with respect to periods after Lessee has tendered the Aircraft and the documents
referred to in
-40-
Section 12(c)(ii) for return in accordance with this Lease, provided however
-------- -------
that if Lessor's inspection of the Aircraft and the documents referred to in
Section 12(c)(ii), which inspection shall be conducted in good faith and timely
manner, reveals any discrepancy from the condition required by the provisions of
this Section 12, Lessee shall continue to pay rent in accordance with this
Section 12(e) until the Aircraft and the documents referred to in Section
12(c)(ii) are returned to the Lessor in accordance with this Lease. Any rent
owed to Lessor pursuant to this Section 12(e) shall be payable upon acceptance
of the Aircraft and the documents referred to in Section 12(c)(ii) by Lessor.
(f) Storage and Related Matters.
---------------------------
If Lessor gives written notice to Lessee not less than 60 days
nor more than 180 days prior to the end of the Term requesting storage of the
Aircraft upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with outdoor parking facilities for the Aircraft for a period up
to 60 days, commencing on the date of such return, at such storage facility in
the 48 contiguous states of the United States as Lessee may select. Lessee
shall, at Lessor's written request, maintain insurance (if available) for the
Aircraft during such storage period, provided that Lessor shall reimburse Lessee
--------
for Lessee's out-of-pocket cost of providing such insurance. Such storage shall
be at Lessor's risk, and Lessor shall pay all applicable storage fees, except
that Lessee shall pay the parking fees for the initial 60 day storage period;
provided that Lessee's obligation to provide parking shall be subject to Lessee
--------
and Lessor entering into an agreement prior to the commencement of the storage
period with the storage facility providing, among other things, that Lessee
shall pay only the parking fees for the initial storage period of up to 60 days
and that Lessor shall bear all maintenance charges and other costs incurred
relating to such storage.
Section 13. Renewal Option and Purchase Options.
-----------------------------------
(a) Renewal Terms.
-------------
Subject to the final sentence of this Section 13(a), upon
expiration of the Basic Term, the Lessee shall have the right to extend this
Lease for a period of two years (the "Fixed Renewal Period") or for two
successive periods of one year (an extension for the Fixed Renewal Period and
each such period of one year, each a "Fixed Renewal Term"), provided that the
aggregate term of all Fixed Renewal Terms shall not exceed two years. Subject to
the final sentence of this Section 13(a), at the end of the Fixed Renewal
Period, the Lessee shall have the right to extend this Lease for any number of
successive periods of one year each (each a "Fair Market Value Renewal Term";
each Fixed Renewal Term and each Fair Market Value Renewal Term, being
hereinafter sometimes called a "Renewal Term") provided that the aggregate term
of all Fair Market Value Renewal Terms shall not exceed four years and the
aggregate term of all Renewal Terms shall not exceed six years. A Fixed Renewal
Term will commence at the end of the Basic Term or the preceding Fixed Renewal
Term, as the case may be, and a Fair Market Value Renewal Term will commence at
the end of the Fixed Renewal Period or the preceding Fair Market Value Renewal
Term, as the case may be (it being understood that a Fixed Renewal Term may not
follow a Fair Market Value Renewal Term).
-41-
Such right to extend this Lease shall be exercised upon notice to the Lessor,
specifying the nature and duration of the Renewal Term, not less than 210 days
nor more than 365 days before the expiration of the Basic Term or the preceding
Renewal Term, as the case may be. Such notice shall be irrevocable except that
in the event the Lessee gives such notice to the Lessor 240 or more days before
the end of the Basic Term or the Renewal Term then in effect, as the case may
be, the Lessee may revoke its election to extend this Lease within 15 days
following the determination of the Fair Market Rental Value of the Aircraft but
in no event later than 210 days prior to the end of the preceding Renewal Term.
If the Lessee requests a determination of Fair Market Rental Value at least 240
days before the expiration of a Renewal Term, the Lessor and the Lessee shall
comply in a timely manner with their respective obligations under the definition
of "Fair Market Rental Value" to allow any appraisal of Fair Market Rental Value
to be completed in sufficient time to permit the Lessee to exercise the
revocation right provided above. If no Specified Default shall have occurred and
be continuing on the date of such notice or on the date of the commencement of
any Renewal Term, then this Lease shall be extended for the additional period of
such Renewal Term as specified in such notice on the same conditions as provided
for herein. The Basic Rent payable per annum during any Fixed Renewal Term shall
be the Renewal Rental Rate identified on Exhibit B. The rental payable per annum
during any Fair Market Value Renewal Term shall be the then Fair Market Rental
Value for the Aircraft. Such rental during each Renewal Term shall be payable
semi-annually in arrears. The Termination Value of the Aircraft during each
Renewal Term shall be equal to the sum of (x) the Fair Market Sales Value for
the Aircraft at the beginning of such Renewal Term declining on a straight line
basis to the projected Fair Market Sales Value for the Aircraft at the end of
such Renewal Term, but in both cases determined prior to the commencement of
such Renewal Term, plus (y) accrued Basic Rent through the applicable
Termination Date (other than a Termination Date coinciding with a Basic Rent
Payment Date). If the Lessee elects to extend this Lease for a Renewal Term
pursuant to this Section 13(a), the Lessor and the Lessee shall enter into a
supplement or amendment to this Lease setting forth the Termination Dates during
such Renewal Term, the Termination Values as of such Termination Dates, the
Basic Rent Payment Dates during such Renewal Term and the Basic Rent payable on
such Basic Rent Payment Dates. Lessee's right to renew this Lease at the end of
the Basic Term is subject to the condition precedent that the Owner Participant
shall have agreed in writing with Lessee not to demand payment of the Payment
Amount (as defined in the Residual Agreement) pursuant to Section 4(a) of the
Residual Agreement within the period specified therein (unless an Event of
Default shall thereafter occur and be continuing).
(b) Lessee's Purchase Options.
-------------------------
(i) Rights to Purchase.
------------------
The Lessee shall have the right upon notice as provided herein to
purchase the Aircraft (A) on the EBO Date for a price equal to the EBO Amount;
(B) upon the termination of the Basic Term a price equal to the then Fair Market
Sales Value of the Aircraft; or (C) at the end of any Renewal Term for a price
equal to the then Fair Market Sales Value of the Aircraft; in each case as long
as no Event of Default of the type referred to in Section 16(f), (g) or (h)
hereof shall have
-42-
occurred and be continuing on the date of purchase. In the event the Lessee
elects to purchase the Aircraft pursuant to clause (A) of this Section 13(b)(i),
then upon the payment by the Lessee of (I) an amount equal to the excess of (1)
the sum of (x) the EBO Amount plus (y) the amount, if any, set forth opposite
the EBO Date in Exhibit D in the column with the heading "Deferred Basic Rent
Amount" over (2) the amount, if any, set forth opposite the EBO Date in Exhibit
D in the column with the heading "Prepaid Basic Rent Amount", (II) the Basic
Rent, if any, payable on the EBO Date, (III) all unpaid Basic Rent, if any,
payable before the EBO Date and (IV) all Supplemental Rent then due and payable
hereunder (including any Supplemental Rent then due and payable hereunder
(including any Supplemental Rent payable in respect of Breakage Cost), the Term
shall end and the obligations of the Lessee to pay Rent hereunder (except for
Supplemental Rent obligations surviving pursuant to Section 3(c), Articles 6 and
7 of the Participation Agreement or the Tax Indemnity Agreement or which have
otherwise accrued but not been paid as of the date of such payment) shall cease,
and the Lessor shall convey to the Lessee all right, title and interest of the
Lessor in and to the Aircraft on an "as-is, where is" basis, without recourse or
warranty except a warranty against Lessor's Liens. In the event the Lessee
elects to purchase the Aircraft pursuant to clause (B) or (C) of this Section
13(b)(i), then upon the payment by the Lessee of the purchase price for the
Aircraft and the Basic Rent, if any, payable on the date of purchase, together
with all unpaid Basic Rent, if any, payable before such date and all
Supplemental Rent then due and payable hereunder (including any Supplemental
Rent payable in respect of Breakage Cost), the Term shall end and the
obligations of the Lessee to pay Rent hereunder (except for Supplemental Rent
obligations surviving pursuant to Section 3(c), Articles 6 and 7 of the
Participation Agreement or the Tax Indemnity Agreement or which have otherwise
accrued but not been paid as of the date of such payment) shall cease, and the
Lessor shall convey to the Lessee all right, title and interest of the Lessor in
and to the Aircraft on an "as-is, where is" basis, without recourse or warranty
except a warranty against Lessor's Liens.
(ii) Option to Assume Equipment Notes.
--------------------------------
In the event the Lessee elects to purchase the Aircraft pursuant to
clause (A) of Section 13(b)(i), the Lessee may, at its election, assume the
payment obligations of the Lessor with respect to such Equipment Notes as
contemplated by Section 5.10 of the Participation Agreement, in which case the
purchase price to be paid by the Lessee shall be reduced by an amount equal to
the principal of the Equipment Notes so assumed by the Lessee.
(iii) Notice of Exercise of Option.
----------------------------
The Lessee's right to purchase provided for in clause (B) or (C) of
Section 13(b)(i) shall be exercised upon written notice to the Lessor not less
than 180 days nor more than 365 days before the applicable date of purchase
provided in such clause (B) or (C) as the case may be. Such notice shall be
irrevocable, except that where the purchase price is or may be measured by the
Fair Market Sales Value of the Aircraft the Lessee may revoke its exercise of an
option to purchase the Aircraft within 15 days following the determination of
such Fair Market Sales Value, but in no event later than 180 days prior to the
applicable date of purchase provided in such clause (B) or (C), as the
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case may be. The Lessee's right to purchase provided for in clause (A) of
Section 13(b)(i) shall be exercised upon written notice to the Lessor not less
than 90 days nor more than 365 days before the EBO Date and shall be irrevocable
when given.
Section 14. Voluntary Termination for Obsolescence.
--------------------------------------
(a) Termination by Sale of Aircraft.
-------------------------------
So long as no Specified Default shall have occurred and be
continuing, the Lessee shall have the right at its option five years or more
after commencement of the Basic Term on at least 180 days', but not more than
365 days', prior written notice (which notice shall be irrevocable, except as
provided below) to the Lessor, specifying a proposed date of termination which
shall be a Termination Date, to terminate this Lease if the chief financial
officer of the Lessee shall have certified in writing to the Lessor that the
Aircraft shall have become obsolete or shall be surplus to the Lessee's
equipment requirements. Subject to the Lessor's preemptive election under
Section 14(c), during the period following the giving of such notice of
termination until the Termination Date, the Lessee, as agent for the Lessor,
shall endeavor to sell the Aircraft "as is", without any warranty by the Lessor
or the Lessee except as to the Lessor's title, on behalf of the Lessor. If
Lessee receives any bid, it shall at least 10 Business Days prior to the
proposed day of sale, certify to Lessor in writing the amount and terms of such
bid, such proposed date of sale and the name and address of the potential buyer
(which shall not be Lessee or any Affiliate or any Person with whom Lessee or
any Affiliate has any arrangement or understanding for the future purchase,
lease, operation or use of the Aircraft). Lessor may also solicit bids directly
or through agents other than Lessee. So long as the Lessor has not exercised its
preemptive election under Section 14(c), the Lessee may, by notice to the
Lessor, withdraw its notice of termination at any time on or before the date 10
days prior to the proposed Termination Date (unless such withdrawal is due to
the cancellation of the proposed purchase of the Aircraft by the potential buyer
in which event such notice may be given at any time on or prior to the proposed
Termination Date), and thereupon this Lease shall continue in full force and
effect. Withdrawal of notice of termination shall not exhaust the Lessee's right
to give a further notice of termination as provided herein; provided that Lessee
shall not be entitled to give more than two such notices (excluding one notice
of termination which has been withdrawn due to the cancellation of the proposed
purchase of the Aircraft by the potential buyer). Unless the Lessee shall
withdraw its notice of termination as stated above or the Lessor shall have made
a preemptive election to take possession of the Aircraft in accordance with
Section 14(c), on the Termination Date, or such other date of sale as shall be
consented to in writing by the Lessor and the Lessee, which date shall
thereafter be deemed the Termination Date, the Lessee shall, upon payment in
full of the amounts described in Section 14(b), deliver the Airframe and Engines
or engines installed thereon to the party which shall have prior to such date
submitted the highest bona fide cash bid to close such sale and purchase of the
same, in the same manner as if delivery were being made to the Lessor pursuant
to Section 12, and shall duly transfer to such party title to any engines which
are not Engines delivered with the Airframe in accordance with the terms of
Section 12. The Lessor shall, in "as-is, where-is" condition, without recourse
or warranty (except a warranty as to the
-44-
absence of Lessor's Liens), simultaneously therewith sell and convey title to
the Airframe and the Engines or engines conveyed to the Lessor as provided in
Section 12 for cash to such party and request that the Indenture Trustee release
the Aircraft from the Lien of the Indenture. Upon the sale of the Airframe and
the Engines or engines conveyed to the Lessor as provided in Section 12 pursuant
to this Section 14 and receipt by the Lessor of all amounts referred to in
Section 14(b), the Lessor will transfer to the Lessee, in "as-is, where-is"
condition, without recourse or warranty (except a warranty as to the absence of
Lessor's Liens), all right, title and interest of the Lessor in and to any
Engines constituting part of the Aircraft but which were not delivered to the
purchaser with the Airframe. The Lessee shall pay all out of pocket expenses of
the Lessor, Owner Participant, the Noteholders and Indenture Trustee in
connection with any termination or proposed termination of this Lease (including
without limitation any Breakage Costs and, in the case of any proposed
termination that fails to close and as to which the Indenture Trustee is not
given at least three Business Day's notice of such failure, any costs of the
Noteholders associated with the reestablishment of its funding and interest with
hedging arrangements), except that Lessee shall not be responsible for such
expenses of the Lessor or the Owner Participant in the event the Lessor
exercises its preemptive election under Section 14(c) and thereafter fails to
perform its obligations under such Section.
(b) Payments Due Upon Sale of Aircraft.
----------------------------------
The total selling price realized at any sale of the Airframe and
Engines or engines installed thereon in accordance with this Section 14 shall be
retained by the Lessor (or, prior to the discharge of the Indenture, the
Indenture Trustee) and, in addition, on the Termination Date, the Lessee shall
pay to the Lessor or, in the case of Supplemental Rent, to the Persons entitled
thereto, in immediately available funds, an amount equal to the sum of (A) the
excess, if any, of (x) the Termination Value as of the Termination Date, over
(y) the net proceeds of the sale of the Aircraft, plus (B) all unpaid
Supplemental Rent due on or before the Termination Date (including Breakage
Cost), plus (C) an amount equal to the excess of (1) the sum of (x) the Basic
Rent, if any, payable on the Termination Date plus (y) the amount, if any, set
forth opposite the Termination Date in Exhibit D in the column with the heading
"Deferred Basic Rent Amount", over (2) the amount, if any, set forth opposite
the Termination Date in Exhibit D in the column with the heading "Prepaid Basic
Rent Amount", plus (D) all unpaid Basic Rent, if any, payable before the
Termination Date, plus (E) the reasonable fees and expenses of the Participants,
the Indenture Trustee and Lessor in connection therewith, plus (F) any sales,
transfer or similar Taxes incurred on such sale.
(c) Preemptive Election by Lessor.
-----------------------------
Notwithstanding the foregoing provisions of this Section 14, the
Lessor may, not later than 90 days prior to the proposed Termination Date,
notify the Lessee of its preemptive election to take possession of the Aircraft,
which notice shall be accompanied by an irrevocable undertaking by the Lessor to
pay to the Indenture Trustee, concurrently with the payment by the Lessee of the
amounts specified in clauses (A), (B) and (C) of this Section 14(c), the amount
required to pay in
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full (after giving effect to any installment of Basic Rent due and payable on
such date) the aggregate unpaid principal amount of the outstanding Equipment
Notes. Upon payment by the Lessor of such amount to the Indenture Trustee, and
payment of any Basic Rent due on such date and all other amounts payable by the
Lessee under this Section 14(c), the Lessee shall have no obligation to pay
Termination Value. On the Termination Date, concurrently with the payment by the
Lessor of such amount to the Indenture Trustee, the Lessee shall deliver the
Airframe and Engines or engines installed thereon to the Lessor in accordance
with Section 12 and shall pay to the Lessor or, in the case of Supplemental
Rent, to the Persons entitled thereto, (A) all unpaid Basic Rent, if any,
payable on or before the Termination Date, (B) an amount equal to the excess of
(1) the sum of (x) the Basic Rent, if any, payable on the Termination Date plus
(y) the amount, if any, set forth opposite the Termination Date in Exhibit D in
the column with the heading "Deferred Basic Rent Amount", over (2) the amount,
if any, set forth opposite the Termination Date in Exhibit D in the column with
the heading "Prepaid Basic Rent Amount", and (C) all unpaid Supplemental Rent
due on or before or after the Termination Date (including Breakage Cost), and
the Lessor shall transfer to the Lessee title to any Engines constituting part
of the Airframes but which were not then installed on the Aircraft as provided
in Section 12(b). If the Lessor, having given notice of a preemptive election,
shall fail to perform any of its obligations pursuant to this Section 14(c) and
as a result thereof this Lease shall not be terminated on a proposed Termination
Date, the Lessee may at its option at any time thereafter submit a new
termination notice but the Lessor may only be entitled to exercise on one
additional occasion its preemptive election to retain the Aircraft upon a
subsequent termination pursuant to this Section 14.
(d) Termination of Lease.
--------------------
Upon delivery by the Lessee of the Airframe and Engines or engines
installed thereon and payment by the Lessee of all amounts payable by the Lessee
under either Section 14(b) or 14(c), as the case may be, the obligations of the
Lessee to pay Rent (except for Supplemental Rent obligations surviving pursuant
to the second sentence of Section 3(c) and Articles 6 and 7 of the Participation
Agreement or the Tax Indemnity Agreement or which have otherwise accrued but not
paid as of the Termination Date) shall cease and the Term shall end. In the
event of any sale of the Aircraft by the Lessor pursuant to Section 14(a), the
Lessee shall be entitled to offset against amounts payable by the Lessee under
Section 14(b), the amount, by which, the amount specified in clause (C)(2) of
Section 14(b) exceeds the aggregate amount specified in clause (C)(1) of Section
14(b). In the event the Lessee delivers the Aircraft to the Lessor on the
Termination Date pursuant to Section 14(c), the Lessee shall be entitled to
offset against amounts payable by the Lessee under Section 14(c), the amount, by
which the amount, specified in clause (B)(2) of Section 14(c) exceeds the
aggregate amount specified in clause (B)(1) of Section 14(b).
(e) Effect of No Sale or Preemptive Delivery to Lessor.
--------------------------------------------------
If on the Termination Date no sale of the Aircraft shall have occurred
and the Lessee has not delivered the Aircraft to the Lessor pursuant to Section
14(c), the Lessee's notice given
-46-
pursuant to Section 14(a) shall be deemed to be withdrawn as of such date and
this Lease shall continue in full force and effect, without prejudice, however,
to any claims the Lessee may have against any Person under the Participation
Agreement or otherwise if a failure to deliver the Aircraft to the Lessor
pursuant to Section 14(c) shall have been due to a failure of the Lessor to make
the payment by the Lessor provided for in such Section.
(f) No Duty on Part of Lessor.
-------------------------
Lessor shall be under no duty to solicit bids, to inquire into
the efforts of Lessee to obtain bids or otherwise to take any action in
connection with any such sale other than to cooperate with such efforts as
Lessee may reasonably request and to make the transfers described in the last
two sentences of Section 14(a).
Section 15. Investment of Security Funds.
----------------------------
Any monies paid to or retained by the Lessor which are required
to be paid to the Lessee or applied for the benefit of the Lessee (including,
without limitation, amounts payable to the Lessee under Sections 8 and 9), but
which the Lessor is entitled to hold under the terms hereof pending the
occurrence of some event or the performance of some act (including, without
limitation, the remedying of a Specified Default), shall, until paid to the
Lessee or applied as provided herein, be invested by the Lessor (or, if the
Indenture shall not have been discharged, the Indenture Trustee) from time to
time at the direction, risk and expense of the Lessee in Permitted Investments,
subject, in the case of investments by the Indenture Trustee to the terms of
Section 5.08 of the Indenture. There shall be promptly remitted to the Lessee
any gain (including interest received) realized as the result of any such
investment (net of any fees, commissions and other expenses, if any, incurred in
connection with such investment) unless a Specified Default shall have occurred
and be continuing, in which case such gains shall be held or applied in
accordance with the preceding sentence. The Lessee will promptly pay to the
Indenture Trustee or the Lessor, as the case may be, on demand, the amount of
any loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment).
Section 16. Events of Default.
-----------------
The following events shall constitute Events of Default (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body) and each such Event of Default shall be deemed to exist and
continue so long as, but only so long as, it shall not have been remedied:
(a) The Lessee shall fail to make any payment of (i) Basic Rent,
Termination Value or a payment required by clause (iii) of the second
sentence of Section 3(c) or by
-47-
Section 8(a)(ii)(C), clause (I) of the second sentence of Section 13(b)(i)
or clause (C) of the first sentence of Section 14(b), in each case when
due, and such failure shall continue for a period of 5 Business days or
(ii) Supplemental Rent (other than Termination Value or the payment
required by clause (iii) of the second sentence of Section 3(c) or by
Section 8(a)(ii)(C), clause (I) of the second sentence of Section 13(b)(i)
or clause (C) of the first sentence of Section 14(b)) within 15 Business
Days after receipt by the Lessee of a written demand therefor from the
Lessor or the Person entitled to such payment, provided, that in the case
--------
of Supplemental Rent which constitutes an Excluded Payment, such demand
shall only be effective for purposes of this paragraph (a) if sent by the
Owner Participant or the Lessor and such failure shall not become an Event
of Default until the Owner Participant shall have notified the Indenture
Trustee that it has elected to treat such failure as an Event of Default;
(b) The Lessee shall fail to procure and maintain insurance
required pursuant to Section 9 or such insurance shall be canceled or
lapse; provided that such lapse or cancellation shall not constitute an
--------
Event of Default until the earlier of 30 days after receipt by the Lessor
or the Indenture Trustee of notice of such lapse or cancellation or the
date that the lapse or cancellation is effective as to the Lessor, the
Owner Participant or the Indenture Trustee;
(c) The Lessee shall operate the Aircraft after having received
notice that the public liability insurance required by Section 9(a) has
lapsed or has been canceled;
(d) The Lessee shall fail to perform or observe any other
covenant or condition to be performed or observed by it hereunder or under
any other Operative Agreement (other than the Tax Indemnity Agreement), and
such failure shall continue unremedied for a period of 30 days after
delivery of notice of such failure from the Lessor to the Lessee, unless
such failure is curable and the Lessee shall, after the delivery of such
notice, be diligently proceeding to correct such failure and shall in fact
correct such failure 180 days after delivery of such notice;
(e) Any representation or warranty made by the Lessee herein or
in any Operative Agreement or in any certificate required to be delivered
by the Lessee pursuant thereto (other than the Tax Indemnity Agreement)
shall prove to have been incorrect in any material respect when made and
shall remain material at the time in question and shall not be remedied
(together with any related material adverse consequences) within 30 days
after notice thereof has been given to the Lessee by the Lessor, unless
such incorrectness is curable and Lessee shall, after delivery of such
notice, be diligently proceeding to correct such failure and shall in fact
correct such failure (together with any related material adverse
consequences) within 180 days after the delivery of such notice;
(f) The Lessee shall consent to the appointment of or taking
possession by a receiver, assignee, custodian, sequestrator, trustee or
liquidator (or other similar official) of
-48-
itself or of a substantial part of its property, or the Lessee shall fail
or shall admit in writing its inability to pay its debts generally as they
come due (as provided in 11 U.S.C. (S) 303(h)(1)), or shall make a general
assignment for the benefit of its creditors, or the Lessee shall file a
voluntary petition in bankruptcy or a voluntary petition or answer seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any applicable bankruptcy or insolvency or similar laws, as now
or hereafter constituted or any other applicable Federal or State
bankruptcy, insolvency or other similar law or shall consent to the entry
of an order for relief in an involuntary case under any such law or the
Lessee shall file an answer admitting the material allegations of a
petition filed against the Lessee in any such proceeding, or otherwise seek
relief under the provisions of any now existing or future Federal or State
bankruptcy, insolvency or other similar law providing for the
reorganization or winding-up of corporations, or providing for an
agreement, composition, extension or adjustment with its creditors;
(g) An order, judgment or decree shall be entered in any
proceeding by any court of competent jurisdiction appointing, without the
consent of the Lessee, a receiver, trustee or liquidator of the Lessee or
of any substantial part of its property, or any substantial part of the
property of the Lessee shall be sequestered, and any such order, judgment
of decree of appointment or sequestration shall remain in force
undismissed, unstayed or unvacated for a period of 90 days after the date
of entry thereof;
(h) A petition against the Lessee in a proceeding under any
applicable bankruptcy laws or other insolvency or similar laws as now or
hereafter in effect shall be filed and shall not be withdrawn or dismissed
within 90 days thereafter, or, in the case the approval of such petition by
a court of competent jurisdiction is required, the petition as filed or
amended shall be approved by such a court as properly filed and such
approval shall not be withdrawn or the proceeding dismissed within 90 days
thereafter, or a decree or order for relief in respect of the Lessee shall
be entered by a court of competent jurisdiction in an involuntary case
under such bankruptcy, insolvency or similar laws, as now or hereafter
constituted and such decree or order shall remain unstayed in effect for a
period of 90 days, or if, under the provisions of any law providing for
reorganization or winding-up of corporations which may apply to the Lessee,
any court of competent jurisdiction shall assume jurisdiction, custody or
control of the Lessee or of any substantial part of its property and such
jurisdiction, custody or control shall remain in force unrelinquished,
unstayed or unterminated for a period of 90 days;
(i) So long as the Indenture is in effect or, after foreclosure
of the Lien of the Indenture, so long as the Indenture Trustee or its
nominee holds title to the Aircraft, final judgment or judgments for the
payment of money in excess of $5,000,000 (which is not covered by
insurance) shall be outstanding against the Lessee for more than thirty
(30) days from the date of its entry and has not been satisfied or
discharged in full, vacated, bonded (in a manner sufficient to stay
enforcement) or stayed, provided that, so long as neither the
--------
-49-
Lessee nor an Affiliate of the Lessee is the Owner Participant, the event
described in this Section 16(i) shall only constitute an Event of Default
if the Owner Participant shall have notified the Indenture Trustee in
writing that it agrees to treat such event as an Event of Default;
(j) The Lessee shall cease to be or shall be suspended as a
Certificated Air Carrier and such circumstance results in the inability of
the Lessee to operate aircraft in revenue service and such condition shall
continue for a period of thirty (30) days;
(k) If, at any time after the Lien of the Indenture (and any
other indenture or security agreement entered into in connection with a
refinancing pursuant to Article 13 of the Participation Agreement) has been
discharged in accordance with its terms or the Owner Participant has
purchased the Equipment Notes (or the evidences of indebtedness under any
such other indenture or security agreement), any "Event of Default" as
defined in any Specified Lease shall occur and be continuing; or
(l) the Lessee shall default in the observance or performance of
any agreement relating to any Indebtedness (as hereinafter defined) or
contained in any instrument or agreement evidencing, securing or relating
thereto, the effect of which default being that any outstanding
Indebtedness in excess of $10,000,000 or more has become payable prior to
its stated maturity or due date (and such acceleration is not (i) being
contested in good faith by appropriate measures or (ii) in the case of any
Indebtedness of the type described in clause (C) below, satisfied by the
Lessee promptly upon the same becoming due); it being understood and agreed
for purposes of this Section 16 that "Indebtedness" means the Lessee's
obligations for (A) borrowed money, (B) under any lease, or (C) under any
agreement whereby the Lessee guarantees the obligations of any other Person
for borrowed money or under a lease by such Person provided that, so long
--------
as (x) neither the Lessee nor an Affiliate of the Lessee is the Owner
Participant and (y) the amount of any such accelerated Indebtedness is less
than $25,000,000, the event described in this Section 16(l) shall only
constitute an Event of Default if the Owner Participant shall have notified
the Indenture Trustee in writing that it agrees to treat such event as an
Event of Default;
provided that, notwithstanding anything to the contrary contained in this Lease,
--------
any failure of the Lessee to perform or observe any covenant, condition, or
agreement herein shall not constitute an Event of Default under clause (d) above
if such failure is caused solely by reason of an event referred to in the
definition of "Event of Loss" so long as the Lessee is continuing to comply with
-------------
the applicable terms of Section 8.
Section 17. Remedies.
--------
Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, the Lessor may, at its
option, declare this Lease to be in default by a notice
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to the Lessee (provided that this Lease shall be deemed to have been declared in
--------
default without the necessity of such notice upon the occurrence of any Event of
Default described in paragraph (f), (g) or (h) of Section 16); and at any time
thereafter so long as the Lessee shall not have remedied all outstanding Events
of Default, the Lessor may do, and the Lessee shall comply with, one or more of
the following with respect to the Airframe and all or any part of the Engines,
as the Lessor in its sole discretion shall elect, to the extent permitted by,
and subject to compliance with any mandatory requirements of, Applicable Law
then in effect; provided that during any period the Aircraft is subject to the
--------
Civil Reserve Air Fleet Program in accordance with the provisions of Section
5(b) and in the possession of the United States government or an instrumentality
or agency thereof, the Lessor shall not, on account of any Event of Default, be
entitled to do any of the following in such manner as to limit the Lessee's
control under this Lease (or any sublessee's control under any sublease
permitted by the terms of this Lease) of any Airframe or any Engines, unless at
least 60 days' (or such lesser period, if any, as may then be applicable under
the Military Airlift Command Program of the United States Government) prior
notice of default hereunder shall have been given by the Lessor by registered or
certified mail to the Lessee (or any sublessee) with a copy addressed to the
Contracting Office Representative for the Military Airlift Command of the United
States Air Force under any contract with Lessee (or any sublessee) relating to
the Aircraft:
(a) Cause the Lessee, upon the written demand of the Lessor and
at the Lessee's expense to, and the Lessee shall, promptly return the
Airframe and all or such part of the Engines as the Lessor may demand to
the Lessor in the manner and condition required by, and otherwise in
accordance with all of the provisions of, Section 12 as if the Airframe and
such Engines were being returned at the end of the Term; or the Lessor, at
its option, may cause public officials acting pursuant to judicial order
obtained in summary proceedings or otherwise to enter upon the premises
where the Airframe or any or all Engines are located or reasonably believed
to be located and take immediate possession of and remove the Airframe or
such Engines, and the Lessee shall comply therewith, all without liability
to the Lessor for or by reason of such entry or taking possession or
removal, whether for the restoration of damage to property caused by such
taking possession or removal; or otherwise; and the Lessee shall promptly
execute and deliver to the Lessor such instruments of title or other
documents as the Lessor may deem necessary or advisable to enable the
Lessor or its agent to obtain possession of the Airframe or the Engines,
provided that if the Lessee shall for any reason fail to execute and
--------
deliver such instruments and documents after such request, the Lessor shall
be entitled to a judgment for specific performance, conferring the right to
immediate possession upon the Lessor and requiring the Lessee to execute
and deliver such instruments and documents to the Lessor;
(b) Sell or otherwise dispose of all or any part of the Aircraft,
at public or private sale, whether or not the Lessor shall at the time have
possession thereof, as the Lessor may determine, or hold, use, operate,
lease to others or keep idle all or any part of the Aircraft, Airframe or
any Engine as the Lessor, in its sole discretion, may determine, in any
such case free and clear of any rights or claims of whatsoever kind of the
Lessee except as hereinafter
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set forth in this Section 17 and without any duty to account to the Lessee
with respect to such action or inaction or for any proceeds with respect
thereto except to the extent required by paragraph (d) below in the event
the Lessor elects to exercise its rights under said paragraph in lieu of
its rights under paragraph (c) below;
(c) Whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) above with respect to the Aircraft, the Lessor, by written
notice to the Lessee specifying a payment date (which shall be a
Termination Date) not earlier than 10 days from the date of such notice,
may require the Lessee to pay to the Lessor, and the Lessee shall pay to
the Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty, (i) any installment of
Basic Rent due before such payment date, plus (ii) an amount equal to the
excess, if any, of (A) the sum of (1) the amount, if any, set forth
opposite such payment date in Exhibit D in the column with the heading
"Deferred Basic Rent Amount" plus (2) if such payment date is a Basic Rent
Payment Date, the Basic Rent, if any, payable on such Basic Rent Payment
Date, over (B) the amount, if any, set forth opposite such payment date in
Exhibit D in the column with the heading "Prepaid Basic Rent Amount", plus
(iii) an amount equal to the excess, if any, of (A) Termination Value for
the Aircraft, determined as of such payment date over (B) the Fair Market
Sales Value for the Aircraft, computed as of such payment date, together
with interest, to the extent permitted by Applicable Law, at the Past Due
Rate on the amounts specified in the foregoing clauses (i), (ii) and (iii)
of this paragraph (c), from such payment date, to the date of actual
payment of such amounts; provided that, in any such instance in which the
-------- ----
Lessor is unable to repossess the Aircraft due to circumstances not
relating to or caused by any Lessee Person and the Fair Market Sales Value
thereof is deemed to be zero, upon receipt of any such payment under this
paragraph (c) and all other amounts due hereunder, the Lessor shall convey,
as-is, where-is, without recourse or warranty, other than a warranty
against Lessor's Liens, to the Lessee all right, title and interest of the
Lessor in and to the Airframe and Engines, and execute and deliver to the
Lessee such bills of sale and other documents and instruments as the Lessee
may reasonably request to evidence such conveyance;
(d) In the event the Lessor, pursuant to paragraph (b) above,
shall have sold the Aircraft upon reasonable notice to the Lessee, the
Lessor in lieu of exercising its rights under paragraph (c) above with
respect to the Aircraft, may, if it shall so elect, require the Lessee to
pay the Lessor, and the Lessee shall pay to the Lessor, on the date of such
sale, as liquidated damages for loss of a bargain and not as a penalty (in
lieu of the Basic Rent due after the date on which such sale occurs but in
addition to any installment of Basic Rent due up to the date on which such
sale occurs, (i) the amount of any deficiency of the net proceeds of such
sale below the Termination Value of the Aircraft, determined as of the
Termination Date immediately preceding the date of such sale (or the
Termination Date coinciding with the date of such sale if the date of such
sale is a Termination Date), together with interest, to the extent
permitted by Applicable Law, at the Past Due Rate on the amount of such
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deficiency from such Termination Date to the date of actual payment, plus
(ii) an amount equal to the excess, if any, of (A) the sum of (1) the
amount, if any, set forth opposite such Termination Date in Exhibit D in
the column with the heading "Deferred Basic Rent Amount" plus (2) if such
Termination Date is a Basic Rent Payment Date, the Basic Rent, if any,
payable on such Basic Rent Payment Date, over (B) the amount, if any, set
forth opposite such Termination Date in Exhibit D in the column with the
heading "Prepaid Basic Rent Amount", together with interest, to the extent
permitted by Applicable Law, at the Past Due Rate on the amount of such
excess from such Termination Date to the date of actual payment; and
(e) (i) Rescind, cancel or terminate this Lease or (ii) exercise
any other right or remedy which may be available under Applicable Law or
proceed by appropriate court action to enforce the terms hereof or to
recover damages (but in all events consistent with the liquidation of
damages agreement set forth herein) for the breach hereof.
In addition, the Lessee shall be liable for any unpaid Supplemental Rent due
hereunder before or after any termination hereof (which obligations shall
survive following such termination), including all reasonable costs and expenses
including attorney's fees and disbursements incurred by the Lessor, the Owner
Participant, the Noteholders or the Indenture Trustee by reason of the
occurrence of any Event of Default or the exercise of the Lessor's remedies with
respect thereto including without limitation all costs and expenses incurred in
connection with the return of the Airframe or any Engine in accordance with, and
in the condition required by, the terms of Section 12 or any appraisal of the
Aircraft required for purposes of this Section 17. At any sale of the Aircraft,
the Airframe or any Engine, or portion thereof pursuant to this Section 17, the
Owner Participant may bid for and purchase such property. Except as otherwise
expressly provided above, no remedy referred to in this Section 17 is intended
to be exclusive (but the liquidation of damages provided in this Section 17
shall, to the extent required by Applicable Law, be the exclusive liquidated
damages remedy), but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to the Lessor for the Event of
Default at law or in equity; and the exercise or beginning of exercise by the
Lessor of any one or more of such remedies shall not preclude the simultaneous
or later exercise by the Lessor of any or all such other remedies. No express or
implied waiver by the Lessor of any Event of Default hereunder shall in any way
be, or be construed to be, a waiver of any future or subsequent Event of
Default.
If the Lessor by written notice specifies a payment date under
paragraph (c) of this Section 17, subject to the provisions of Section 3(f)(ii)
the Lessee shall be entitled to offset against any amounts due under this
Section 17 the amount by which the amount specified in clause (ii)(B) of such
paragraph (c) exceeds the aggregate amount specified in clause (ii)(A) of such
paragraph (c).
If the Lessor shall have sold the Aircraft and shall exercise its
rights under paragraph (d) of this Section 17, subject to the provisions of
Section 3(f)(ii) the Lessee shall be entitled to offset against any amounts due
under this Section 17 the amount by which the amount
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specified in clause (ii)(B) of such paragraph (d) exceeds the aggregate amount
specified in clause (ii)(A) of such paragraph (d).
Section 18. Lessor's Right to Perform for the Lessee.
----------------------------------------
If the Lessee fails to make any payment of Rent required to be
made by it hereunder or fails to perform or comply with any of its agreements
contained herein the Lessor may, upon prior notice to the Lessee, itself make
such payment or perform or comply with such agreement, and the amount of such
payment and the amount of the reasonable expenses of the Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Past Due
Rate, shall be deemed Supplemental Rent, payable by the Lessee upon demand;
provided that no such payment or performance by the Lessor shall be deemed to
--------
cure any Default or Event of Default under this Lease or relieve the Lessee of
any of its obligations hereunder; provided further that nothing in this Section
--------
18 shall be deemed to permit the Lessor to exercise any control over the
operation or maintenance of the Aircraft or any part thereof while it is being
utilized in the air transportation services of the Lessee or any Permitted
Sublessee without the consent of the Lessee; provided further that the
--------
provisions of this Section 18 shall not affect Lessor's right to exercise its
remedies under Section 17 upon the occurrence and continuance of an Event of
Default.
Section 19. Bankruptcy.
----------
It is the intention of the parties that the Lessor (and the
Indenture Trustee as assignee of the Lessor under the Indenture) shall be
entitled to the benefits of 11 U.S.C. (S) 1110 with respect to the right to
repossess the Airframe, Engines and Parts as provided herein, and in any
circumstances where more than one construction of the terms and conditions of
this Lease is possible, a construction which would preserve such benefits shall
control over any construction which would not preserve such benefits or would
render them doubtful. To the extent consistent with the provisions of 11 U.S.C.
(S) 1110 or any analogous section of the Federal bankruptcy laws, as amended
from time to time, it is hereby expressly agreed and provided that,
notwithstanding any other provisions of the Federal bankruptcy laws, as amended
from time to time, any right of the Lessor to take possession of the Aircraft in
compliance with the provisions of this Lease shall not be affected by the
provisions of 11 U.S.C. (S) 362 or 363, as amended from time to time, or any
analogous provisions of any superseding statute or any power of the bankruptcy
court to enjoin such taking of possession.
Section 20. Assignment: Benefit and Binding Effect.
--------------------------------------
(a) Assignment by the Lessee.
------------------------
The Lessee may not, without the prior written consent of the
Lessor and the Owner Participant, assign any of its rights hereunder except as
otherwise expressly provided herein.
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(b) Assignment by the Lessor.
------------------------
The Lessor's interest in this Lease has been assigned as security
to the Indenture Trustee pursuant to the Indenture for the benefit of the
holders from time to time of the Equipment Notes, and the Lessee acknowledges
due notice of, and consents to, such security assignment. Lessee agrees that,
until the Lien of the Indenture has been duly discharged, any notice, financial
statement, insurance report, opinion of counsel, officer's or other certificate,
evidence of title, or other documents, records agreement or communication which
Lessee is required to deliver to Lessor pursuant to this Lease, also shall be
delivered contemporaneously and addressed to the Indenture Trustee, and Lessee
agrees that until the Lien of the Indenture has been duly discharged, the
Indenture Trustee shall have the right, but shall not be obligated, to make
requests, grant or withhold consents or approvals, make elections and select
options hereunder as provided in Section 5.09 of the Indenture. Notwithstanding
the assignment of this Lease pursuant to the Indenture, the obligations of
Lessor to Lessee to perform the terms and conditions of this Lease shall remain
in full force and effect. Lessee further acknowledges that the Indenture
provides that, except as otherwise expressly provided in Section 5.09 of the
Indenture, so long as the Equipment Notes are outstanding Lessor may not consent
to any amendment, modification or waiver to this Lease without the prior consent
of the Indenture Trustee and Lessee agrees to provide to the Indenture Trustee a
copy of all notices, consents, certificates or other information provided
hereunder to Lessor. The Indenture Trustee shall have the right to exercise all
rights, privileges and remedies (either in its own name or in the name of Lessor
for the use and benefit of the Indenture Trustee) which by the terms of this
Lease or by applicable law are permitted or provided to be exercised by Lessor
as provided in Section 5.09 of the Indenture. Lessee consents to all of the
terms of the Indenture. The parties hereto agree that references to the
Indenture Trustee in certain Sections of this Lease but not in others is not
intended to and shall not be construed to limit the effect of this Section
20(b). The Lessor may not, without the prior consent of the Lessee, otherwise
assign any of its rights under or interest in this Lease except to a successor
Owner Trustee or additional trustee referred to in Section 9.01 of the
Participation Agreement and Section 9.01 of the Trust Agreement or as otherwise
expressly provided herein.
(c) Benefit and Binding Effect.
--------------------------
The terms and provisions of this Lease shall be binding upon and,
subject to the limitations on assignment of rights hereunder, inure to the
benefit of the Lessor and the Lessee and their respective successors and
permitted assigns. Nothing herein shall be construed as creating rights in any
other Person except, to the extent provided herein, the Owner Participant.
(d) Sublessee's Performance and Rights.
----------------------------------
Any obligation imposed on the Lessee in this Lease shall require
only that the Lessee perform or cause to be performed such obligation, even if
stated herein as a direct obligation, and the performance of any such obligation
by any sublessee or transferee of the Airframe or any Engine
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or Part permitted by the terms hereof under a sublease or transfer agreement
then in effect shall constitute performance by the Lessee and to the extent of
such performance discharge such obligation by the Lessee.
Section 21. Owner Trustee's Limitation on Liability.
---------------------------------------
Trust Company is entering into this Lease solely as Owner Trustee
under the Trust Agreement and not in its individual capacity and neither Trust
Company nor any entity acting as successor Owner Trustee or additional Owner
Trustee under the Trust Agreement shall be personally liable for, or for any
loss in respect of, any of the statements, representations, warranties,
agreements or obligations stated to be those of the Lessor hereunder, as to
which all interested parties shall look solely to the Trust Estate, except to
the extent expressly provided otherwise in any other Operative Agreement,
provided, however, that nothing in this Section 21 shall be construed to limit
-------- -------
in scope or substance the liability of Trust Company or any entity acting as
successor Owner Trustee or additional Owner Trustee under the Trust Agreement in
its individual capacity for the consequences of its own willful misconduct or
gross negligence or (in receiving, handling or remitting funds) its simple
negligence, or the inaccuracy or breach of its representations, warranties or
covenants made in such capacity in any other Operative Agreement.
Section 22. Certain Agreements of Lessee.
----------------------------
The Lessee will take, or cause to be taken, at the Lessee's cost
and expense, such action with respect to the recording, filing, re-recording and
re-filing of this Lease, each Lease Supplement, the Trust Agreement, the
Indenture, each Indenture Supplement and any financing statements or other
instruments as are necessary or requested by the Owner Participant or the
Indenture Trustee and appropriate, to maintain, so long as the Indenture or this
Lease is in effect, the perfection of the security interest created by the
Indenture and any security interest that may be claimed to have been created by
this Lease and the ownership interest of the Owner Trustee in the Aircraft, and
will furnish to the Owner Trustee, the Indenture Trustee and the Owner
Participant timely notice of the necessity of such action, together with such
instruments, in execution form, and such other information as may be required to
enable them to take such action.
Section 23. Miscellaneous.
-------------
(a) Notices.
-------
Except as otherwise specifically provided herein, all notices,
requests, approvals or consents required or permitted by the terms hereof shall
be in writing (it being understood that the specification of a writing in
certain instances and not in others does not imply an intention that a writing
is not required as to the latter). Any notice shall be effective when received.
Any notice shall either be mailed, certified or registered mail, return receipt
requested with proper first class postage prepaid, or sent in the form of a
telecopy or by overnight courier, provided that there is receipt of
--------
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such notice the next Business Day from an overnight courier service, or by
overnight delivery service or delivered by hand. Any notice shall be directed to
the Lessee, the Lessor, the Indenture Trustee or any other party to the
Participation Agreement to the respective addresses set forth in Section 12.01
to the Participation Agreement or to such other address or telecopy number as
any such party may designate pursuant to Section 12.01 of the Participation
Agreement.
(b) Counterparts.
------------
This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall, subject to the
next sentence and the legends appearing on the cover and signature page hereof,
be an original, but all such counterparts shall together constitute but one and
the same instrument. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL
PAPER (AS THE TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL
COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE INDENTURE TRUSTEE ON
THE SIGNATURE PAGE THEREOF.
(c) Amendments.
----------
Neither this Lease nor any of the terms hereof may be terminated,
amended, supplemented, waived or modified orally, but only by an instrument in
writing signed by the Lessor and the Lessee provided, however, that unless and
-------- -------
until the Indenture has been discharged, except as otherwise provided in the
Indenture, no termination, amendment, supplement, waiver or modification of, or
waiver by or consent of the Lessor in respect of, any of the provisions of this
Lease shall be effective unless the Indenture Trustee shall have joined in such
amendment, modification, waiver or consent or shall have given its prior consent
thereto.
(d) Agreement to Lease.
------------------
It is the intent of the parties to this Lease that for all
purposes (including, without limitation, U.S. Federal income tax purposes) this
Lease will be a true lease, and that this Lease conveys to the Lessee no right,
title or interest in the Aircraft except as a lessee.
(e) Governing Law.
-------------
(i) THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW
OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE. THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK.
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(ii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF
NEW YORK AND OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN
CONNECTION WITH ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTER
RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS LEASE.
(iii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF ANY AND ALL
LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET
FORTH PURSUANT TO SECTION 12.01 OF THE PARTICIPATION AGREEMENT. EACH PARTY
HERETO AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN
ACCORDANCE WITH THIS SECTION 23(e)(iii), SHALL CONSTITUTE VALID AND EFFECTIVE
PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO HEREBY AGREES THAT THE
FAILURE OF ANY OF ITS AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH
PARTY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH
PARTY OR ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.
(iv) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION,
AS A DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER
IN ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR
THAT THIS LEASE OR ANY OTHER OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY
SUCH COURTS.
(v) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR
RELATING TO THIS LEASE.
(f) Severability.
------------
Any provision of this Lease which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability
-58-
without invalidating the remaining provisions, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(g) Survival.
--------
The representations, warranties, indemnities and covenants set
forth herein shall survive the delivery of the Aircraft, the transfer of any
interest of Owner Participant in this Lease, the other Operative Agreements, the
Trust Estate and the Trust Agreement and the transfer of any interest by any
Noteholder of its Equipment Notes.
(h) Article 2A.
----------
The Lessor and the Lessee agree that this Lease is a "finance
lease" for purposes of Article 2A of, and as defined in Section 2-A-103 of the
Uniform Commercial Code. The Lessee agrees that no right or remedy granted
solely by reason of Article 2A of the Uniform Commercial Code shall be available
to the Lessee as against the Lessor unless expressly provided in this Lease.
(i) When the provisions of this Lease refer to an amount, if any,
set forth opposite a date in Exhibit D in the column with the heading "Deferred
Basic Rent Amount" or "Prepaid Basic Rent Amount," as the case may be, such
amount shall be equal to Lessor's Cost multiplied by the percentage, if any, set
forth opposite such date in Exhibit D under the column with the heading
"Deferred Basic Rent Amount" or "Prepaid Basic Rent Amount," as the case may be.
(j) The Lessor shall be entitled to set off or withhold from any
sum or sums expressed in this Lease or any of the other Operative Agreements to
be due and payable by the Lessor to the Lessee any amounts due or expressed to
be due and payable by the Lessee to the Lessor in this Lease or any of the other
Operative Agreements.
* * *
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IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed by their authorized officers as of the day and year
first above written.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
not in its individual
capacity, but solely
as Owner Trustee
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
MIDWAY AIRLINES CORPORATION
By: /s/ ▇▇▇▇▇▇▇▇. ▇. ▇▇▇▇▇▇
----------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
General Counsel
-60-
THE LESSOR HAS ASSIGNED THIS LEASE AGREEMENT TO THE INDENTURE TRUSTEE AS
SECURITY. TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT CONSTITUTES CHATTEL
PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN
ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE AGREEMENT MAY
BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART HEREOF OTHER
THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE
INDENTURE TRUSTEE IMMEDIATELY FOLLOWING THIS LEGEND.
Receipt of this original counterpart of the foregoing Lease Agreement is
hereby acknowledged on this ____ day of __________, 2000.
ALLFIRST BANK, as Indenture Trustee
By: ____________________________________
Name:
Title:
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APPENDIX A
DEFINITIONS [N588ML]
GENERAL PROVISIONS
The following terms shall have the following meanings for all purposes
of the Operative Agreements (as defined below), unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. In the case
of any conflict between the provisions of this Appendix and the provisions of
any Operative Agreement, the provisions of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean such agreements as amended and supplemented from time to
time, and any agreement, instrument or document entered into in substitution or
replacement therefor, and (ii) references to parties to agreements shall be
deemed to include the successors and permitted assigns of such parties.
"Additional Insureds" means the Owner Trustee (in its individual and
-------------------
trust capacities), the Owner Participant, the Indenture Trustee (in its
individual and trust capacities) and each Noteholder and each of the respective
successors and permitted assigns and respective directors, officers and
employees of the foregoing.
"Aeronautical Authority" means as of any time of determination, the
----------------------
FAA or other governmental airworthiness authority having jurisdiction over the
Aircraft or the Airframe and Engines or engines attached thereto under the laws
of the country in which the Airframe is then registered.
"Affiliate" means, with respect to any Person, any other Person
---------
directly or indirectly controlling 50% or more of any class of voting securities
of such Person or otherwise controlling, controlled by or under common control
with such Person. For the purposes of this definition, "control" (including
"controlled by" and "under common control with") shall mean the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether through the ownership of voting securities or by contract
or otherwise.
"After Tax Basis" means a basis such that any payment to be received
---------------
or deemed to be received by a Person shall be supplemented by a payment to such
Person so that the sum of such payments, after deduction of all Taxes (taking
into account any related credits or deductions)
resulting from the actual or constructive receipt or accrual of such payments,
shall be equal to the payment to be received.
"Aircraft" means the Airframe together with the two Engines, whether
--------
or not any of the Engines may at the time of determination be installed on the
Airframe or installed on any other airframe or on any other aircraft.
"Airframe" means (i) the Canadair Regional Jet Model CL-600-2B19
--------
Series 200ER aircraft (excluding the Engines and any other engines which may
from time to time be installed thereon, but including any and all related Parts
originally delivered and leased under the Lease, identified by national
registration number and manufacturer's serial number in the Lease Supplement
executed and delivered on the Delivery Date, so long as a Replacement Airframe
shall not have been substituted therefor pursuant to Section 8 of the Lease, and
(ii) a Replacement Airframe, so long as another Replacement Airframe shall not
have been substituted therefor pursuant to Section 8 of the Lease.
"Allfirst" means Allfirst Bank, a Maryland state-chartered commercial
--------
bank.
"Applicable Break Amount" means (i) if a purchase of the Equipment
-----------------------
Notes is effected pursuant to clause (z) of Section 2.12(a) of the Indenture,
the Swap Break Amount (as if the Equipment Notes were being prepaid pursuant to
Section 2.10 of the Indenture) or (ii) if a purchase of the Equipment Notes is
effected pursuant to clause (x) or (y) of Section 2.12(a) of the Indenture, an
amount of Swap Break Amount (as if the Equipment Notes were being prepaid
pursuant to Section 2.10 of the Indenture) not exceeding the Breakage Percentage
of the then outstanding principal amount of the Equipment Notes.
"Applicable Law" means all applicable laws, statutes, treaties, rules,
--------------
codes, ordinances, regulations, certificates, orders, interpretations, licenses
and permits of any Governmental Authority of competent jurisdiction and
judgments, decrees, injunctions, writs, orders or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction.
"Applicable Margin" has the meaning specified in Exhibit B to the
-----------------
Lease.
"Applicable Rate" has the meaning specified in Exhibit B to the Lease.
---------------
"Bankruptcy Code" means Title 11 of the United States Code, as
---------------
amended, and any successor thereto.
"Basic Rent" means the rent payable on Basic Rent Payment Dates
----------
throughout the Basic Term for the Aircraft pursuant to Section 3(b) of the Lease
and rent payable during any Renewal Term pursuant to Section 13(a) of the Lease.
-2-
"Basic Rent Payment Date" means each date listed under the heading
-----------------------
"Basic Rent Payment Date" in Exhibit C to the Lease or, during a Renewal Term,
such dates as are provided for in Section 13(a) of the Lease.
"Basic Term" means the period commencing at the beginning of the day
----------
on the Delivery Date and ending at the end of the day on the Expiration Date, or
such earlier date on which the Lease shall be terminated as provided therein.
"Beneficial Interest" means the interest of the Owner Participant
-------------------
under the Trust Agreement.
"Bills of Sale" means the FAA ▇▇▇▇ of Sale and the Warranty ▇▇▇▇ of
-------------
Sale.
"Breakage Cost" means as at any date of determination, the amount, if
-------------
any, equal to the sum of LIBOR Break Amount and Swap Break Amount. If such sum
is a negative number, the "Breakage Cost" shall be deemed equal to zero.
"Breakage Percentage" has the meaning specified in Exhibit B to the
-------------------
Lease.
"Business Day" means any day other than a Saturday or Sunday or other
------------
day on which commercial banks are authorized or required by law to close in New
York City, Morrisville, North Carolina (or in the event the Lessee changes the
location of its chief executive offices to a location other than Morrisville,
North Carolina such other location), Baltimore, Maryland (or in the event the
Indenture Trustee administers its corporate business in a location other than
Baltimore, Maryland such other location or, if such day relates to the giving of
notices in connection with a payment of, or the payment or prepayment of, Basic
Rent, Termination Value, EBO Amount, or the principal of, or interest on, the
Equipment Notes, London, England), and after the Lien of the Indenture is
discharged, Wilmington, Delaware.
"Certificated Air Carrier" means an "air carrier" within the meaning
------------------------
of the Transportation Code and a "citizen of the United States" within the
meaning of Section 40102(a)(15) (or any successor provision) of the
Transportation Code holding an "air carrier operating certificate" issued under
Chapter 447 (or any successor provision) of the Transportation Code for aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of cargo,
with each such certificate in full force and effect.
"Citizen of the United States" means a citizen of the United States as
----------------------------
defined in ss.40102(a)(15) of the Transportation Code, or any analogous part of
any successor or substituted legislation or regulation at the time in effect.
"Code" means the United States Federal Internal Revenue Code of 1986,
----
as amended from time to time, or any similar legislation of the United States
enacted to supersede, amend, or
-3-
supplement such Code (and any reference to a provision of the Code shall refer
to any successor provision(s), however designated).
"Commitment" of a Loan Participant shall have the meaning given such
----------
term in Section 2.01(d) of the Participation Agreement; "Commitment" of the
----------
Owner Participant shall have the meaning given such term in Section 2.01(c) of
the Participation Agreement.
"CRAF Program" has the meaning specified in Section 5(b)(vii) of the
------------
Lease.
"Default" means any event or condition which, with the lapse of time
-------
or the giving of notice, or both, would constitute an Event of Default.
"Deficiency Agreement" has the meaning given to such term in the
--------------------
recitals of the Participation Agreement.
"Deficiency Obligor" has the meaning given to such term in the
------------------
recitals of the Participation Agreement.
"Delivery Date" means the date on which the Aircraft is delivered and
-------------
sold to the Lessor and leased by the Lessor to the Lessee under the Lease, which
date shall be the date of the initial Lease Supplement.
"Dollars", "Dollar" and "$" means the lawful currency of the United
------- ------ -
States of America.
"DOT" means the United States Department of Transportation and any
---
agency or instrumentality of the United States Government succeeding to its
functions.
"EBO Date" has the meaning given to such term in Exhibit B to the
--------
Lease.
"EBO Amount" has the meaning given to such term in Exhibit B to the
----------
Lease.
"Engine" means (A) each of the two General Electric CF34-3B1 Series
------
200 engines originally delivered and leased under the Lease, identified by
manufacturer's serial number in the Lease Supplement executed and delivered on
the Delivery Date, so long as a Replacement Engine shall not have been
substituted therefor pursuant to Section 7(e) of the Lease, and (B) a
Replacement Engine, so long as another Replacement Engine shall not have been
substituted therefor pursuant to Section 7(e) of the Lease, whether or not such
engine or Replacement Engine, as the case may be, is from time to time installed
on the Airframe or installed on any other aircraft, and including in each case
all Parts incorporated or installed in or attached thereto and any and all
related Parts. The term "Engines" means, as of any date of determination, the
-------
two engines each of which is an Engine on that date.
-4-
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation.
"Engine Manufacturer's Consent" means the Engine Manufacturer's
-----------------------------
Consent and Agreement [N588ML], dated as of September 21, 2000, from the Engine
Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment
--------------------------
[N588ML], dated as of September 21, 2000, between Lessee and Owner Trustee.
"Equipment Notes" means the Equipment Notes issued by the Owner
---------------
Trustee pursuant to the Indenture and any equipment note issued in exchange
therefor or replacement thereof pursuant to the Indenture, each substantially in
the form set forth in Exhibit B to the Indenture.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
-----
any regulations and rulings issued thereunder all as amended and in effect from
time to time.
"ERISA Plan" means, individually or collectively, an employee benefit
----------
plan, as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA
or any applicable regulation thereunder or a plan or individual retirement
account which is subject to Section 4975(c) of the Code.
"Event of Default" has the meaning given to such term in Section 16 of
----------------
the Lease.
"Event of Loss" means any of the following events with respect to the
-------------
Aircraft, the Airframe or any Engine:
(i) any theft, hijacking or disappearance of such property
for a period of 30 consecutive days (provided that, so long as Lessee
shall be diligently pursuing recovery of such property, such period
shall be extended to 60 consecutive days) or more or, if earlier for a
period that extends until the end of the Term;
(ii) destruction, damage beyond economic repair or rendition
of such property permanently unfit for normal use for any reason
whatsoever;
(iii) any event which results in an insurance settlement with
respect to such property on the basis of an actual, constructive or
compromised total loss;
(iv) with respect to the Airframe only, requisition of use of
such property by any foreign government or purported government or any
agency or instrumentality thereof (other than the Government), for a
period in excess of 180 consecutive days (for countries listed in
Exhibit E to the Lease) or 30 consecutive days (for any other country)
or such shorter period ending on the expiration of the Term;
-5-
(v) with respect to the Airframe only, requisition of use of
such property by the Government for a period extending beyond the
Term;
(vi) condemnation, confiscation or seizure of, or requisition
of title of such property by any government or purported government or
any agency or instrumentality thereof;
(vii) as a result of any law, rule, regulation, order or other
action by the Aeronautical Authority, the use of the Aircraft for the
transportation of passengers or Airframe in the normal course of air
transportation shall have been prohibited by virtue of a condition
affecting all Canadair Regional Jet Series 200ER aircraft equipped
with engines of the same make and model as the Engines for a period of
180 consecutive days (or beyond the end of the Term), unless the
Lessee, prior to the expiration of such 180-day period, shall be
diligently carrying forward all necessary and desirable steps to
permit normal use of the Aircraft and shall within 12 months have
conformed at least one Canadair Regional Jet Series 200ER aircraft
(but not necessarily the Aircraft) to the requirements of any such
law, rule, regulation, order or action, and shall be diligently
pursuing conformance of the Aircraft in a non-discriminatory manner
provided that, notwithstanding the foregoing, if such normal use of
such property subject to the Lease shall be prohibited at the end of
the Term, an Event of Loss shall be deemed to have occurred; and
(viii) with respect to an Engine only, the requisition or
taking of use thereof by any government, or instrumentality or agency
thereof and any divestiture of title or ownership deemed to be an Event
of Loss with respect to an Engine under Section 5(b)(iii) or 5(b)(vi)
of the Lease.
The date of such Event of Loss shall be (aa) the 31st day following loss of such
property or its use due to theft or disappearance or the 61st day following such
loss if such period shall have been extended (or the end of the Term if
earlier); (bb) the date of any destruction, damage beyond economic repair or
rendition of such property permanently unfit for normal use; (cc) the date of
any insurance settlement on the basis of an actual, constructive or compromised
total loss; (dd) the 181st day (for countries listed in Exhibit E to the Lease)
or 31st day (for any other country) following requisition of use of such
property by a foreign government or other Governmental Authority referred to in
clause (iv) above, or the end of the Term if earlier than such 181st or 31st
day; (ee) the day of condemnation, confiscation or seizure of, or requisition of
title of such property; (ff) the last day of the Term in the case of requisition
of use of such property by the Government; and (gg) the last day of the
applicable period referred to in clause (vii) above (or if earlier, the end of
the Term). An Event of Loss with respect to the Aircraft shall be deemed to have
occurred if any Event of Loss occurs with respect to the Airframe.
"Excluded Payments" means collectively, (i) indemnity, expense,
-----------------
reimbursement or other payments (including without limitation, Transaction
Costs) paid or payable by the Lessee in respect
-6-
of the Owner Participant, the Owner Trustee in its individual capacity or any of
their respective successors, permitted assigns, directors, officers, employees,
servants and agents or Affiliates, pursuant to the Participation Agreement or
any other Operative Agreement or any indemnity hereafter granted to the Owner
Participant or the Owner Trustee in its individual capacity pursuant to the
Lease or the Participation Agreement, (ii) proceeds of public liability
insurance (or government indemnities in lieu thereof) in respect of the Aircraft
payable as a result of insurance claims paid for the benefit of, or losses
suffered by, the Owner Trustee or the Indenture Trustee in their respective
individual capacities or by the Owner Participant, or their respective
successors, permitted assigns or Affiliates, (iii) proceeds of insurance
maintained with respect to the Aircraft by the Owner Participant or any
Affiliate thereof (whether directly or through the Owner Trustee) in accordance
with Section 9(f) of the Lease, (iv) payments by the Lessee in respect of any
amounts payable under the Tax Indemnity Agreement, (v) any purchase price paid
to the Owner Participant for its interest in the Trust Estate, (vi) any amounts
paid or payable pursuant to the Deficiency Agreement or the Residual Agreement,
(vii) any payments in respect of interest to the extent attributable to payments
referred to in clauses (i) through (vi) above, (viii) any right to demand,
collect or otherwise receive and enforce the payment of any amount described in
clauses (i) through (vii) above.
"Expenses" has the meaning given to such term in Section 7.01(a) of
--------
the Participation Agreement.
"Expiration Date" means the date specified as such in the Lease
---------------
Supplement executed and delivered on the Delivery Date.
"FAA ▇▇▇▇ of Sale" means (A) the ▇▇▇▇ of sale for the Airframe on AC
----------------
Form 8050-2, or such other form as may be approved by the Aeronautical
Authority, executed by the Seller in favor of the Owner Trustee and to be dated
the Delivery Date, and (B) a ▇▇▇▇ of sale for a Replacement Airframe on AC Form
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the seller thereof in favor of the Owner Trustee.
"Fair Market Rental Value" or "Fair Market Sales Value" of the
------------------------ -----------------------
Airframe or any Engine shall mean the value that would be obtained in an arms'-
length transaction between an informed and willing lessee-user or buyer-user
(other than a lessee currently in possession or a used equipment dealer) under
no compulsion to lease or buy, as the case may be, and an informed and willing
lessor or seller, as the case may be, under no compulsion to lease or sell, as
the same shall be specified by agreement between the Lessor and the Lessee or,
if not agreed to by the Lessor and the Lessee within a period of 15 days after
either party requests a determination, then as specified in an appraisal
prepared and delivered in New York City mutually agreed to by two recognized
independent aircraft appraisers, one of which shall be appointed by the Lessor
and the other of which shall be appointed by the Lessee, or, if such appraisers
cannot agree on such appraisal, an appraisal arrived at by a third independent
recognized appraiser chosen by the mutual consent of the two aircraft
appraisers. If either party should fail to appoint an appraiser within 15 days
of receiving notice of the appointment
-7-
of an appraiser by the other party, then such appraisal shall be made by the
appraiser appointed by the first party. If the two appraisers cannot agree on
such appraisal and fail to appoint a third independent recognized aircraft
appraiser within 15 days after the appointment of the second appraiser, then
either party may apply to the American Arbitration Association to make such
appointment. The appraisal shall be completed within 30 days of the appointment
of the last appraiser appointed. In determining Fair Market Rental Value or Fair
Market Sales Value by appraisal or otherwise, it will be assumed that the
Aircraft, Airframe or Engine is in the condition, location and overhaul status
in which it is required to be returned to the Lessor pursuant to Section 12 of
the Lease and that the Lessee has removed all Parts which it is entitled to
remove pursuant to Section 7 of the Lease and that the Aircraft is not
encumbered by the Lease. Except as otherwise expressly provided in the Lease,
all appraisal costs will be shared equally by the Lessor and the Lessee;
provided that if the Lessee elects not to renew the Lease or purchase the
Aircraft following the conclusion of such appraisal, the Lessee shall pay all
appraisal costs. Notwithstanding the foregoing, for purposes of Section 17 of
the Lease, the "Fair Market Rental Value" or "Fair Market Sales Value" of the
Aircraft, the Airframe or any Engine, shall be determined on an "as is, where
is" basis and shall take into account customary brokerage and other out-of-
pocket fees and expenses which typically would be incurred in connection with a
re-lease or sale of the Aircraft, the Airframe or any Engine. Any such
determination pursuant to Section 17 of the Lease shall be made by a recognized
independent aircraft appraiser selected by Lessor and the costs and expenses
associated therewith shall be borne by Lessee, unless Lessor does not obtain
possession of the Aircraft, Airframe and Engines pursuant to Section 17 of the
Lease, in which case an appraiser shall not be appointed and Fair Market Rental
Value and Fair Market Sales Value for purposes of Section 17 of the Lease shall
be zero.
"Fair Market Value Renewal Term" has the meaning given to such term in
------------------------------
Section 13(a) of the Lease.
"Federal Aviation Administration" or "FAA" means the United States
------------------------------- ---
Federal Aviation Administration, the Administrator thereof and any agency or
instrumentality of the United States government succeeding to their functions.
"Fixed Renewal Period" has the meaning given to such term in Section
--------------------
13(a) of the Lease.
"Fixed Renewal Term" has the meaning given to such term in Section
------------------
13(a) of the Lease.
"Government" means the United States of America or an agency or
----------
instrumentality thereof the obligations of which bear the full faith and credit
of the United States of America.
"Governmental Authority" means (a) any federal, state, county,
----------------------
provincial, municipal, foreign, international, regional or other governmental or
regulatory authority, agency, department, board, body, instrumentality,
commission, court or any political subdivision of any of the foregoing, and (b)
each person who shall, from time to time, be vested with the control and
supervision of, or
-8-
have jurisdiction over, the registration, airworthiness, operation or other
matters relating to aviation including any competent airport authority, air
traffic control or navigation authority (including European Organization for the
Safety of Air Navigation (Eurocontrol) and the Federal Aviation Administration
of the United States of America or any person acting on its behalf).
"Increased Cost" has the meaning given to such term in Section 2.14 of
--------------
the Indenture.
"Indemnitee" means each of Trust Company, in its individual capacity
----------
and as Owner Trustee, the Owner Participant, the Indenture Trustee, in its
individual capacity and as trustee, each Noteholder and each Affiliate, officer,
director, employee, agent and servant of any of the foregoing Persons.
"Indenture" means the Trust Indenture and Security Agreement
---------
[N588ML], dated as of September 21, 2000, between the Owner Trustee and the
Indenture Trustee.
"Indenture Default" means any event or condition which, with the lapse
-----------------
of time or the giving of notice, or both, would constitute an Indenture Event of
Default.
"Indenture Documents" has the meaning specified in the Granting Clause
-------------------
of the Indenture.
"Indenture Estate" means all estate, right, title and interest of the
----------------
Indenture Trustee in and to any of the property, rights, interest, and
privileges granted to the Indenture Trustee pursuant to the Granting Clause of
the Indenture, other than Excluded Payments and any and all other rights of the
Owner Trustee or the Owner Participant expressly reserved to or retained by the
Owner Trustee or the Owner Participant pursuant to the Indenture.
"Indenture Event of Default" means each of the events specified in
--------------------------
Section 4.02 of the Indenture.
"Indenture Supplement" means (a) the Trust Indenture and Security
--------------------
Agreement Supplement No. 1, substantially in the form of Exhibit A to the
Indenture, which shall describe with particularity the Aircraft included in the
property of the Owner Trustee covered by the Indenture by reference to the Lease
Supplement, and which creates a first priority security interest in the Aircraft
and (b) any other supplement to the Indenture from time to time executed and
delivered in accordance with the Indenture.
"Indenture Trustee" means Allfirst Bank, a Maryland state-chartered
-----------------
commercial bank, as indenture trustee under the Operative Agreements on behalf
of the Noteholders.
"Indenture Trustee's Liens" means any Lien against, on or with respect
-------------------------
to the Aircraft, any Engine, the Lessor's Estate or the Indenture Estate or any
part thereof resulting from (i) claims against the Indenture Trustee not related
to the administration of the Indenture Estate or any
-9-
transactions pursuant to the Indenture or any document included in the Indenture
Estate, (ii) any act or omission of the Indenture Trustee which is not related
to the transactions contemplated by the Operative Agreements or is in violation
of any of the terms of the Operative Agreements, or (iii) Taxes imposed against
the Indenture Trustee in its individual capacity in respect of which the Lessee
has not indemnified (and is not obligated to indemnify) the Indenture Trustee in
such capacity.
"Interest Period" means (a) initially, the period commencing on the
---------------
Delivery Date and ending on the first Payment Date and (b) thereafter, each
successive period commencing on the final day of the preceding Interest Period
and ending on the next succeeding Payment Date (or if such date is not a
Business Day, the next succeeding Business Day unless, if by virtue of such
extension such day would fall in the next succeeding calendar month, then on the
next preceding Business Day).
"Lease" means the Lease Agreement [N588ML], dated as of September 21,
-----
2000 between the Lessor and the Lessee.
"Lease Supplement" means any Lease Supplement, substantially in the
----------------
form of Exhibit A to the Lease, entered into between the Lessor and the Lessee
for the purpose of leasing the Aircraft under and pursuant to the terms of the
Lease, including any amendment thereto entered into subsequent to the Delivery
Date.
"Lessee" means Midway Airlines Corporation, a Delaware corporation.
------
"Lessee Documents" means the Operative Agreements to which the Lessee
----------------
is a party.
"Lessor" means First Union Trust Company, National Association, a
------
national banking association, not in its individual capacity but solely as Owner
Trustee under the Trust Agreement.
"Lessor's Cost" has the meaning given to such term in Exhibit B of the
-------------
Lease.
"Lessor's Estate" means all estate, right, title and interest of the
---------------
Owner Trustee in and to the Aircraft, and Engines and the Operative Agreements
(other than the Tax Indemnity Agreement) including, without limitation, all
amounts of Rent, insurance proceeds and requisition, indemnity or other payments
of any kind, but specifically (i) including all items purported to be included
in the Indenture Estate and (ii) excluding any Excluded Payments.
"Lessor's Liens" means Liens against, on or with respect to the
--------------
Aircraft, any Engine, the Lessor's Estate or the Indenture Estate or any part
thereof, title thereto or any interest therein arising as a result of (i) claims
against or affecting the Lessor, in its individual capacity or as Owner Trustee,
or the Owner Participant, in each case not related to the Operative Agreements
or the transactions contemplated thereby, (ii) acts or omissions of the Lessor
in its individual capacity or as Owner Trustee, or of the Owner Participant not
contemplated or permitted under the terms of the Operative Agreements, (iii)
Taxes or Expenses imposed against the Lessor, in its individual capacity or as
-10-
Owner Trustee, Owner Participant, Lessor's Estate or the trust created by the
Trust Agreement which are not required to be indemnified against by the Lessee
pursuant to the Participation Agreement or the Tax Indemnity Agreement, or (iv)
claims against the Lessor, in its individual capacity or as Owner Trustee, or
the Owner Participant arising from the transfer by the Lessor or the Owner
Participant of its interests in the Aircraft or any Engine other than a transfer
of the Aircraft or any other portion of the Lessor's Estate pursuant to Section
5(b), 7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b), 14(a) or 17 of the Lease and
other than a transfer pursuant to the exercise of the remedies set forth in
Section 17 of the Lease or any other transfer pursuant to or required by the
Operative Agreements.
"LIBOR Break Amount" means the amount, if any, required to compensate each
------------------
Noteholder for any losses, costs or expenses (but excluding any profit) which it
may incur as the result of the prepayment, purchase or acceleration (or the
failure to make any such prepayment or purchase on the date irrevocably
scheduled therefor) of any Equipment Note held by it on a date other than the
last day of the then current Interest Period therefor, including, without
limitation, losses, costs or expenses incurred in connection with unwinding or
liquidating any deposits or funding or financing arrangement with its funding
sources, as reasonably determined by such Noteholder. Without limiting the
effect of the preceding sentence, such compensation shall include an amount
equal to the excess, if any, of (i) the amount of interest which otherwise would
have accrued on the principal amount so prepaid, purchased or accelerated to the
last day of such Interest Period (the "Break Period") at the LIBOR Rate therefor
------------
in excess of (ii) the interest component of the amount the affected Noteholder
would have bid in the London interbank market for Dollar deposits of leading
banks in amounts comparable to such principal amount and with maturities
comparable to the Break Period (as reasonably determined by such Noteholder.)
"LIBOR Rate" means, with respect to any Interest Period, the rate per annum
----------
at which Dollar deposits are offered in the London interbank market for a period
approximately equal to such Interest Period as such rate is displayed on
Telerate Page 3750 at approximately 11:00 a.m., London time (or as soon
thereafter as practicable), or if such service no longer displays any such
quote, the arithmetic mean (rounded upwards, if necessary, to the nearest 1/16
of 1%) of such rates as displayed on Reuters Page LIBOR at approximately 11:00
a.m., London time (or as soon thereafter as practicable), or if such service no
longer displays any such quote, the arithmetic mean (rounded upwards, if
necessary, to the nearest 1/16 of 1%) of such rates, as quoted by two reputable
dealers selected by the Noteholder, in either case on the date two Business Days
(for purposes of this definition, the term "Business Days" shall mean any day
other than a Saturday or Sunday or day on which commercial banks are required or
authorized to close in New York City and London) prior to the Delivery Date or
applicable Payment Date.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
-11-
"Loan Participant" means and includes each registered holder from time to
----------------
time of an Equipment Note issued under the Indenture including, so long as it
holds any Equipment Note issued under the Indenture, each Loan Participant
identified on Schedule II to the Participation Agreement.
"Majority in Interest of Noteholders" means, as of a particular date of
-----------------------------------
determination, the holders of more than 50% of the aggregate unpaid principal
amount of all Equipment Notes Outstanding as of such date (excluding any
Equipment Notes held by Owner Trustee, Lessee or the Owner Participant or any
Affiliate of any such party or any interests of Owner Trustee or the Owner
Participant therein by reason of subrogation pursuant to Section 2.12 of the
Indenture (unless all Equipment Notes Outstanding shall be held by Owner
Trustee, Lessee, the Owner Participant or any Affiliate thereof)).
"Manufacturer" means Bombardier, Inc., a Canadian corporation.
------------
"Material Adverse Change" means, with respect to any Person, any event,
-----------------------
condition or circumstance that materially and adversely affects such Person's
business or consolidated financial condition.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
"Moody's" means ▇▇▇▇▇'▇ Investors Service, Inc.
-------
"Net Economic Return" means the Owner Participant's nominal after-tax book
-------------------
yield (utilizing the multiple investment sinking fund method of analysis),
aggregate net after-tax cash and periodic FASB 13 earnings (plus or minus 5%),
computed on the basis of the same methodology, constraints and assumptions as
were utilized by the initial Owner Participant in determining Basic Rent
percentages and Termination Value percentages as of the Delivery Date; provided,
--------
that, if the initial Owner Participant shall have transferred its interest, Net
Economic Return shall be calculated as if the initial Owner Participant had
retained its interest; provided, further, that, notwithstanding the preceding
-------- -------
proviso, solely for purposes of Article 13 of the Participation Agreement and
calculating any adjustments to Basic Rent percentages and Termination Values
percentages in connection with a refinancing pursuant to such Article 13 at a
time when the Owner Participant is a transferee (other than an Affiliate of the
initial Owner Participant), the after-tax yield (but not the after-tax cash)
component of Net Economic Return shall be calculated on the basis of the
methodology and assumptions utilized by the transferee Owner Participant as of
the date on which it acquired its interest.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"Noteholder" means and includes each Loan Participant and each subsequent
----------
registered holder from time to time of an Equipment Note issued under the
Indenture for so long as such Loan Participant or such subsequent holder shall
hold such Equipment Note.
-12-
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
"Operative Agreements" means the Participation Agreement, the Trust
--------------------
Agreement, the Deficiency Agreement, the Residual Agreement, the Return
Condition Agreement, the FAA ▇▇▇▇ of Sale, the Warranty ▇▇▇▇ of Sale, the
Purchase Agreement, the Purchase Agreement Assignment, the Engine Warranty
Assignment, the PAA Consent, the Engine Manufacturer's Consent, the Lease, each
Lease Supplement, any Owner Participant Guaranty, the Equipment Notes
outstanding at the time of reference, the Indenture, each Indenture Supplement
and the Tax Indemnity Agreement.
"Opinion of Counsel" means when delivered pursuant to the Indenture, a
------------------
written opinion of legal counsel, who in the case of counsel (a) for the Lessee
may be (i) an attorney employed by the Lessee who is generally empowered to
deliver such written opinions, (ii) Fulbright & ▇▇▇▇▇▇▇▇ L.L.P., or (iii) other
counsel designated by the Lessee and reasonably satisfactory to the Indenture
Trustee, and (b) for the Owner Trustee or the Indenture Trustee, an attorney
selected by such Person and reasonably satisfactory to the Lessee and, in the
case of the Owner Trustee, reasonably satisfactory to the Indenture Trustee.
"Outstanding" means, when used with respect to Equipment Notes, as of the
-----------
date of determination, all Equipment Notes theretofore executed and delivered
under the Indenture, with the exception of the following:
(i) Equipment Notes theretofore canceled by the Indenture Trustee or
delivered to the Indenture Trustee for cancellation pursuant to the
Indenture or otherwise; and
(ii) Equipment Notes in exchange for or in lieu of which other
Equipment Notes have been executed and delivered pursuant to Article
II of the Indenture.
"Owner Participant" means General Electric Capital Corporation, a New York
-----------------
corporation and its successors and permitted transferees and assigns.
"Owner Participant Guarantor" means the provider of an Owner Participant
---------------------------
Guaranty.
"Owner Participant Guaranty" means any guaranty delivered or to be
--------------------------
delivered to support the obligations of the Owner Participant under the
Operative Agreements in connection with the transfer by the Owner Participant of
the Beneficial Interest.
"Owner Trustee" means Trust Company, not in its individual capacity except
-------------
as otherwise expressly stated, but solely as trustee under the Trust Agreement,
and its successors and permitted assigns.
-13-
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N588ML], dated as of September 21, 2000, from the Manufacturer.
"Participants" means, collectively, the Owner Participant and the Loan
------------
Participants; "Participant" means, individually, one of the Participants.
"Participation Agreement" means the Participation Agreement [N588ML], dated
-----------------------
as of September 21, 2000, among the Lessee, the Owner Trustee not in its
individual capacity except as otherwise expressly provided therein, but solely
as owner trustee, the Owner Participant, the Indenture Trustee and the Loan
Participants.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines or engines and temporary replacement parts
as provided in Section 8 of the Lease and cargo containers) which may from time
to time be incorporated or installed in or attached to any Airframe or any
Engine, or removed therefrom so long as title to such item remains vested in
Lessor under the terms of Section 7 of the Lease, exclusive of any passenger
convenience items leased by the Lessee from third parties and not required in
the navigation of the Aircraft.
"Past Due Rate" means (i) in respect of any principal of or interest on any
-------------
Equipment Note or any other amount under the Indenture or any Equipment Note or
any amount payable to the Noteholders or the Indenture Trustee under any other
Operative Agreement, including, without limitation, any Supplemental Rent or any
amount of Basic Rent or Termination Value payable on account of principal of or
interest on the Equipment Notes that is not paid when due (whether at stated
maturity, by acceleration, by optional or mandatory prepayment or otherwise), a
rate per annum equal to 2% over the higher of (x) the LIBOR Rate plus the
Applicable Margin and (y) the Applicable Rate and (ii) in respect of any other
payment or amount, a rate per annum equal to 2% plus the Applicable Rate or, if
the Equipment Notes have been paid in full, a rate per annum equal to the TV
Rate identified in Exhibit B to the Lease.
"Payment Date" means each March 22 and September 22, commencing on March
------------
22, 2001.
"Permitted Air Carrier" means (a) any Section 1110 Person and (b) any
---------------------
foreign air carrier that is principally based in any foreign country listed on
Exhibit E to the Lease, except those that do not maintain normal diplomatic
relations with the United States.
"Permitted Investments" means (a) direct obligations of the United States
---------------------
of America or any agency or instrumentality thereof, (b) obligations fully
guaranteed by the United States of America or any agency or instrumentality
thereof, (c) any mutual fund the portfolio of which is limited to obligations of
the type described in clauses (a) and (b), including any proprietary mutual fund
of Allfirst Bank for which such bank or an affiliate is investment advisor or to
which such bank provides other services and receives reasonable compensation for
such services, (d) certificates of
-14-
deposit issued by, or bankers' acceptances of, or time deposits or a deposit
account with, any bank, trust company, or national banking association
incorporated or doing business under the laws of the United States of America or
one of the states thereof, having a combined capital and surplus of at least
$100,000,000 and having a rating of "A" or better from the ▇▇▇▇▇ Bank Watch
Service, (e) commercial paper issued by companies in the United States which
directly issue their own commercial paper and which are doing business under the
laws of the United States of America or one of the states thereof and in each
case having a rating assigned to such commercial paper by a nationally
recognized rating organization in the United States of America equal to the
highest rating assigned by such organization, or (f) obligations of the type
described in clause (a), (b), (d), or (e) above, purchased from any bank, trust
company, or banking association referred to in clause (d) above pursuant to
repurchase agreements obligating such bank, trust company, or banking
association to repurchase any such obligation not later than 30 days after the
purchase of any such obligation. Unless otherwise specified in writing by the
Owner Trustee, all such Permitted Investments shall mature not later than 30
days from the date of purchase.
"Permitted Lien" has the meaning given to such term in Section 10 of the
--------------
Lease.
"Permitted Sublessee" means (a) any Permitted Air Carrier, (b) any airframe
-------------------
or engine manufacturer, or Affiliate of such a manufacturer, who is domiciled in
the United States of America or a country listed on Exhibit E to the Lease or
(c) the United States of America or any instrumentality or agency thereof.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, entity or government (federal, state, local, foreign
or any agency, instrumentality, division or body thereof) or other entity of
whatever nature.
"Purchase Agreement" means Bombardier Regional Aircraft Division Purchase
------------------
Agreement No. PA-0393 dated September 17, 1997, as amended, between the Lessee
and the Manufacturer (including all exhibits thereto, together with all letter
agreements entered into that by their terms constitute part of such Purchase
Agreement).
"Purchase Agreement Assignment" means the Purchase Agreement Assignment
-----------------------------
[N588ML], dated as of September 21, 2000, between Lessee and Owner Trustee.
"Purchase Price" means an amount equal to Lessor's Cost.
--------------
"Reasonable Basis" means that a realistic possibility of success, within
----------------
the meaning of ABA Formal Opinion No. 85-352, exists for pursuing such contest.
"Recovery Period" means "Tax Attribute Period" as defined in the Tax
---------------
Indemnity Agreement.
-15-
"Refinancing" has the meaning given to such term in Section 13.01 of the
-----------
Participation Agreement.
"Register" has the meaning given to such term in Section 2.07 of the
--------
Indenture.
"Registrar" has the meaning given to such term in Section 2.07 of the
---------
Indenture.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System (or any successor), as the same may be modified and supplemented
and in effect from time to time.
"Regulatory Change" means, with respect to any Noteholder, any change that
-----------------
occurs after the date of the Indenture in Federal, state or foreign law or
regulations (including Regulation D) or the adoption or making after such date
of any interpretation, directive or request applying to a class of banks or
financial institutions including such Noteholder of or under any Federal, state
or foreign law or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Rent Payment Date" means each Payment Date during the Term.
-----------------
"Replacement Aircraft" means any Aircraft of which a Replacement Airframe
--------------------
is part.
"Replacement Airframe" means a Canadair Regional Jet Series 200ER series
--------------------
aircraft or a comparable or improved model of such aircraft of the Manufacturer
(except Engines or engines from time to time installed thereon) which shall have
become subject to the Lease pursuant to Section 8 thereof.
"Replacement Closing Date" has the meaning given such term in Section 8(d)
------------------------
of the Lease.
"Replacement Engine" means a General Electric CF34-3B1 Series 200 engine
------------------
(or engine of the same manufacturer of a comparable or an improved model and
suitable for installation and use on the Airframe), which has a value, utility
and remaining useful life at least equal to, and which is in good operating
condition as, the Engine to be replaced thereby (assuming that such Engine being
replaced was in the condition required to be maintained in accordance with the
Lease), and which shall have become subject to the Lease pursuant to Section
7(e) thereof.
-16-
"Residual Agreement" has the meaning given to such term in the recitals of
------------------
the Participation Agreement.
"Reserve Requirement" means, for any Equipment Note, the average maximum
-------------------
rate at which reserves (including, without limitation, any marginal,
supplemental or emergency reserves) are required to be maintained during the
Interest Period in respect of such Equipment Note under Regulation D by member
banks of the Federal Reserve System in New York City with deposits exceeding one
billion dollars against "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement includes any other reserves required to be maintained by such member
banks by reason of any Regulatory Change with respect to (i) any category of
liabilities that includes deposits by reference to which the LIBOR Rate is to be
determined or (ii) any category of extensions of credit or other assets that
includes the Equipment Notes.
"Responsible Officer" means, with respect to the Owner Trustee or the
-------------------
Indenture Trustee, any officer in its Corporate Trust Administration, as the
case may be, designated by such Person to perform obligations under the
Operative Agreements, and with respect to any other party, any corporate officer
of a party who, in the normal performance of his or her operational
responsibilities, with respect to the subject matter of any covenant, agreement
or obligation of such party pursuant to any Operative Agreement, would have
responsibility for and knowledge of such matter and the requirements of any
Operative Agreement with respect thereto.
"Return Condition Agreement" means the Return Condition Agreement [N588ML],
--------------------------
dated as of September 21, 2000, between the Manufacturer and the Lessee.
"S&P" means Standard & Poor's Ratings Group.
---
"SEC" means the Securities and Exchange Commission of the United States and
---
any successor agencies or authorities.
"Section 1110" means 11 U.S.C. (S). 1110 or any successor or analogous
------------
section of the federal bankruptcy law in effect from time to time.
"Section 1110 Person" means a Citizen of the United States who is an air
-------------------
carrier holding a valid air carrier operating certificate issued pursuant to 49
U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.
"Secured Obligations" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
-17-
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (f), (g) or (h) of the Lease that, after the giving of notice or lapse of
time, or both, would become an Event of Default, or (b) any Event of Default.
"Specified Investments" means (a) direct obligations of the United States
---------------------
of America or obligations fully guaranteed by the United States of America; (b)
any mutual fund the portfolio of which is limited to obligations of the type
described in clause (a), including any proprietary mutual fund of The First
National Bank of Maryland for which such bank or an affiliate is investment
advisor or to which such bank provides other services and receives reasonable
compensation for such services; (c) commercial paper rated A-1/P-1 by S&P and
▇▇▇▇▇'▇, respectively or, if such ratings are unavailable, rated by any
nationally recognized rating organization in the United States equal to the
highest rating assigned by such rating organization; (d) investments in
negotiable certificates of deposit, time deposits, banker's acceptances,
commercial paper or other direct obligations of, or obligations guaranteed by,
commercial banks organized under the laws of the United States or of any
political subdivision thereof (or any U.S. branch of a foreign bank) with issuer
ratings of at least B/C by Thomson Bankwatch, having maturities no later than 90
days following the date of such investment; (e) overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers; or (f) overnight repurchase agreements with respect to the
securities described in clause (a) above entered into with an office of a bank
or trust company which is located in the United States of America or any bank or
trust company which is organized under the laws of the United States or any
state thereof and has capital, surplus and undivided profits aggregating at
least $500 million.
"Specified Lease" means, at any time of determination, any lease under
---------------
which an aircraft is leased to the Lessee, if the Owner Participant or an
Affiliate of the Owner Participant, or a trustee for the benefit of the Owner
Participant or an Affiliate of the Owner Participant, shall be the lessor under
such lease.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
"Supplemental Rent" means (a) all amounts, liabilities, indemnities and
-----------------
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Participation Agreement or Tax Indemnity Agreement or any other
Operative Agreement to the Lessor, the Owner Participant, the Indenture Trustee,
any Noteholder or others, including payments of Termination Value, EBO Amount,
and amounts calculated by reference to Termination Value, any amounts of
Breakage Cost payable under the Indenture to the extent provided in Section 3(c)
or Section 14 of the Lease, all other amounts payable under Section 3(c) of the
Lease, and all amounts required to be paid by Lessee under the agreements,
covenants, and indemnities contained in the Lease or in the Participation
Agreement or the Tax Indemnity Agreement or any other Operative Agreement, but
excluding Basic Rent, and (b) all amounts that the Owner Trustee is obligated to
pay in accordance with Section 2.14 of the Indenture.
-18-
"Swap Break Amount" means, as of any date on which Breakage Cost may be
-----------------
payable under the Operative Agreements and for any Noteholder, the amount
(calculated in accordance with standard market practice) that such Noteholder is
required to pay (either directly or through any swap agent) to settle-out or
otherwise unwind the Swap Transaction (such amount to be expressed as a positive
number) or the amount (calculated in accordance with standard market practice)
that such Noteholder receives (either directly or through any swap agent) to
settle-out or otherwise unwind the Swap Transaction (such amount to be expressed
as a negative number).
"Swap Breakage Gain" means, as to any Noteholder, the value of the Swap
------------------
Break Amount for such Noteholder if the Swap Break Amount is a negative number.
"Swap Breakage Loss" means, as to any Noteholder, the value of the Swap
------------------
Break Amount for such Noteholder if the Swap Break Amount is a positive number.
"Swap Transaction" means, for any Noteholder, the interest rate swap or
----------------
other interest rate hedging transaction, if any, entered into by such Noteholder
pursuant to which it hedged the fixed interest rate payments payable under the
Equipment Notes, as such transaction may be modified, supplemented or replaced.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each of Trust Company, individually and as Owner
--------------
Trustee, the Noteholders, the Owner Participant and any Affiliate thereof and
the Indenture Trustee.
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N588ML],
-----------------------
dated as of September 21, 2000 between the Lessee and the Owner Participant.
"Term" has the meaning given to such term in Section 3(a) of the Lease.
----
"Termination Date" means each date listed in the column entitled
----------------
"Termination Date" in Exhibit D to the Lease or, during a Renewal Term or
otherwise during any period following the last day of the Term, the second day
of each month.
"Termination Value" means (a) as of any Termination Date during the Basic
-----------------
Term, the amount determined as set forth in Exhibit D to the Lease for that
Termination Date, and (b) during any Renewal Term, the amount for the date
involved, determined in accordance with Section 13(a) of the Lease, in either
case adjusted as required by Section 3(d) of the Lease.
"Transaction Costs" means those costs and expenses set forth in Section
-----------------
8.01(a) of the Participation Agreement.
-19-
"Transportation Code" means Title 49 of the United States Code, subtitle
-------------------
VII, as amended and in effect on the date of the Lease or as subsequently
amended, or any successor or substituted legislation at the time in effect and
applicable, and the regulations promulgated pursuant thereto.
"Trust Agreement" means the Trust Agreement [N588ML], dated as of September
---------------
21, 2000, between the Owner Participant and Trust Company.
"Trust Company" means First Union Trust Company, National Association, a
-------------
national banking association.
"Trust Estate" means the Lessor's Estate.
------------
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
-------------------
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in any relevant jurisdiction.
"United States", "U.S." or "US" means the United States of America.
------------- ---- --
"U.S. Person" means a Person described in (S). 7701(a)(30) of the Code.
-----------
"Warranty ▇▇▇▇ of Sale" means (A) the full warranty ▇▇▇▇ of sale covering
---------------------
the Aircraft (and specifically referring to each Engine) executed by the Seller
in favor of the Owner Trustee and to be dated the Delivery Date, and (B) a full
warranty ▇▇▇▇ of sale covering a Replacement Aircraft (and specifically
referring to each Replacement Engine) or a Replacement Engine executed by the
seller thereof in favor of the Owner Trustee.
-20-
Exhibit A
to Lease Agreement
LEASE SUPPLEMENT NO. 1 N588ML
-----------------------------
THIS LEASE SUPPLEMENT NO. 1 N588ML dated September 22, 2000, between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not in its individual capacity,
but solely as Owner Trustee, except as otherwise provided herein, the Lessor,
and MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee;
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee have heretofore entered into that
certain Lease Agreement N588ML, dated as of September 21, 2000 (the "Lease", the
terms defined therein being herein used with the same meaning), which Lease
provides, among other things, for the execution and delivery of Lease
Supplements in substantially the form hereof for the purpose of leasing a
specific Aircraft under the Lease when delivered by the Lessor to the Lessee in
accordance with the terms thereof;
WHEREAS, the Lease, a counterpart of which is attached hereto and made
a part hereof, relates to the Aircraft and Engines described in Schedule I
hereto and this Lease Supplement, together with such attachment, is being filed
for recordation on the date hereof with the FAA as one document;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Section 2 of the Lease, the Lessor and
the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee, and the
Lessee hereby accepts and leases from the Lessor, under the Lease as herein
supplemented, the Aircraft, described in Schedule I hereto.
2. The Delivery Date is the date of this Lease Supplement set forth
in the opening paragraph hereof.
3. The Basic Term shall commence on the Delivery Date and continue
through March 22, 2017 (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
4. Lessee hereby confirms to Lessor that Lessee has duly and
irrevocably accepted the Aircraft under and for all purposes hereof, of the
Lease and of the other Lessee Documents.
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto in
separate counterparts and all such counterparts shall together constitute but
one and the same instrument. To the extent, if any, that this Lease Supplement
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease Supplement or the Lease may be created through the transfer or possession
of any counterpart other than the original counterpart of each thereof
containing the receipt therefor executed by the Indenture Trustee on the
signature page of each thereof.
7. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease Supplement to be duly executed by their authorized officers as of the day
and year first above written.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION,
not in its individual
capacity, but solely as
Owner Trustee
By:
-------------------------------
Name:
Title:
MIDWAY AIRLINES CORPORATION
By:
-------------------------------
Name:
Title:
THE LESSOR HAS ASSIGNED THIS LEASE SUPPLEMENT TO THE INDENTURE TRUSTEE
AS SECURITY. TO THE EXTENT, IF ANY, THAT THIS LEASE SUPPLEMENT CONSTITUTES
CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE
SUPPLEMENT MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART
HEREOF OTHER THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR
EXECUTED BY THE INDENTURE TRUSTEE IMMEDIATELY FOLLOWING THIS LEGEND.
Receipt of this original counterpart of the foregoing Lease Supplement
is hereby acknowledged on this _____ day of __________, 2000.
ALLFIRST BANK, as Indenture Trustee
By: _______________________________
Name:
Title:
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
------------ -------------- ---------------- --------------
Bombardier Inc. CL-600-2B19 N588ML 7368
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
------------ -------------- --------------
General Electric Company CF34-3B1 GE-E-872649
GE-E-872650
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
Exhibit B
Certain Economic Information
----------------------------
"EBO Amount" shall mean $ * .
---------- -----
"EBO Date" shall mean * .
-------- -----
"Lessor's Cost" shall mean $ * .
------------- -----
"Minimum Liability Amount" shall mean $*.
------------------------
"Transaction Costs" shall mean * % of Lessor's Cost.
----------------------------- -----
"Seller" shall mean Bombardier Capital Inc.
------
"Estimated Value" shall mean $ * .
--------------- -----
"Compounded Discounted Rate" shall mean * % per annum.
--------------------------
"TV Rate" shall mean a rate equal to the rate per annum announced from time to
-------
time by Citibank, N.A. as * per annum.
"Renewal Rental Rate" shall mean $ * per annum.
------------------- -----
"Applicable Rate" shall mean $ * % per annum.
--------------- -----
"Applicable Margin" shall mean * % per annum.
----------------- -----
"Breakage Percentage" shall mean * %
------------------- -----
________________
* Indicates information deleted for confidentiality purposes.
Exhibit B
Certain Economic Information
----------------------------
*
_____________________
* Indicates information deleted for confidentiality purposes.
Exhibit C-1
Basic Rent Payment Schedule
---------------------------
*
------------------------------------
* Indicates information deleted for confidentiality purposes.
Exhibit C-2
Basic Rent Allocation Schedule
------------------------------
*
------------------------------------
* Indicates information deleted for confidentiality purposes.
Exhibit D
Termination Values
------------------
*
------------------------------------
* Indicates information deleted for confidentiality purposes.
Exhibit E
List of Countries - Permitted for Re-Registration and Subleasing
----------------------------------------------------------------
Australia Italy
Austria Japan
Belgium Luxembourg
Canada Netherlands
Denmark New Zealand
Finland Norway
France Portugal
Germany Sweden
Iceland Switzerland
Ireland United Kingdom
Exhibit F
RETURN CONDITIONS
-----------------
*
------------------------------------
* Indicates information deleted for confidentiality purposes.
Exhibit G
SPECIAL EQUITY AMOUNT
---------------------
*
------------------------------------
* Indicates information deleted for confidentiality purposes.