CONFORMED COPY
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EXHIBIT 10.5
________________________________________________________________________________
LEASE AGREEMENT [N583ML]
dated as of August 10, 1999
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 N583ML
Manufacturer's Serial Number 7327
_______________________________________________________________________________
This Lease Agreement is subject to a security interest in favor of Allfirst
Bank, as Indenture Trustee, under the Trust Indenture and Security Agreement
[N583ML] dated as of August 10, 1999, 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
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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 and Termination Values................................ 3
(e) Manner of Payment............................................................... 5
(f) Minimum Rent.................................................................... 6
(g) Rent Obligations Unconditional.................................................. 6
Section 4. The Lessor's Representations and Warranties..................................... 7
Section 5. Possession, Operation and Use, Maintenance, Registration and Insignia........... 8
(a) General......................................................................... 8
(b) Possession...................................................................... 8
(c) Operation and Use............................................................... 15
(d) Maintenance..................................................................... 16
(e) Registration.................................................................... 16
Section 6. Inspection...................................................................... 17
Section 7. Replacement and Pooling of Parts; Alterations, Modifications
and Additions; Substitution of Engines.......................................... 18
(a) Replacement of Parts............................................................ 18
(b) Title to Parts.................................................................. 19
(c) Pooling or Parts Leasing........................................................ 19
(d) Alterations, Modifications and Additions........................................ 20
(e) Substitution of Engines......................................................... 21
Section 8. Loss, Destruction or Requisition................................................ 25
(a) Event of Loss with Respect to the Airframe...................................... 25
(b) Effect of Replacement........................................................... 26
(c) Effect of Termination Value Payment............................................. 26
(d) Conditions to Airframe Replacement.............................................. 27
(e) Non-Insurance Payments Received on Account of an Event of Loss.................. 30
(f) Requisition for Use............................................................. 31
(g) Certain Payments to be Held As Security......................................... 32
(h) Notice of Damage................................................................ 32
Section 9. Insurance....................................................................... 32
(a) Public Liability and Property Damage Insurance.................................. 32
(b) Insurance Against Loss or Damage to the Aircraft and Engines.................... 33
(c) Additional Insureds; Loss Payment............................................... 34
(d) Deductibles and Self-Insurance.................................................. 35
(e) Application of Hull Insurance Proceeds.......................................... 36
(f) Insurance for Own Account....................................................... 36
(g) Reports, etc.................................................................... 37
(h) Right to Pay Premiums........................................................... 38
(i) Spares Physical Damage Insurance................................................ 38
Section 10. Liens........................................................................... 38
Section 11. Recordation and Further Assurances.............................................. 39
(a) Recordation of Lease............................................................ 39
(b) Further Assurances.............................................................. 39
(c) Markings........................................................................ 40
Section 12. Return of Aircraft and Records.................................................. 40
(a) Return of Aircraft.............................................................. 40
(b) Return of Other Engines......................................................... 41
(c) Fuel; Records................................................................... 41
(d) Condition of Aircraft........................................................... 41
(e) Failure to Return............................................................... 41
(f) Storage and Related Matters..................................................... 42
Section 13. Renewal Option and Purchase Options............................................. 42
(a) Renewal Terms................................................................... 42
(b) Lessee's Purchase Options....................................................... 43
(i) Rights to Purchase..................................................... 43
(ii) Option to Assume Equipment Notes....................................... 44
(iii) Notice of Exercise of Option........................................... 44
Section 14. Voluntary Termination for Obsolescence.......................................... 44
(a) Termination by Sale of Aircraft................................................. 44
(b) Payments Due Upon Sale of Aircraft.............................................. 46
(c) Preemptive Election by Lessor................................................... 46
(d) Termination of Lease............................................................ 46
(e) Effect of No Sale or Preemptive Delivery to Lessor.............................. 47
(f) No Duty on Part of Lessor....................................................... 47
Section 15. Investment of Security Funds.................................................... 47
Section 16. Events of Default............................................................... 48
Section 17. Remedies........................................................................ 51
Section 18. Lessor's Right to Perform for the Lessee........................................ 53
Section 19. Bankruptcy...................................................................... 54
Section 20. Assignment: Benefit and Binding Effect.......................................... 54
(a) Assignment by the Lessee........................................................ 54
(b) Assignment by the Lessor........................................................ 54
(c) Benefit and Binding Effect...................................................... 55
(d) Sublessee's Performance and Rights.............................................. 55
Section 21. Owner Trustee's Limitation on Liability......................................... 55
Section 22. Certain Agreements of Lessee.................................................... 55
Section 23. Miscellaneous................................................................... 56
(a) Notices......................................................................... 56
(b) Counterparts.................................................................... 56
(c) Amendments...................................................................... 56
(d) Agreement to Lease.............................................................. 57
(e) Governing Law................................................................... 57
(f) Severability.................................................................... 58
(g) Survival........................................................................ 58
(h) Article 2A...................................................................... 58
Appendix A Definitions
Exhibit A Lease Supplement
Exhibit B Certain Economic Information
Exhibit C Basic Rent
Exhibit D Termination Values
Exhibit E List of Countries
Exhibit F Return Conditions
THIS LEASE AGREEMENT [N583ML], dated as of August 10, 1999, 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:
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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.
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(a) Definitions.
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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.
(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.
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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.
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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 semi-annual
installments on each Basic Rent Payment Date during the Basic Term, each such
installment to be in an amount
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determined by multiplying Lessor's Cost by the percentage set forth in Exhibit C
for the applicable Basic Rent 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.
(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 Make-Whole
Amount 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
Section 2.14 of the Indenture.
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 and Termination Values.
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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 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 Rent
payments (or, if the Lessee shall have so
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specified to the Owner Participant, the remaining Basic Rent Payments to the EBO
Date together with the EBO Amount), if:
(i) the Delivery Date shall not be August 16, 1999;
(ii) there shall be a refinancing or refunding of the debt evidenced
by the Equipment Notes pursuant to Section 13.01 of the Participation
Agreement;
(iii) the Transaction Costs payable by the Owner Participant pursuant
to Section 8.01(a) of the Participation Agreement shall be greater or less
than the percentage of Lessor's Cost set forth on Exhibit B; or
(iv) 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 and conforming 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 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 or Termination Value set forth in Exhibits C 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, 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
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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 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 as then set
forth in Exhibits C 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). 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.
(e) Manner of Payment.
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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 12:00 noon Eastern Time
on the due date thereof, except 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
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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. 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.
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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), 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 and the Equipment Notes (other than by reason of
acceleration of the Equipment Notes) on the date when such
installment of Basic Rent is due, and
(ii) Termination Value and EBO Amount, whether or not
Termination Value or EBO Amount has been adjusted pursuant to
Section 3(d), shall be in an amount which (when taken together
with any Basic Rent due and payable in connection therewith) 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 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.
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This Lease is a net lease, and it is intended that Lessee shall pay
all costs and expenses of every character, whether seen or unforseen, ordinary
or extraordinary or structural or nonstructural, in connection with the use,
operation, maintenance, repair and reconstruction of the
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Airframe and the Engines by Lessee, including the costs and expenses
particularly set forth in this Lease. 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. 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.
Section 4. The Lessor's Representations and Warranties.
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(a) THE LESSOR LEASES THE AIRCRAFT HEREUNDER "AS-IS", "WHERE IS"
AND NONE OF THE LESSOR, TRUST COMPANY INDIVIDUALLY, THE OWNER PARTICIPANT, THE
INDENTURE TRUSTEE OR THE LOAN PARTICIPANT SHALL
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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, provided
that this Section 4(a) shall not derogate from the representations and
warranties of the Lessor, the Trust Company, the Owner Participant, the
Indenture Trustee and the Loan Participant contained in Article 5 of the
Participation Agreement.
(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.
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(a) General.
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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.
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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 Specified Default shall have occurred and be continuing, (B) no
Event of Default shall have occurred and be continuing, (C) as long as the
Indenture is in effect, the action to be taken shall not deprive the Indenture
Trustee of the first priority Lien (subject to Permitted Liens) of the Indenture
on the Airframe or any Engine, (D) all approvals, consents or authorizations
required from the Aeronautical Authority in connection with any such sublease or
such delivery, transfer or relinquishment of
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possession have been obtained and remain in full force and effect and (E) the
Lessee shall continue to comply or cause a Permitted Sublessee to comply with
all of the requirements of this Lease, 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 Permitted Sublessee, provided, that (A) no such
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agreement or arrangement shall under any circumstances result in,
contemplate or require the transfer of title to the Aircraft,
Airframe or any Engine or terminates or impairs the first
priority Lien of the Indenture on the Aircraft, Airframe or any
Engine and (B) if the Lessor's title to the Airframe or any
Engine shall nevertheless
-9-
be divested or the first priority Lien of the Indenture therein
shall be terminated or impaired under or by reason of any such
agreement or arrangement (in the case of clause (A) and (B), no
such termination or impairment being deemed to arise as a result
of the existence of any Permitted Lien), such divestiture shall
be deemed to be an Event of Loss with respect to the Airframe or
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, provided that the first
--------
priority Lien of the Indenture on such Engine shall not be
terminated or impaired as a result thereof (no such termination
or impairment being deemed to arise as a result of the existence
of any Permitted Lien);
(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 is owned by Lessor, provided that the
--------
first priority Lien of the Indenture on such Engine shall not be
terminated or impaired as a result thereof (no such termination
or impairment being deemed to arise as a result of the existence
of any Permitted Lien);
(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
-10-
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 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 and Indenture Trustee 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 Aircraft 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 10 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
-▇▇-
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ 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) enforceable
against the proposed sublessee in the country in which the proposed
sublessee is principally based, (II) there exist no possessory rights in
favor of the Lessee or the sublessee under such sublease under the laws of
such sublessee's country of domicile or any third party, including any
government or instrumentality thereof that would, upon bankruptcy or
insolvency of or other default by the Lessee and assuming that at such time
such sublessee or third party 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, to the Lien of the Indenture Trustee in 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 first priority security interest
(subject to Permitted Liens) of the Indenture Trustee in and to the
Aircraft and interest of Lessor and the Indenture Trustee in such Engine or
the Aircraft have been made, (VI) it is not necessary for the Owner
Participant, Lessor, the Indenture Trustee or the Loan Participant 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
-12-
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;
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 any 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 such Participant
against any such adverse tax consequences; (5) the Lessee shall provide evidence
reasonably satisfactory to Lessor and Owner Participant that the insurance
required by Section 9 remains in effect and for the purpose of Lessor's 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 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 to preserve and protect the
first priority Lien (subject to Permitted Liens) of the Indenture Trustee in the
Airframe and the Engines; and (7) Lessee shall reimburse Lessor, Owner
Participant, Loan 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.
-13-
In the case of any sublease permitted under this Section 5(b), 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 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) provide that any payments due under such sublease shall be paid
by the Permitted Sublessee directly to the Indenture Trustee (or, if the
Indenture shall have been discharged and satisfied in accordance with its terms,
the Owner Trustee) during the continuance of an Event of Default upon receipt of
written notice specifying such Event of Default (which shall have been copied to
the Lessee); (i) 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 (j) 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, (ii) deliver a copy of the executed Sublease promptly (but no
later than 10 days) after execution thereof, (iii) obtain the consent of the
Permitted Sublessee to the assignment of its Sublease to the Lessor, and by the
Lessor to the Indenture Trustee pursuant to the Indenture, and (iv) cause a
sublease assignment and an Indenture Supplement and financing statements or
similar documents under the Applicable Laws of the country of the Permitted
Sublessee confirming the first priority security interest of the Lessor in such
Sublease (subject to Permitted Liens) (which security interest shall be assigned
by the Lessor to the Indenture Trustee pursuant to the Indenture), to be duly
executed and delivered and duly filed or recorded in all appropriate places.
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
-14-
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)
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 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, the Indenture Trustee and the Noteholders 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.
The Lessee shall not intentionally do or permit to be done anything
which will expose the Aircraft to penalty, forfeiture, impounding or detention,
appropriation, damage or destruction (other than any damage or destruction
arising in the ordinary course of operation of the Aircraft) or
-15-
(insofar as the same relates to the operation or use of the Aircraft) the
Lessor, the Owner Participant, the Indenture Trustee or any Noteholder to
criminal liability (and in the event of any forfeiture, impounding, detention or
appropriation of the Aircraft the Lessee shall take all such steps reasonably
open to it with a view to obtaining the immediate release of the Aircraft). The
Lessee shall not represent or hold out the Lessor, the Owner Participant, the
Indenture Trustee or any Noteholder as carrying goods or passengers on the
Aircraft or as being connected or associated with any operation of carriage
which may be undertaken by the Lessee or pledge the credit of the Lessor, the
Owner Participant, the Indenture Trustee or any Noteholder. So long as the
Indenture is in effect, the Lessee shall not on any occasion on which the
ownership of the Aircraft is relevant represent to third parties that title to
the Aircraft is held by the Lessor free of the Lien of the Indenture.
(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 operating condition as
originally delivered hereunder, 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
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
-16-
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 15 days' prior notice
to the Lessee (unless an Event of Default shall have occurred and be continuing,
in which event a prior written notice of at least one (1) Business Day is
required) and at a time and place reasonably acceptable to the Lessee, the
Lessor, the Owner Participant, the Loan Participant 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 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
-17-
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,
(iii) to the Indenture Trustee and rating agencies, if applicable, (to the
extent necessary to obtain or maintain ratings and indicating whether such
inspection shows compliance or non-compliance by the Lessee with its obligations
under the Operative Agreements), (iv) any Person with whom any Participant is in
good faith conducting negotiations relating to the possible transfer and sale of
such Participant's interest in the Trust Estate, the Aircraft or the Equipment
Notes, if such Person shall have entered into an agreement similar to that
contained in this Section 6 whereby such Person agrees to hold such information
confidential, and (v) 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 Participant 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 Participant 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 to Lessee made not more than four times in a calendar year,
Lessee will make available to Owner Participant 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, Indenture Trustee or any
Noteholder, 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 and the
Indenture Trustee such additional information concerning the location,
condition, use and operation of the Aircraft as the Lessor, the Owner
Participant or the Indenture Trustee may from time to time reasonably request.
-18-
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 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 such Airframe or 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 an Airframe or 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 subject to this Lease and be deemed part of
such Airframe or 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 such
Airframe or Engine.
(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 (with respect to the landing gears however, only
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with a Permitted Sublessee), provided that, 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 temporary 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 United States 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 such Airframe
or Engine a further replacement Part owned by the Lessee (or such Permitted
Sublessee) free and clear of all Liens except Permitted Liens and which meets
the requirements of Section 7(a) 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 cost and 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 by
appropriate proceedings 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 or the first priority Lien
of the Indenture thereon, any material risk of civil penalty or any risk of
criminal liability being imposed on Lessor, Indenture Trustee or any
Participant. In addition, the Lessee (or a Permitted Sublessee), at its own
cost and 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, removal or addition (i) diminishes the value, utility, estimated
residual value (with respect to the Airframe only), condition, remaining useful
life or airworthiness of such Airframe or Engine below the value, utility,
estimated residual value, condition, remaining useful life or airworthiness
thereof immediately prior to such alteration, modification or addition, assuming
such Airframe or 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
-20-
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 such Airframe or 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 such Airframe or 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 such Airframe or
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) and shall remain property of the Lessor
until such time as such seats shall be replaced in accordance with Section 7(a))
so long as the Aircraft when returned to the Lessor pursuant to Section 12
hereof shall be in the condition required thereby. Lessee will not permit the
Aircraft to be used other than primarily in passenger service and passenger
configuration.
(e) Substitution of Engines.
-----------------------
(i) 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 written notice to the Lessor, the
Owner Participant and the Indenture Trustee, to substitute, and (ii) 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 written notice to the Lessor substitute, a Replacement Engine
for any Engine (or in the case of clause (ii), for the Engine suffering an Event
of Loss). In the case of a substitution for an Engine other than due to the
occurrence of an Event of Loss, the Engine replaced shall not then be installed
or held for use on the Airframe. In such event, immediately upon the fulfillment
of the conditions precedent described in
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this Section 7(e) 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 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. Prior to 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
reasonably 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, the Owner Participant and, if the Indenture is in
effect, the Indenture Trustee:
(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 in accordance with its terms, an
Indenture Supplement covering the Replacement Engine, which
shall have been duly filed for recordation with the FAA (or
such other Applicable Law of the country in which the
Aircraft may be registered in accordance with Section 5(e));
(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 in accordance with its terms, 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)) to protect the first priority security
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interest of the Indenture Trustee in the Replacement Engine,
and (ii) "precautionary" Uniform Commercial Code financing
statements as are deemed necessary or desirable by counsel
for any Participant or the Indenture Trustee to protect the
ownership interests of the Owner Trustee and the first
priority security interests of the Indenture Trustee in the
Replacement Engine;
(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, in form and
substance reasonably satisfactory to the recipients thereof,
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 and the Replacement Engine is free and
clear of all recorded Liens other than Permitted Liens;
(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 the Owner Participant 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 and the Owner
Participant; and
(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
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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);
(ii) the Lessee shall furnish (or cause to be furnished to)
the Lessor, the Owner Participant and the Indenture Trustee with
an opinion, reasonably satisfactory in form and substance to the
Lessor, the Owner Participant and the Indenture Trustee, 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, the
Owner Participant or the Indenture Trustee 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, Indenture Supplement and Warranty ▇▇▇▇ of
Sale have been duly authorized and delivered;
(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; and
(iv) as long as the Indenture is in effect, all conditions
specified in Section 5.06 of the Indenture shall be satisfied.
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
-24-
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, the Indenture Trustee or the Noteholders
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) subject to
Section 8(g), 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). Should the Lessee replace any Engine as
provided herein, all the provisions of this Lease and the Indenture relating to
the Engine being replaced shall be applicable to the Replacement Engine with the
same force and effect.
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 or the Airframe and the Engines and/or engines then installed thereon,
the Lessee shall forthwith (and in any event within 15 days after such
occurrence) give the Lessor, the Owner Participant 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 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 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
-25-
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 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 150 days after the occurrence
of the Event of Loss or, if earlier, the first Termination
Date which occurs more than 3 Business Days following the
payment of insurance proceeds, an amount equal to (A) the
arrears portion, if any, of Basic Rent 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 (C) 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 (D) all reasonable out-of-pocket expenses
(including reasonable attorneys' fees) incurred by the
Lessor, the Owner Participant, the Indenture Trustee or the
Loan 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 cost and 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 cost 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
-26-
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). Should the Lessee have
provided a Replacement Airframe, together with Replacement Engines, if any, all
provisions of this Lease and the Indenture relating to the Airframe and Engine
or Engines, if any, being replaced shall be applicable to the Replacement
Airframe and Replacement Engine or Replacement Engines with the same force and
effect.
(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 expressly survive pursuant to the Operative Agreements
(including Section 3(c) hereof 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 cost and 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 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
-27-
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 Bills 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 and the Indenture Trustee:
(A) a Lease Supplement covering the Replacement Aircraft, which
shall have been duly filed for recordation with the FAA;
(B) so long as the Indenture shall not have been discharged and
satisfied in accordance with its terms, an Indenture Supplement
covering the Replacement Aircraft, which shall have been duly filed
for recordation with the FAA (or such other Applicable Law as may be
in effect in the jurisdiction in which the Replacement Aircraft may be
registered in accordance with Section 5(e));
(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
in accordance with its terms, 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
to protect the first priority security interest of the Indenture
Trustee in the Replacement Aircraft, and (2) such "precautionary"
Uniform Commercial Code financing statements as are deemed necessary
or desirable by counsel for any Participant or the Indenture Trustee
to protect the ownership interests of the Owner Trustee and the first
priority 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
-28-
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, the Owner Participant and the Indenture Trustee (acting
directly or by authorization to their respective special counsel)
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, the
Owner Participant or the Indenture Trustee or their respective
special counsel 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 8(d), in each case in form and
substance reasonably satisfactory to the Lessor, the Owner
Participant and the Indenture Trustee;
(iv) The Lessor, the Owner Participant and the Indenture
Trustee (acting directly or by authorization to their respective
special counsel) 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), (B) the Lessee shall have
authority to operate the Replacement Aircraft and 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 Owner Participant shall have received an appraisal
reasonably satisfactory to it with respect to the Replacement
Aircraft and the Loan Participant shall have received a
certificate from such appraiser confirming that the value and
utility of such Replacement Aircraft complies with the
requirements of clause (G)(i) of this Section 8(d);
(vii) The Lessor, the Owner Participant, the Loan
Participant and the Indenture Trustee shall have received (acting
directly or by authorization to its special counsel) (A) an
opinion, satisfactory in form and substance to
-29-
to the Lessor, the Owner Participant and the Indenture Trustee,
of counsel to the Lessee (which may be the Lessee's General
Counsel) reasonably satisfactory to the Owner Participant and the
Indenture Trustee 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 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 and the Replacement Airframe and the Replacement
Engines, if any, are free and clear of all recorded Liens other
than Permitted Liens;
(viii) 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;
(ix) 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; and
(x) As long as the Indenture is in effect, all conditions
specified in Section 5.06 of the Indenture shall be satisfied.
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Lessee shall reimburse the Lessor, the Owner Participant, the Loan
Participant and the Indenture Trustee 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 (other
than the Aircraft) of the Lessee) with respect to the Aircraft, an Engine or any
Part received at any time by the Lessor or by the Lessee or any other Person
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 as 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 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) such
payments shall be applied in reduction of the Lessee's obligation
to pay the Termination Value and other amounts required to be
paid by the Lessee pursuant to Section 8(a)(ii), to the extent
not already paid by the Lessee, and, after the Termination Value
and all amounts required to be paid to the Lessor pursuant to
Section 8(a)(ii) shall be paid in full, shall be applied to
reimburse the Lessee for such Termination Value 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
-31-
Owner Participant, the Loan Participant, 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 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 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 in
accordance with Section 8(e).
(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 (and
pending delivery to the Lessor, shall be held in trust by the Lessee for the
benefit of the Lessor), 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 3.07 of the Indenture shall to the extent not so applied be paid over to
the Lessee.
(h) Notice of Damage.
----------------
The Lessee shall notify the Lessor, the Owner Participant and the
Indenture Trustee as soon as practicable after the Lessee becomes aware of any
loss, theft, damage or destruction of
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the Aircraft or any part thereof not constituting an Event of Loss if the
estimated cost of repair or replacement exceeds $1,000,000.
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 and
product liability coverage 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 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
-33-
in effect at all times during the Term with insurers of nationally recognized
responsibility which normally participate in airline insurance programs (i) all
risk (including U.S. limited form of war risk insurance 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 replacement 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 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 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 U.S. limited
form of war risk insurance 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
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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 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 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 (other than 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 loss payee as long as the Indenture shall remain in effect
and thereafter shall name the Lessor as 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.
-35-
(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, in
addition to the Lessee's normal deductible per occurrence relating to damage
(but not total loss) to aircraft for each aircraft in the Lessee's fleet (which
normal deductible amount shall not exceed $500,000 in respect of the Aircraft),
an amount equal to 3% of the Lessee's tangible net worth (but in no event to
exceed $15,000,000 (including, for purposes of calculating the amount of
$15,000,000, the amount of such normal deductible applicable to the Aircraft
(but not any other aircraft in the Lessee's fleet))), calculated as at the end
of the Lessee's immediately preceding fiscal year.
(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 payments which in the
aggregate are greater than $1,000,000 shall be paid over to or
retained by the Lessor 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 Termination Value and
other 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
--------
-36-
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 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.
(g) Reports, etc.
------------
Lessee will furnish, or cause to be furnished, to the Lessor, the
Owner Participant 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 and
(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 and the Owner Participant, and shall not be furnished or
disclosed by them to any Person except (A) their legal counsel, independent
certified public accountants, insurance brokers or advisors or other agents who
agree to hold such information confidential, (B) to any Noteholder or to bona
fide prospective and permitted transferees of any Participant and their
respective agents (provided that each such transferee shall agree for the
--------
benefit of the Lessee to hold all such information similarly confidential), (C)
as may be required by Applicable Law or by any court or administrative order or
-37-
decree or governmental ruling or regulation (or, in the case of any Noteholder,
to any bank examiner or other regulatory personnel), (D) as may be necessary for
purposes of enforcement of Operative Agreements or (E) to the Security Trustee
or rating agencies. The Lessee will instruct such firm to give prompt written
advice to the Lessor, the Owner Participant 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 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.
-----
-38-
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) 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, the Owner Participant
and the Indenture Trustee. 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 and the Lien (subject to Permitted Liens) of the Indenture
Trustee on the Indenture Estate.
(b) Further Assurances.
------------------
-39-
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 Owner Participant and the Loan Participant
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:
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
-40-
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 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 hereof) 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.
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(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 Section 12(c)(ii) 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 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.
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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 successive periods of one or two years each (each a "Fixed Renewal
Term"), but for not more than an aggregate of three years. Subject to the final
sentence of this Section 13(a), upon expiration of the Basic Term or at the end
of any Fixed Renewal Term, 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 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 Basic Term or the preceding Renewal Term, as the case may be. 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 Basic Term or the preceding Renewal
Term, as the case may be. If the Lessee requests a determination of Fair Market
Rental Value at least 240 days before the expiration of the Basic Term or a
Renewal Term, as the case may be, 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 lesser of (i) the then Fair Market Rental Value for the Aircraft and (ii)
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 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. 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).
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(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 occurred and be continuing on the date of purchase. Upon the
payment by the Lessee of the purchase price for the Aircraft and the Basic Rent,
if any, payable in arrears 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
Make-Whole Amount), 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 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.
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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 and the Indenture Trustee, 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
and the Indenture Trustee, 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 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
-45-
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,
Indenture Trustee and each Noteholder in connection with any termination or
proposed termination of this Lease 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 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 Make-Whole
Amount), plus (C) the arrears portion, if any, of Basic Rent payable on such
Termination Date, together with all unpaid Basic Rent, if any, payable before
the Termination Date, plus (D) the reasonable fees and expenses of the
Participants, the Indenture Trustee and Lessor in connection therewith, plus (E)
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 the amount required to pay in 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, together
with all accrued interest thereon and Make-Whole Amount, if any (without
releasing Lessee from its obligations under clause (B) of Section 14(b) in
respect of the payment of such amount). Upon payment by the Lessor of such
amount to the Indenture Trustee, and payment by the Lessee of all amounts
specified in this Section 14(c) to be paid by the Lessee on the Termination
Date, the Lessee shall have no obligation to pay Termination Value. On the
Termination Date, if the Lessor shall have paid 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 all unpaid
Basic Rent, if any, payable before the Termination Date, together with the
arrears portion, if any, of Basic Rent due on such Termination Date, all unpaid
Supplemental Rent due on or before or after the Termination Date
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(including Make-Whole Amount), 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 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.
(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) or the Lessor shall fail to pay the amounts specified in Section 14(c)
upon exercise of its preemptive election, the Lessee's notice given 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 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,
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the remedying of an Event of 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 3.07 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) when due and such failure shall continue for a
period of ten (10) days or (ii) Supplemental Rent (other than Termination
Value or the payment required by clause (iii) of the second sentence of
Section 3(c)) within fifteen (15) days after receipt by the Lessee of a
written demand therefor from the Lessor, the Indenture Trustee or a
Majority in Interest of Noteholders, 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 cancelled or lapse;
provided that such lapse or cancellation shall not constitute an Event of
--------
Default until the earlier of (i) thirty (30) days after receipt by the
Lessor or the Indenture Trustee of notice of such lapse or cancellation (or
seven (7) days or such shorter time as may be standard in the industry with
respect to war-risk coverage) or (ii) the date that such lapse or
cancellation is effective as to the Lessor, the Owner Participant, the
Indenture Trustee or any Noteholder;
(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 cancelled;
-48-
(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 thirty (30) days after
delivery of notice of such failure from the Lessor, the Indenture Trustee
or a Majority in Interest of Noteholders 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 within 150 days after delivery of such notice;
(e) Any representation or warranty made by the Lessee herein or in
any Operative Agreement or in any document or 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 within thirty (30) days after notice thereof has been given to the
Lessee by the Lessor or the Indenture Trustee or a Majority in Interest of
Noteholders, 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 within 150 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 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, decree,
appointment or sequestration shall remain in force undismissed, unstayed or
unvacated for a period of sixty (60) days after the date of entry thereof;
-49-
(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 sixty (60) 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 property filed and
such approval shall not be withdrawn or the proceeding dismissed within
sixty (60) 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 sixty (60) 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 sixty (60)
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 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) 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, the Lessee shall default in the observance or
performance of any agreement or condition relating to any Indebtedness (as
hereinafter defined) or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition
being that any outstanding Indebtedness in excess of $5,000,000 (or the
equivalent in any foreign currency) has become payable prior to its stated
maturity or due date (and such acceleration is not (i) promptly waived by
the holders of such Indebtedness, (ii) being contested in good faith by
appropriate proceedings or otherwise disputed in good faith or (iii) 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(j) 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 neither the Lessee
--------
-50-
nor an Affiliate of the Lessee is the Owner Participant, the event
described in this Section 16(j) 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;
(k) Except if the Indenture is terminated in accordance with its
terms, the Lien of the Indenture shall cease to be a valid first priority
Lien (other than as a result of any Permitted Lien or as a result of any
Indenture Default or Indenture Event of Default of the type referred to in
Section 4.02(j) of the Indenture) on (i) the Indenture Estate (other than
the Aircraft) and such condition shall continue for a period of ten (10)
days after a Responsible Officer of the Lessee has actual knowledge of such
condition or (ii) the Aircraft;
(l) The Lessee shall cease to be a Certificated Air Carrier and such
circumstance results in either (i) the inability of the Lessee to operate
aircraft in revenue service or (ii) the Owner Trustee (or the Indenture
Trustee as assignee of the Owner Trustee) no longer being entitled to the
benefits of Section 1110 of the Bankruptcy Code, and in either case such
condition shall continue for a period of thirty (30) days; or
(m) 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;
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 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
-51-
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 such Airframe or
Engines, and the Lessee shall comply therewith, all without liability to
the Lessor, the Indenture Trustee or the Noteholders 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 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
-52-
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, any
installment of Basic Rent due on or before such payment date plus an amount
equal to the excess, if any, of (i) Termination Value for the Aircraft,
determined as of such payment date over (ii) 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
amount of such excess, if any, from such payment date, to the date of
actual payment of such amount; 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
clause (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 on or up to the date on which such
sale occurs), 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, together with
interest, to the extent permitted by Applicable Law, at the Past Due Rate
on the amount of such deficiency 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 Indenture Trustee or the Loan Participant 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
-53-
Aircraft, the Airframe or any Engine, or portion thereof pursuant to this
Section 17, the Lessor or 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.
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
-54-
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.
(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 (which Lessee acknowledges
receipt of an executed copy thereof) 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 and the mortgage of the Aircraft in favor
of the Indenture Trustee. 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, the
Indenture Trustee, the Loan Participant and the Noteholders.
(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 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
discharges 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, except as
otherwise expressly provided herein and
-55-
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 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.
------------
-56-
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.
(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.
-57-
(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 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.
-58-
(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.
* * *
-59-
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 August, 1999.
ALLFIRST BANK, as Indenture Trustee
By: ____________________________________
Name:
Title:
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APPENDIX A
DEFINITIONS [N583ML]
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 of the Noteholders 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
---------------
accrued or deemed to be received by a Person shall be supplemented by a further
payment or payments to such Person so that the sum of such payments, after
deduction of the net amount of all Taxes (taking into account any related
credits or deductions) actually payable to any taxing authority 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 Parts which may from
time to time be incorporated in, installed on or attached to such aircraft, and
including any and all such Parts removed therefrom so long as title to such
removed Parts remains vested in the Lessor under the terms of Section 7 of the
Lease) 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,
--------
and its successors and permitted assigns.
"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 Rate" has the meaning specified in Exhibit B to the Lease.
---------------
"Average Life Date" means, for any Equipment Note, the date which follows
-----------------
the prepayment date by a period equal to the Remaining Weighted Average Life of
such Equipment Note.
"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.
"Basic Rent Payment Date" means each date listed under the heading "Basic
-----------------------
Rent Payment Date" in Exhibit C to the Lease.
"Basic Term" means the period commencing at the beginning of the day on the
----------
Delivery Date and ending at 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.
-------------
"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), and after the Lien of the Indenture is
discharged, Wilmington, Delaware.
"Citizen of the United States" means a citizen of the United States as
----------------------------
defined in (S)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 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.
------------
"Designated Maturity" means, with respect to any determination of a
-------------------
Treasury Rate, the maturity of the United States Treasury Notes designated
pursuant to the definition of "Make-Whole Amount" as being those to be used in
the calculation of such Treasury Rate.
"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 Parts
removed therefrom so long as title to such Parts remains vested in the Lessor
under the terms of Section 7 of the Lease. The term "Engines" means, as of any
-------
date of determination, the two engines each of which is an Engine on that date.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation, and its successors and permitted assigns.
"Engine Manufacturer's Consent" means the Engine Manufacturer's Consent and
-----------------------------
Agreement [N583ML], dated as of August 10, 1999, from the Engine Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment [N583ML],
--------------------------
dated as of August 10, 1999, 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;
(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 foreign government or purported government or any
agency or instrumentality thereof or by the Government, for a period in
excess of 10 consecutive days or such shorter period ending on the
expiration of the Term;
(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 11th day following condemnation, confiscation or seizure of, or
requisition of title of such property by a foreign government or other
Governmental Authority referred to in clause (vi) above or the Government or the
end of the Term if earlier than such 11th day; (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 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 (other than the Owner Trustee in its trust capacity), 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 in its individual
capacity 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, and (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 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 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 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).
"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, the Loan Participant, each of the other Noteholders,
and each of their respective successors, transferees or assigns permitted under
the terms of the Operative Agreement, and each Affiliate, officer, director,
employee, agent, representative, servant and corporate shareholder of any of the
foregoing Persons.
"Indenture" means the Trust Indenture and Security Agreement [N583ML],
---------
dated as of August 10, 1999, 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 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 purchase money equipment 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, and its successors and permitted assigns.
"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 or any
Affiliate thereof not related to the administration of the Indenture Estate or
any transactions contemplated by the Operative Agreements, (ii) any act or
omission of the Indenture Trustee or any Affiliate thereof 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 or any Affiliate thereof in its individual capacity in
respect of which the Lessee has not indemnified (and is not obligated to
indemnify) the Indenture Trustee or any Affiliate thereof in such capacity.
"Lease" means the Lease Agreement [N583ML], dated as of August 10, 1999
-----
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, and its
------
successors and permitted assigns.
"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, and its successors and permitted assigns.
"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 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 Trust Company or the Owner Participant, in each case not
related to the Operative Agreements or the transactions contemplated thereby,
(ii) acts or omissions of the Trust Company or of the Owner Participant not
contemplated or permitted under the terms of the Operative Agreements, (iii)
Taxes or Expenses imposed against the Trust Company, 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 Articles 6 or 7 of the
Participation Agreement (other than due to the exclusions contained in Section
6.01(b)(x) or 7.01(b)(vii)) and which are not required to be indemnified against
by the Lessee pursuant to the Tax Indemnity Agreement, or (iv) claims against
the Trust Company 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 required by
the Operative Agreements.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
exercise of rights, security interest, claim, including any right of ownership
or other similar interest of any nature whatsoever.
"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, Canadian Regional Aircraft
Finance Transaction No. 1 Limited, a Jersey, Channel Islands company, and its
successors and permitted assigns.
"Majority in Interest of Noteholders" means, as of a particular date of
-----------------------------------
determination, the Noteholders of more than 66 2/3% of the aggregate unpaid
principal amount of all Equipment Notes Outstanding as of such date (excluding
any Equipment Notes owned or 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)).
"Make-Whole Amount" means, with respect to the prepayment or repayment of
-----------------
any Equipment Note, an amount equal to the excess, if any, of (i) the present
value, as of the date of the relevant prepayment or repayment of such Equipment
Note, of the respective installments of principal of and interest on such
Equipment Note that, but for such prepayment or repayment, would have been
payable on each Payment Date after such prepayment or repayment over (ii) the
principal amount of such Equipment Note then being prepaid or repaid. Such
present value shall be determined by discounting the amounts of such
installments from their respective Payment Dates to the date of such prepayment
or repayment at a rate equal to the Treasury Rate determined on the basis of a
Designated Maturity equal to the then Remaining Weighted Average Life of such
Equipment Note plus 0.5% (or in the case of any prepayment of such Equipment
Note made within six months after the holder of such Equipment Note has made
demand for the payment of any Increased Cost or of any amount pursuant to
Article 6 of the Participation Agreement in respect of withholding Taxes, the
Treasury Rate determined on the basis of a Designated Maturity equal to the then
Remaining Weighted Average Life of such Equipment Note plus 1.00%). Each holder
of an Equipment Note will furnish to the Lessee and the Indenture Trustee a
certificate setting forth the calculation and amount of the Make-Whole Amount
with respect to its Equipment Note, which account shall be conclusive absent
manifest error.
"Manufacturer" means Bombardier Inc., a Canadian corporation, and its
------------
successors and permitted assigns.
"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 or its ability to perform its
obligations under the Operative Agreements.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
"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 the Loan Participant and each subsequent
----------
registered holder from time to time of an Equipment Note issued under the
Indenture for so long as the Loan Participant or such subsequent holder shall
hold such Equipment Note.
"Noteholder Tax Indemnitee" means each Noteholder and all Affiliates,
-------------------------
directors, officers, agents, representatives, servants and corporate
shareholders thereof.
"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;
(ii) Equipment Notes for which prepayment money in the necessary
amount has been theretofore deposited with the Indenture Trustee in
trust for the holders of such Equipment Notes pursuant to Section 9.01
of the Indenture; provided that if such Equipment Notes are to be
-------- ----
prepaid, notice of such prepayment has been duly given pursuant to the
Indenture or provision therefor satisfactory to the Indenture Trustee
has been made; and
(iii) 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 Polaris Holding Company, a Delaware 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 the 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.
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N583ML], dated as of August 10, 1999, from the Manufacturer.
"Participants" means, collectively, the Owner Participant and the Loan
------------
Participant; "Participant" means, individually, one of the Participants.
-----------
"Participation Agreement" means the Participation Agreement [N583ML], dated
-----------------------
as of August 10, 1999, 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 Participant.
"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 which have been removed therefrom so long as title to such removed
Parts remains vested in Lessor under the terms of Section 7 of the Lease,
exclusive of any items leased by the Lessee from third parties and not required
to be installed on the Aircraft in accordance with the Lease or otherwise
required in the navigation or operation of the Aircraft.
"Past Due Rate" means 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 June 1 and December 1 through and including June
------------
1, 2015, commencing on December 1, 1999.
"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 and, with respect to both clause (a) and (b) of
this definition, which shall not then be subject to a proceeding or final order
under applicable bankruptcy, insolvency or reorganization laws.
"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 to such mutual fund and receives
reasonable compensation for such services, (d) certificates of 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 short-term debt rating of "A1" by Standard & Poor's or "P1" by ▇▇▇▇▇'▇
Investors Service, Inc. (or, if neither such organization shall provide such
ratings at any time, a rating equal to the highest ratings assigned by any
nationally recognized rating organization in the United States of America) and
having a final maturity of one year or less from date of purchase thereof; (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 short-term
debt rating assigned by such organization, or (f) obligations of the type
described in clauses (a) or (b) 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 Indenture Trustee
(or after the Lien of the Indenture has been discharged, the Owner Trustee), all
such Permitted Investments shall mature not later than 30 days from the date of
purchase. If any of the above investments are unavailable, the entire amount to
be invested may be used to purchase Federal Funds overnight from an entity
described in (d) above.
"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
-----------------------------
[N583ML], dated as of August 10, 1999, 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.
"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.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Remaining Weighted Average Life" means on a given date with respect to any
-------------------------------
Equipment Note the number of days equal to the quotient obtained by dividing (i)
the sum of each of the products obtained by multiplying (a) the amount of each
then remaining scheduled payment of
principal of such Equipment Note by (b) the number of days from and including
such date to but excluding the dates on which each such payment of principal is
scheduled to be made; by (ii) the then outstanding principal amount of such
Equipment Note.
"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; provided that, such engine shall be compatible with the other
-------- ----
Engine, and shall be an engine of a type then being utilized by the Lessee on
other Canadair Regional Jet Series 200 aircraft operated by the Lessee.
"Residual Agreement" has the meaning given to such term in the recitals of
------------------
the Participation Agreement.
"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 [N583ML],
--------------------------
dated as of August 10, 1999, between the Manufacturer and the Lessee.
"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.
------
"Security Trustee" means NatWest Aerospace Trust Company Limited, as
----------------
Security Trustee under the Deed of Charge, Assignment and Priorities dated April
20, 1998, among, inter alia, the initial Loan Participant, as at any time
amended, modified, novated or replaced by any corresponding agreement or
agreements (the "Deed of Charge"), or any other person acting as Security
Trustee under the Deed of Charge as from time to time designated in writing to
the Lessee.
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (b), (f), (g), (h), (k) or (l) 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 Indenture Default" means (a) any Specified Default, or (b) any
---------------------------
Indenture Default arising under Sections 4.02(b), 4.02(c), 4.02(h) or 4.02(i) of
the Indenture.
"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
Make-Whole Amount 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.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each Indemnitee.
--------------
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N583ML], dated
-----------------------
as of August 10, 1999 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.
"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.
"Treasury Rate" means for any Designated Maturity, the average yield to
-------------
maturity of, and resulting from the bidding for, the most recently auctioned
United States Treasury Notes with maturities equal to such Designated Maturity
on the date three Business Days prior to the relevant calculation of Make-Whole
Amount; and if United States Treasury Notes with such a maturity are not then
auctioned and publicly traded, the weighted average yield to maturity of United
States Treasury Notes with maturities next above and below such Designated
Maturity (calculated as provided below); such yields in each case to be
determined by averaging (and rounding upward to the nearest whole multiple of
1/1000 of 1% per annum, if the average is not such a multiple) the yields of the
relevant United States Treasury Notes (rounded, if necessary, to the nearest
1/1000 of
1% with any figure of 1/2000 of 1% or above rounded upward) as displayed on the
applicable Telerate screen (page 7677), or if such screen is not available, as
quoted by two reputable dealers in United Stated Treasury Notes selected by a
Majority in Interest of Noteholders, in either case, at approximately 11:00 a.m.
New York time on the date, and notified to the Lessee, the Indenture Trustee and
the Noteholders; any weighted average yield of United States Treasury Notes with
two maturities is to be calculated in accordance with the following formula:
(Y2-Y1)(DM-X1)
-------------------
WAY=Y1+ (X2-X1)
Where:
WAY = Weighted Average Yield
DM = relevant Designated Maturity
X1 = whole integer in years closest to and less than DM which equals
the maturity of a United States Treasury Note then publicly
traded.
X2 = whole integer in years closest to and greater than DM which equals
the maturity of a United States Treasury Note then publicly
traded.
Y1 = yield, determined as provided above, of United States Treasury
Notes then most recently auctioned with maturities equal to X1.
Y2 = yield, determined as provided above, of United States Treasury
Notes then most recently auctioned with maturities equal to X2.
"Trust Agreement" means the Trust Agreement [N583ML], dated as of August
---------------
10, 1999, between the Owner Participant and the Trust Company.
"Trust Company" means First Union Trust Company, National Association, a
-------------
national banking association, and its successors and permitted assigns.
"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 Engine) executed by the seller thereof in favor of the Owner
Trustee.
Exhibit A
to Lease Agreement
LEASE SUPPLEMENT NO. 1 [N583ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N583ML] dated August _____, 1999, 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 [N583ML], dated as of August 10, 1999 (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 February __, 2016 (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 August, 1999.
ALLFIRST BANK, as Indenture Trustee
By: ______________________________
Name:
Title:
SCHEDULE I
TO LEASE SUPPLEMENT
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
------------ -------------- ---------------- --------------
Bombardier Inc. CL-600-2B19 N583ML 7327
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
------------ -------------- --------------
General Electric Company CF34-3B1 GE-E-872529
GE-E-872530
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 December 1, 2013.
--------
"Lessor's Cost" shall mean $ *.
-------------
"Minimum Liability Amount" shall mean $200,000,000.
------------------------
"Transaction Costs" shall mean * % of Lessor's Cost.
-----------------
"Seller" shall mean Bombardier Capital Inc.
------
"Estimated Value" shall mean $ *.
---------------
"Compounded Discounted Rate" shall mean 14% per annum.
--------------------------
"TV Rate" shall mean a rate equal to the rate per annum announced from time to
-------
time by Citibank, N.A. as its prime rate plus two percent (2%) per annum.
"Renewal Rental Rate" shall mean $ * per annum.
-------------------
"Applicable Rate" shall mean * % per annum.
---------------
* Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
Exhibit C
Basic Rent
----------
Basic Rent Payment Date Amount
----------------------- ------
Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
Exhibit D
Termination Values
------------------
Termination Date Termination Value
---------------- -----------------
Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
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
* only for Subleasing
Exhibit F
RETURN CONDITIONS
-----------------
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
A. General Conditions Upon Return. Unless purchased by Lessee
------------------------------
pursuant to Section 13 of the Lease, at the time of return of the Airframe upon
the termination of the Lease at the end of the Basic Term or any Renewal Term
or pursuant to Section 14(c) or 17 of the Lease: (i) the Aircraft shall be
registered with the FAA in the name of the Lessor (except for a failure caused
by the Lessor being ineligible to be the registered owner of an aircraft
registered with the FAA), (ii the Aircraft shall have and be in compliance with
a currently valid standard certificate of airworthiness issued by the FAA and be
in compliance with Part 121 of the FAA Regulations (or successor regulations),
(ii the Aircraft shall be free and clear of all Liens (other than Lessor's
Liens) and rights of persons not party to any Operative Agreement under pooling,
interchange, overhaul, repair or similar agreements or arrangements, (iv the
Aircraft shall be in as good operating condition as when originally delivered to
Lessee, ordinary wear and tear excepted, and be fully equipped with two Engines
or other engines meeting the requirements of Replacement Engines, (v) the
Aircraft shall have all Lessee's and any Permitted Sublessee's exterior markings
removed or painted over and the areas where such markings were removed or
painted over refurbished as necessary to blend with adjacent areas, (vi the
Aircraft shall be in regular U.S. passenger configuration and with the same
number of seats as when delivered and the interior of the Aircraft shall be
clean in accordance with Lessee's customary standard for a "between flights"
cleaning, (vi the Aircraft will be in compliance with the maintenance provisions
of the Lease, and (vi the Aircraft shall have no outstanding airworthiness
directives issued by the FAA requiring terminating action by the date of return.
In the event the FAA shall issue any directive which would require improvements
to the Aircraft in order for the airworthiness certificate of the Aircraft to be
maintained in good standing, Lessee shall not apply for an extension of the date
of compliance with the directive as to the Aircraft to a date after the date of
return of the Aircraft pursuant to Section 12 of the Lease, unless it shall
previously or concurrently have applied for such an extension with respect to
all Canadair Regional Jet Series 200 ER aircraft in its fleet affected by such
directive.
B. Hours of Operation. Unless purchased by Lessee pursuant to
------------------
Section 13 of the Lease, at the time of return of the Airframe upon the
termination of the Lease at the end of the Basic Term or any Renewal Term or
pursuant to Section 14(c) or 17 of the Lease: (A) the Airframe shall have
remaining 25% of the hours or cycles of operation (whichever shall be
applicable) remaining until the Aircraft's next structural inspection (which
under the maintenance program in effect on the Delivery Date is the "C4"), all
as determined in accordance with the Lessee's (or any Permitted Sublessee's) FAA
approved maintenance program and (B) the number of hours or cycles of operation
(whichever shall be applicable under the maintenance program then in use with
respect to such Engine or engine) on each Engine or engine remaining until the
next scheduled life limited
parts replacement, including hot section refurbishment, shall be at least 25% of
the hours or cycles (whichever shall be applicable) between such life limited
parts replacement, including hot section refurbishment, allowed under the
maintenance program then in use with respect to such Engine or engine which
shall have been approved by all necessary governmental approvals of the country
under the laws of which the Aircraft shall have then been registered.
If (A) the Airframe does not meet the conditions specified in said
clause (A) above, Lessee shall pay or cause to be paid to Lessor a Dollar amount
computed by multiplying (I) the cost of performing the next structural
inspection of the type referred to in such clause (A) at a rate then charged by
an outside maintenance provider to Lessee for performing such work (where such
rate would also be available to Lessor) by (II) a fraction of which (x) the
numerator shall be the excess of (A) 25% of the hours of operation allowable for
the Airframe between such structural inspection over (B) the number of hours of
operation remaining on the Airframe to the next such structural inspection and
(y) the denominator shall be the number of hours of operation allowable between
such structural inspection.
If any Engine or engine does not meet the conditions specified in
clause (B) above, Lessee shall pay or cause to be paid to Lessor, with respect
to any such Engine or engine, a Dollar amount computed by multiplying (aa) the
cost of performing the scheduled life limited parts replacement, including hot
section refurbishment, under the maintenance program then used by Lessee or any
Permitted Sublessee for an engine of the same model as such Engine at a rate
then charged by an outside maintenance provider to Lessee or such Permitted
Sublessee for performing such work (where such rate would also be available to
Lessor) by (cc) a fraction of which (x) the numerator shall be the excess of 25%
of the hours or cycles of operation (whichever is applicable) between life
limited part replacement allowable for an engine under the maintenance program
then in use with respect to such Engine or engine over the actual average number
of hours or cycles of operation on such Engine or engine remaining until the
next such scheduled life limited parts replacement, including hot section
refurbishment, and (y) the denominator shall be the number of hours or cycles
allowable between such scheduled life limited parts replacement, including hot
section refurbishment.
Note to Exhibit 10.5
The following Lease Agreement is substantially identical in all material
respects to the Lease Agreement filed herewith except as follows:
Aircraft
Aircraft Rental and Manufacturer's
Date Expiration Date Tail No. Related Terms Serial No.
---- --------------- -------- ------------- --------------
August 10, 1999 February 16, 2016 N584ML * 7330
September 10, 1999 March 17, 2016 N585ML * 7334
* Confidential Treatment Requested