EXHIBIT 4.12
LEASE AGREEMENT
(US Airways, Inc. Trust No. N___U_)
Dated as of
[-]
Between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
Not in its individual capacity except as expressly
provided herein, but solely as Owner Trustee,
Lessor
and
US AIRWAYS, INC.,
Lessee
One Airbus Model A[-] Aircraft
Manufacturer's Serial Number ____
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As set forth in Section 21 hereof, Lessor has assigned to the Indenture
Trustee (as defined herein) certain of its right, title and interest in and
to this Lease. To the extent, if any, that this Lease 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 may be
created through the transfer or possession of any counterpart other than
the original executed counterpart, which shall be identified as the
counterpart containing the receipt therefor executed by the Indenture
Trustee on the signature page thereof.
TABLE OF CONTENTS TO LEASE AGREEMENT
Page
SECTION 1. DEFINITIONS........................................................1
SECTION 2. ACCEPTANCE AND LEASE...............................................1
SECTION 3. TERM AND RENT......................................................1
(a) Basic Term.........................................................1
(b) Basic Rent.........................................................1
(c) Adjustments to Basic Rent..........................................2
(d) Supplemental Rent..................................................3
(e) Payments in General................................................4
(f) Business Day Convention............................................5
(g) Verification.......................................................5
SECTION 4. DISCLAIMER; LESSOR'S REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.........................................................6
(a) Disclaimer.........................................................6
(b) Representations, Warranties and Covenants of First Security Bank...6
(c) Lessor's Covenants.................................................7
(d) Manufacturers' Warranties..........................................7
SECTION 5. RETURN OF THE AIRCRAFT.............................................8
(a) Condition Upon Return..............................................8
(b) Parking and Related Matters........................................8
(c) Return of Other Engines............................................9
(d) Obligations Continue Until Return..................................9
SECTION 6. LIENS..............................................................9
SECTION 7. REGISTRATION, MAINTENANCE, OPERATION AND REGISTRATION;
POSSESSION AND SUBLEASES; INSIGNIA................................10
(a) Registration, Maintenance, Operation and Registration.............10
(1) Registration and Maintenance...............................10
(2) Operation..................................................11
(3) Reregistration.............................................12
(b) Possession and Subleases..........................................12
(c) Insignia..........................................................19
SECTION 8. REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS
AND ADDITIONS.....................................................19
(a) Replacement of Parts..............................................19
(b) Certain Matters Regarding Passenger Convenience Equipment.........22
SECTION 9. VOLUNTARY TERMINATION.............................................23
(a) Termination Event.................................................23
(b) Optional Sale of the Aircraft.....................................23
(c) Termination as to Engines.........................................26
SECTION 10. LOSS, DESTRUCTION, REQUISITION, ETC...............................26
(a) Event of Loss with Respect to the Aircraft........................26
(b) Event of Loss with Respect to an Engine...........................29
(c) Application of Payments from Governmental Authorities
for Requisition of Title, etc.....................................30
(d) Requisition for Use of the Aircraft by the United
States Government or the Government of Registry of the Aircraft...31
(e) Requisition for Use of an Engine by the United States
Government or the Government of Registry of the Aircraft..........31
(f) Application of Payments During Existence of Event of Default......31
SECTION 11. INSURANCE.........................................................32
(a) Public Liability and Property Damage Insurance....................32
(b) Insurance Against Loss or Damage to the Aircraft..................33
(c) Reports, etc. ....................................................35
(d) Self-Insurance....................................................36
(e) Terms of Policies. ..............................................38
(g) Additional Insurance by Lessor and Lessee.........................38
(h) Indemnification by Government in Lieu of Insurance................38
(i) Application of Payments During Existence of
Specified Default or an Event of Default.................38
SECTION 12. INSPECTION........................................................39
SECTION 13. ASSIGNMENT........................................................41
SECTION 14. EVENTS OF DEFAULT.................................................41
SECTION 15. REMEDIES..........................................................43
SECTION 16. LESSEE'S COOPERATION CONCERNING CERTAIN MATTERS; DELIVERY OF
FINANCIAL STATEMENTS..............................................47
SECTION 17. NOTICES...........................................................48
SECTION 18. NET LEASE; NO SET-OFF, COUNTERCLAIM, ETC..........................48
SECTION 19. RENEWAL OPTIONS; PURCHASE OPTIONS; VALUATION......................49
(a) Renewal Options; Renewal Term. ...................................49
(1) Renewal Term. ............................................49
(2) Waiver.....................................................50
(3) Conditions Precedent, Payment of Basic Rent................50
(4) Termination Value..........................................50
(b) Purchase Options..................................................51
(c) Valuation.........................................................52
SECTION 20. BURDENSOME PURCHASE OPTION........................................53
SECTION 21. SECURITY FOR LESSOR'S OBLIGATION TO HOLDERS OF EQUIPMENT NOTES....54
SECTION 22. LESSOR'S RIGHT TO PERFORM FOR LESSEE..............................55
SECTION 23. INVESTMENT OF SECURITY FUNDS; LIABILITY OF LESSOR LIMITED.........55
(a) Investment of Security Funds......................................55
(b) Liability of Lessor Limited.......................................55
SECTION 24. JURISDICTION......................................................56
SECTION 25. MISCELLANEOUS.....................................................56
SECTION 26. SUCCESSOR TRUSTEE.................................................57
SECTION 27. LEASE FOR U.S. FEDERAL INCOME TAX LAW PURPOSES; SECTION 1110 OF
BANKRUPTCY CODE.................................................57
(a) Lease for Federal Income Tax Law Purposes.........................57
(b) Section 1110 of Bankruptcy Code. .................................57
(c) Article 2A of the UCC. ...........................................57
EXHIBITS
EXHIBIT A - FORM OF LEASE SUPPLEMENT
EXHIBIT B - RETURN CONDITIONS
EXHIBIT B - 1 BASIC RENT PAYMENTS
EXHIBIT B - 2 BASIC RENT ALLOCATIONS
EXHIBIT B - 3 LESSOR'S COST
EXHIBIT C - TERMINATION VALUE SCHEDULE
EXHIBIT D - EBO DATE AND EBO AMOUNTS
LEASE AGREEMENT
(US Airways, Inc. Trust No. N___U_)
This LEASE AGREEMENT (US Airways, Inc. Trust No. N___U_),
dated as of [-], between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in
its individual capacity, except as expressly provided herein, but solely as
Owner Trustee under the Trust Agreement (as defined in Annex A hereto) (in
such capacity, "Lessor"), and US AIRWAYS, INC., a corporation organized and
existing pursuant to the laws of the State of Delaware ("Lessee");
W I T N E S S E T H:
SECTION 1. DEFINITIONS. Capitalized terms used but not
defined herein shall have the respective meanings set forth or incorporated
by reference, and shall be construed and interpreted in the manner
described, in Annex A.
SECTION 2. ACCEPTANCE AND LEASE. Lessor hereby agrees
(subject to satisfaction of the conditions set forth in Section 4(a) of the
Participation Agreement) to accept the transfer of title from and
simultaneously to lease to Lessee hereunder, and Lessee hereby agrees
(subject to satisfaction of the conditions set forth in Section 4(b) of the
Participation Agreement) to lease from Lessor hereunder, the Aircraft as
evidenced by the execution by Lessor and Lessee of a Lease Supplement
leasing the Aircraft hereunder. Lessee hereby agrees that such acceptance
of the Aircraft by Lessor shall, without further act, irrevocably
constitute acceptance by Lessee of such Aircraft for all purposes of this
Lease.
SECTION 3. TERM AND RENT.
(a) Basic Term. The Basic Term shall commence on the
Delivery Date and end on the Basic Term Expiration Date.
(b) Basic Rent. On each Rent Payment Date, Basic Rent shall
be due and payable and Lessee shall pay Basic Rent in Dollars in an amount
equal to the Lessor's Cost multiplied by the percentage for such Rent
Payment Date specified on Exhibit B-1; provided, that if at any time, and
from time to time, during any six-month period between any Rent Payment
Dates, interest payable on the Series C Equipment Notes has been increased
in accordance with the terms of the Trust Indenture due to a Registration
Default, then, on each Rent Payment Date or such other date, Lessee shall
pay an amount equal to the Incremental Amount then due as an additional
payment of Basic Rent. Each payment of Basic Rent shall be final and,
absent manifest error, Lessee shall not seek, or claim any right, to
recover all or any part of such payment from Lessor or any other Person for
any reason whatsoever. Basic Rent shall be allocated to each Lease Period
in the amounts set forth for such Lease Period on Exhibit B-2 under the
caption "Basic Rent Allocation." Each installment of Basic Rent shall be
allocated to the Lease Period(s) specified under the caption "Timing of
Payments of Allocated Rent" on Exhibit B-2.
(c) Adjustments to Basic Rent.
(i) In the event of a refinancing as contemplated by
Section 16 of the Participation Agreement, then the Basic Rent
percentages set forth in Exhibit B-1, the Termination Value
percentages set forth in Exhibit C and the EBO Amounts set forth on
Exhibit D shall be recalculated (upwards or downwards) by the Owner
Participant as contemplated by such Section 16 to (1) maintain the
Owner Participant's Net Economic Return and (2) to the extent
possible consistent with clause (1) hereof, to minimize the Net
Present Value of Rents to Lessee;
(ii) In the event that Lessee pays an indemnity
obligation under the Tax Indemnity Agreement, then the Termination
Value percentages set forth in Exhibit C and the EBO Amounts set
forth on Exhibit D shall be recalculated (upwards or downwards) by
the Owner Participant, using the same methods and assumptions
(except to the extent such assumptions shall be varied to take into
account the Loss (as defined in the Tax Indemnity Agreement) that
is the subject of such indemnification and any prior or
contemporaneous Loss) used to calculate the Termination Value
percentages and the EBO Amounts on the Delivery Date, in order to
(1) maintain the Owner Participant's Net Economic Return and (2) to
the extent possible consistent with clause (1) hereof, minimize the
Net Present Value of Rents to Lessee.
(iii) Whenever Basic Rent is recalculated pursuant to
this Section 3(c), the Owner Participant shall redetermine the
Termination Value percentages set forth in Exhibit C and the EBO
Amounts set forth in Exhibit D in a manner consistent with such
recalculation.
(iv) Any recalculation of Basic Rent and Termination
Value percentages pursuant to this Section 3(c) shall be determined
by the Owner Participant and shall be subject to the verification
procedures set forth in Section 3(g) hereto. Such recalculated
Basic Rent and Termination Value percentages shall be set forth in
a Lease Supplement or an amendment to this Lease.
(v) Anything contained in the Participation Agreement
or this Lease to the contrary notwithstanding (I) each installment
of Basic Rent payable hereunder, whether or not adjusted in
accordance with this Section 3(c), shall be, under any
circumstances and in any event, in an amount at least sufficient
for Lessor to pay in full, on the date on which such installment of
Basic Rent is due, any payments then scheduled to be made on
account of the principal of and interest on the Equipment Notes and
(II) the amount of Termination Value payable on any Termination
Date, Loss Payment Date or, in the case of payments under Sections
15 and 20, Rent Payment Date, whether or not adjusted in accordance
with this Section 3(c), together with all other amounts payable
hereunder and under the Operative Documents by Lessee on such date
and the amount of the premium, if any, payable by Lessor on the
Equipment Notes, shall be, under any circumstances and in any
event, in an amount at least sufficient for Lessor to pay in full,
on such Termination Date, Loss Payment Date or Rent Payment Date,
the outstanding principal of, premium, if any, and interest on the
Equipment Notes. It is agreed that no installment of Basic Rent,
payment of Termination Value or EBO Amounts shall be increased or
adjusted by reason of (i) any attachment or diversion of Rent on
account of (A) Lessor Liens or (B) any Loan Participant Lien, (ii)
any modification of the payment terms of the Equipment Notes made
without the prior written consent of Lessee or (iii) the
acceleration of any Equipment Note or Equipment Notes due to the
occurrence of an Indenture Event of Default which does not
constitute a Lease Event of Default.
(vi) All adjustments to Basic Rent under this Section
3(c) shall be subject to verification pursuant to Section 3(g).
(d) Supplemental Rent. Lessee shall pay (or cause to be
paid) promptly to Lessor, or to whomsoever shall be entitled thereto, any
and all Supplemental Rent constituting Termination Value and Make-Whole
Amount as the same shall become due and owing and all other amounts of
Supplemental Rent within five Business Days (5) days after demand or within
such other relevant period as may be provided in any Operative Document,
and in the event of any failure on the part of Lessee to pay any
Supplemental Rent when due, Lessor shall have all rights, powers and
remedies provided for herein or in any other Operative Document or by law
or equity or otherwise in the case of nonpayment of Basic Rent. Lessee
shall pay as Supplemental Rent the Make-Whole Amount, if any, due pursuant
to Section 2.10(b) or Section 2.11 of the Trust Indenture in connection
with a prepayment of the Equipment Notes upon redemption of such Equipment
Notes in accordance with Section 2.10(b) or Section 2.11 of the Trust
Indenture. Lessee also will pay to Lessor, or to whosoever shall be
entitled thereto, on demand, as Supplemental Rent, to the extent permitted
by applicable law, interest at the Past Due Rate on any part of any
installment of Basic Rent not paid when due for any period from the due
date for such installment of Basic Rent until the same shall be paid in
full and on any part of any payment of Supplemental Rent not paid when due
for the period until the same shall be paid in full.
(e) Payments in General. All payments of Rent shall be made
directly by Lessee (whether or not any Sublease shall be in effect) by wire
transfer of immediately available funds prior to 11:00 a.m., New York time,
on the date of payment, to Lessor at its account at First Security Bank,
National Association, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ABA No. ▇▇▇-▇▇▇▇-▇▇, Account No. [-], Attention: Corporate Trust
Department, Credit US Airways/US Airways, Inc. Trust No. N___U_ (or such
other account of Lessor in the continental United States as Lessor shall
direct in a notice to Lessee at least ten (10) Business Days prior to the
date such payment of Rent is due); provided that so long as the Trust
Indenture shall not have been fully discharged, Lessor hereby irrevocably
directs and Lessee agrees, that, unless the Indenture Trustee shall
otherwise direct, all Rent payable to Lessor and assigned to the Indenture
Trustee pursuant to the Trust Indenture shall be paid prior to 11:00 a.m.,
New York time on the due date thereof in funds of the type specified in
this Section 3(e) directly to the Indenture Trustee at its account at State
Street Bank and Trust Company of Connecticut, National Association, ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ABA No. [-], Account No. [-],
Reference: US Airways, Inc. ▇▇▇▇-▇ ▇▇▇▇/▇▇ ▇▇▇▇▇▇▇, Inc. Trust No. N___U_
(or such other account of the Indenture Trustee in the continental United
States as the Indenture Trustee shall direct in a notice to Lessee at least
ten (10) Business Days prior to the date such payment of Rent is due).
Lessor hereby directs and Lessee agrees that all payments of Supplemental
Rent owing to the Indenture Trustee or to a Loan Participant or any other
Person (other than the Excluded Payments) pursuant to the Participation
Agreement shall be made in Dollars in immediately available funds prior to
11:00 a.m., New York time, on the due date thereof at the office of the
Indenture Trustee or at such other office of such other financial
institution located in the continental United States as the party entitled
thereto may so direct at least ten (10) Business Days prior to the due date
thereof. All payments of Supplemental Rent, to the extent that such amounts
constitute Excluded Payments, shall be made in Dollars in immediately
available funds prior to 11:00 a.m., New York time, on the due date
thereof, to the account of the Owner Participant or the account of such
other Person entitled to such payment in each case specified in Schedule I
to the Participation Agreement (or to such other account as may be
specified in writing by the Owner Participant or the account of such other
Person from time to time).
(f) Business Day Convention. Notwithstanding anything to the
contrary contained herein, if any date on which a payment of Rent becomes
due and payable is not a Business Day, then such payment shall not be made
on such scheduled date but shall be made on the next succeeding Business
Day with the same force and effect as if made on such scheduled date and
(to the extent any such payment of Rent is made on such next succeeding
Business Day) no interest shall accrue on the amount of such payment of
Rent from and after such scheduled date to such next succeeding Business
Day.
(g) Verification. Any recalculation of Basic Rent,
Termination Value percentages and EBO Amounts pursuant to the Lease shall
be determined by the Owner Participant, and shall maintain the Owner
Participant's Net Economic Return except as assumptions have been modified
pursuant to this Section 3 or pursuant to the Tax Indemnity Agreement or
the Participation Agreement, as the case may be; provided, however, that
Lessee may request (i) Lessee's independent public accountants to verify
such calculations but without any requirement that the Owner Participant
disclose to such Persons the methodology and assumptions and (ii) if Lessee
believes that such calculations by the Owner Participant are in error then
a nationally recognized firm of accountants selected by the Owner
Participant and reasonably acceptable to Lessee shall be permitted to
verify such calculations and the Owner Participant will make available to
such firm (subject to the execution by such firm of a confidentiality
agreement acceptable to the Owner Participant) the methodology and
assumptions and any changes made therein pursuant to this Section 3. In the
event of a verification under clause (ii) of the first sentence of this
paragraph the determination by such firm of accountants shall be final.
Lessee will pay the reasonable costs and expenses of the verification under
clause (ii) of the first sentence of this paragraph unless an error adverse
to Lessee is established by such firm, and if as a result of such
verification process the Basic Rent is adjusted and such adjustment causes
the Net Present Value of Rents to decline by ten (10) or more basis points
or causes a reduction of fifteen (15) or more basis points in the aggregate
EBO Amount or a material reduction in Termination Values (in which event
the Owner Participant shall pay the reasonable costs and expenses of such
verification process). Such recalculated Basic Rent, Termination Value
percentages and EBO Amounts shall be set forth in a Lease Supplement or an
amendment to the Lease.
Any adjustments made pursuant to this Section 3 shall be
made so as to avoid (except to the extent indemnified pursuant to Section
16(a) of the Participation Agreement or the Tax Indemnity Agreement) (i)
any adverse effect under Section 467 of the Code, except to the extent
there was an adverse effect under Section 467 of the Code on the Delivery
Date and (ii) any risk that the Lease could not constitute a "true lease"
for federal income tax purposes or result in an unindemnified loss of
assumed tax benefits, except to the extent that on the Delivery Date, the
Lease was not a "true lease." Notwithstanding any other provision herein,
Lessee agrees to use commercially reasonable efforts upon a refinancing to
avoid any adverse effects under Section 467 of the Code, except to the
extent there was an adverse effect under Section 467 of the Code on the
Delivery Date. 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 fair market value amount on the EBO Date specified in the
appraisal received pursuant to Section 4(a)(xvii) 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 D (the present value
calculation described in this clause (C) shall utilize a semiannual
compounded discount rate no lower than the rate per annum identified on
Exhibit D as the Compounded Discount Rate). All adjustments required
pursuant to the Lease shall be set forth in a Lease Supplement or in an
amendment to the Lease, and promptly after execution thereof by Lessor and
Lessee, Lessee shall give a copy thereof to the Indenture Trustee.
SECTION 4. DISCLAIMER; LESSOR'S REPRESENTATIONS, WARRANTIES
AND AGREEMENTS.
(a) Disclaimer. LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT,
EACH ENGINE AND EACH PART THEREOF "AS-IS," "WHERE-IS" AND "WITH ALL
FAULTS." EXCEPT AS EXPRESSLY PROVIDED HEREIN, NONE OF LESSOR, THE INDENTURE
TRUSTEE NOR ANY PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO HAVE
MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS AND WILL BE DEEMED TO HAVE
EXPRESSLY DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
AS TO THE TITLE, AIRWORTHINESS, WORKMANSHIP, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE OF THE
AIRCRAFT, EACH ENGINE 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 STRICT LIABILITY IN TORT; OR ANY OTHER REPRESENTATION
OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT,
EACH ENGINE OR ANY PART THEREOF.
(b) Representations, Warranties and Covenants of First
Security Bank. First Security Bank, National Association, in its individual
capacity, (i) represents and warrants that on the Delivery Date, Lessor
shall have received whatever title to the Aircraft was conveyed to it by
Lessee, (ii) represents and warrants that on the Delivery Date the Aircraft
shall be free of Lessor Liens attributable to it, (iii) covenants that
neither it nor any Person claiming by, through or under it will, through
its own actions or inactions, interfere in Lessee's or any Sublessee's
continued possession, use, operation and quiet enjoyment of the Aircraft
during the Term unless an Event of Default has occurred and is continuing
and this Lease has been duly declared (or, with respect to Section 14(e) or
(f), is deemed declared) in default, and this Lease shall not be terminated
except as provided herein, (iv) covenants that it will not directly or
indirectly create, incur, assume or suffer to exist any Lessor Lien
attributable to it on or with respect to the Airframe or any Engine or any
portion of the Trust Estate and (v) represents and warrants that it is a
Citizen of the United States and agrees that if at any time during which
the Aircraft is registered in the United States it shall cease to be a
Citizen of the United States it will promptly resign as Owner Trustee (if
and so long as such citizenship is necessary under the Transportation Code
as in effect at such time or, if it is not necessary, if and so long as the
Owner Trustee's citizenship would have any material adverse effect on the
Loan Participants, the Owner Participant or Lessee), effective upon the
appointment of a successor Owner Trustee in accordance with Section 9.01 of
the Trust Agreement.
(c) Lessor's Covenants. Lessor (i) covenants that neither it
nor any Person claiming by, through or under it will, through its own
actions or inactions interfere in Lessee's or any Sublessee's continued
possession, use, operation and quiet enjoyment of the Aircraft during the
Term unless an Event of Default has occurred and is continuing and this
Lease has been duly declared (or, with respect to Section 14(e) or (f), is
deemed declared) in default, and this Lease shall not be terminated except
as provided herein and (ii) covenants that it will not directly or
indirectly create, incur, assume or suffer to exist any Lessor Lien
attributable to it on or with respect to the Airframe or any Engine.
(d) Manufacturers' Warranties. None of the provisions of
this Lease shall be deemed to amend, modify or otherwise affect the
representations, warranties or other obligations (express or implied) of
the Seller, the Manufacturer, the Engine Manufacturer, any subcontractor or
supplier of the Manufacturer or the Engine Manufacturer with respect to the
Airframe, the Engines or any Parts, or to release the Seller, the
Manufacturer, the Engine Manufacturer, or any such subcontractor or
supplier, from any such representation, warranty or obligation. Unless an
Event of Default shall have occurred and be continuing under Section 14 and
this Lease shall have been duly declared (or, with respect to Section 14(e)
or (f), is deemed declared) in default, Lessor agrees to make available to
Lessee such rights as Lessor may have under any warranty with respect to
the Aircraft, the Airframe or any Engine made by the Seller, the
Manufacturer, the Engine Manufacturer, or any affiliate thereof or any of
its subcontractors or suppliers and any other claims against the Seller,
the Manufacturer, the Engine Manufacturer, or any affiliate thereof, or any
such subcontractor or supplier with respect to the Aircraft, all pursuant
to and in accordance with the terms of the Purchase Agreement Assignment.
At any time an Event of Default has occurred and is continuing and this
Lease has been duly declared or deemed declared in default, all of Lessee's
rights under any warranty or other obligation with any of such Persons,
with respect to the Aircraft shall automatically revert to Lessor.
SECTION 5. RETURN OF THE AIRCRAFT.
(a) Condition Upon Return. Lessee shall comply with each of
the provisions of Exhibit B, which provisions are hereby incorporated by
this reference as if set forth in full herein. All references to "Section
5" or "this Section 5" shall be deemed to include Exhibit B.
(b) Parking and Related Matters. Unless Lessee has elected
to purchase the Aircraft in accordance with the terms hereof, if Lessor
gives written notice to Lessee not less than thirty (30) days nor more than
one hundred eighty (180) days prior to the end of the Term requesting
parking of the Aircraft upon its return hereunder, Lessee will assist
Lessor, at Lessor's expense, in arranging outdoor parking facilities for
the Aircraft for a period up to thirty (30) days, commencing on the date of
such return, at such outdoor parking facility in the forty eight (48)
contiguous states of the United States as Lessee and Lessor may agree;
provided that such location shall be a location generally used for the
parking of commercial aircraft by aircraft owners or operators.
Notwithstanding subsection (a) of Exhibit B, such location shall be deemed
to be the return location of the Aircraft for purposes of such Exhibit B.
Such parking shall be at Lessor's risk and expense and Lessor shall pay all
applicable parking, storage, maintenance and insurance fees and expenses.
Lessee's obligation to assist, Lessor in arranging parking for the Aircraft
shall be subject to Lessor entering into an agreement satisfactory to
Lessee prior to the commencement of the outdoor parking period with the
outdoor parking facility providing, among other things, that Lessor shall
bear all parking, maintenance charges (other than maintenance required as a
direct breach of Lessee's obligations under this Section 5) and other costs
(including those costs referred to above) incurred relating to such
storage.
(c) Return of Other Engines. In the event that any Engine
owned by Lessor shall not be installed on the Airframe at the time of
return hereunder, Lessee shall be required to return the Airframe hereunder
with an Acceptable Alternate Engine meeting the requirements of, and in
accordance with, this Section 5 and Section 10. Thereupon, Lessor will
transfer to Lessee on an "as is, where is, with all faults" basis the
Engine constituting part of such Aircraft but not installed on such
Airframe at the time of the return of the Airframe.
(d) Obligations Continue Until Return. If Lessee shall, for
any reason, fail to return the Aircraft at the time 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 110% of 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 Lessee shall not be responsible for Lessor's
failure to accept return of the Aircraft in accordance with this Section 5
in a timely manner or for any Rent with respect to periods after Lessee has
tendered the Aircraft for return in accordance with this Lease. Any Rent
owed to Lessor pursuant to this Section 5(d) shall be payable upon
acceptance of the Aircraft by Lessor or on the last day of each calendar
month following the last day of the Term if the Aircraft has not been
accepted earlier.
SECTION 6. LIENS. Lessee will not directly or indirectly
create, incur, assume or suffer to exist any Lien on or with respect to the
Aircraft, title thereto or any interest therein or in this Lease (or any
Sublease), except (i) the respective rights of Lessor as owner of the
Aircraft and Lessee as provided herein, the Lien of the Trust Indenture,
the rights of any Sublessee under a sublease permitted hereunder and any
other rights of any Person existing pursuant to the Operative Documents,
(ii) the rights of others under agreements or arrangements to the extent
permitted by the terms of Sections 7(b) and 8(b) hereof, (iii) Lessor
Liens, Loan Participant Liens and Indenture Trustee's Liens, (iv) Liens for
Taxes of Lessee (or any Sublessee) either not yet due or being contested in
good faith by appropriate proceedings so long as such proceedings do not
involve any material danger of the sale, forfeiture or loss of the Airframe
or any Engine or any interest of the Owner Participant therein or any
impairment of the validity or priority of the Lien of the Indenture, any
risk of any material civil liability or any risk of criminal liability on
the part of Lessor or the Owner Participant or the Indenture Trustee, so
long as Lessee has maintained adequate reserves, (v) materialmen's,
mechanics', workmen's, repairmen's, employees' or other like Liens arising
in the ordinary course of Lessee's (or, if a Sublease is then in effect,
Sublessee's) business (including those arising under maintenance agreements
entered into in the ordinary course of business) securing obligations that
are not overdue for a period of more than thirty (30) days or are being
contested in good faith by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture or
loss of the Airframe or any Engine or any interest of the Owner Participant
therein or any impairment of the validity or priority of the Lien of the
Indenture, any risk of any material civil liability or any risk of criminal
liability on the part of Lessor or the Owner Participant or the Indenture
Trustee so long as Lessee has maintained adequate reserves, (vi) Liens
arising out of any judgment or award against Lessee (or any Sublessee) not
covered by insurance, unless the judgment secured shall not, within sixty
(60) days after the entry thereof, have been discharged, vacated, reversed
or execution thereof stayed pending appeal or shall not have been
discharged, vacated or reversed within sixty (60) days after the expiration
of such stay or any risk of any material civil liability or any risk
of criminal liability on the part of the Lessor or the Owner Participant or
the Indenture Trustee, (vii) any other Lien with respect to which Lessee
(or any Sublessee) shall have provided a bond, cash collateral or other
security adequate in the reasonable opinion of Lessor and the Owner
Participant, and (viii) Liens approved in writing by Lessor and the Owner
Participant so long as the same do not impair the validity or priority of
the Lien of the Indenture. Lessee will promptly, at its own expense, take
(or cause to be taken) such actions as may be necessary duly to discharge
any such Lien not excepted above if the same shall arise at any time.
SECTION 7. REGISTRATION, MAINTENANCE, OPERATION AND
REGISTRATION; POSSESSION AND SUBLEASES; INSIGNIA.
(a) Registration, Maintenance, Operation and Registration.
(1) Registration and Maintenance. Lessee, at its own
cost and expense, shall (or shall cause any Sublessee to): (A)
forthwith upon the delivery thereof hereunder, cause the Aircraft
to be duly registered in the name of Lessor, and, subject to clause
(3) of this Section 7(a) and Section 7(d) of the Participation
Agreement, to remain duly registered in the name of Lessor under
the Transportation Code, provided that Lessor shall execute and
deliver all such documents as Lessee (or any Sublessee) may
reasonably request for the purpose of effecting and continuing such
registration, and shall not register the Aircraft or permit the
Aircraft to be registered under any laws other than the
Transportation Code at any time, except as provided in Section 7(d)
of the Participation Agreement and, unless the Lien of the Trust
Indenture shall have been discharged, shall cause the Trust
Indenture to be duly recorded and maintained of record as a first
mortgage on the Aircraft; (B) maintain, service, repair and/or
overhaul (or cause to be maintained, serviced, repaired and/or
overhauled) (i) so as to keep the Aircraft in as good an operating
condition as when delivered to Lessee (ordinary wear and tear
excepted) and in such condition as necessary to enable the
airworthiness certification for the Aircraft to be maintained in
good standing at all times under Part 121 of the Federal Aviation
Regulations (or any successor provision) (or under the applicable
requirements of the aviation authority of any other jurisdiction in
which the Aircraft may then be registered as permitted by this
Section 7(a), Section 7(b) hereof or Section 7(d) of the
Participation Agreement) except (a) when the Aircraft is being
temporarily stored and is not operational, (b) when the Aircraft is
being serviced, repaired, maintained, overhauled, tested or
modified as permitted or required by the terms of this Lease or (c)
when all Airbus Industrie A320 Family aircraft of comparable
vintage and configuration, powered by powerplants and having
systems and avionics comparable to the Aircraft ("Similar
Aircraft") have been grounded by the FAA or under the laws of any
jurisdiction in which the Aircraft may then be registered as
permitted by Section 7(d) of the Participation Agreement, or such
aviation authority has revoked or suspended the airworthiness
certificates for all such aircraft, and (ii) in accordance with the
maintenance program approved by the government of registry for the
Aircraft and utilizing the same manner of maintenance, service,
repair or overhaul used by Lessee (or any Permitted Sublessee) with
respect to Similar Aircraft operated by it and without in any way
discriminating against the Aircraft on the basis of its leased
status or otherwise; (C) maintain or cause to be maintained in
English all records, logs and other materials required to be
maintained in respect of the Aircraft by the FAA or the aviation
authority of any other jurisdiction in which the Aircraft may then
be registered as permitted by this Section 7(a), Section 7(b)
hereof or Section 7(d) of the Participation Agreement; and (D)
promptly furnish to Lessor any information reasonably required to
enable Lessor to perform any applicable government filings required
of the owner of the Aircraft.
(2) Operation. Lessee will not maintain, use,
service, repair, overhaul or operate the Aircraft (or permit any
Sublessee to maintain, use, service, repair, overhaul or operate
the Aircraft) in violation of any Law or certificate of any
government or governmental authority (domestic or foreign) having
jurisdiction over the Aircraft, or contrary to any airworthiness
certificate, license or registration relating to the Aircraft
issued by any such authority, except to the extent Lessee (or, if a
Sublease is then in effect, any Sublessee) is contesting in good
faith and by appropriate proceedings the validity or application of
any such law, rule, regulation or order which does not involve (x)
any material risk of sale, forfeiture or loss of the Aircraft, (y)
any risk of criminal liability to the Owner Participant, Lessor or
Indenture Trustee or (z) any risk of material civil liability
against the Owner Participant, Lessor or Indenture Trustee. Lessee
will not operate the Aircraft, or permit any Sublessee to operate
the Aircraft, in any area excluded from coverage by any insurance
required by the terms of Section 11; provided, however, that the
failure of Lessee to comply with the provisions of this sentence
shall not give rise to an Event of Default hereunder if
indemnification complying with Section 11(c) has been provided or
where such failure is attributable to extraordinary circumstances
involving an isolated occurrence or series of incidents not in the
ordinary course of the regular operations of Lessee (or any
Sublessee) such as a hijacking, medical emergency, equipment
malfunction, weather condition, navigational error, or other
isolated extraordinary event beyond the control of Lessee (or any
Sublessee) and Lessee (or any Sublessee) is diligently and in good
faith proceeding to rectify such failure.
(3) Reregistration. At any time after the
Depreciation Period, Lessor, upon Lessee's compliance with all of
the terms of Section 7(d) of the Participation Agreement, shall, at
the request and sole expense of Lessee, cooperate with Lessee to
take all actions required to change the registration of the
Aircraft to another country.
(b) Possession and Subleases. Lessee will not, without the
prior written consent of Lessor, sublease or otherwise in any manner
deliver, transfer or relinquish possession of the Airframe or any Engine or
install or permit any Engine to be installed on any airframe other than the
Airframe or enter into any Wet Lease, and so long as Lessee (or any
Sublessee) shall comply with the provisions of Section 7(a) and Section 11
hereof, Lessee may (or may permit any Sublessee to), without the prior
written consent of Lessor:
(i) subject the Airframe and the Engines or engines
then installed thereon to normal interchange agreements or any
Engine to pooling or similar arrangements, in each case on
substantially similar terms as are customarily obtained by
similarly situated U.S. Air Carriers operating Similar Aircraft and
entered into by Lessee (or, if a Sublease is then in effect, by
Sublessee) in the ordinary course of its business; provided that
(A) no such agreement or arrangement contemplates or requires the
transfer of title to the Airframe, (B) if Lessor's title to any
Engine shall be divested under any such agreement or arrangement,
such divestiture shall be deemed to be an Event of Loss with
respect to such Engine and Lessee shall (or shall cause Sublessee
to) comply with Section 10(b) hereof in respect thereof, Lessor not
intending hereby to waive any right or interest it may have to or
in such Engine under Law until compliance by Lessee with such
Section 10(b), (C) any interchange agreement to which the Airframe
may be subject shall be with a U.S. Air Carrier or a Foreign Air
Carrier and (D) the rights of any Person (other than Lessee) under
an interchange agreement covering the Airframe shall be expressly
subject and subordinate to all of the terms of this Lease and
Lessor's and (so long as the Trust Indenture is in effect), the
Indenture Trustee's rights to repossess the Aircraft and void such
interchange agreement.
(ii) deliver possession of the Airframe or any Engine
to the manufacturer thereof (or for delivery thereto) or to any
organization (or for delivery thereto) for testing, service,
repair, maintenance or overhaul work on the Airframe or Engine or
any part of any thereof or for alterations or modifications in or
additions to such Airframe or Engine to the extent required or
permitted by the terms of Section 8(c) hereof;
(iii) install an Engine on an airframe owned by
Lessee (or any Sublessee) free and clear of all Liens, except: (A)
Permitted Liens and those which apply only to the engines (other
than Engines), appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment (other than Parts)
installed on such airframe (but not to the airframe as an
entirety), (B) in the case of airframe interchange agreements
contemplated by clause (i) above, the rights of any U.S. Air
Carrier or Foreign Air Carrier under such interchange agreements;
provided that Lessor's title to such Engines and, if any Equipment
Notes shall be outstanding, the first priority Lien of the Trust
Indenture shall not be divested or impaired as a result thereof;
(C) in the case of pooling or similar arrangements contemplated by
clause (i) above, the rights of third parties under such pooling or
similar arrangements, provided that Lessor's title to such Engine
and, if any Equipment Notes shall be outstanding, the first
priority Lien of the Trust Indenture shall not be divested or
impaired as a result thereof and (D) mortgage liens or other
security interests, provided that (as regards this clause (D)) the
documents creating such mortgage liens or other security interests
(or, if applicable, another enforceable written agreement governing
such mortgage liens or other security interests) effectively
provide that such Engine shall not become subject to the Lien of
such mortgage or security interest, notwithstanding the
installation thereof on such airframe;
(iv) install an Engine on an airframe leased to
Lessee (or any Sublessee) or purchased by Lessee (or any Sublessee)
subject to a conditional sale or other security agreement, provided
that (x) such airframe is free and clear of all Liens, except: (A)
the rights of the parties to the lease or conditional sale or other
security agreement covering such airframe, or their assignees and
(B) Liens of the type permitted by clause (iii) of this paragraph
(b) and (y) such lease, conditional sale or other security
agreement effectively provides that such Engine shall not become
subject to the Lien of such lease, conditional sale or other
security agreement, notwithstanding the installation thereof on
such airframe;
(v) install an Engine on an airframe owned by Lessee
(or any Sublessee), leased to Lessee (or any Sublessee) or
purchased by Lessee (or any Sublessee) subject to a conditional
sale or other security agreement under circumstances where neither
clause (iii) nor clause (iv) of this paragraph (b) is applicable,
provided that such installation shall be deemed an Event of Loss
with respect to such Engine and Lessee shall (or shall cause any
Sublessee to) comply with Section 10(b) hereof in respect thereof,
Lessor not intending hereby to waive any right or interest it may
have to or in such Engine under applicable Law until compliance by
Lessee with such Section 10(b);
(vi) to the extent permitted by Section 8(b) hereof,
subject any appliances, Parts or other equipment owned by Lessor
and removed from the Airframe or any Engine to any pooling
arrangement referred to in clauses (i) and (iii) of this paragraph
(b);
(vii) subject (or permit any Sublessee to subject)
the Airframe or any Engine to the Civil Reserve Air Fleet Program
and transfer (or permit any Sublessee to transfer) possession of
the Airframe or any Engine to the United States Government or any
instrumentality or agency thereof backed by the full faith and
credit of the United States Government pursuant to the Civil
Reserve Air Fleet Program, so long as Lessee (or any Sublessee)
shall (A) promptly notify Lessor upon subjecting the Airframe or
any Engine to the Civil Reserve Air Fleet Program in any contract
year and provide Lessor with the name and address of the
Contracting Office Representative for the Air Mobility Command of
the United States Air Force to whom notice must be given pursuant
to Section 15 hereof and (B) promptly notify Lessor upon
transferring possession of the Airframe or any Engine to the United
States of America or any agency or instrumentality thereof backed
by the full faith and credit of the United States Government
pursuant to such program;
(viii) for a period not to extend beyond the end of
the Term, enter into a Wet Lease for the Airframe and Engines or
engines then installed thereon with any third party; provided that
if Lessee (or any Sublessee) shall enter into any Wet Lease for a
period of more than one year (including renewal options), Lessee
shall provide Lessor written notice of such Wet Lease (such notice
to be given prior to entering into such Wet Lease, if practicable,
but in any event promptly after entering into such Wet Lease), and
each such Wet Lease shall be expressly made subject and subordinate
to the terms of this Lease;
(ix) for a period not to extend beyond the end of the
Term, transfer possession of the Airframe or any Engine to the
United States Government or any instrumentality or agency thereof
having the full faith and credit of the United States Government
pursuant to a contract, a copy of which shall be provided to
Lessor; or
(x) so long as no Event of Default shall have
occurred and be continuing Lessee may, at any time in its sole
discretion, enter into any sublease with (A) any Person that is a
U.S. Air Carrier and a U.S. Person, (B) after the Depreciation
Period, any Permitted Sublessee or (C) after the Depreciation
Period, any other air carrier approved in writing by Lessor and the
Owner Participant, which approval shall not be unreasonably
withheld; provided, however, that no sublease entered into pursuant
to this clause (x) shall (i) be to a Person that, at the time of
entering into such sublease, is subject to any bankruptcy,
insolvency, or reorganization proceedings, (ii) permit further
sublease of the Aircraft by Sublessee or fail to be expressly made
subject and subordinate to the terms of this Lease, (iii) with
respect to clause (B) and (C) above, require Lessor to qualify to
do business in any jurisdiction in which Lessor is not otherwise
required to do so or (iv) extend beyond the expiration of the Basic
Term or any Renewal Term then in effect unless Lessee shall have
irrevocably committed to purchase the Aircraft or renew the Lease
in accordance with the terms hereof at the end of the Basic Term or
Renewal Term, as the case may be, to a date beyond the latest
permissible expiration date of such sublease; provided, further,
with respect to a sublease under subclauses (B) or (C) of this
clause (x), Lessee shall deliver to Lessor an opinion of counsel
(the form and substance of such opinion and counsel to be
reasonably acceptable to the Owner Participant, it being understood
that the Owner Participant shall not be required to accept any
opinion to the extent that it provides that there exists under the
laws of the applicable jurisdiction possessory rights in favor of a
lessee or sublessee which have the practical effect of materially
prejudicing the Indenture Trustee's or Owner Trustee's ability to
exercise remedies under the Lease including, without limitation,
the right to repossession of the Aircraft upon an Event of Default
if, in the Owner Participant's reasonable judgment, such possessory
rights are materially greater than those available to lessees and
sublessees under the laws of the United States) to the effect that
(I) the obligations of Lessee and the rights and remedies of the
Lessor under the Lease including, without limitation, the right to
repossession of the Aircraft upon an Event of Default remain valid,
binding and enforceable; (II) the terms of the sublease (including
the provisions providing that the terms of the Sublease are
expressly made subject and subordinate to the terms of this Lease)
constitute valid and binding obligations of the Sublessee and are
enforceable against Sublessee (it being understood that such
opinion may be an opinion as to the form of the Sublease only and
may assume due authorization, execution, delivery, requisite
approvals and absence of conflicts with laws, contracts or
organizational documents so long as Sublessee delivers a separate
in-house legal opinion as to such matters) under the laws of the
jurisdiction governing the sublease, (III) that there is no tort
liability of the owner of an aircraft not in possession thereof
under the laws of the jurisdiction of the proposed sublessee other
than tort liability which could reasonably be expected to have been
imposed on such owner under the Laws of the United States or any
state thereof (it being understood that in the event such opinion
(III) cannot be given, such opinion (III) requirement shall be
waived if insurance reasonably satisfactory to Lessor, in its
trustee and individual capacity and the Owner Participant, is
provided at Lessee's expense), (IV) unless Lessee shall have agreed
to provide insurance covering the risk of requisition of use or
title of the Aircraft by the government of the jurisdiction of the
proposed sublessee and of the applicable government of registry
reasonably satisfactory to the Owner Participant, that the Laws of
such jurisdiction require fair compensation by the government of
such jurisdiction payable in currency freely convertible into
Dollars for the loss of use of the Aircraft in the event of the
requisition by such government of such use or title and (V) after
giving effect to the reregistration of the Aircraft in the
jurisdiction of the proposed sublessee, the ownership interest of
the Owner Trustee in the Aircraft shall be recognized and the Lien
of the Trust Indenture on the Owner Trustee's right, title and
interest in and to the Aircraft and the Lease shall continue as a
valid and duly perfected first priority security interest and
all filing, recording or other action necessary to protect the same
shall have been accomplished (or, if such opinion cannot be given
at the time of such proposed change in registration because such
change in registration is not yet effective, (1) the opinion shall
detail what filing, recording or other action is necessary and (2)
the Owner Trustee, the Owner Participant and the Indenture Trustee
shall have received a certificate (which shall be true and correct)
from Lessee that all possible preparations to accomplish such
filing, recording and other action shall have been done, and such
filing, recording and other action shall be accomplished and a
supplemental opinion to that effect shall be delivered to the Owner
Trustee, the Owner Participant and the Indenture Trustee on or
prior to the effective date of such change in registration); and
provided finally that, with respect to any sublease to any
Affiliate of Lessee, (I) such sublessee shall be a Certificated Air
Carrier and (II) Lessee shall deliver to Lessor an opinion of
counsel to the effect that Lessee would be entitled to the benefits
of Section 1110 of the Bankruptcy Code with respect to the Aircraft
if such Affiliate were to be a debtor in a case under Chapter 11 of
the Bankruptcy Code, such opinion to be subject to customary
assumptions and qualifications. Lessee shall provide Lessor with a
copy of any Sublease which has a term of more than one (1) year. In
addition, Lessee shall furnish to Lessor, the Owner Participant and
the Indenture Trustee notice of any Sublease to a Person other than
a U.S. Air Carrier at least 30 days prior to the proposed
commencement date of such Sublease and shall furnish Lessor and the
Indenture Trustee with notice of any Sublease to a U.S. Air Carrier
within a reasonable period of time (but not more than 30 days)
after the commencement of such Sublease.
The rights of any Sublessee or other transferee who receives
possession by reason of a transfer permitted by this Section 7(b) (other
than where the transfer is of an Engine which is deemed an Event of Loss)
shall be subject and subordinate to, and any Sublease, Wet Lease or
Airframe interchange arrangement permitted by this Section 7(b) shall be
expressly subject and subordinate to, all the terms of this Lease and
Lessor's (and so long as the Trust Indenture is in effect, the Indenture
Trustee's (as Lessor's assignee)) rights to repossess and to void such
Sublease or other permitted transfer upon such repossession, and Lessee
shall remain primarily liable hereunder for the performance of all of the
terms of this Lease, and the terms of any such Sublease or permitted
transfer shall not by their terms permit any Sublessee or other permitted
transferee to take any action not permitted to be taken by Lessee in this
Lease with respect to the Aircraft. In respect of any such Sublease, Lessee
shall furnish to Lessor satisfactory evidence that the insurance required
by Section 11 remains in effect or shall cause Sublessee to maintain
insurance that complies with Section 11 and Lessee shall make or cause to
be made all necessary filings and recordings at Lessee's expense to
preserve Lessor's title to the Aircraft. No pooling agreement, sublease or
other relinquishment of possession of the Airframe or any Engine or Wet
Lease shall in any way discharge or diminish any of Lessee's obligations to
Lessor hereunder (including, without limitation, Section 5 hereof) or
constitute a waiver of Lessor's rights or remedies hereunder. Lessor
agrees, for the benefit of Lessee and for the benefit of any mortgagee or
other holder of a security interest in any engine (other than an Engine)
owned by Lessee (or any Sublessee), any lessor of any engine (other than an
Engine) leased to Lessee (or any Sublessee) and any conditional vendor of
any engine (other than an Engine) purchased by Lessee (or any Sublessee)
subject to a conditional sale agreement or any other security agreement,
that no interest shall be created hereunder in any engine so owned, leased
or purchased and that none of Lessor, its successors or assigns will
acquire or claim, as against Lessee (or any Sublessee) or any such
mortgagee, lessor or conditional vendor or other holder of a security
interest or any successor or assignee of any thereof, any right, title or
interest in such engine as the result of such engine being installed on the
Airframe.
Any Wet Lease or similar arrangement under which Lessee
maintains operational control of the Aircraft shall not constitute a
delivery, transfer or relinquishment of possession of the Aircraft for
purposes of this Section 7(b). Lessor acknowledges that any consolidation
or merger of Lessee or conveyance, transfer or lease of all or
substantially all of Lessee's assets otherwise permitted by the Operative
Documents shall not be prohibited by this Section 7(b). In addition, Lessor
acknowledges that the restrictions on assignment set forth in Section 13
hereof shall not prohibit the exercise by Lessee of its rights under this
Section 7(b).
(c) Insignia. On or prior to the Delivery Date, or as soon
as practicable thereafter, Lessee agrees to affix and maintain (or cause to
be affixed and maintained), at its expense, in the cockpit of the Airframe
adjacent to the airworthiness certificate therein and on each Engine a
nameplate bearing the inscription:
Owned By and Leased From
First Security Bank, National Association, as Owner Trustee, Lessor
and, for so long as the Airframe and each Engine shall be subject to the
Lien of the Trust Indenture, bearing the following additional inscription:
Mortgaged To
State Street Bank and Trust Company of Connecticut, National Association,
as Indenture Trustee
(such nameplate to be replaced, if necessary, with a nameplate reflecting
the name of any successor Lessor or successor Indenture Trustee, in each
case as permitted under the Operative Documents). Except as above provided,
Lessee will not allow the name of any Person to be placed on the Airframe
or on any Engine as a designation that might be interpreted as a claim of
ownership; provided that nothing herein contained shall prohibit Lessee (or
any Sublessee) from placing its customary colors and insignia on the
Airframe or any Engine.
SECTION 8. REPLACEMENT AND POOLING OF PARTS; ALTERATIONS,
MODIFICATIONS AND ADDITIONS.
(a) Replacement of Parts. Lessee, at its cost and expense,
promptly will replace or cause to be replaced all Parts, including any such
Parts removed from the Airframe or any Engine which 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, except as otherwise provided in paragraphs (b) or (c) of this
Section 8. In addition, at its cost and expense, Lessee may, and may permit
a Sublessee (or any maintenance provider for the Aircraft) to, remove (or
cause to be removed) in the ordinary course of maintenance, service,
repair, overhaul or testing, or as may be required or, in Lessee's (or any
Sublessee's) reasonable opinion, advisable, in contemplation of the return
of the Aircraft to Lessor in accordance with this Lease, any Parts, whether
or not worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use; provided that Lessee
will, except as otherwise provided herein, at its cost and expense,
replace, or cause to be replaced, such Parts as promptly as practicable.
All replacement parts (other than replacement parts temporarily installed
on the Airframe or Engine as provided in Section 8(b) hereof) shall be free
and clear of all Liens (except Permitted Liens ), and shall be in as good
an operating condition, and shall have value and utility substantially
equal to, the Parts replaced, assuming such replaced Parts were in the
condition and repair required to be maintained by the terms hereof (but
without taking into consideration hours and cycles remaining until
overhaul). All Parts at any time removed from the Airframe or any Engine
shall remain the property of Lessor, no matter where located, until such
time as such Parts shall be replaced by parts which meet the requirements
for replacement parts specified above. Upon any replacement part becoming
incorporated or installed in or attached to the Airframe or any Engine,
without further act (subject only to Permitted Liens and any arrangement
permitted by Section 8(b) hereof), (i) such replacement part shall become
the property of Lessor and shall become subject to the Lease and be deemed
a Part for all purposes hereof to the same extent as the Parts originally
incorporated or installed in or attached to the Airframe or such Engine and
(ii) the replaced Part shall no longer be the property of Lessor and shall
no longer be deemed a Part hereunder, and title to such replaced Part shall
vest in Lessee (or, if a Sublease is then in effect, the Sublessee) as
provided in this Lease.
(b) Pooling of Parts; Temporary Replacement Parts. Any Part
removed from the Airframe or any Engine as provided in Section 8(a) hereof
may be subjected by Lessee (or any Sublessee) to a normal pooling
arrangement of the type permitted for Engines under Section 7(b)(i);
provided that the part replacing such removed Part shall be incorporated or
installed in or attached to such Airframe or Engine in accordance with
Section 8(a) hereof as promptly as practicable after the removal of such
removed Part. In addition, Lessee may use temporary parts or pooled parts
on the Aircraft as temporary replacements for Parts; provided that Lessee
as promptly thereafter as practicable, either causes such pooled or
temporary replacement part to become the property of Lessor free and clear
of all Liens other than Permitted Liens or replaces such replacement part
with a further replacement part owned by Lessee which meets the
requirements of Section 8(a) hereof and which shall become the property of
Lessor, free and clear of all Liens other than Permitted Liens.
(c) Alterations, Modifications and Additions. Lessee will,
at its cost and expense, make (or cause to be made) such alterations,
modifications and additions to the Airframe and Engines as may be required
during the Term to meet the applicable standards of the FAA or the
applicable aviation authority of any other jurisdiction in which the
Aircraft may then be registered as permitted by Section 7(a) and Section
7(b) hereof or Section 7(d) of the Participation Agreement and the other
Operative Documents; provided, however, that Lessee (or, if a Sublease is
then in effect, any Sublessee) may, in good faith, contest the validity or
application of any such law, rule, regulation or order by appropriate
proceedings which does not adversely affect Lessor or the Owner Participant
(or their respective interests in the Aircraft) or, so long as any
Equipment Notes are outstanding, the Indenture Trustee. In addition, Lessee
(or any Sublessee) may from time to time alter the passenger (seating)
configuration of the Aircraft and may make such alterations and
modifications in and additions to the Airframe or any Engine as Lessee (or
any Sublessee) reasonably may deem desirable in the proper conduct of its
business, including removal of Parts which Lessee (or any Sublessee)
reasonably deems to be obsolete or no longer suitable or appropriate for
use on the Airframe or such Engine (such Parts, "Obsolete Parts"); provided
that no such alteration, modification, removal or addition impairs the
condition or airworthiness of the Airframe or such Engine, or materially
diminishes the value, utility or remaining useful life of the Airframe or
such Engine below the value, utility or remaining useful life thereof
immediately prior to such alteration, modification, removal or addition (it
being agreed that the modification that makes an Engine a CFM 56-5B-5/P
engine shall be deemed not to diminish the value, utility and useful life
of an Engine), assuming that the Airframe or such Engine is in the
condition required to be maintained by the terms of the Lease, except that
the value (but not the utility or remaining useful life) of the Airframe or
any Engine may be reduced by the value of Obsolete Parts which shall have
been removed so long as the aggregate value of all Obsolete Parts which
shall have been removed and not replaced shall not exceed in the aggregate
$350,000 in value at the time of removal. All parts incorporated or
installed in or attached or added to the Airframe or an Engine as the
result of such alteration, modification or addition (the "Additional Part"
or "Additional Parts") shall, without further act, automatically become the
property of Lessor (provided that, those parts which Lessee has leased from
others and Parts which may be removed by Lessee pursuant to the next
sentence shall not automatically become property of Lessor).
Notwithstanding the foregoing, Lessee may remove (and not replace) any
Additional Part, provided that such Additional Part (i) is in addition to,
and not in replacement of or substitution for, any Part originally
incorporated or installed in or attached to the Airframe or any Engine at
the time of delivery thereof under this Lease or any Part in replacement of
or substitution for any such Part, (ii) is not required to be incorporated
or installed in or attached or added to the Airframe or any Engine pursuant
to the terms of Section 7(a)(1) or the first sentence of this Section 8(c)
and (iii) can readily be removed from the Airframe or such Engine without
causing any material damage to the Aircraft and without diminishing or
impairing the value, utility, condition or remaining useful life which the
Airframe or such Engine would have had at such time had such alteration,
modification or addition not occurred. Upon removal of such Part, the
Airframe or such Engine affected shall be returned to the condition it was
prior to such change assuming the Airframe or such Engine was in the
condition and repair required to be maintained by the terms hereof. Upon
the removal thereof as provided above, such Additional Parts shall no
longer be deemed the property of Lessor or part of the Airframe or Engine
from which it was removed and title thereto shall, without further act,
vest in Lessee (or, if a Sublease is then in effect, the Sublessee). Any
Additional Part not removed as above provided prior to the return of the
Aircraft to Lessor hereunder shall remain the property of Lessor.
(d) Certain Matters Regarding Passenger Convenience
Equipment. Lessee may install on the Airframe, subject to the requirements
of Section 8(c) above, Passenger Convenience Equipment that is (i) owned by
another Person and leased to Lessee, (ii) sold to Lessee by another Person
subject to a conditional sale contract or other retained security interest,
(iii) leased to Lessee pursuant to a lease which is subject to a security
interest in favor of another Person or (iv) installed on the Aircraft
subject to a license granted to Lessee by another Person, and in any such
case the Lessor and the Indenture Trustee will not acquire or claim, as
against any such other Person, any right, title or interest in any such
Passenger Convenience Equipment solely as a result of its installation on
the Airframe. Lessee agrees that if any such Person repossesses (or Lessee
removes, pursuant to return of the Aircraft to Lessor) such Passenger
Convenience Equipment, Lessee will (or will cause such Person to) restore
the Aircraft to the condition it would have been in had the installation of
such Passenger Convenience Equipment not occurred (including the plugging
of all places where such Equipment was installed, in a manner reasonably
acceptable to the Owner Participant). At or prior to the return of the
Aircraft in accordance with Section 5 hereof, Lessee shall either (i)
remove all Passenger Convenience Equipment in accordance with Section 8(c)
and 8(d) hereof, or (ii) transfer title to all such Passenger Convenience
Equipment to Lessor, with the consent of the Owner Participant, free and
clear of all Liens.
SECTION 9. VOLUNTARY TERMINATION.
(a) Termination Event.
(i) So long as no Lease Event of Default has occurred and is
continuing, Lessee shall have the right to elect to terminate this
Lease on any Rent Payment Date occurring on or after the close of
the calendar year in which the seventh (7th) anniversary of the
Delivery Date occurs if Lessee shall have made the good faith
determination, which shall be evidenced by a certificate of the
Treasurer or Chief Financial Officer of Lessee, that the Aircraft
is economically obsolete or surplus to its needs.
(ii) Lessee shall give to Lessor at least one hundred twenty
(120) days revocable advance written notice of Lessee's intention
to so terminate this Lease pursuant to clause (i) above (any such
notice, a "Termination Notice") specifying the Rent Payment Date on
which Lessee intends to terminate this Lease in accordance with
this Section 9 (such specified date, a "Termination Date") and that
Lessee has determined that the Aircraft is economically obsolete or
surplus to its needs. Any Termination Notice shall become
irrevocable upon the earlier of (x) the date, if any, that Lessor
elects to retain the Aircraft in accordance with Section 9(b) or
(y) fifteen (15) days prior to the proposed Termination Date.
(b) Optional Sale of the Aircraft; Lessor Retention Option;
Revocation of Termination Notice. In the event that Lessee shall have
exercised its right to terminate this Lease pursuant to Section 9(a)(i),
during the period from the giving of the Termination Notice until the
proposed Termination Date (unless Lessee shall have revoked the Termination
Notice specifying such proposed Termination Date or Lessor shall have
irrevocably elected to retain the Aircraft pursuant to this Section 9(b)),
Lessee, as agent for Lessor and at no expense to Lessor, shall use
commercially reasonable efforts to obtain bids for the purchase of the
Aircraft and, in the event it receives any bid, Lessee shall, within five
(5) Business Days after receipt thereof and at least ten (10) Business Days
prior to the proposed Termination Date, certify to Lessor in writing the
amount and terms of such bid, and the name and address of the party or
parties (who shall not be Lessee or any Affiliate of Lessee or any Person
with whom Lessee or any such Affiliate has an arrangement or understanding
regarding the future use of the Aircraft by Lessee or any such Affiliate
but who may be the Owner Participant, any Affiliate thereof or any Person
contacted by the Owner Participant) submitting such bid. Subject to the
next succeeding sentence, on or before the Termination Date, subject to the
release of all mortgage and security interests with respect to the Aircraft
under the Trust Indenture: (1) Lessee shall deliver the Aircraft, or cause
the Aircraft to be delivered, to the bidder(s), if any, which shall have
submitted the highest cash bid therefor at least ten (10) Business Days
prior to such Termination Date, in the same manner and in the same
condition and otherwise in accordance with all the terms of this Lease as
if delivery were made to Lessor pursuant to Section 5, and shall duly
transfer to Lessor title to any engines not owned by Lessor all in
accordance with the terms of Section 5, (2) Lessor shall comply with the
terms of the Trust Indenture and shall, without recourse, representation or
warranty (except as to the absence of Lessor Liens), subject to prior or
concurrent payment by Lessee of all amounts due under clause (3) of this
sentence, sell all of Lessor's right, title and interest in and to the
Aircraft for cash in Dollars to such bidder(s), the total sales price
realized at such sale to be retained by Lessor and (3) Lessee shall
simultaneously pay or cause to be paid to Lessor in funds of the type
specified in Section 3(e) hereof, an amount equal to the sum of (A) the
excess, if any, of (i) the Termination Value for the Aircraft, computed as
of the Termination Date, over (ii) the sales price of the Aircraft sold by
Lessor after deducting the reasonable expenses incurred by Lessor, the
Owner Participant or the Indenture Trustee in connection with such sale,
(B) all unpaid Basic Rent with respect to the Aircraft due prior to (but
not on) such Termination Date and (C) all Supplemental Rent due by Lessee
under this Lease or the other Operative Documents (including, without
limitation, Supplemental Rent due in respect of the Make-Whole Amount, if
any, payable in connection with a prepayment of the Equipment Notes, and
upon such payment Lessor simultaneously will transfer to Lessee, without
recourse, representation or warranty (except as to the absence of Lessor
Liens), all of Lessor's right, title and interest in and to any Engines
constituting part of the Aircraft which were not sold with the Aircraft.
Notwithstanding the preceding sentence, Lessor may, if Lessee has not
revoked the Termination Notice, elect to retain title to the Aircraft. If
Lessor so elects, Lessor shall give to Lessee irrevocable written notice of
such election within thirty (30) days of its receipt of a Termination
Notice accompanied by an irrevocable undertaking by the Owner Participant
to make available to the Lessor for payment to the Indenture Trustee on the
Termination Date the amount required to pay in full the unpaid principal
amount of the Equipment Notes outstanding on the Termination Date plus
interest accrued thereon through the Termination Date. Upon receipt of
notice of such an election by Lessor and the accompanying undertaking by
the Owner Participant, Lessee shall cease its efforts to obtain bids as
provided above and shall reject all bids theretofore or thereafter
received. On the Termination Date, Lessor shall (subject to the payment by
Lessee of all Rent due on or prior to such date, other than any Basic Rent
due on such date) pay in full the unpaid principal amount of the Equipment
Notes outstanding on the Termination Date plus interest accrued thereon
through the Termination Date due on the Equipment Notes and, so long as the
Equipment Notes are paid as aforesaid, Lessee shall deliver the Airframe
and Engines or engines to Lessor in accordance with Section 5 and shall pay
all Basic Rent due prior to the Termination Date and all Supplemental Rent
(including an amount equal to Make-Whole Amount, but excluding Termination
Value) due on or prior to the Termination Date. If no sale shall have
occurred on the Termination Date, Lessor may, but shall not be obligated
to, elect to retain title to the Aircraft and terminate the Lease, in which
case (1) Lessor shall (from funds made available to it from the Owner
Participant) pay to the Indenture Trustee the amount required to pay in
full the unpaid principal amount of the Equipment Notes outstanding on the
Termination Date plus interest accrued thereon through the Termination Date
and, to the extent not paid by Lessee in accordance with the following
clause (2), the Make-Whole Amount, if any, due on the Equipment Notes and
(2) Lessee shall pay all Basic Rent due prior to the Termination Date and
all Supplemental Rent (including an amount equal to the Make-Whole Amount,
if any, due on the Equipment Notes, but excluding Termination Value). At
such time as all of the payments described in the preceding sentence shall
have been made, this Lease shall terminate and Lessee shall deliver the
Aircraft to Lessor in accordance with Section 5 thereof. If no sale shall
have occurred on the Termination Date and Lessor has not made the payments
contemplated by either of the preceding two sentences and thereby caused
this Lease to terminate, or if Lessee revokes its Termination Notice, this
Lease shall continue in full force and effect as to the Aircraft, Lessee
shall pay the reasonable costs and expenses incurred by the Owner
Participant and Lessor (unless such failure to terminate the Lease is a
consequence of the failure of Lessor or the Owner Participant without due
cause to make, or cause to be made, the payment referred to in the
immediately preceding sentence, in which case Lessor and the Owner
Participant shall be responsible for direct damages), if any, in connection
with preparation for such sale and Lessee may give one or more additional
Termination Notices in accordance with Section 9(a), subject to the last
sentence of this Section 9(b). In the event of any such sale or such
retention of the Aircraft by Lessor and upon compliance by Lessee with the
provisions of this paragraph, the obligation of Lessee to pay Basic Rent or
any other amounts hereunder shall cease to accrue and this Lease shall
terminate. The Owner Participant and Lessor may, but shall be under no duty
to, solicit cash bids on its own behalf, inquire into the efforts of Lessee
to obtain bids or otherwise take any action in connection with any such
sale other than to transfer (in accordance with the foregoing provisions)
to the purchaser named in the highest cash bid certified by Lessee to
Lessor all of Lessor's right, title and interest in the Aircraft, against
receipt of the payments provided herein. Lessee may revoke a Termination
Notice given pursuant to Section 9(a) no more than two (2) times during the
Term.
(c) Termination as to Engines; Replacement. Lessee shall
have the right at its option at any time during the Term, on at least
thirty (30) days prior written notice, to terminate this Lease with respect
to any Engine. In such event, and prior to the date of such termination,
Lessee shall replace such Engine hereunder by complying with the terms of
Section 10(b) to the same extent as if an Event of Loss had occurred with
respect to such Engine, and Lessor shall transfer such right, title and
interest as it may have to the replaced Engine as provided in Section 5(c).
No termination of this Lease with respect to any Engine as contemplated by
this Section 9(c) shall result in any reduction of Basic Rent.
SECTION 10. LOSS, DESTRUCTION, REQUISITION, ETC.
(a) Event of Loss with Respect to the Aircraft. 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, Lessee shall
forthwith (and in any event, within fifteen (15) days after such
occurrence) give Lessor written notice of such Event of Loss, and, within
sixty (60) days after such Event of Loss, Lessee shall give Lessor written
notice of its election to perform one of the following options (it being
agreed that if Lessee shall not have given such notice of election within
such period, Lessee shall be deemed to have elected the option set forth in
clause (i) below). Lessee may elect either to:
(i) make the payments specified in this clause
(i), in which event not later than the earlier of (x) the Business
Day next succeeding the ninetieth (90th) day following the
occurrence of such Event of Loss, (y) the tenth (10th) day (or, if
such day is not a Business Day, the next succeeding Business Day)
after receipt of insurance proceeds in respect of such Event of
Loss; provided that in no event shall payment be required under
this clause (i)(y) prior to the sixtieth (60th) day following the
occurrence of such Event of Loss or if Lessee exercises the option
to substitute provided in clause (ii) below (except as provided in
the proviso contained in said clause (ii)) or (z) an earlier
Business Day irrevocably specified fifteen (15) days in advance by
notice from Lessee to Lessor and the Indenture Trustee (the "Loss
Payment Date"), Lessee shall pay or cause to be paid to Lessor in
funds of the type specified in Section 3(e) hereof, an amount equal
to the Termination Value of the Aircraft corresponding to the
Termination Value Date occurring on or immediately following the
Loss Payment Date (the "Determination Date") together with all
other amounts that then may be due hereunder (excluding Basic Rent
due on the Determination Date, but including, without limitation,
all Basic Rent due before the date of such payment and all
Supplemental Rent), under the Participation Agreement and under the
Tax Indemnity Agreement; provided that in any instance in which the
applicable Loss Payment Date shall occur after the final day of the
Term, the Determination Date shall be the last Termination Value
Date in the Term, and the Termination Value shall be reduced by any
amount of Basic Rent due on the Determination Date that has
actually been paid; or
(ii) substitute an aircraft or an airframe or
an airframe and one or more engines, as the case may be; provided
that, if Lessee does not perform its obligation to effect such
substitution in accordance with this Section 10(a), during the
period of time provided herein, then Lessee shall pay or cause to
be paid to Lessor on the Business Day next succeeding the ninetieth
(90th) day following the occurrence of such Event of Loss the
amount specified in clause (i) above.
At such time as Lessor shall have received the amounts
specified in clause (i) above and all other amounts due under the Operative
Documents, (1) the obligation of Lessee to pay the installments of Basic
Rent shall cease to accrue, (2) this Lease shall terminate, (3) Lessor will
comply, at the sole cost and expense of Lessee, with the terms of the Trust
Indenture and transfer to or at the direction of Lessee, without recourse,
representation or warranty (except as to the absence of Lessor Liens), all
of Lessor's right, title and interest in and to the Airframe and any
Engines subject to such Event of Loss, as well as any Engines not subject
to such Event of Loss, and furnish to or at the direction of Lessee a ▇▇▇▇
of sale to transfer "as is, where is, with all faults" all of Lessor's
right, title and interest therein without recourse, representation or
warranty (except as to the absence of Lessor Liens) in form and substance
reasonably satisfactory to Lessee (or any Sublessee), evidencing such
transfer and (4) Lessee will be subrogated to all claims of Lessor, if any,
against third parties, for damage to or loss of the Airframe and any
Engines which were subject to such Event of Loss to the extent of the then
insured value of the Aircraft.
In the event Lessee shall elect to substitute an aircraft
(or an airframe or an airframe and one or more engines, as the case may be)
Lessee shall, at its sole expense, not later than the Business Day next
succeeding the 90th day following the occurrence of such Event of Loss, (A)
convey or cause to be conveyed to Lessor and to be leased by Lessee
hereunder, an aircraft (or an airframe or an airframe and one or more
engines which, together with the Engines constituting a part of the
Aircraft but not installed thereon at the time of such Event of Loss
constitute the Aircraft) free and clear of all Liens (other than Permitted
Liens) that is the same model as the Airframe to be replaced, or an
improved model and having a value, utility and remaining useful life at
least equal to the Aircraft subject to such Event of Loss assuming that the
Aircraft had been maintained in accordance with this Lease and (B) prior to
or at the time of any such substitution, Lessee (or any Sublessee), at its
own expense, will (1) furnish Lessor (x) with a full warranty ▇▇▇▇ of sale
and a Federal Aviation Administration ▇▇▇▇ of sale, in form and substance
reasonably satisfactory to Lessor, evidencing such transfer of title and
(y) a Trust Supplement subjecting the aircraft (or airframe and/or one or
more engines) to the Lien of the Trust Indenture and upon such receipt,
Lessor shall execute such Trust Supplement and deliver it to Lessee for
filing in accordance with the Trust Indenture, (2) cause a Lease Supplement
to be duly executed by Lessee and cause such Lease Supplement and the Trust
Supplement described in clause (1)(y) above to be filed for recording
pursuant to the Transportation Code, or the applicable laws, rules and
regulations of any other jurisdiction in which the Airframe may then be
registered as permitted by Section 7(a) or Section 7(b) hereof or Section
7(d) of the Participation Agreement, (3) cause a financing statement or
statements with respect to such substituted property to be filed in such
place or places as are deemed necessary or desirable by Lessor to perfect
its and the Indenture Trustee's interest therein and herein, (4) furnish
Lessor with such evidence of compliance with the insurance provisions of
Section 11 with respect to such substituted property as Lessor may
reasonably request, (5) furnish Lessor with copies of the documentation
required to be provided by Lessee pursuant to Section 5.06 of the Trust
Indenture, and Lessor simultaneously will comply with the terms of the
Trust Indenture and transfer to or at the direction of Lessee, without
recourse, representation or warranty (except as to the absence of Lessor
Liens), all of Lessor's right, title and interest, if any, in and to the
Aircraft or the Airframe and one or more Engines, as the case may be, with
respect to which such Event of Loss occurred and furnish to or at the
direction of Lessee a ▇▇▇▇ of sale without recourse, representation or
warranty (except as to the absence of Lessor Liens) in form and substance
reasonably satisfactory to Lessee (or any Sublessee), evidencing such
transfer, (6) furnish Lessor with an opinion of counsel (which shall be
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP or Skadden, Arps, Slate, ▇▇▇▇▇▇▇ &
▇▇▇▇ (Illinois) and, if not, other counsel chosen by Lessee and reasonably
acceptable to Lessor) reasonably satisfactory to Lessor to the effect that
Lessor and the Indenture Trustee will be entitled to the benefits of
Section 1110 of the U.S. Bankruptcy Code with respect to the substitute
aircraft, provided that such opinion need not be delivered to the extent
that immediately prior to such substitution the benefits of Section 1110 of
the U.S. Bankruptcy Code were not, solely by reason of a change in law or
governmental interpretation thereof after the date hereof, available with
respect to the repossession of the Aircraft (it being agreed that such
opinion may contain customary qualifications and assumptions) and (7)
Lessee will be subrogated to all claims of Lessor, if any, against third
parties (other than claims against the Owner Participant's own insurer) for
damage to or loss of the Airframe and any Engine which were subject to such
Event of Loss to the extent of the then insured value of the Aircraft. For
all purposes hereof and of the other Operative Documents, the property so
substituted shall after such transfer be deemed part of the property leased
hereunder and shall be deemed an "Aircraft", "Airframe" and "Engine", as
the case may be, as defined in Annex A. No Event of Loss with respect to
the Airframe or the Airframe and the Engines or engines then installed
thereon for which substitution has been elected pursuant to Section
10(a)(ii) hereof shall result in any suspension or reduction in Basic Rent.
(b) Event of Loss with Respect to an Engine. Upon the
occurrence of an Event of Loss with respect to an Engine under
circumstances in which there has not occurred an Event of Loss with respect
to the Airframe, Lessee shall forthwith (and in any event, within fifteen
days after such occurrence) give Lessor written notice thereof and shall,
within one hundred twenty (120) days after the occurrence of such Event of
Loss, convey or cause to be conveyed to Lessor, as replacement for the
Engine with respect to which such Event of Loss occurred, title to an
Acceptable Alternate Engine. Prior to or at the time of any such
conveyance, Lessee, at its own expense, will (i) furnish Lessor with (x) a
warranty (as to title) ▇▇▇▇ of sale, in form and substance reasonably
satisfactory to Lessor, with respect to such Acceptable Alternate Engine
and (y) a Trust Supplement subjecting the Acceptable Alternate Engine to
the Lien of the Indenture and upon such receipt, Lessor shall execute such
Trust Supplement and deliver it to Lessee for filing, (ii) cause a Lease
Supplement to be duly executed by Lessee and cause such Lease Supplement
and the Trust Supplement described in clause (1)(y) above to be filed for
recording pursuant to the Transportation Code, or the applicable laws,
rules and regulations of any other jurisdiction in which the Airframe may
then be registered as permitted by Section 7(a), Section 7(b) or Section
7(d) of the Participation Agreement, (iii) furnish Lessor with such
evidence of compliance with the insurance provisions of Section 11 hereof
with respect to such replacement engine as Lessor may reasonably request
and furnish Lessor with copies of the documentation required to be provided
by Lessee pursuant to Section 5.06 of the Trust Indenture, and Lessor will
comply with the terms of the Trust Indenture and transfer to or at the
direction of Lessee without recourse, representation or warranty (except as
to absence of Lessor Liens) all of Lessor's right, title and interest, if
any, in and to (A) the Engine with respect to which such Event of Loss
occurred and furnish to or at the direction of Lessee a ▇▇▇▇ of sale in
form and substance reasonably satisfactory to Lessee, evidencing such
transfer and (B) all claims, if any, against third parties, for damage to
or loss of the Engine subject to such Event of Loss, and such Engine shall
thereupon cease to be the Engine leased hereunder. For all purposes hereof
and of the other Operative Documents, each such replacement engine shall,
after such conveyance, be deemed part of the property leased hereunder, and
shall be deemed an "Engine". No Event of Loss with respect to an Engine
under the circumstances contemplated by the terms of this paragraph (b)
shall result in any suspension or reduction in Basic Rent.
(c) Application of Payments from Governmental Authorities
for Requisition of Title, etc. Any payments (other than insurance proceeds
the application of which is provided for in Section 11) received at any
time by Lessor or by Lessee from any governmental authority or other Person
with respect to an Event of Loss will be applied as follows:
(i) if payments are received with respect to
the Airframe (or the Airframe and any Engine or engines then
installed thereon), (A) unless the same are replaced pursuant to
the last paragraph of Section 10(a), after reimbursement of Lessor
(as provided in Section 7.01 of the Trust Agreement), the Owner
Participant and the Indenture Trustee for reasonable costs and
expenses, so much of such payments remaining as shall not exceed
the Termination Value required to be paid by Lessee pursuant to
Section 10(a), shall be applied in reduction of Lessee's obligation
to pay Termination Value, if not already paid by Lessee, or, if
already paid by Lessee, shall be applied to reimburse Lessee for
its payment of Termination Value, and following the foregoing
application, the balance, if any, of such payments will be divided
between Lessor and Lessee, to compensate Lessor for its loss of its
Lessor's residual interest in the Aircraft, and to compensate
Lessee for its loss of its leasehold interest in the Aircraft; or
(B) if such property is replaced pursuant to the last paragraph of
Section 10(a), such payments shall be paid over to, or retained by
Lessor, and upon completion of such replacement or procedure or
turned over to Lessee to pay for the replacement; and
(ii) if such payments are received with respect
to an Engine under circumstances contemplated by Section 10(b)
hereof, so much of such payments remaining after reimbursement of
Lessor (as provided for in Section 7.01 of the Trust Agreement),
the Owner Participant and the Indenture Trustee for reasonable
costs and expenses shall be paid over to, or retained by, Lessee.
(d) Requisition for Use of the Aircraft by the United States
Government or the Government of Registry of the Aircraft. In the event of
the requisition for use of the Airframe and the Engines or engines
installed on the Airframe during the Term by the United States Government
or any other government of registry of the Aircraft or any instrumentality
or agency of any thereof which does not constitute an Event of Loss, Lessee
shall promptly notify Lessor of such requisition, and all of Lessee's
obligations under this Lease with respect to the Aircraft shall continue to
the same extent as if such requisition had not occurred (except to the
extent that any failure or delay in repairing or maintaining the Aircraft
shall have been caused directly by such requisition). If, in the event of
any such requisition, Lessee shall fail to return the Aircraft on or before
the thirtieth (30th) day beyond the end of the Term, such failure shall
constitute an Event of Loss which shall be deemed to have occurred on the
last day of the Term and in such event Lessee shall make the payment
contemplated by Section 10(a)(i) in respect of such Event of Loss. All
payments received by Lessor or Lessee from such government for the use of
such Airframe and Engines or engines during the Term shall be paid over to,
or retained by, Lessee (or, if directed by Lessee, any Sublessee); and all
payments received by Lessor or Lessee from such government for the use of
such Airframe and Engines or engines after the end of the Term shall be
paid over to, or retained by, Lessor unless Lessee shall have exercised its
purchase option hereunder and paid in full the purchase price for the
Aircraft in connection therewith on or before the date required herein, in
which case such payments shall be made to Lessee.
(e) Requisition for Use of an Engine by the United States
Government or the Government of Registry of the Aircraft. In the event of
the requisition for use of an Engine by the United States Government or any
other government of registry of the Aircraft or any agency or
instrumentality of any thereof (other than in the circumstances
contemplated by paragraph (d)), Lessee shall replace such Engine hereunder
by complying (or causing any Sublessee to comply) with the terms of Section
10(b) to the same extent as if an Event of Loss had occurred with respect
thereto, and, upon compliance with Section 10(b) hereof, any payments
received by Lessor or Lessee from such government with respect to such
requisition shall be paid over to, or retained by, Lessee, (or, if directed
by Lessee, Sublessee).
(f) Application of Payments During Existence of Event of
Default. Any amount referred to in this Section 10 which is payable to or
retainable by Lessee (or any Sublessee) shall not be paid to or retained by
Lessee (or such Sublessee) if at the time of such payment or retention a
Specified Default or an Event of Default has occurred and is continuing,
but shall be held by or paid over to Lessor as security for the obligations
of Lessee (or such Sublessee) under this Lease and, if an Event of Default
has occurred and is continuing hereunder, applied against Lessee's
obligations hereunder as and when due. At such time as there shall not be
continuing any such Specified Default or Event of Default, such amount
shall be paid to Lessee (or such Sublessee) to the extent not previously
applied in accordance with the preceding sentence.
SECTION 11. INSURANCE.
(a) Public Liability and Property Damage Insurance. (1)
Except as provided in clause (2) of this Section 11(a), and subject to
self-insurance to the extent permitted by Section 11(d), Lessee will carry
or cause to be carried with respect to the Aircraft at its or any
Sublessee's expense (i) comprehensive airline liability (including, without
limitation, passenger, contractual, bodily injury, products and property
damage liability) insurance (exclusive of manufacturer's product liability
insurance) and (ii) cargo liability insurance, (A) in an amount not less
than the greater of (x) the amounts of comprehensive airline liability
insurance from time to time applicable to aircraft owned or leased, and
operated by Lessee (or, if a Sublease is then in effect, by Sublessee) of
the same type as the Aircraft and (y) $500 million per occurrence, (B) of
the type and covering the same risks as from time to time applicable to
aircraft owned or leased and operated by Lessee of the same type as the
Aircraft and such coverage shall be in substantially similar form as is
customarily obtained by similarly situated U.S. Air Carriers operating
similar aircraft to the Aircraft on similar routes, and (C) which is
maintained in effect with insurers of nationally or internationally
recognized reputation and responsibility; provided, however, that Lessee
need not maintain such cargo liability insurance, or may maintain such
cargo liability insurance in an amount less than $500 million per
occurrence, so long as the amount of cargo liability insurance, if any,
maintained with respect to the Aircraft is not less than the cargo
liability insurance, if any, maintained for other Airbus Model A[-]
aircraft owned or leased and operated by Lessee.
(2) During any period that the Airframe or an Engine, as the
case may be, is on the ground and not in operation, Lessee may carry or
cause to be carried as to such non-operating property, in lieu of the
insurance required by Section 11(a), and subject to the self-insurance to
the extent permitted by Section 11(d), insurance by insurers of nationally
or internationally recognized reputation and responsibility otherwise
conforming with the provisions of Section 11(a) except that (A) the amounts
of coverage shall not be required to exceed the amounts of comprehensive
airline liability insurance from time to time applicable to property owned
or leased by Lessee of the same type as such non-operating property and
which is on the ground and not in operation; and (B) the scope of the risks
covered and the type of insurance shall be the same as from time to time
shall be applicable to aircraft owned or leased by Lessee of the same type
as such non-operating property and which is on the ground and not in
operation and such coverage shall be in substantially similar form as
customarily are obtained by similarly situated U.S. Air Carriers in such
circumstances.
(b) Insurance Against Loss or Damage to the Aircraft. (1)
Except as provided in clause (2) of this Section 11(b), and subject to the
provisions of Section 11(d) permitting self-insurance, Lessee shall
maintain or cause to be maintained in effect, at its or any Sublessee's
expense, with insurers of nationally or internationally recognized
reputation and responsibility, all-risk aircraft hull insurance covering
the Aircraft (including the U.S. limited form of war risk insurance) and
all risk property damage insurance covering Engines and Parts while removed
from the Aircraft and not replaced by similar components; provided that
such insurance shall at all times while the Aircraft is subject to this
Lease be for an amount (taking into account self-insurance to the extent
permitted by Section 11(d)) not less than the Termination Value for the
Aircraft; provided further, that, subject to compliance with Section 11(d),
such all-risk property damage insurance covering Engines and Parts removed
from the Airframe or an airframe or (in the case of Parts) an Engine
replaced by similar Parts need be obtained only to the extent available at
reasonable cost (as reasonably determined by Lessee). In the case of a loss
with respect to an engine (other than an Engine) installed on the Airframe
in circumstances which do not constitute an Event of Loss with respect to
the Airframe, Lessor shall promptly remit any payment made to it of any
insurance proceeds in respect of such loss to Lessee, provided that no
Event of Default of the type described in Section 14(a), (b), (e) or (f)
hereof has occurred and is continuing, or any other third party that is
entitled to receive such proceeds.
Unless an Event of Default has occurred and is continuing,
all losses will be adjusted by Lessee with the insurers. As between Lessor
and Lessee, it is agreed that all insurance payments received as the result
of the occurrence of an Event of Loss will be applied as follows:
(x) if such payments are received with respect to the
Airframe (or the Airframe and the Engines installed
thereon), (i) unless such property is replaced pursuant to
the last paragraph of Section 10(a), so much of such
payments remaining, after reimbursement of Lessor (as
provided in Section 7.01 of the Trust Agreement), the Owner
Participant and the Indenture Trustee for reasonable costs
and expenses, as shall not exceed the Termination Value and
the other amounts payable pursuant to Section 10(a) shall be
applied in reduction of Lessee's obligation to pay such
Termination Value and other amounts payable pursuant to
Section 10(a), if not already paid by Lessee, or, if already
paid by Lessee, shall be applied to reimburse Lessee for its
payment of such Termination Value and such other amounts
payable, and the balance, if any, of such payments remaining
thereafter will be paid over to, or retained by, Lessee (or
if directed by Lessee, any Sublessee); or (ii) if such
property is replaced pursuant to the last paragraph of
Section 10(a), such payments shall be paid over to, or
retained by, Lessee (or if directed by Lessee, any
Sublessee), provided that Lessee shall have fully performed
or, concurrently therewith, will fully perform the terms of
the last paragraph of Section 10(a) with respect to the
Event of Loss for which such payments are made; and
(y) if such payments are received with respect to an
Engine under the circumstances contemplated by Section
10(b), so much of such payments remaining after
reimbursement of Lessor (as provided in Section 7.01 of the
Trust Agreement), the Owner Participant and the Indenture
Trustee for reasonable costs and expenses, shall be paid
over to, or retained by, Lessee (or if directed by Lessee,
any Sublessee), provided that Lessee shall have fully
performed or concurrently therewith will fully perform the
terms of Section 10(b) hereof with respect to the Event of
Loss for which such payments are made and no Event of
Default of the type described in Section 14(a), (b), (e),
(f) or (g) shall have occurred and be continuing.
As between Lessor and Lessee, the insurance payments for any
property damage loss to the Airframe or any engine not constituting an
Event of Loss with respect thereto will be applied in payment for repairs
or for replacement property in accordance with the terms of Sections 7 and
8, if not already paid for by Lessee (or any Sublessee), and any balance
(or if already paid for by Lessee (or any Sublessee), all such insurance
proceeds) remaining after compliance with such Sections with respect to
such loss shall be paid to Lessee (or any Sublessee if directed by Lessee).
(2) During any period that the Aircraft is on the ground and
not in operation, Lessee may carry or cause to be carried, in lieu of the
insurance required by clause (1) above, and subject to self-insurance to
the extent permitted by Section 11(d), insurance otherwise conforming with
the provisions of said clause (1) except that the scope of the risks and
the type of insurance shall be the same as from time to time applicable to
aircraft owned or leased by Lessee (or, if a Sublease is then in effect, by
Sublessee) of the same type as the Aircraft similarly on the ground and not
in operation, provided that, subject to self-insurance to the extent
permitted by Section 11(d), Lessee shall maintain insurance against risk of
loss or damage to the Aircraft in an amount at least equal to the
Termination Value of the Aircraft during such period that the Aircraft is
on the ground and not in operation.
(3) If Lessee (or any Sublessee) shall at any time operate
or propose to operate the Aircraft, Airframe or any Engine (i) in any area
of recognized hostilities or (ii) on international routes, and war-risk,
hijacking or allied perils insurance is maintained by Lessee (or any
Sublessee) with respect to other aircraft owned and operated by Lessee (or
any Sublessee) and the practice in the industry is to maintain such war
risk insurance on such routes or in such areas, Lessee shall maintain or
cause to be maintained war-risk, hijacking and related perils insurance of
substantially the same type carried by major United States commercial air
carriers operating the same or comparable models of aircraft on similar
routes or in such areas and in no event in an amount less than the
Termination Value.
(c) Reports, etc. Lessee will furnish, or cause to be
furnished, to Lessor, the Indenture Trustee, the Owner Participant and the
Note Holders, on or before the Delivery Date and on each annual anniversary
date of Lessee's applicable insurance, a report, signed by Lessee's regular
insurance broker or any other independent firm of insurance brokers
reasonably acceptable to Lessor which brokers may be in the regular employ
of Lessee (the "Insurance Brokers"), describing in reasonable detail the
hull and liability insurance (and property insurance for detached Engines
and Parts) then carried and maintained with respect to the Aircraft and
stating the opinion of such firm that the insurance complies with the terms
of this Lease; provided, that all information contained in the foregoing
report shall not be made available by Lessor, the Indenture Trustee, the
Owner Participant or the Note Holders to anyone except (i) to prospective
and permitted transferees of Lessor's, the Owner Participant's, the
Indenture Trustee's or the Note Holder's interest or their respective
counsel, independent certified public accountants and independent insurance
brokers or other agents, who agree to hold such information confidential,
(ii) to Lessor's, the Owner Participant's, the Indenture Trustee's or the
Note Holder's counsel or independent certified public accountants,
independent insurance brokers or other agents who agree to hold such
information confidential or (iii) as may be required by any statute, court
or administrative order or decree or governmental ruling or regulation;
provided, however that any disclosure permitted by clause (iii) above shall
be made only to the extent necessary to meet the specific requirements or
needs of the Persons to whom such disclosures are hereby permitted. Lessee
will cause such Insurance Broker to agree to advise Lessor, the Indenture
Trustee, the Owner Participant and the Note Holders in writing at least
thirty (30) days (seven (7) days in the case of war risk and allied perils
coverage and with respect to the Electronic Date Recognition Exclusion
Limited Coverage Endorsement), prior to the cancellation or material
adverse change of any insurance maintained pursuant to this Section 11,
provided that if the notice period specified above is not reasonably
obtainable, the Insurance Broker shall provide for as long a period of
prior notice as shall then be reasonably obtainable. In addition, Lessee
will also cause such Insurance Broker to deliver to Lessor, the Indenture
Trustee, the Owner Participant and the Note Holders, on or prior to the
date of expiration of any insurance policy referenced in a previously
delivered certificate of insurance, a new certificate of insurance,
substantially in the same form as delivered by Lessee to such parties on
the Delivery Date except for such changes in the report or the coverage
consistent with the terms hereof. In the event that Lessee or any Sublessee
shall fail to maintain or cause to be maintained insurance as herein
provided, Lessor or the Indenture Trustee may at its sole option, but shall
be under no duty to, provide such insurance and, in such event, Lessee
shall, upon demand, reimburse Lessor or the Indenture Trustee, as
Supplemental Rent, for the cost thereof to Lessor or the Indenture Trustee,
as the case may be; provided, however, that no exercise by Lessor or the
Indenture Trustee, as the case may be, of said option shall affect the
provisions of this Lease, including the provisions of Section 14(g).
(d) Self-Insurance. Lessee may self-insure by way of
deductible, premium adjustment or franchise provisions or otherwise
(including, with respect to insurance maintained pursuant to Section 11(b),
insuring for an amount that is less than the Termination Value of the
Aircraft) the risks required to be insured against pursuant to this Section
11 under a program applicable to all aircraft (whether owned or leased) in
Lessee's fleet, but in no case shall the aggregate amount of self-insurance
in regard to Section 11(a) and Section 11(b) exceed for any policy year,
with respect to all of the aircraft (whether owned or leased) in Lessee's
fleet (including, without limitation, the Aircraft), the lesser of (i) 50%
of the highest replacement value of any single aircraft in Lessee's then
current fleet in any given year or (ii) 1-1/2% of the average aggregate
insurable value (during the preceding policy year) of all aircraft
(including, without limitation, the Aircraft) on which Lessee carries
insurance. In addition to the foregoing right to self-insure, Lessee may
self-insure to the extent of any applicable mandatory minimum per aircraft
(or, if applicable, per annum or other period) hull or liability insurance
deductible customary in the airline industry imposed by the aircraft hull
or liability insurer.
(e) Terms of Policies. Any policies of insurance carried in
accordance with Section 11(a) or Section 11(b) and any policies taken out
in substitution or replacement for any of such policies (A) shall be
amended to name the Additional Insureds as additional insureds, and, if
appropriate, loss payees, as their respective interests may appear, (B) may
provide for the self-insurance to the extent permitted in Section 11(d),
(C) shall provide that if the insurers cancel such insurance for any reason
whatever or if any material change is made in such insurance which
adversely affects the interest of any Additional Insured, or such insurance
shall lapse for non-payment of premium, such cancellation, lapse or change
shall not be effective as to any Additional Insured for thirty (30) days
(seven (7) days in the case of war risk and allied perils coverage and in
the case of the Electronic Date Recognition Limited Coverage Endorsement)
after issuance to the Additional Insureds of written notice by such
insurers of such cancellation, lapse or change; provided, however, that if
any notice period specified above is not reasonably obtainable, such
policies shall provide for as long a period of prior notice as shall then
be reasonably obtainable, (D) shall provide that in respect of the
respective interests of each Additional Insured in such policies the
insurance shall not be invalidated by any action or inaction of Lessee (or,
if any Sublease is then in effect, any Sublessee) or any other Person and
shall insure respective interests of the Additional Insureds, as they
appear, regardless of any breach or violation of any warranty, declaration
or condition contained in such policies by Lessee (or, if any Sublease is
then in effect, any Sublessee), (E) shall be primary without right of
contribution from any other insurance which is carried by any Additional
Insured, (F) shall expressly provide that all of the provisions thereof,
except the limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured, (G) shall waive any
right of the insurers to any set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability
of any Additional Insured, and (H) shall provide that (i) in the event of a
loss involving the Aircraft, Airframe or an Engine for which proceeds are
in excess of $5,000,000, the proceeds in respect of such loss up to an
amount equal to the Termination Value for the Aircraft shall be payable to
Lessor (or, so long as the Trust Indenture shall be in effect, the
Indenture Trustee) (except in the case of a loss with respect to an Engine
installed on an airframe other than the Airframe, in which case Lessee (or
any Sublessee) shall arrange for any payment of insurance proceeds in
respect of such loss to be held for the account of Lessor (or, so long as
the Trust Indenture shall be in effect, the Indenture Trustee) whether such
payment is made to Lessee (or any Sublessee) or any third party), it being
understood and agreed that in the case of any payment to Lessor (or the
Indenture Trustee) otherwise than in respect of an Event of Loss, Lessor
(or the Indenture Trustee) shall, upon receipt of evidence reasonably
satisfactory to it that the damages giving rise to such payment shall have
been repaired or that such payment shall then be required to pay for
repairs then being made, pay the amount of such payment (and all earnings
thereon) to Lessee or its order and (ii) the entire amount of any loss for
which proceeds of $5,000,000 or less or the amount of any proceeds of any
loss in excess of the Termination Value for the Aircraft shall be paid to
Lessee or its order unless an Event of Default shall have occurred and be
continuing and the insurers have been notified thereof by Lessor or the
Indenture Trustee.
(f) Tail Insurance. In the event Lessee elects to purchase
the Aircraft pursuant to Section 19 or 20 hereof, Lessee shall, to the
extent available on commercially reasonable terms, maintain the Owner
Participant as an additional insured on any liability policy (to the same
extent the Owner Participant or Lessor was insured during the operation of
the Lease) with respect to any liability policy referred to in Section
11(a) and Section 11(b) for two (2) years following the repayment in full
of all amounts required to be paid by Lessee pursuant to the terms of the
Operative Documents.
(g) Additional Insurance by Lessor and Lessee. Lessee (and
any Sublessee) may at its own expense carry insurance with respect to its
interest in the Aircraft in amounts in excess of that required to be
maintained by this Section 11; the Owner Participant may carry for its own
account at its sole cost and expense insurance with respect to its interest
in the Aircraft, provided that such insurance does not prevent Lessee (or
any Sublessee) from carrying the insurance required or permitted by this
Section 11 or adversely affect such insurance or the cost thereof.
(h) Indemnification by Government in Lieu of Insurance.
Notwithstanding any provisions of this Section 11 requiring insurance,
Lessor agrees to accept, in lieu of insurance against any risk with respect
to the Aircraft, indemnification from, or insurance provided by, the United
States Government or any agency or instrumentality thereof backed by the
full faith and credit of the United States Government, or, upon the written
consent of Lessor, other government of registry of the Aircraft or agency
or instrumentality thereof backed by the full faith and credit of such
government of registry, against such risk in an amount which, when added to
the amount of insurance against such risk maintained by Lessee (or any
Sublessee) shall be at least equal to the amount of insurance against such
risk otherwise required by this Section 11 (taking into account
self-insurance permitted by Section 11(d)).
(i) Application of Payments During Existence of Specified
Default or an Event of Default. Any amount referred to in Section 11 hereof
payable to or retained by Lessee (or any Sublessee) shall not be paid to or
retained by Lessee (or any Sublessee) if at the time of such payment or
retention a Specified Default or an Event of Default has occurred and is
continuing, but shall be held by or paid over to Lessor as security for the
obligations of Lessee under this Lease and, if Lessor declares this Lease
to be in default pursuant to Section 15 hereof (or, in the case of an Event
of Default described in Section 14(e) or 14(f), this Lease is deemed to be
declared in default), applied against Lessee's obligations hereunder as and
when due. At such time as there shall not be continuing any such Specified
Default or Event of Default, such amount shall be paid to Lessee to the
extent not previously applied in accordance with the preceding sentence.
SECTION 12. INSPECTION. At all reasonable times and upon at
least fifteen (15) days prior written notice to Lessee, the Owner
Participant or the Indenture Trustee, or their respective authorized
representatives, may inspect the Aircraft and inspect and make copies of
the books and records of Lessee and any Sublessee required to be maintained
by the FAA or the regulatory agency or body of another jurisdiction in
which the Aircraft is then registered and pursuant to which it is
maintained relating to the maintenance of the Aircraft (at Lessor's, the
Owner Participant's or the Indenture Trustee's risk and expense, as the
case may be) and shall keep any information or copies obtained thereby
confidential and shall not disclose the same to any Person, except (A) to
the Policy Provider, Lessor, the Note Holders and to prospective and
permitted transferees of the Policy Provider's, Lessor's, the Owner
Participant's, the Note Holders' or the Indenture Trustee's interest (and
such prospective and permitted transferee's counsel, independent insurance
advisors or other agents) who agree to hold such information confidential,
(B) to the Policy Provider's, Lessor's, the Owner Participant's, the Note
Holders' or the Indenture Trustee's counsel, independent insurance advisors
or other agents who agree to hold such information confidential, or (C) as
may be required by any statute, court or administrative order or decree or
governmental ruling or regulation; provided, however, that any and all
disclosures permitted by clause (C) above shall be made only to the extent
necessary to meet the specific requirements or needs of the Persons for
whom such disclosures are hereby permitted. Any such inspection of the
Aircraft shall be subject to Lessee's safety and security rules applicable
to the location of the Aircraft, shall be a visual, walk-around inspection
of the interior and exterior of the Aircraft and shall not include opening
any panels, bays or the like without the express consent of Lessee (except
in connection with a heavy maintenance visit when a panel, bay or the like
is scheduled or required to be opened), which consent Lessee may in its
sole discretion withhold; provided that unless an Event of Default has
occurred and is continuing and this Lease has been duly declared (or in the
case of an Event of Default under Section 14(e) or (f), deemed declared) in
default, no exercise of such inspection right shall interfere with the
normal operation or maintenance of the Aircraft by Lessee (or any
Sublessee). Upon receipt by Lessee of a written request from the Owner
Participant specifying that the Owner Participant desires to have
authorized representative(s) observe the next scheduled heavy maintenance
visit to be performed on the Aircraft during the Term, Lessee shall
cooperate with the Owner Participant to enable the Owner Participant's
representative(s) to observe such scheduled maintenance to be performed on
the Aircraft during the Term; provided that the Owner Participant's
authorized representative(s) shall merely observe such scheduled heavy
maintenance visit, shall not interfere with or extend in any manner the
normal conduct or duration of the scheduled heavy maintenance visit, and
shall not be entitled to direct any of the work performed in connection
with such scheduled heavy maintenance visit. Neither the Owner Participant
nor the Indenture Trustee shall have any duty to make any such inspection
nor shall either of them incur any liability or obligation by reason of not
making such inspection. Except during the final six (6) months of the Term
or during the continuance of an Event of Default, all inspections by the
Owner Participant and its authorized representatives or the Indenture
Trustee and its authorized representatives provided for under this Section
12 shall, in regard to each of the Owner Participant and the Indenture
Trustee, be limited to (A) except during the period commencing 365 days
prior to the then scheduled expiration date of the Basic Term or Renewal
Term, as applicable (such date, the "Scheduled Expiry Date"), and ending on
the Scheduled Expiry Date one (1) inspection of any kind contemplated by
this Section 12 during any calendar year and (B) during the period
commencing 365 days prior to the then Scheduled Expiry Date and ending on
the Scheduled Expiry Date, two (2) inspections, one of which shall be the
final inspection upon return of the Aircraft, during the last full year (12
months) of the Term. During the last three months of the Term (unless
Lessee shall have elected to purchase the Aircraft or renew this Lease in
accordance with the terms of this Lease), with reasonable notice, Lessee
will cooperate and cause any Sublessee to cooperate, at Lessor's sole cost
(unless an Event of Default shall have occurred and be continuing, in which
case Lessee shall be responsible for such costs), in all reasonable
respects with the efforts of Lessor to sell or lease the Aircraft,
including, without limitation, permitting prospective purchasers or lessees
to inspect the Aircraft, any maintenance records relating to the Aircraft
then required to be retained by the FAA or by the comparable agency or
administration of the government of registry and which establishes the
maintenance standards of the Aircraft, all in accordance with the
provisions set forth above; provided that any such cooperation shall not
interfere with the normal operation or maintenance of the Aircraft by,
Lessee or any Sublessee. Unless Lessee shall have elected to purchase the
Aircraft or renew this Lease, Lessee shall, no later than 10 days prior to
the then Scheduled Expiry Date, deliver to Lessor a copy of the books and
records of Lessee (or any Sublessee) relating to the Aircraft that are
required to be maintained by the FAA or the comparable agency or
administration of the government of registry and which establishes the
maintenance standards of the Aircraft.
SECTION 13. ASSIGNMENT. Except as provided in Section 7
hereof or in Section 7(s) of the Participation Agreement, Lessee will not,
without the prior written consent of Lessor and the Owner Participant,
assign in whole or in part any of its rights or obligations hereunder.
Lessor agrees that it will not assign or convey its right, title and
interest in and to this Lease or the Aircraft except as provided herein, in
the Trust Indenture, the Trust Agreement, in the Participation Agreement or
in any other Operative Document. Subject to the foregoing, the terms and
provisions of this Lease shall be binding upon and inure to the benefit of
Lessor and Lessee and their respective successors and permitted assigns.
SECTION 14. EVENTS OF DEFAULT. Each of the following events
shall constitute an Event 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 continue so long
as, but only as long as, it shall not have been remedied:
(a) Lessee shall not have made a payment of (i) Basic Rent
within five (5) Business Days after the same shall have become due or (ii)
Termination Value within ten (10) Business Days after receipt by Lessee of
written notice that the same is past due; or
(b) Lessee shall have failed to make a payment of
Supplemental Rent (other than Termination Value) after the same shall have
become due and such failure shall continue for fifteen (15) Business Days
after Lessee's receipt of written demand therefor by the party entitled
thereto (provided that any failure to pay any amount owed by Lessee under
the Tax Indemnity Agreement or any failure of Lessee to pay to Lessor or
the Owner Participant when due any Excluded Payments shall not constitute
an Event of Default unless notice is given by the Owner Participant to
Lessee and the Indenture Trustee that such failure shall constitute an
Event of Default); or
(c) Lessee shall have failed to perform or observe (or
caused to be performed and observed) in any material respect any covenant
or agreement (except the covenants set forth in the Tax Indemnity
Agreement) to be performed or observed by it under any Operative Document,
and such failure shall continue unremedied for a period of thirty (30) days
after receipt by Lessee of written notice thereof from Lessor or the
Indenture Trustee; provided, however, that if Lessee shall have undertaken
to cure any such failure and, notwithstanding the diligence of Lessee in
attempting to cure such failure, such failure is not cured within said
thirty (30) day period but is curable with future due diligence, there
shall exist no Event of Default under this Section 14 so long as Lessee is
proceeding with due diligence to cure such failure and such failure is
remedied not later than two hundred seventy (270) days after receipt by
Lessee of such written notice; or
(d) any representation or warranty made by Lessee herein or
in the Participation Agreement or any document or certificate furnished by
Lessee in connection herewith or therewith or pursuant hereto or thereto
(except the representations and warranties set forth in the Tax Indemnity
Agreement and such documents or certificates as are furnished to the Owner
Participant solely in connection with matters dealt with in the Tax
Indemnity Agreement and for no other purpose and except for representations
or warranties contained in the Pass Through Trust Agreement, the
Underwriting Agreement or any document or instrument furnished pursuant to
either thereof) shall prove to have been incorrect in any material respect
at the time made, and such incorrectness shall not have been cured within
thirty (30) days after the receipt by Lessee of a written notice from
Lessor or the Indenture Trustee advising Lessee of the existence of such
incorrectness; or
(e) the commencement of an involuntary case or other
proceeding in respect of Lessee in an involuntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law in the United
States or seeking the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of Lessee or for all
or any substantial part of its property, or seeking the winding-up or
liquidation of its affairs and the continuation of any such case or other
proceeding undismissed and unstayed for a period of ninety (90) consecutive
days or an order, judgment or decree shall be entered in any proceeding by
any court of competent jurisdiction appointing, without the consent of
Lessee, a receiver, trustee or liquidator of Lessee, or of any substantial
part of its property, or sequestering any substantial part of the property
of Lessee and any such order, judgment or decree or appointment or
sequestration shall be final or shall remain in force undismissed, unstayed
or unvacated for a period of ninety (90) days after the date of entry
thereof; or
(f) the commencement by Lessee of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other similar
law in the United States, or the consent by Lessee to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Lessee or for any substantial
part of its property, or the making by Lessee of any assignment for the
benefit of creditors, or Lessee shall take any corporate action to
authorize any of the foregoing; or
(g) Lessee shall fail to carry and maintain on or with
respect to the Aircraft (or cause to be carried and maintained) insurance
required to be maintained in accordance with the provisions of Section 11
hereof; or
(h) Unless Lessee shall have purchased the Aircraft in
accordance with the terms hereof or the Lease shall have been terminated in
accordance with Section 9 or Section 20, Lessee shall fail to return the
Aircraft in accordance with Section 5 hereof on the last day of the Term;
provided, however, that, notwithstanding anything to the contrary contained
in Section 14(c), (d) or (h) hereof, any failure of Lessee to perform or
observe any covenant, condition, agreement or any error in a representation
or warranty shall not constitute an Event of Default if such failure or
error is caused solely by reason of an event that constitutes an Event of
Loss so long as Lessee is continuing to comply with all of the terms of
Section 10 hereof.
SECTION 15. REMEDIES. Upon the occurrence of any Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare by written notice to Lessee this Lease
to be in default (provided that upon the occurrence of an Event of Default
under Section 14(e) or (f) of this Lease, this Lease automatically shall be
in default without the necessity of a declaration) and at any time
thereafter, so long as any such outstanding Events of Default shall not
have been remedied, Lessor may do one or more of the following with respect
to all or any part of the Aircraft, the Airframe and any or all of the
Engines as 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, however, that during any period
the Aircraft is subject to, and activated under, the Civil Reserve Air
Fleet Program in accordance with the provisions of Section 7(b) hereof and
in the possession of the United States Government or an agency or
instrumentality of the United States, Lessor shall not, on account of any
Event of Default, be entitled to do any of the following in such manner as
to limit Lessee's control under this Lease (or any Sublessee's control
under any Sublease) of any Airframe or any Engines installed thereon,
unless at least sixty (60) days (or such lesser period as may then be
applicable under the Air Mobility Command program of the United States
Government) prior written notice of default hereunder shall have been given
by Lessor by registered or certified mail to Lessee (and any Sublessee)
with a copy addressed to the Contracting Office Representative for the Air
Mobility Command of the United States Air Force under any contract with
Lessee (or any Sublessee) relating to the Aircraft:
(a) upon the written demand of Lessor and at Lessee's
expense, cause Lessee to return promptly, and Lessee shall return promptly,
all or any part of the Aircraft, the Airframe or any Engine, as Lessor may
so demand, to Lessor or its order in the manner and condition required by,
and otherwise in accordance with all the provisions of Section 5 as if such
Aircraft, Airframe or Engine were being returned at the end of the Term, or
Lessor, at its option, may enter upon the premises where all or any part of
the Aircraft, Airframe or any Engine is located and take immediate
possession of and remove the same by summary proceedings or otherwise
(and/or, at Lessor's option, store the same at Lessee's premises until
disposal thereof by Lessor), all without liability accruing to Lessor for
or by reason of such entry or taking of possession or removing whether for
the restoration of damage to property caused by such action or otherwise;
(b) with or without taking possession thereof, sell all or
any part of the Aircraft, Airframe and/or any Engine at public or private
sale, as Lessor may determine, or otherwise dispose of, hold, use, operate,
lease to others or keep idle the Aircraft as Lessor, in its sole
discretion, may determine, all free and clear of any rights of Lessee,
except as hereinafter expressly set forth in this Section 15;
(c) whether or not 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 all or any part of the Aircraft,
Airframe and/or any Engine, Lessor, by written notice to Lessee specifying
a payment date which shall be the Termination Value Date not earlier than
ten (10) days from the date of such notice, may demand that Lessee pay to
Lessor, and Lessee shall pay Lessor, on the payment date so specified, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of
the installments of Basic Rent for the Aircraft due on Rent Payment Dates
occurring on or after the Termination Value Date specified as the payment
date in such notice), any unpaid Basic Rent due on Rent Payment Dates prior
to (but not on) the payment date so specified (including, without
limitation, any adjustments to Basic Rent payable pursuant to Section 3(c))
plus whichever of the following amounts Lessor, in its sole discretion,
shall specify in such notice (together with interest, if any, on such
amount at the Past Due Rate from such Termination Value Date until the date
of actual payment of such amount): (i) an amount equal to the excess, if
any, of the Termination Value for the Aircraft, computed as of the
Termination Value Date specified in such notice, over the aggregate fair
market rental value (computed as hereafter in this Section 15 provided) of
such Aircraft for the remainder of the Term, after discounting such
aggregate fair market rental value to present value as of the Termination
Value Date specified in such notice at an annual rate equal to the Debt
Rate; or (ii) an amount equal to the excess, if any, of the Termination
Value for such Aircraft, computed as of the Termination Value Date in such
notice over the fair market sales value of such Aircraft (computed as
hereafter in this Section provided) as of the Termination Value Date in
such notice;
(d) in the event Lessor, pursuant to paragraph (b) above,
shall have sold the Aircraft, Lessor, in lieu of exercising its rights
under paragraph (c) above with respect to such Aircraft, may, if it shall
so elect, demand that Lessee pay Lessor, and Lessee shall pay to Lessor, on
the date of such sale, as liquidated damages for loss of a bargain and not
as a penalty (in lieu of the installments of Basic Rent for the Aircraft
due on or after such date), any unpaid Basic Rent with respect to the
Aircraft due with respect to the period prior to (but not on) such date
(including, without limitation, any adjustments to Basic Rent payable
pursuant to Section 3(c)) plus the amount of any deficiency between the net
proceeds of such sale (after deduction of all costs of sale) and the
Termination Value of such Aircraft, computed as of the Termination Value
Date on or immediately following the date of such sale together with
interest, if any, on any overdue Rent and the amount of such deficiency, at
the Past Due Rate, from the date of such sale to the date of actual payment
of such amount; and/or
(e) Lessor may cancel, terminate or rescind this Lease,
and/or may exercise any other right or remedy which may be available to it
under applicable law or proceed by appropriate court action to enforce the
terms hereof or to recover damages for breach hereof.
For the purposes of paragraph (c) above, the "fair market
rental value" or the "fair market sales value" of the Aircraft shall be the
rental value or sales value, as the case may be, which would be obtained in
an arm's-length transaction between an informed and willing lessee or
purchaser, as the case may be, under no compulsion to lease or purchase, as
the case may be, and an informed and willing lessor or seller in possession
under no compulsion to lease, sell, as the case may be, in each case based
upon the actual condition and location and, if located outside of the
United States, the ability to take possession of the Aircraft, which value
shall be determined by mutual agreement or, in the absence of mutual
written agreement, pursuant to an appraisal prepared and delivered by a
nationally recognized firm of independent aircraft appraisers nominated by
Lessor, and Lessor shall immediately notify Lessee of such nomination.
Unless Lessee shall have objected in writing within ten (10) Business Days
after its receipt of Lessor's notice, Lessor's nomination shall be
conclusive and binding. If Lessee shall object, however, Lessor and Lessee
shall endeavor, within ten (10) Business Days after such objection is made,
to select a mutually acceptable appraiser; provided that, if Lessee shall
not so endeavor to make such selection and/or if an Event of Default has
occurred and is continuing, Lessor's nomination referred to in the
preceding sentence hereof shall be conclusive and binding. If Lessor and
Lessee fail to reach agreement (except for the reason referred to in the
proviso in the preceding sentence), or if any appraiser selected fails to
act for any reason, then the question shall be determined by an appraisal
(applying the definitions of "fair market rental value" and "fair market
sales value" as set forth above based upon the actual condition of the
Aircraft) mutually agreed to by two (2) recognized independent aircraft
appraisers, one of which appraisers shall be chosen by Lessor and one by
Lessee within five (5) Business Days after Lessor or Lessee shall have
received written notice from the other party of a demand that such an
appraisal be made, which notice shall specify the appraiser chosen by the
party giving the notice or, if such appraisers cannot agree on the amount
of such appraisal within twenty (20) Business Days after the end of such
five (5) Business Day period, each shall render its own appraisal and shall
by mutual consent choose another appraiser within five (5) Business Days
after the end of such twenty (20) day period. If, within such five (5) day
period, such two appraisers fail to appoint a third appraiser, then either
Lessor or Lessee, on behalf of both, may apply to the American Arbitration
Association (or any successor organization thereto) in New York, New York
for the appointment of such third appraiser. The decision of the third
appraiser so appointed shall be given within twenty (20) Business Days
after the appointment of such third appraiser. As soon as the third
appraiser has delivered his appraisal, that appraisal shall be compared
with the appraisals given by the other two (2) appraisers. If the
determination of one appraiser is more disparate from the average of all
three determinations than each of the other two determinations, then the
determination of such appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall be final and
binding upon the parties hereto. If no determination is more disparate from
the average of all three determinations than each of the other
determinations, then such average shall be final and binding upon the
parties thereto. The cost of such appraisal or appointment shall be borne
by Lessee.
In addition, Lessee shall be liable, except as otherwise
provided above and without duplication of amounts payable hereunder, for
any and all unpaid Rent due hereunder before, after or during the exercise
of any of the foregoing remedies (other than Basic Rent due on or after the
payment referenced in paragraph (c) or (d) above has been made in full) and
for all reasonable legal fees and other costs and expenses (including fees
of the appraisers hereinabove referred to) incurred by Lessor, the
Indenture Trustee, the Loan Participants and the Owner Participant in
connection with the enforcement of any of their respective rights and
remedies hereunder including, without limitation, return of all or part of
the Aircraft, Airframe or any Engine in accordance with the terms of
Section 5 or in placing such Aircraft, Airframe or Engine in the condition
and airworthiness required by such Section.
At any sale of the Aircraft or any part thereof pursuant to
this Section 15, Lessor or the Owner Participant or, in the case of a
public sale, Lessee may bid for and purchase such property. Lessor agrees
to give Lessee at least ten (10) days prior written notice of the date
fixed for any public sale of the Airframe or any Engine or of the date on
or after which will occur the execution of any contract providing for any
private sale. Except as otherwise expressly provided above, no remedy
referred to in this Section 15 is intended to be exclusive, but each shall
be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity; and the exercise or
beginning of exercise by Lessor of any one or more of such remedies shall
not preclude the simultaneous or later exercise by Lessor of any or all of
such other remedies. No waiver by Lessor of any Event of Default shall in
any way be, or be construed to be, a waiver of any future or subsequent
Event of Default.
SECTION 16. LESSEE'S COOPERATION CONCERNING CERTAIN MATTERS.
Forthwith upon the execution and delivery of each Lease Supplement and
Trust Supplement from time to time required by the terms hereof and upon
the execution and delivery of any amendment to this Lease, to the Trust
Indenture or to the Trust Agreement, Lessee will cause such Lease
Supplement, Trust Supplement (and, in the case of the initial Lease
Supplement and Trust Supplement, this Lease, the Trust Agreement and the
Trust Indenture as well) or amendment to be duly filed and recorded, and
maintained of record, in accordance with the applicable laws of the
government of registry of the Aircraft. In addition, Lessee will promptly
and duly execute and deliver to Lessor such further documents and take such
further action as Lessor, Owner Participant or the Indenture Trustee may
from time to time reasonably request in order more effectively to 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 Lessor,
the Owner Participant and the Indenture Trustee hereunder, including,
without limitation, if requested by Lessor, the Owner Participant or the
Indenture Trustee, at the expense of Lessee, the execution and delivery of
supplements or amendments hereto or to the Trust Agreement or the Trust
Indenture, each in recordable form, subjecting to this Lease, the Trust
Agreement and the Trust Indenture, any airframe or engine substituted for
the Airframe or any Engine pursuant to the terms thereof and the recording
or filing of counterparts thereof, in accordance with the laws of such
jurisdictions as Lessor, the Owner Participant or the Indenture Trustee may
from time to time deem advisable. Lessee agrees to furnish to Lessor, the
Owner Participant and the Indenture Trustee promptly after execution and
delivery of any supplement and amendment hereto and promptly after the
execution and delivery of any supplement and amendment to the Trust
Agreement or the Trust Indenture (except for any such supplement or
amendment which does not require or receive the approval of Lessee pursuant
to the Operative Documents and is not required pursuant to the terms of the
Operative Documents), an opinion of counsel (which may be Lessee's General
Counsel, Deputy General Counsel, Associate General Counsel or Assistant
General Counsel) reasonably satisfactory to Lessor, the Owner Participant
and the Indenture Trustee as to the due recording or filing of such
supplement or amendment.
SECTION 17. NOTICES. All notices required under the terms
and provisions hereof shall be by telecopier or other telecommunication
means (with such telecopy or other telecommunication means to be confirmed
in writing), or if such notice is impracticable, by registered, first-class
airmail, with postage prepaid, or by personal delivery of written notice
and any such notice shall become effective when received, addressed:
(a) if to Lessee, for U.S. mail at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and for overnight courier at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Treasurer (Telecopy No. (703)
872-5936), or to such other address or telecopy number as Lessee shall from
time to time designate in writing to Lessor,
(b) if to Lessor, at ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, Attention: Corporate Trust Department (Telecopy No.
(▇▇▇) ▇▇▇-▇▇▇▇), or to such other address or telecopy number as Lessor
shall from time to time designate in writing to Lessee, and
(c) if to a Loan Participant, the Indenture Trustee or the
Owner Participant, addressed to such Loan Participant, the Indenture
Trustee or the Owner Participant at such address or telecopy number as such
Loan Participant, the Indenture Trustee or the Owner Participant shall have
furnished by notice to Lessor and to Lessee, and, until an address is so
furnished, addressed to such Loan Participant, the Indenture Trustee or the
Owner Participant at its address or telecopy number set forth in Schedule I
to the Participation Agreement.
SECTION 18. NET LEASE; NO SET-OFF, COUNTERCLAIM, ETC. This
Lease is a net lease. All Rent shall be paid by Lessee to Lessor in funds
of the type specified in Section 3(e). Except as expressly provided herein,
Lessee's obligation to pay all Rent payable hereunder shall be absolute and
unconditional and shall not be affected by any circumstance, including,
without limitation, (i) any set-off, counterclaim, recoupment, defense or
other right which Lessee may have against Lessor, in its individual
capacity or as Owner Trustee under the Trust Agreement, the Indenture
Trustee (in its individual capacity or as Indenture Trustee), any Loan
Participant, the Owner Participant, or any other Person for any reason
whatsoever (whether in connection with the transactions contemplated hereby
or any other transactions), including, without limitation, any breach by
Lessor or the Owner Participant of their respective warranties, agreements
or covenants contained in any of the Operative Documents, (ii) any defect
in the title, registration, airworthiness, condition, design, operation, or
fitness for use of, or any damage to or loss or destruction or theft of,
the Aircraft or any Engine, or any interruption, cessation in, restriction
or prohibition of the use or possession thereof by Lessee (or any
Sublessee) for any reason whatsoever, including, without limitation, any
such interruption, cessation, restriction or prohibition resulting from the
act of any government authority, (iii) any insolvency, bankruptcy,
reorganization or similar case or proceedings by or against Lessee (or any
Sublessee) or any other Person, or (iv) any other circumstance, happening,
or event whatsoever, whether or not unforeseen or similar to any of the
foregoing. 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 herein, Lessee nonetheless agrees without limitation of the other
rights or remedies of Lessor hereunder to pay to Lessor an amount equal to
each 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. Lessee hereby waives, to the extent
permitted by applicable law, any and all rights which it may now have or
which at any time hereafter may be conferred upon it, by statute or
otherwise, to terminate, cancel, quit or surrender this Lease except in
accordance with the express terms hereof.
SECTION 19. RENEWAL OPTIONS; PURCHASE OPTIONS; VALUATION.
(a) Renewal Options; Renewal Term.
(1) Renewal Term. Not more than three hundred sixty-
five (365) days and not less than one hundred eighty (180) days, before
the scheduled end of the Basic Term or any Renewal Term (as
hereinafter defined), and so long as no Specified Default or Event
of Default shall have occurred and be continuing, Lessee may
deliver to Lessor a written notice (the "Renewal Notice")
irrevocably electing to renew this Lease for a term having a
duration and at a Basic Rent as determined below (any such renewal
term, a "Renewal Term"). The duration of any Renewal Term shall be
a period specified by Lessee in the Renewal Notice which is (i) not
less than one year (provided any such period shall be in one (1)
year increments), and (ii) when taken together with any other
Renewal Term previously entered into, not more than four (4) years.
Each semi-annual installment of Basic Rent during any Renewal Term
shall be equal to the lesser of (A) the then fair market rental
value of the Aircraft or (B) 60% of the average annual Basic Rent
during the Basic Term divided by two (2).
(2) Waiver. If no written notice is delivered by
Lessee to Lessor pursuant to Section 19(a) on or before the day
specified therefor, Lessee shall be deemed to have waived any right
to renew this Lease.
(3) Conditions Precedent, Payment of Basic Rent. At
the end of the Basic Term or any Renewal Term, if Lessee has
elected to renew this Lease as aforesaid, (i) this Lease shall
continue in full force and effect during the Renewal Term and (ii)
Basic Rent for such Renewal Term shall be payable in semi-annual
installments in arrears, each such installment being due and
payable on each Rent Payment Date occurring during the Renewal
Term, commencing with the Rent Payment Date immediately following
the commencement of the Renewal Term.
(4) Termination Value. The amounts which are payable
during any Renewal Term in respect of Termination Value with
respect to the Aircraft shall be determined on the basis of the
fair market sales value of the Aircraft as of the commencement of
such Renewal Term, amortized on a straight-line basis over such
Renewal Term to the projected fair market sales value of the
Aircraft as of the expiration of such Renewal Term, as such fair
market sales value in each case is determined prior to the
commencement of such Renewal Term. In determining fair market sales
value for purposes of calculating Termination Value for any Renewal
Term effect shall be given to the encumbrance on the Aircraft of
any Renewal Term available or in force.
(b) Purchase Options. Lessee shall have the option, (i) upon
at least thirty (30) days irrevocable prior written notice to Lessor prior
to the EBO Date with respect to the purchase option set forth in clause (1)
below and (ii) upon at least one hundred eighty (180) days irrevocable
prior written notice to Lessor prior to the relevant purchase date (each a
"Purchase Option Date") with respect to the purchase options set forth in
clauses (2) and (3) below, to terminate this Lease and to purchase the
Aircraft:
(1) on the EBO Date, for a purchase price equal to
the EBO Amounts set forth on Exhibit D, which purchase price shall
be paid in installments as set forth on Exhibit D;
(2) on the last Business Day of the Basic Term for a
purchase price equal to the fair market sales value of the Aircraft
on such date, provided, however, that in no event shall such
purchase price exceed 60% of Lessor's Cost; or
(3) on the last Business Day of any Renewal Term for
a purchase price equal to the fair market sales value of the
Aircraft on such date;
provided that Lessee shall not be entitled to exercise any of the foregoing
purchase options at any time or an Event of Default of the type described
in Sections 14(e) or (f) has occurred and is continuing, in each case
unless Lessee has obtained a final, non-appealable order from the
applicable bankruptcy court or other court having jurisdiction over the
applicable proceeding authorizing the purchase of the Aircraft and the
payment of the full purchase price therefor. For the avoidance of doubt, if
a Default or Event of Default exists under Section 14(a) or 14(b) hereof,
Lessee may not exercise the foregoing purchase options unless at or prior
to the time it purchases the Aircraft, Lessee pays all amounts due to the
Lessor or the Owner Participant under the Operative Documents, thereby
curing any such Default or Event of Default.
Notwithstanding the foregoing but subject to the last
sentence of this paragraph, the purchase price on any Purchase Option Date
(including, in the case of the purchase option in clause (1) exercised
under circumstances where Lessee does not assume the obligations of the
Owner Trustee under Section 2.13 of the Indenture and Section 7(r) of the
Participation Agreement, the first installment of the EBO Amounts) shall be
sufficient, together with all other amounts payable simultaneously by
Lessee, to pay in full the payments then required to be made on account of
the principal amount of and accrued and unpaid interest on the Equipment
Notes then outstanding. Upon payment to Lessor in immediately available
funds in Dollars of the full amount of the purchase price (or, in the case
of the purchase option in clause (1), the first installment of the EBO
Amounts) and payment of any other amounts then due hereunder or under the
other Operative Documents to Lessor, in its individual capacity and as
trustee under the Trust Agreement, and the Owner Participant on or before
the Purchase Option Date (including all Rent and all reasonable costs or
expenses of Lessor, in its individual capacity and as trustee under the
Trust Agreement, and the Owner Participant in connection with such
purchase), Lessor will transfer to Lessee, without recourse, representation
or warranty (except as to the absences of Lessor Liens), all of Lessor's
right, title and interest in and to the Aircraft, which transfer shall be,
in the case of the purchase option in clause (1), exercised under the
circumstance where Lessee assumes the obligations of the Owner Trustee
under Section 2.13 of the Trust Indenture and Section 7(r) of the
Participation Agreement, expressly subject to the Lien of the Trust
Indenture. Notwithstanding the foregoing, Lessee may, in accordance with
Section 7(r) of the Participation Agreement and Section 2.13 of the Trust
Indenture, assume the principal amount of the Equipment Notes then
outstanding on any applicable Purchase Option Date in which event Lessee
shall receive a credit against the purchase price otherwise payable
pursuant to the preceding two sentences in an amount equal to the principal
amount so assumed.
(c) Valuation. At any time not earlier than three hundred
sixty-five (365) days prior to the date on which Lessee may purchase the
Aircraft pursuant to Section 19(b)(2) or (b)(3) hereof or renew this Lease
pursuant to Section 19(a)(1) hereof, Lessee may deliver to Lessor a
revocable notice of its intent to exercise its renewal option or purchase
option. For all purposes of this Section 19 and Section 20, including the
appraisal referred to in this Section 19(c), in determining "fair market
rental value" or "fair market sales value", the Aircraft shall be valued
(i) as if in the condition and otherwise in compliance with the terms of
Section 5 upon a return of the Aircraft to Lessor and as if it had been
maintained at all times as required in accordance with Section 7(a)(i)
during periods when no Sublease was in effect, (ii) on the basis of the
value which would obtain in an arm's-length transaction between an informed
and willing buyer-user or lessee (other than a lessee or an Affiliate of a
lessee currently in possession or a used equipment or scrap dealer) under
no compulsion to buy or lease and an informed and willing seller or lessor
unaffiliated with such buyer-user or lessee and under no compulsion to sell
or lease and disregarding the Lease encumbrance, the purchase and renewal
options of Lessee provided in this Lease and (iii) in the case of such
valuation for determining "fair market rental value", assuming such lessee
would have substantially the same obligations during any Renewal Term as
provided hereunder including without limitation the obligations of Lessee
to carry and maintain the insurance required by Section 11 hereof and to
make certain payments with reference to Termination Value during the
applicable Renewal Term similar to those required hereunder. Upon receipt
of such notice Lessor and Lessee shall confer in good faith with a view to
reaching agreement on the "fair market rental value" or "fair market sales
value" of the Aircraft. If the parties have not so agreed within two
hundred seventy (270) days prior to the end of the Basic Term or the
Renewal Term in question, then the question shall be determined by an
appraisal mutually agreed to by two recognized independent aircraft
appraisers, one of which appraisers shall be chosen by Lessor and one by
Lessee within five (5) Business Days after Lessor or Lessee shall have
received written notice from the other party of a demand that such an
appraisal be made, which notice shall specify the appraiser chosen by the
party giving the notice or, if such appraisers cannot agree on the amount
of such appraisal within twenty (20) Business Days after the end of such
five (5) Business Day period, each shall render its own appraisal and shall
by mutual consent choose another appraiser within five (5) Business Days
after the end of such twenty (20) Business Day period. If, within such five
(5) Business Day period, such two appraisers fail to appoint a third
appraiser, then either Lessor or Lessee, on behalf of both, may apply to
the American Arbitration Association (or any successor organization
thereto) in New York, New York for the appointment of such third appraiser.
The decision of the third appraiser so appointed shall be given within ten
(10) Business Days after the appointment of such third appraiser. As soon
as the third appraiser has delivered his appraisal, that appraisal shall be
compared with the appraisals given by the other two appraisers. If the
determination of one appraiser is more disparate from the average of all
three determinations than each of the other two determinations, then the
determination of such appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall be final and
binding upon the parties hereto. If no determination is more disparate from
the average of all three determinations than each of the other
determinations, then such average shall be final and binding upon the
parties thereto. Lessee and Lessor shall share equally all expenses
relating to such appraisal procedure provided if Lessee elects not to renew
this Lease or purchase the Aircraft following such appraisal, Lessee shall
pay all expenses of such appraisal.
SECTION 20. BURDENSOME PURCHASE OPTION. If a Burdensome
Termination Event shall have occurred, then on any Rent Payment Date
occurring after the expiration of the Depreciation Period, so long as no
Specified Default or Lease Event of Default has occurred and is continuing,
Lessee shall have the option, upon at least one hundred twenty (120) days
revocable prior notice to Lessor and, if any Equipment Notes are then
outstanding, the Indenture Trustee, to purchase the Aircraft on such date
for a purchase price equal to the higher as of such date of the Termination
Value or the fair market sales value of the aircraft (determined as set
forth in Section 19(c) and excluding the value of any Significant
Expenditure) (such price, the "Burdensome Buyout Price"). In addition, if
on such date there shall be any Equipment Notes outstanding, Lessee shall
have the option to assume, pursuant to Section 7(r) of the Participation
Agreement and Section 2.13 of the Trust Indenture and the other Operative
Documents, all of the obligations of Lessor under the Trust Indenture. If
such assumption is made, Lessee shall pay Lessor a purchase price equal to
(I) the Burdensome Buyout Price minus (II) an amount equal to principal of,
and accrued but unpaid interest on, any Equipment Notes that are
outstanding on such date. Upon such payment in full and payment of any
other amounts then due hereunder (excluding any Basic Rent due on such date
but including costs or expenses of the Lessor and the Owner Participant in
connection with such purchase, any installments of Basic Rent due with
respect to the period prior to such date, and all unpaid Supplemental Rent
due with respect to the period on or prior to such date), Lessor will
transfer to Lessee, without recourse, representation or warranty (except as
to the absence of Lessor Liens), all of Lessor's right, title and interest
in and to the Aircraft and under the Trust Indenture and, unless there
shall be any Equipment Notes outstanding after such payment, exercise such
rights as it has to cause the Aircraft to be released from the Lien of the
Trust Indenture. Lessee may revoke any notice given pursuant to this
Section 20 no more than two (2) times during the Term.
SECTION 21. SECURITY FOR LESSOR'S OBLIGATION TO HOLDERS OF
EQUIPMENT NOTES. In order to secure the indebtedness evidenced by the
Equipment Notes, Lessor has agreed in the Trust Indenture, among other
things, to assign to the Indenture Trustee this Lease, the Lease
Supplements and any amendments to this Lease and to mortgage its interest
in the Aircraft in favor of the Indenture Trustee, subject to the
reservations and conditions therein set forth. To the extent, if any, that
this Lease, the Lease Supplements and any amendments to this Lease
constitute 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, the Lease Supplements and any amendments to this Lease may be
created through the transfer or possession of any counterpart other than
the original counterpart, which shall be identified as the counterpart
containing the receipt therefor executed by the Indenture Trustee on the
signature page thereof. Lessee hereby accepts and consents to the
assignment of all Lessor's right, title and interest in and to this Lease
pursuant to the terms of the Trust Indenture. Subject to Section 3(e)
hereof, Lessee agrees to pay directly to the Indenture Trustee (or, after
receipt by Lessee of notice from the Indenture Trustee of the discharge of
the Trust Indenture, to Lessor), all amounts of Rent due or to become due
hereunder and assigned to the Indenture Trustee and Lessee agrees that the
Indenture Trustee's right to such payments hereunder shall be absolute and
unconditional and shall not be affected by any circumstance, including,
without limitation, the circumstances set forth in clauses (i) through (iv)
of Section 18 hereof. Notwithstanding the foregoing assignment of this
Lease, the obligations of Lessor to Lessee to perform the terms and
conditions of this Lease shall remain in full force and effect. In the
event that pursuant to the occurrence and continuation of an Event of
Default under Section 4.02 of the Trust Indenture, the Indenture Trustee
shall foreclose the Lien of the Trust Indenture, and dispossess the Lessor
of its right, title and interest in and to this Lease thereafter, all
references in this Lease to the Owner Participant, with respect to the
period arising from and after such date, shall be deemed deleted and of no
further force and effect.
SECTION 22. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If 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,
then (but in each case, except in the case of failure to pay Rent or in the
case of failure to maintain insurance as required hereunder, no earlier
than the fifteenth (15th ) day after the occurrence of such failure,
whether or not it shall yet constitute an Event of Default hereunder)
Lessor may itself make such payment or perform or comply with such
agreement but shall not be obligated hereunder to do so, and the amount of
such payment and the amount of the reasonable expenses of 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 Lessee upon
demand.
SECTION 23. INVESTMENT OF SECURITY FUNDS; LIABILITY OF LESSOR
LIMITED.
(a) Investment of Security Funds. Any moneys held by Lessor
as security hereunder, for future payments to Lessee at a time when there
is not continuing an Event of Default shall, until paid to Lessee or
otherwise applied in accordance with the terms of the Operative Documents,
be invested by Lessor or, if the Trust Indenture shall not have been
discharged, by the Indenture Trustee, as the case may be, as Lessee may
from time to time direct in writing (and in absence of a written direction
by Lessee, there shall be no obligation to invest such moneys) in Cash
Equivalents. There shall be promptly remitted to Lessee or its order (but
no more frequently than monthly) any gain (including interest received)
realized as a 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 or an Event of Default shall have occurred and
be continuing. Lessee shall be responsible for any net loss realized as a
result of any such investment and shall reimburse Lessor (or the Indenture
Trustee, as the case may be) therefor on demand.
(b) Liability of Lessor Limited. It is expressly agreed and
understood that all representations, warranties and undertakings of Lessor
hereunder shall be binding upon Lessor only in its capacity as trustee
under the Trust Agreement, and the institution acting as Lessor shall not
be liable in its individual capacity for any breach thereof except for its
gross negligence or willful misconduct or for breach of its
covenants, representations and warranties contained herein, to the extent
covenanted or made in its individual capacity.
SECTION 24. JURISDICTION. Lessor and Lessee each hereby
irrevocably submits itself to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York and to the
non-exclusive jurisdiction of the Supreme Court of the State of New York,
New York County, for the purposes of any suit, action or other proceeding
arising out of this Lease, the subject matter hereof or any of the
transactions contemplated hereby brought by Lessor, Lessee, the Indenture
Trustee, the Loan Participants or the Owner Participant or their successors
or assigns.
SECTION 25. MISCELLANEOUS. 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 hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. No term or provision of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by Lessor, Lessee and any assignee of Lessor's rights hereunder.
This Lease shall constitute an agreement of lease, and nothing contained
herein shall be construed as conveying to Lessee any right, title or
interest in the Aircraft except as a lessee only. Neither Lessee nor any
affiliate of Lessee will file any tax returns in a manner inconsistent with
the foregoing fact or with Lessor's ownership of the Aircraft. The section
and paragraph headings in 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 and all references herein to numbered
sections, unless otherwise indicated, are to sections of this Lease. THIS
LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
This Lease may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all
such counterparts shall together constitute but one and the same
instrument.
SECTION 26. SUCCESSOR TRUSTEE. Lessee agrees that in the
case of the appointment of any successor Owner Trustee pursuant to the
terms of the Trust Agreement, such successor Owner Trustee shall, upon
written notice by such successor Owner Trustee, succeed to all the rights,
powers and title of Lessor hereunder and shall be deemed to be Lessor and
the owner of the Aircraft for all purposes hereof without the necessity of
any consent or approval by Lessee (subject to Section 9 of the
Participation Agreement) and without in any way altering the terms of this
Lease or Lessee's obligations hereunder. One such appointment and
designation of a successor Owner Trustee shall not exhaust the right to
appoint and designate further successor Owner Trustees pursuant to the
Trust Agreement, but such right may be exercised repeatedly as long as this
Lease shall be in effect.
SECTION 27. LEASE FOR U.S. FEDERAL INCOME TAX LAW PURPOSES;
SECTION 1110 OF BANKRUPTCY CODE; ARTICLE 2A OF THE UCC.
(a) Lease for Federal Income Tax Law Purposes. It is the
intent of the parties to this Agreement that this Lease is a true lease for
U.S. Federal income tax purposes.
(b) Section 1110 of Bankruptcy Code. It is the intention of
each of Lessee and Lessor that Lessor (and the Indenture Trustee as secured
party and as assignee of Lessor under the Trust Indenture) shall be
entitled to the benefits of Section 1110 of the Bankruptcy Code with
respect to the right to take possession of the Aircraft, Airframe, Engines
and Parts, and to enforce any other of its rights and remedies as provided
in this Lease.
(c) ARTICLE 2A OF THE UCC. LESSOR AND 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.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this
Lease to be duly executed as of the day and year first above written.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity except as expressly provided
herein, but solely as Owner Trustee,
Lessor
By:
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Title:
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US AIRWAYS, INC.,
Lessee
By:
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Title:
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Receipt of this original counterpart of the foregoing Lease
is hereby acknowledged on the ___ day of _________, 2000.
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION, Indenture Trustee
By:
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Title:
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