Exhibit 10.28
--------------------------------------------------------------------------------
LEASE AGREEMENT [N361ML]
dated as of September 27, 2000
between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
Owner Trustee,
Lessor,
and
MIDWAY AIRLINES CORPORATION
Lessee.
Covering One Boeing Model 737-7BX Aircraft
Bearing U.S. Registration Number N361ML
and Manufacturer's Serial Number 30736
--------------------------------------------------------------------------------
This Lease Agreement is subject to a security interest in favor of Allfirst
Bank, as Indenture Trustee, under the Trust Indenture and Security Agreement
[N361ML] dated as of September 27, 2000, for the benefit of the holders of the
Equipment Notes referred to in such Trust Indenture and Security Agreement. This
Lease Agreement has been executed in counterparts. To the extent, if any, that
this Lease Agreement constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any jurisdiction), no security interest
in this Lease Agreement may be created through the transfer or possession of any
counterpart other than the counterpart containing the receipt therefor executed
by Allfirst Bank, as Indenture Trustee, on the signature page thereof.
TABLE OF CONTENTS
-----------------
Page
Section 1. Interpretation................................................................ 1
(a) Definitions................................................................... 1
(b) References.................................................................... 1
(c) Headings...................................................................... 2
(d) Appendices, Schedules and Exhibits............................................ 3
Section 2. Delivery and Leasing of the Aircraft.......................................... 3
(a) Leasing of the Aircraft....................................................... 3
(b) Delivery and Acceptance of the Aircraft Under the Lease....................... 3
Section 3. Term and Rent................................................................. 3
(a) Term.......................................................................... 3
(b) Basic Rent.................................................................... 3
(c) Supplemental Rent............................................................. 4
(d) Adjustments to Basic Rent and Termination Values.............................. 4
(e) Manner of Payment............................................................. 7
(f) Minimum Rent.................................................................. 7
(g) Rent Obligations Unconditional................................................ 8
Section 4. The Lessor's Representations and Warranties................................... 9
Section 5. Possession, Operation and Use, Maintenance Registration and Insignia.......... 9
(a) General....................................................................... 9
(b) Possession.................................................................... 10
(c) Operation and Use............................................................. 15
(d) Maintenance................................................................... 16
(e) Registration.................................................................. 17
Section 6. Inspection.................................................................... 17
Section 7. Replacement and Pooling of Parts; Alterations, Modifications and Additions;
Substitution of Engines....................................................... 19
(a) Replacement of Parts.......................................................... 19
(b) Title to Parts................................................................ 19
(c) Pooling or Parts Leasing...................................................... 20
(d) Alterations, Modifications and Additions...................................... 20
(e) Substitution of Engines....................................................... 21
Section 8. Loss, Destruction or Requisition.................................. 25
(a) Event of Loss with Respect to the Airframe........................ 25
(b) Effect of Replacement............................................. 26
(c) Effect of Termination Value Payment............................... 26
(d) Conditions to Airframe Replacement................................ 27
(e) Non-Insurance Payments Received on Account of an Event of Loss.... 30
(f) Requisition for Use............................................... 31
(g) Certain Payments to be Held As Security........................... 32
Section 9. Insurance......................................................... 32
(a) Public Liability and Property Damage Insurance.................... 32
(b) Insurance Against Loss or Damage to the Aircraft and Engines...... 33
(c) Additional Insureds; Loss Payment................................. 34
(d) Deductibles and Self-Insurance.................................... 35
(e) Application of Hull Insurance Proceeds............................ 35
(f) Insurance for Own Account......................................... 36
(g) Reports, etc...................................................... 36
(h) Right to Pay Premiums............................................. 37
(i) Spares Physical Damage Insurance.................................. 37
Section 10. Liens............................................................. 38
Section 11. Recordation and Further Assurances................................ 38
(a) Recordation of Lease.............................................. 38
(b) Further Assurances................................................ 39
(c) Markings.......................................................... 39
Section 12. Return of Aircraft and Records.................................... 40
(a) Return of Aircraft................................................ 40
(b) Return of Other Engines........................................... 40
(c) Fuel; Records..................................................... 41
(d) Condition of Aircraft............................................. 41
(e) Failure to Return................................................. 41
(f) Storage and Related Matters....................................... 41
Section 13. Renewal Option and Purchase Options............................... 42
(a) Renewal Terms..................................................... 42
(b) Lessee's Purchase Options......................................... 43
(i) Rights to Purchase.......................................... 43
(ii) Option to Assume Equipment Notes............................ 43
(iii) Notice of Exercise of Option................................ 43
Section 14. Voluntary Termination for Obsolescence................ 44
(a) Termination by Sale of Aircraft....................... 44
(b) Payments Due Upon Sale of Aircraft.................... 45
(c) Preemptive Election by Lessor......................... 45
(d) Termination of Lease.................................. 46
(e) Effect of No Sale or Preemptive Delivery to Lessor.... 46
(f) No Duty on Part of Lessor............................. 46
Section 15. Investment of Security Funds.......................... 47
Section 16. Events of Default..................................... 47
Section 17. Remedies.............................................. 49
Section 18. Lessor's Right to Perform for the Lessee.............. 52
Section 19. Bankruptcy............................................ 52
Section 20. Assignment: Benefit and Binding Effect................ 53
(a) Assignment by the Lessee.............................. 53
(b) Assignment by the Lessor.............................. 53
(c) Benefit and Binding Effect............................ 53
(d) Sublessee's Performance and Rights.................... 53
Section 21. Owner Trustee's Limitation on Liability............... 54
Section 22. Certain Agreements of Lessee.......................... 54
Section 23. Miscellaneous......................................... 54
(a) Notices............................................... 54
(b) Counterparts.......................................... 55
(c) Amendments............................................ 55
(d) Agreement to Lease.................................... 55
(e) Governing Law......................................... 55
(f) Severability.......................................... 56
(g) Survival.............................................. 57
(h) Article 2A............................................ 57
Appendix A Definitions
Exhibit A Form of Lease Supplement
Exhibit B Certain Economic Information
Exhibit C-1 Basic Rent Payment Schedule
Exhibit C-2 Basic Rent Allocation Schedule
Exhibit D Termination Values
Exhibit E List of Countries
Exhibit F Return Conditions
THIS LEASE AGREEMENT [N361ML], dated as of September 27, 2000,
between FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national banking
association, not in its individual capacity but solely as Owner Trustee, the
Lessor, and MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee.
W I T N E S S E T H:
-------------------
WHEREAS, the Lessor intends to purchase the Aircraft pursuant to
the terms of the Participation Agreement;
WHEREAS, the Lessee desires to lease from the Lessor and the
Lessor is willing to lease to the Lessee the Aircraft upon and subject to the
terms and conditions of this Lease; and
WHEREAS, the parties intend this Lease to constitute a true lease
and not a security agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration the receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound, the parties do
hereby agree as follows:
Section 1. Interpretation.
--------------
(a) Definitions.
-----------
Capitalized terms used herein and defined in Appendix A shall,
except as such definitions may be specifically modified in the body of this
Lease for the purposes of a particular section, paragraph or clause, have the
meanings given such terms in Appendix A and, unless otherwise specified, such
meanings shall be equally applicable to both the singular and the plural forms
of such terms.
(b) References.
----------
References in this Lease to sections, paragraphs, clauses,
appendices, schedules and exhibits are to sections, paragraphs, clauses,
appendices, schedules and exhibits in and to this Lease unless otherwise
specified. Paragraphs identified with a letter and clauses identified with a
number or letter within a section may be referred to either by section reference
(for example, this is Section l(b)) or by paragraph and clause reference (for
example, this is also paragraph (b) of Section 1) with the same meaning.
(c) Headings.
--------
The headings of the various sections, paragraphs and clauses of
this Lease and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof.
(d) Appendices, Schedules and Exhibits.
----------------------------------
The appendices, schedules and exhibits hereto are part of this
Lease.
Section 2. Delivery and Leasing of the Aircraft.
------------------------------------
(a) Leasing of the Aircraft.
-----------------------
Subject to the satisfaction or waiver of the conditions precedent
stated in the Participation Agreement, the Lessor agrees to lease to the Lessee,
and the Lessee agrees to lease from the Lessor, the Aircraft on the terms and
conditions set forth herein, such leasing to be evidenced by the execution and
delivery by the Lessor and the Lessee on the Delivery Date of a Lease
Supplement.
(b) Delivery and Acceptance of the Aircraft Under the Lease.
-------------------------------------------------------
The Lessor hereby authorizes one or more persons designated by the
Lessee as the authorized representative or representatives of the Lessor to
accept delivery of the Aircraft from the Seller. By executing and delivering
Lease Supplement No. 1, the Lessee confirms to the Lessor that the Lessee has
duly and irrevocably accepted delivery of the Aircraft for all purposes of this
Lease.
Section 3. Term and Rent.
-------------
(a) Term.
----
The Aircraft is leased for a Term which shall comprise the Basic
Term and, at the option of the Lessee exercised in accordance with Section
13(a), one or more Renewal Terms. The Basic Term shall commence on the Delivery
Date and continue through the Expiration Date; and each Renewal Term, if any,
shall be for the applicable period provided in Section 13(a), except that the
Term (including the Basic Term or any Renewal Term, as the case may be) shall
end upon any earlier termination of this Lease according to its terms.
(b) Basic Rent.
----------
The Lessee shall pay Basic Rent in consecutive installments on each
Basic Rent Payment Date during the Basic Term, each such installment to be in an
amount determined by multiplying Lessor's Cost by the percentage set forth in
the column with the heading "Basic Rent Payment" in Exhibit C-1 opposite the
applicable Basic Rent Payment Date. The Lessee shall pay Basic Rent during a
Renewal Term in the amounts and at the times provided in Section 13(a) for
-2-
such Renewal Term. The parties hereto agree that, irrespective of the Lessee's
payment obligations as shown on Exhibit C-1, the Lessee's liability on account
of the use of the Aircraft during the Basic Term shall be that stated on Exhibit
C-2.
(c) Supplemental Rent.
-----------------
The Lessee shall pay to the Lessor, or to whoever shall be entitled
thereto, any and all Supplemental Rent when the same shall become due and owing.
Without limiting the foregoing, the Lessee shall pay as Supplemental Rent:
(i) to the Lessor, on demand, interest at the Past Due
Rate on any part of any installment of Basic Rent not paid when
due for the period for which the same shall be overdue;
(ii) to whoever shall have been entitled to receive the
relevant payment of Supplemental Rent, on demand, interest at the
Past Due Rate on any payment of Supplemental Rent (other than
interest payable under this clause (ii)) not paid when due for
the period for which the same shall be overdue;
(iii) to the Lessor, an amount equal to any Make-Whole
Premium as and when such amount is due and payable by the Lessor
under the terms of the Indenture (except in the case of any
prepayment pursuant to Section 6.02(a)(iii) of the Indenture);
and
(iv) to the Lessor, an amount equal to any amount that
the Lessor is obligated to pay pursuant to clause (b) of the last
paragraph of Section 2.04 of the Indenture and any other amount
that Lessor is obligated to pay pursuant to the Indenture (other
than the principal of and interest on the Equipment Notes and any
Make-Whole Premium to the extent Lessee is not obligated to pay
pursuant to clause (iii) above).
The obligations of the Lessee to pay Supplemental Rent provided for in
this Section 3(c) shall survive the expiration or other termination of this
Lease.
(d) Adjustments to Basic Rent and Termination Values.
------------------------------------------------
All installments of Basic Rent remaining to be paid during the Basic
Term shall be recalculated and adjusted, upwards or downwards as the case may be
(and corresponding adjustments shall be made to the Basic Rent allocations set
forth in Exhibit C-2 (and columns (3) and (4) in Exhibit C-1), the EBO Amount
and the Termination Values applicable during the remaining Basic Term) to
maintain the Net Economic Return and, to the greatest extent consistent
-3-
with such maintenance of such Net Economic Return, to minimize the net present
value (calculated at a discount rate equal to the Debt Rate or such other rate
as may be specified by the Lessee to the Owner Participant) of the remaining
Basic Rent payments (or, if the Lessee shall have so specified to the Owner
Participant, the remaining Basic Rent Payments to the EBO Date together with the
EBO Amount), if:
(i) there shall be a refinancing or refunding of the debt evidenced
by the Equipment Notes pursuant to Section 13.01 of the Participation
Agreement;
(ii) the Transaction Costs payable by the Owner Participant pursuant
to Section 8.01(a) of the Participation Agreement shall be greater or less
than the Assumed Transaction Costs (as defined in Exhibit B);
(iii) there shall be an adjustment of Termination Values as provided
in Section 16 of the Tax Indemnity Agreement; or
(iv) there shall be any increase in the amount of interest due on
the Equipment Notes pursuant to the Registration Rights Agreement.
Adjustments to the installments of Basic Rent (expressed as percentages of
Lessor's Cost) set forth in Exhibit C-1 and to the Basic Rent allocations set
forth in Exhibit C-2 (and columns (3) and (4) in Exhibit C-1) and corresponding
adjustments to the EBO Amount and the amounts of Termination Values (expressed
as percentages of Lessor's Cost) set forth in Exhibit D shall be calculated by
the Owner Participant in accordance with the terms of this Section 3(d), and the
Owner Participant shall deliver to the Lessee, the Lessor and the Indenture
Trustee schedules setting forth the revised EBO Amount and the revised
percentages that the Owner Participant proposes to include in Exhibits C-1, C-2
and D, subject to review by the Lessee and verification as provided herein. In
the event of a dispute regarding any such adjustment which is not resolved by
agreement of the Lessee and the Owner Participant, the adjustments, at the
request of the Lessee delivered to the Owner Participant within 30 days after
receipt of the Owner Participant's proposed adjustments, shall be subjected to
verification by a lease advisory firm or a nationally recognized firm of
accountants to be selected by the Owner Participant and reasonably acceptable to
the Lessee. The Owner Participant shall provide to such firm, but not, in any
circumstances, to Lessee or any representatives of Lessee, on a confidential
basis such information as such firm may reasonably require, including, without
limitation, a true copy of this Lease and a full description of the methodology
and assumptions employed by the Owner Participant in calculating the EBO Amount
or Basic Rent payments and allocations or Termination Value set forth in
Exhibits C-1, C-2 and D as in effect on the Delivery Date and a true copy of the
calculations of the same performed by the Owner Participant at the time, to
enable such firm to determine whether the adjustments proposed by the Owner
Participant are mathematically accurate, apply the same methodology and
assumptions (except to the extent changed by the events giving rise to such
recalculation) as were employed in the calculations of the Basic Rent payments
and allocations, EBO Amount and Termination Values in effect on the Delivery
Date,
-4-
and are otherwise in conformity with the provisions of this Lease. The Lessee
and its financial advisors shall be entitled to submit such data and views as
the Lessee may elect to such firm concerning the proposed adjustments. The firm
shall be requested to deliver to each of the Owner Participant, the Lessee, the
Lessor and the Indenture Trustee within 30 days after its appointment its
determination as to the changes, if any, that are appropriate with respect to
the adjustments proposed by the Owner Participant. The adjustments proposed by
the Owner Participant, if not disputed by the Lessee as provided above, or the
determination of the firm as provided above, as the case may be, shall be
conclusive, final and binding upon the Lessor, the Lessee and the Owner
Participant, and the EBO Amount and Exhibits C-1, C-2 and and D shall be amended
to reflect them. No dispute concerning any adjustment shall release the Lessee
from its obligation to pay the EBO Amount or Basic Rent or Termination Value as
then set forth in Exhibits C-1 and D. All reasonable fees and expenses payable
to a firm pursuant to this paragraph shall be paid by the Lessee except that
such fees and expenses shall be paid entirely by the Owner Participant if, as a
result of changes determined by the firm, the net present value, discounted at
the Debt Rate or such other rate as the Lessee may have specified as provided
above in this paragraph, of Basic Rent remaining to be paid is ten basis points
(0.10%) or more lower than it would have been under the adjustments proposed by
the Owner Participant.
Any adjustments made pursuant to this Section 3(d) shall (i) be made so as to
avoid characterization of this Lease as a "disqualified leaseback or long-term
agreement" within the meaning of Section 467 of the Code and/or regulations
thereunder (or any successor or relevant Code provision or regulations) and (ii)
be in compliance with the requirements of Sections 4.02(5) and 4.07(l) of the
Revenue Procedure 75-28 (or any successor relevant procedure), except to the
extent that on the Delivery Date the Lease constituted such a "disqualified
leaseback or long-term agreement" or was not in compliance with the revenue
procedure referred to in clause (ii). Any adjustments made pursuant to this
Section 3(d) as the result of either an increase in the amount of interest due
on the Equipment Notes pursuant to the Registration Rights Agreement or a
refinancing or refunding of the debt evidenced by the Equipment Notes pursuant
to Section 13.01 of the Participation Agreement shall be made solely to reflect
the change, if any, in the interest rate resulting from such increase or the
refinancing or refunding, as the case may be, as contemplated by, and consistent
with, Section 467 of the Code. In addition, notwithstanding any other provisions
herein, in no event shall the EBO Amount be adjusted to an amount that is less
than the greater of (A) the adjusted Termination Value as of the applicable EBO
Date, (B) the estimated fair market value of the Aircraft on the applicable EBO
Date (as set forth in the appraisal received pursuant to Section 3.01(b)(xiii)
of the Participation Agreement), and (C) the present value as of the applicable
EBO Date of (x) the remaining scheduled Basic Rent through the end of the Basic
Term plus (y) Estimated Value (as identified on Exhibit B) (the present value
calculation described in this clause (C) shall utilize a semi-annual compounded
discount rate no lower than the rate per annum identified on Exhibit B as the
Compounded Discount Rate). All adjustments required pursuant to this Section
3(d) shall be set forth in a Lease Supplement or in an amendment to this Lease,
and promptly after execution thereof by Lessor and Lessee, Lessee shall give a
copy thereof to the Indenture Trustee.
-5-
(e) Manner of Payment.
-----------------
All Rent payable by the Lessee to the Lessor hereunder shall be paid
to the Lessor at its principal office at One ▇▇▇▇▇▇ Square, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇, Attention: Corporate Trust
Administration, or to such other address as the Lessor shall specify in a notice
to the Lessee, in Dollars in immediately available funds, so that the Lessor
receives the full amount of each payment not later than 12:00 noon Eastern Time
on the due date thereof, except that so long as the Indenture shall not have
terminated pursuant to its terms, all Rent payable to the Lessor (other than
Excepted Payments) shall be paid to the Indenture Trustee, in the manner
provided above, at its principal office as specified in Section 12.01 of the
Participation Agreement, or as the Indenture Trustee may otherwise direct by a
notice delivered to the Lessee prior to the date of payment. If any Rent is due
on a day that is not a Business Day, such Rent shall be paid on the next
succeeding Business Day with the same force and effect as if paid on the
scheduled date of payment and (if paid on such next succeeding Business Day) no
interest shall accrue on the amount of such payment from and after such
scheduled date to the time of payment on such next succeeding Business Day.
Whether or not the Indenture remains in effect, Rent constituting Excepted
Payments shall be paid directly to the Person entitled thereto in the manner and
at or before the time specified above.
(f) Minimum Rent.
------------
Anything herein to the contrary notwithstanding,
(i) each installment of Basic Rent, whether or not such
installment has been adjusted pursuant to Section 3(d), shall be
in an amount which is at least equal to the amount of any
principal of and interest on the Equipment Notes that falls due
and is payable by the Lessor pursuant to the terms of the
Indenture (other than by reason of acceleration of the Equipment
Notes) on the date when such installment of Basic Rent is due,
(ii) Termination Value, whether or not Termination Value
has been adjusted pursuant to Section 3(d), shall be in an amount
which (when taken together with any Basic Rent due and payable in
connection therewith) is at least equal to, as of the applicable
date of payment, the aggregate unpaid principal of and accrued
interest on the Equipment Notes (other than overdue amounts
attributable to an Indenture Event of Default not caused solely
by an Event of Default), and
(iii) EBO Amount, whether or not EBO Amount has been
adjusted pursuant to Section 3(d), shall be in an amount which
(when taken together with any Basic Rent due and payable in
connection therewith) is at least equal
-6-
to, as of the applicable date of payment, the aggregate unpaid
principal of and accrued interest on the Equipment Notes.
The preceding sentence is intended solely to provide for, and to allocate as
between the Lessor and the Lessee the risk of, the possibility of miscalculation
by the Lessor and the Lessee of amounts of Rent which it is contemplated will be
available to the Indenture Trustee, as the Lessor's security assignee under the
Indenture, for application to the payment of amounts payable by the Lessor on
the Equipment Notes. The Lessee does not guarantee, and nothing in this
paragraph (f) shall be construed to be a guarantee by the Lessee, that the
Lessor will repay any principal of or pay any premium or interest on any
Equipment Notes or that the Indenture Trustee will, or will be able to, apply
for such purposes any amount of Rent paid by the Lessee.
(g) Rent Obligations Unconditional.
------------------------------
The Lessee's obligations to pay all Rent due and owing under the terms
hereof shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever including, without limitation, (i) any setoff,
counterclaim, recoupment or other right which the Lessee may have against the
Lessor, the Owner Participant, the Indenture Trustee, the holders of the
Equipment Notes or anyone else for any reason whatsoever, (ii) any defect in the
title, airworthiness, condition, design, operation or fitness for use of, or any
damage to or loss or destruction of, the Aircraft, or any interference,
interruption or cessation in or prohibition of the use or possession thereof by
the Lessee for any reason whatsoever, including, without limitation, any such
interference, interruption, cessation or prohibition resulting from the act of
any governmental authority or any violation by the Lessor of Section 4 hereof,
(iii) any Liens, encumbrances or rights of others with respect to the Aircraft,
(iv) the invalidity or unenforceability or lack of due authorization or other
infirmity or disaffirmance of this Lease or any provision hereof or any other
Operative Agreement or any lack of right, power or authority of the Lessor or
the Lessee to enter into this Lease or any other Operative Agreement, (v) any
insolvency, bankruptcy, reorganization or similar proceedings by or against the
Lessee, or any other Person, or (vi) any other cause whether similar or
dissimilar to the foregoing, any present or future law notwithstanding, it being
the intention of the parties that all Rent payable by the Lessee hereunder shall
continue to be payable in all events in the manner and at the times provided
herein. Such Rent shall not be subject to any abatement and the payments thereof
shall not be subject to any setoff or any reduction for any reason other than
manifest error in the calculation thereof or the documentation of this Lease. To
the extent permitted by Applicable Law, the Lessee waives any rights which it
may now have or which may be conferred upon it by statute or otherwise to
terminate, cancel, quit or surrender this Lease except in accordance with the
terms hereof. If for any reason whatsoever this Lease shall be terminated in
whole or in part by operation of law or otherwise except as specifically
provided in Sections 8, 13, 14 and 17, Lessee nonetheless agrees to pay to
Lessor an amount equal to the Rent payment at the time such payment would have
become due and payable in accordance with the terms hereof had this Lease not
been terminated in whole or in part. Subject to the following sentence, each
payment of Rent made by Lessee to Lessor shall be final as to Lessor and Lessee
and Lessee will not seek to recover all or any part of such payment
-7-
of Rent for any reason whatsoever. Nothing herein shall be construed as a waiver
by the Lessee of any claim it may have against any Person arising under any of
the Operative Agreements or otherwise, including, without limitation, any claim
that Rent payments demanded from or paid by the Lessee are or were not due, are
or were erroneous or were paid under mistake or protest, or be construed as a
limitation on any rights of the Lessee to assert any claim in any proceeding at
law, in equity or otherwise against the Lessor or any other Person and to pursue
and obtain relief on such claim in such manner as the Lessee shall deem
appropriate other than by setoff against Rent payments due under the terms
hereof.
Section 4. The Lessor's Representations and Warranties.
-------------------------------------------
(a) THE LESSOR LEASES THE AIRCRAFT HEREUNDER "AS-IS", "WHERE IS"
AND NEITHER THE LESSOR, TRUST COMPANY INDIVIDUALLY NOR THE OWNER PARTICIPANT
SHALL BE DEEMED TO HAVE MADE, AND HEREBY DISCLAIMS, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE,
DESIGN, OPERATION, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS,
CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR FOR ANY PURPOSE OF THE AIRCRAFT
OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR
NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK
OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON LIABILITY IN TORT,
STRICT OR OTHERWISE, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE
AIRCRAFT OR ANY PART THEREOF OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except
that the Lessor warrants that on the Delivery Date the Lessor shall have
received whatever title was conveyed to it by the Seller and the Lessor warrants
that the Aircraft shall be free of Lessor's Liens during the Term.
(b) The Lessor covenants that during the Term, as long as no
Event of Default has occurred and is continuing, the Lessee's possession, use
and quiet enjoyment of the Aircraft leased hereunder shall not be interrupted by
the Lessor (or any Person lawfully claiming through the Lessor).
Section 5. Possession, Operation and Use,
Maintenance Registration and Insignia.
-------------------------------------
(a) General.
-------
Except as otherwise expressly provided herein, the Lessee (and any
Permitted Sublessee) shall be entitled during the Term to operate, use, locate,
employ or otherwise utilize or not utilize the Airframe, Engines and Parts
leased hereunder in any lawful manner or place in accordance with the Lessee's
(or such Permitted Sublessee's) business judgment.
-8-
(b) Possession.
----------
The Lessee shall not sublease, or otherwise in any manner deliver,
relinquish or transfer possession of the Airframe or any Engine leased hereunder
to any Person or install any Engine, or permit any Engine to be installed, on
any airframe other than the Airframe, during the Term, without the prior consent
of the Lessor, which consent may be withheld in its sole discretion, provided,
--------
however, that so long as (A) only in the case of clause (x) below, no Default of
-------
the type referred to in Section 16(a), (b), (f), (g) or (h) hereof shall have
occurred and be continuing, (B) no Event of Default shall have occurred and be
continuing, and (C) all approvals, consents or authorizations required from the
Aeronautical Authority in connection with any such sublease or such delivery,
transfer or relinquishment of possession have been obtained and remain in full
force and effect, the Lessee (or, except in the case of clause (x) below, any
Permitted Sublessee) may, without the prior consent of the Lessor:
(i) enter into a charter or wet lease or other similar
arrangement under which the Lessee (or such Permitted Sublessee)
has operational control of the Airframe and any Engines installed
thereon in the ordinary course of the Lessee's business (which
shall not be considered a transfer of possession hereunder),
provided that (x) the Lessee's obligations under this Lease and
such Permitted Sublessee's obligations under the relevant
Sublease shall continue in full force and effect notwithstanding
any such charter or wet lease or other similar arrangement and
(y) the transferee's rights shall be expressly subject and
subordinate to the rights of the Lessor and the Indenture Trustee
under the Operative Agreements;
(ii) deliver possession of the Airframe or any Engine or
any Part to the manufacturer thereof or to any organization for
testing, service, repair, maintenance, overhaul work or other
similar purposes or for alterations or modifications or additions
required or permitted by the terms of this Lease;
(iii) subject the Airframe and any Engines installed
thereon to interchange agreements (provided that (w) such
interchange agreement is applicable to other similar property
owned by or leased to the Lessee and is customary in the airline
industry and entered into by the Lessee in the ordinary course of
its airline business, (x) any such interchange agreement with
respect to the Airframe shall not result in the Lessee (or a
Permitted Sublessee) being out of possession of the Airframe for
a period of more than two (2) consecutive days at any one time;
(y) such interchange agreement is entered into with a Permitted
Sublessee; and (z) the party to such interchange agreement is not
then subject to a proceeding or final order under applicable
bankruptcy, insolvency or reorganization laws on the date such
interchange agreement is entered into) or any Engine to
interchange or pooling
-9-
agreements or arrangements which are applicable to other similar property
owned by or leased to the Lessee (or such Permitted Sublessee) and are
customary in the airline industry and entered into by the Lessee (or such
Permitted Sublessee) in the ordinary course of its airline business with
any air carrier, provided, that (A) no such agreement or arrangement shall
--------
under any circumstances result in, contemplate or require the transfer of
title to the Aircraft, Airframe or any Engine and (B) if the Lessor's title
to any Engine shall nevertheless be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of Loss with
respect to such Engine and the Lessee shall comply with Section 7(e) hereof
in respect thereof;
(iv) install an Engine on an airframe owned by the Lessee (or such
Permitted Sublessee) free and clear of all Liens except (A) Permitted
Liens, (B) those which apply only to the engines (other than the Engines),
appliances, parts, instruments, appurtenances, accessories, furnishings and
other equipment (other than Parts) installed on such airframe (but not to
the aircraft as an entirety), and (C) those created by the rights of other
air carriers under normal interchange or pooling agreements or other
arrangements customary in the airline industry which do not contemplate,
permit or require the transfer of title to such airframe or engines
installed thereon;
(v) install an Engine on an airframe, leased to the Lessee (or such
Permitted Sublessee) or purchased by the Lessee (or such Permitted
Sublessee) subject to a conditional sale or other security agreement, but
only if (A) such airframe is free and clear of all Liens, except (i) the
rights of the parties to such lease, or any such secured financing
arrangement, covering such airframe and (ii) Liens of the type permitted by
Section 5(b)(iv) and (B) Lessee (or such Permitted Sublessee) shall have
received from the lessor, mortgagee, secured party or conditional seller,
in respect of such airframe, a written agreement (which may be a copy of
the lease, mortgage, security agreement, conditional sale or other
agreement covering such airframe), whereby such Person agrees that it will
not acquire or claim any right, title or interest in, or Lien on, such
Engine by reason of such Engine being installed on such airframe at any
time while such Engine is subject to this Lease (or, in the case of such
Permitted Sublessee, the relevant Sublease) or is owned by Lessor;
(vi) install an Engine on an airframe, owned by the Lessee (or such
Permitted Sublessee), leased by the Lessee (or such Permitted Sublessee) or
purchased by the Lessee (or such Permitted Sublessee) subject to a
conditional sale or other security agreement under circumstances where
-10-
neither clause (iv) nor clause (v) above is applicable, provided that any
--------
such installation (so long as the same shall be continuing) shall be deemed
an Event of Loss with respect to such Engine and the Lessee shall comply
with Section 7(e) hereof;
(vii) transfer possession of the Airframe or Engine to the United
States of America or any instrumentality thereof pursuant to the Civil
Reserve Air Fleet Program (as established and administered pursuant to
Executive Order 11490, as amended, as superseded by United States Executive
Order No. 12656) or any similar or substitute program ("CRAF Program"), in
which event Lessee (or such Permitted Sublessee) shall promptly notify
Lessor and Indenture Trustee upon transferring possession of the Airframe
or any Engine to the United States of America or any agency or
instrumentality thereof pursuant to such program in writing of any such
transfer of possession and, in the case of any transfer pursuant to the
CRAF Program, in such notification shall identify by name, address and
telephone numbers the Contracting Office Representatives of the Military
Airlift Command of the United States Air Force to whom notices must be
given and to whom requests or claims must be made to the extent applicable
under the CRAF Program;
(viii) transfer possession of the Airframe or any Engine to the United
States of America, or to a foreign government, when required by Applicable
Law in the circumstances referred to in clause (iv) or (v) of the
definition of an Event of Loss (it being understood that nothing in this
clause (viii) shall relieve the Lessee from its obligations under Section
8(a) if such transfer becomes an Event of Loss), in which event Lessee
shall promptly notify Lessor and Indenture Trustee in writing of any such
transfer of possession;
(ix) [Reserved];
(x) subject to the provisions of this Section 5(b), enter into a
sublease with respect to any Engine or the Airframe and Engines or engines
then installed on the Airframe to any Permitted Sublessee if (A) Lessee
shall provide written notice to Lessor, Owner Participant and Indenture
Trustee at least 10 days prior to entering into any such sublease, (B) in
any such case, the sublessee under such sublease is not subject to a
proceeding or final order under applicable bankruptcy, insolvency or
reorganization laws on the date such sublease is entered into, (C) in the
event that the sublessee under such sublease is a foreign air carrier or
Person based in a country other than the United States, the United States
maintains normal diplomatic relations with the country in which such
proposed sublessee is principally based at the time
-11-
such sublease is entered into and (D) in the event that the sublessee under
such sublease is a foreign air carrier or Person based in a country other
than the United States, prior to the effectiveness of such sublease Lessor
shall have received an opinion (in form and substance reasonably acceptable
to Lessor) of counsel to Lessee (reasonably acceptable to Lessor) to the
effect that (I) the terms of the proposed sublease will be legal, valid,
binding and (subject to customary exceptions) enforceable against the
proposed sublessee in the country in which the proposed sublessee is
principally based, (II) there exist no possessory rights in favor of the
sublessee under such sublease under the laws of such sublessee's country of
domicile that would, upon bankruptcy or insolvency of or other default by
the Lessee and assuming that at such time such sublessee is not insolvent
or bankrupt, prevent the return or repossession of the Aircraft in
accordance with and when permitted by the terms of Section 17(a) upon the
exercise by Lessor of its remedies under Section 17(a), (III) the laws of
such sublessee's country of domicile require fair compensation by the
government of such jurisdiction payable in currency freely convertible into
Dollars for the loss of use of or title to such Engine or the Aircraft in
the event of the requisition by such government of such use or title (it
being understood that in the event such opinion cannot be given in a form
reasonably satisfactory to the Owner Participant, such opinion will be
waived if insurance reasonably satisfactory to the Owner Participant is
provided to cover such requisition), (IV) the laws of such sublessee's
country of domicile would give recognition to Lessor's title to such Engine
or the Aircraft and to the registry of such Engine or the Airframe in the
name of Lessor (or Lessee, as "lessee", or the proposed sublessee, as
appropriate), (V) all filings, if any, required to be made and necessary
actions, if any, have been taken in such jurisdiction in connection with
the execution of such sublease in order to protect the interest of Lessor
in such Engine or the Aircraft have been made, (VI) it is not necessary for
the Owner Participant or Lessor to register or qualify to do business in
such jurisdiction, if not already so registered or qualified, as a result,
in whole or in part, of the proposed sublease, (VII) the agreement of such
Permitted Sublessee that its rights under the sublease are subject and
subordinate to all the terms of this Lease is enforceable against such
Permitted Sublessee under Applicable Law of such country, and (VIII) there
is no tort liability for owners not in possession of aircraft in such
country more onerous than under the laws of the United States or any state
thereof (it being agreed that in the event such opinion cannot be given in
a form reasonably satisfactory to the Owner Participant, such opinion will
be waived if insurance reasonably satisfactory to the Owner Participant is
provided to cover the risk of such tort liability); provided that no such
--------
sublease shall be made to a Permitted Sublessee of the type described in
clause (b) of the definition thereof that is not domiciled in the United
States
-12-
or of the type described in clause (b) of the definition of Permitted
Air Carrier or to any tax exempt entity within the meaning of Section
168(h) of the Code prior to the end of the Recovery Period, unless the
Lessee prepays on a lump sum basis any liability due under the Tax
Indemnity Agreement as a result of such sublease based upon the
assumption that such sublease will continue for the full term of such
sublease;
provided that (1) the rights of any transferee who receives possession by reason
--------
of a transfer permitted by this Section 5(b) (other than by a transfer of an
Engine which is deemed an Event of Loss) shall be subject and subordinate to all
the terms of this Lease; (2) the Lessee shall remain primarily liable hereunder
for the performance of all the terms and conditions of this Lease and all of the
terms and conditions of this Lease and the other applicable Operative Agreements
shall remain in effect; (3) no sublease or transfer of possession otherwise in
compliance with this Section 5(b) shall (A) result in any registration or re-
registration of the Aircraft except to the extent permitted by Section 5(e) or
the maintenance, operation or use thereof except in compliance with Sections
5(c) and 5(d), (B) permit any action not permitted to the Lessee hereunder, (C)
extend beyond the end of the Term (except to the extent that the Lessee shall
have irrevocably committed to exercise a purchase option in accordance with the
terms hereof) or (D) contain any purchase option exercisable at an earlier date
or at a lower price than such date or price, as the case may be, as permitted
under Section 13(b) hereof; (4) if any such sublease or transfer of possession
shall, in the reasonable opinion of the Owner Participant, result in any risk of
adverse tax consequences, the Lessee shall, prior to entering into the same,
provide an indemnity satisfactory in form and substance to the Owner Participant
against any such adverse tax consequences; (5) the Lessee shall provide evidence
reasonably satisfactory to Lessor and Owner Participant that the insurance
required by Section 9 remains in effect and for the purpose of Lessor's and
Owner Participant's review of such insurance requirements, the Lessee shall, at
least five (5) days prior to the date of any sublease permitted under this
Section 5(b), provide to Lessor and Owner Participant, forms of the broker's
report and insurance certificates required by Section 9(g); (6) all necessary
documents shall have been duly filed or recorded in applicable public offices
and all other necessary action shall be taken as may be required to preserve the
title of Lessor to the Airframe and Engines; and (7) Lessee shall reimburse
Lessor, Owner Participant and Indenture Trustee, on an After Tax Basis, for all
of their reasonable out-of-pocket costs and expenses (including, without
limitation, reasonable counsel fees and disbursements) in connection with any
such sublease or transfer.
In the case of any sublease permitted under this Section 5(b), the Lessee
will include in such sublease appropriate provisions which (a) make such
sublease expressly subject and subordinate to all of the terms of this Lease and
the Indenture, including the rights of the Lessor and the Indenture Trustee to
avoid such sublease in the exercise of their rights to repossession of the
Airframe and Engines hereunder and thereunder; (b) expressly prohibit any
further subleasing of the Airframe and Engines; (c) require that the Airframe
and Engines be maintained in accordance with a maintenance program approved by
the Aeronautical Authority applicable thereto; (d) require the sublessee to
comply with the terms of Section 9 hereof; (e) limit the term of such sublease
(including
-13-
renewal rights) to a period not beyond the end of the Term unless the Lessee
shall then have irrevocably committed to exercise a purchase option in
accordance with the terms hereof; (f) require that the Airframe and Engines be
used in accordance with the limitations applicable to the Lessee's possession
and use provided in this Lease; (g) provide that the Aircraft will not be
operated in any country with which the United States is then conducting ongoing
hostilities; (h) not contain any purchase option in favor of the Permitted
Sublessee or any other terms which would prohibit the Lessee from performing its
obligations hereunder or prohibit the Lessor from exercising its rights and
remedies hereunder and (i) shall include provisions for the maintenance,
operation, possession and inspection of the Aircraft that are the same in all
material respects as the applicable provisions of this Lease.
Subject to the Lessee's obligations in paragraph (x) above, the Lessee
shall (i) notify the Lessor at least 15 days prior to entering into any Sublease
stating the name of the proposed Permitted Sublessee and providing a copy of the
proposed Sublease, and (ii) deliver a copy of the executed Sublease promptly
(but no later than 10 days) after execution thereof.
The Lessor hereby agrees for the benefit of the lessor or secured
party of any engine (other than the Engines) or of any airframe (other than the
Airframe) leased to the Lessee or purchased by the Lessee and subject to a
conditional sale or other security agreement, which lease or conditional sale or
other security agreement (in the case of any such airframe) also covers an
engine or engines (other than the Engines) owned by the lessor under such lease
or subject to a security interest in favor of the secured party under such
conditional sale or other security agreement, that the Lessor will not seek to
acquire, claim or exercise as against such lessor or secured party, any rights,
title or interest with respect to any such engine as a result of such engine
being installed on the Airframe at any time while such engine is owned by such
lessor or is subject to such conditional sale or other security agreement or
security interest in favor of such secured party; provided, however, that such
-------- -------
agreement of the Lessor shall not be for the benefit of any lessor or secured
party of any airframe leased to the Lessee or owned or purchased by the Lessee
subject to a conditional sale or other security agreement or for the benefit of
any mortgagee of or any other holder of a security interest in an airframe owned
by the Lessee, unless such lessor, conditional vendor, other secured party or
mortgagee has agreed (which agreement may be contained in such lease,
conditional sale or other security agreement or mortgage and may consist of a
paragraph similar to this paragraph) that neither it nor its successors or
assigns will seek to acquire or claim or exercise, as against the Lessor, any
right, title or interest with respect to an Engine as a result of such Engine
being installed on such airframe.
(c) Operation and Use.
-----------------
The Lessee shall not (and will not permit any Permitted Sublessee to)
operate, use or locate the Airframe or any Engine, or suffer such Airframe or
any Engine to be operated, used or located (i) in any area excluded from
coverage by any insurance required by the terms of Section 9 hereof, except in
the case of a requisition by the United States of America where the Lessee
obtains
-14-
(and provides evidence of) indemnity from the Government for the benefit of the
Additional Insureds against substantially the same risks and for at least the
amounts of the insurance required by Section 9 hereof covering such area, or
(ii) outside the United States or Canada in any recognized or, in the Lessee's
reasonable judgment, threatened area of hostilities unless covered by war risk
insurance, or in either case unless the Airframe or such Engine is operated or
used under contract with the Government under which contract the Government
assumes liability for substantially the same risks in at least the same amounts
as would be covered by such insurance. The Lessee shall not permit the Airframe
or any Engine to be maintained, serviced, repaired, overhauled, used or operated
during the Term in violation of any Applicable Law or in violation of any
airworthiness certificate, rule, regulation, order, license or registration
relating to the Aircraft or such Engines issued by any competent governmental
authority, unless (i) the validity thereof is being contested in good faith and
by appropriate proceedings which do not involve a non-de minimis danger of the
sale, forfeiture or loss of the Airframe or such Engine or the interest of the
Lessor, the Owner Participant and the Indenture Trustee therein or any risk of
criminal liability or any material risk of civil liability against Lessor, the
Owner Participant or the Indenture Trustee, or (ii) it is not possible for the
Lessee (or a Permitted Sublessee) to comply with the laws of a jurisdiction
other than the United States (or other than any jurisdiction in which the
Aircraft is then registered) because of a conflict with the applicable laws of
the United States (or such jurisdiction in which the Aircraft is then
registered), provided, however, that actions taken under (i) and (ii) above will
-------- -------
not result in the violation of any requirements of insurance pursuant to Section
9.
(d) Maintenance.
-----------
The Lessee, at its own cost and expense, shall during the Term
service, repair, maintain, overhaul and test the Aircraft, the Airframe and each
Engine (and each engine that is not an Engine but is installed on the Aircraft)
or cause the same to be done in accordance with (1)(i) a maintenance program
approved by the Aeronautical Authority and (ii) maintenance standards required
by, or substantially equivalent to those required by, the FAA or the central
civil aviation authority of Canada, France, Germany, Japan, The Netherlands or
the United Kingdom, and shall keep or cause to be kept the Aircraft, the
Airframe and each Engine (or engine) in as good operating condition as
originally delivered hereunder, ordinary wear and tear excepted, in accordance
with all applicable FAA regulations for the Aircraft (including all FAA
airworthiness directives applicable to the Aircraft), in accordance with all
mandatory service bulletins and as required to keep all Manufacturer's or Engine
Manufacturer's warranties in effect, in compliance with any requirements under
the policies of insurance required by Section 9, and shall keep or cause to be
kept the Aircraft, the Airframe and each Engine in such operating condition as
may be necessary to enable all certificates, licenses, permits and
authorizations required for the use and operation of the Aircraft and each
Engine in the appropriate category for the nature of the operations of the
Aircraft including the airworthiness certification of the Aircraft to be
maintained in good standing at all times under the applicable rules and
regulations of the Aeronautical Authority, except when aircraft of the same
type, model or series as the Airframe (powered by engines of the same type as
those with which the Airframe shall be equipped at the time of grounding)
registered in the same country have been
-15-
grounded by the Aeronautical Authority, provided, however, that if the
-------- -------
airworthiness certificate of the Aircraft shall withdrawn, then, subject to
Section 8 hereof, so long as the Lessee (or a Permitted Sublessee) is taking or
causing to be taken all necessary action to promptly correct the condition which
caused such withdrawal, no Event of Default shall arise from such withdrawal and
(2) except during periods when a Sublease is in effect, the same standards
Lessee uses with respect to similar aircraft of similar size in its fleet
operated (whether owned or leased) by Lessee in similar circumstances and during
any period in which a Sublease is in effect, the same standards the Permitted
Sublessee uses with respect to similar aircraft of similar size in its fleet and
operated (whether owned or leased) by the Permitted Sublessee in similar
circumstances and without in any way discriminating against the Aircraft by
reason of its leased status. Nothing herein shall be deemed to prevent the
Lessee (or a Permitted Sublessee) from taking the Aircraft out of service for
maintenance or modifications permitted hereunder or storage in accordance with
applicable Aeronautical Authority requirements, the manufacturer's recommended
procedures and sound practice for such storage. The Lessee shall maintain or
cause to be maintained all records, logs and other documents required by the
Aeronautical Authority to be maintained in respect of the Aircraft in English in
the manner as such Aeronautical Authority requires. Lessee further agrees that
the Aircraft, Airframe and Engines will be maintained, used, serviced, repaired,
overhauled or inspected in compliance with Applicable Law with respect to the
maintenance of the Aircraft and compliance with each applicable airworthiness
certificate, license and registration relating to the Aircraft, Airframe or any
Engine issued by the Aeronautical Authority.
(e) Registration
------------
Except as otherwise permitted by Section 4.02(b) of the
Participation Agreement, or as otherwise required by the Transportation Code or
rules, regulations, or orders promulgated thereunder, or to the extent that such
registration cannot be effected or continued due to the Lessor's or the Owner
Participant's failure to comply with the citizenship or other eligibility
requirements for registration of commercial aircraft under the Transportation
Code or any rule, regulation or order promulgated thereunder, the Aircraft shall
be duly registered in the name of the Lessor under the Transportation Code at
all times during the Term; provided that the Lessor shall execute and deliver
--------
all such documents as the Lessee may reasonably request for the purpose of
effecting, continuing or (as provided in this Section 5(e) hereof and Section
4.02(b) of the Participation Agreement) changing such registration.
Section 6. Inspection.
----------
At all times during the Term, but upon at least 15 days' prior
notice to the Lessee (unless an Event of Default shall have occurred and be
continuing, in which event a prior written notice of at least one (1) Business
Day is required) and at a time and place reasonably acceptable to the Lessee,
the Lessor, the Owner Participant and the Indenture Trustee or their authorized
representatives (which may include the Manufacturer) may at their own expense
(unless an Event of Default shall have occurred and be continuing, in which
event the Lessee shall bear such expense)
-16-
and risk conduct a visual walk-around inspection of the Aircraft (including on
board inspection) and any Engine and may include inspection of areas exposed by
any open panels, bays or the like, but shall not include opening any panels,
bays or the like without the express written consent of an authorized employee
of the Lessee (including a visual walk-around inspection of the Aircraft during
any "C" check or other heavy maintenance) and may inspect the books and records
of the Lessee relating to the operation and maintenance thereof and the Lessee
shall provide copies of such books and records to the inspecting party or their
authorized representatives at its or their reasonable request; provided that (a)
--------
any such inspection shall be subject to the safety, security and workplace rules
applicable at the location where such inspection is conducted and any applicable
governmental rules or regulations, and (b) in the case of an inspection during a
maintenance visit, such inspection shall not interfere with the normal conduct
of such maintenance visit or extend the time required for such maintenance visit
or, in any event, at any time interfere with the use or operation of the
Airframe or any Engine or with the normal conduct of the Lessee's or a Permitted
Sublessee's business. All information obtained in connection with any such
inspection shall be held confidential by the Lessor, the Indenture Trustee and
the Owner Participant and shall not be furnished or disclosed by them to anyone
other than (i) each other, their bank examiners, auditors, accountants,
insurance advisors, agents and legal counsel, (ii) any prospective and permitted
transferees of the Lessor, the Indenture Trustee or the Owner Participant who
agree to hold such information confidential, (iii) any Person with whom the
Owner Participant is in good faith conducting negotiations relating to the
possible transfer and sale of the Owner Participant's interest in the Trust
Estate or the Aircraft, if such Person shall have entered into an agreement
similar to that contained in this Section 6 whereby such Person agrees to hold
such information confidential, and (iv) except as may be required by an order of
any court or administrative agency or by any statute, rule, regulation or order
of any governmental authority or as may be necessary to enforce the terms of
the Operative Agreements, provided, however, that the Lessor or the Owner
-------- -------
Participant may during any time it is offering the Aircraft for sale make
customary disclosures to prospective purchasers of the Aircraft as to the then
current flight and maintenance status of the Aircraft. The Lessor, the Owner
Participant and the Indenture Trustee shall have no duty to make any such
inspection and shall not incur any liability or obligation by reason of not
making any such inspection.
In addition to any inspection as provided hereunder, upon each request
of Owner Participant to Lessee made not more than four times in a calendar year,
Lessee will make available to Owner Participant information with respect to the
cycles and hours of operation of the Airframe and Engines and the status of the
time controlled components of the Engines.
If requested by Lessor, Owner Participant or Indenture Trustee, Lessee
shall provide, or shall cause any Permitted Sublessee to provide, the date (if
then scheduled) upon which the Airframe undergoes its next scheduled major check
and, with respect to any Engine, the next scheduled off the Airframe
maintenance, and shall advise Lessor, Owner Participant and Indenture Trustee of
the name and location (if then known) of the relevant maintenance performer.
-17-
The Lessee shall furnish to the Lessor and the Owner Participant such
additional information concerning the location, condition, use and operation of
the Aircraft as the Lessor, the Owner Participant or the Indenture Trustee may
from time to time reasonably request.
Section 7. Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines.
----------------------------------------------------
(a) Replacement of Parts.
--------------------
Except as otherwise provided in the proviso to the third sentence of
Section 7(d) or if the Airframe or an Engine to which a Part relates has
suffered an Event of Loss, the Lessee, at its own cost and expense, will during
the Term promptly replace all Parts that may from time to time become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing, the
Lessee (or a Permitted Sublessee), at its own cost and expense, may remove any
Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use, provided that the
--------
Lessee (or such Permitted Sublessee), at its own cost and expense, shall, except
as otherwise provided in the proviso to the third sentence of Section 7(d),
replace such Parts as promptly as practicable with replacement Parts or
temporary replacement parts as provided in Section 7(c) hereof. All replacement
Parts shall be free and clear of all Liens except for pooling arrangements to
the extent permitted by Section 7(c) and Permitted Liens and shall be in as good
operating condition as, and shall have a value and utility at least equal to,
the Parts replaced assuming such replaced Parts were in the condition and repair
required to be maintained by the terms hereof.
(b) Title to Parts.
--------------
Except as otherwise provided in the proviso to the third sentence of
Section 7(d), all Parts at any time removed from the Airframe or any Engine
shall remain the property of the Lessor and subject to this Lease, no matter
where located, until such time as such Parts shall be replaced by Parts that
have been incorporated or installed in or attached to the Airframe or such
Engine and that meet the requirements for replacement Parts specified in Section
7(a). Immediately upon any replacement Part becoming incorporated or installed
in or attached to the Airframe or an Engine as provided in Section 7(a), without
further act, (i) title to the replaced Part shall thereupon vest in the Lessee
(or the relevant Permitted Sublessee), in "as-is, where-is" condition, free and
clear of all rights of the Lessor and the Indenture Trustee and any Lessor's
Liens and shall no longer be deemed a Part hereunder; (ii) title to such
replacement Part shall thereupon vest in the Lessor (subject only to Permitted
Liens); and (iii) such replacement Part shall become subject to this Lease and
be deemed part of the Airframe or such Engine, as the case may be, for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Airframe or such Engine.
-18-
(c) Pooling or Parts Leasing.
------------------------
Any Part removed from the Airframe or from any Engine as provided in
Section 7(a) may be subjected by the Lessee (or a Permitted Sublessee) to a
pooling or parts leasing agreement or arrangement of a type customary in the
airline industry entered into in the ordinary course of the Lessee's (or such
Permitted Sublessee's) business, provided the part replacing such removed Part
shall be incorporated or installed in or attached to such Airframe or Engine in
accordance with Sections 7(a) and 7(b) as promptly as practicable after the
removal of such removed Part. In addition, any replacement part when
incorporated or installed in or attached to the Airframe or any Engine in
accordance with Section 7(a) may be owned by another airline or vendor as
customary in the airline industry, subject to a pooling or parts leasing
arrangement, provided that the Lessee (or a Permitted Sublessee), at its expense
--------
as promptly thereafter as reasonably practicable, either (i) causes title to
such temporary replacement part to vest in the Lessor in accordance with Section
7(b) by the Lessee (or such Permitted Sublessee) acquiring title thereto for the
benefit of the Lessor free and clear of all Liens except Permitted Liens, at
which time such temporary replacement part shall become a Part and become
subject to this Lease or (ii) replaces such temporary replacement part by
incorporating or installing in or attaching to the Airframe or such Engine a
further replacement Part owned by the Lessee (or such Permitted Sublessee) free
and clear of all Liens except Permitted Liens and by causing title to such
further replacement Part to vest in the Lessor in accordance with Section 7(b).
(d) Alterations, Modifications and Additions.
----------------------------------------
The Lessee, at its own expense, shall make (or cause to be made)
alterations and modifications in and additions to the Airframe and any Engine as
may be required to be made from time to time during the Term by Applicable Law
or in order to maintain the insurance required under Section 9 regardless of
upon whom such requirements are, by their terms, nominally imposed; provided,
--------
that the Lessee may, in good faith and by appropriate procedure, contest the
validity or application of any such standard in any reasonable manner which does
not materially adversely affect the interests of the Lessor or the Lien of the
Indenture and does not involve any non-de minimis risk of sale, forfeiture or
loss of the Aircraft or the interest of any Participant therein, any material
risk of civil penalty or any risk of criminal liability being imposed on Lessor
or Owner Participant. In addition, the Lessee (or a Permitted Sublessee), at
its own expense, may from time to time make or cause to be made such alterations
and modifications in and additions to the Airframe and any Engine as the Lessee
(or such Permitted Sublessee) may deem desirable in the proper conduct of its
business including, without limitation, removal of Parts which Lessee (or such
Permitted Sublessee) deems are obsolete or no longer suitable or appropriate for
use in the Aircraft, Airframe or such Engine so long as the aggregate value of
such removed Parts (based on their value as of the Delivery Date) does not
exceed $300,000, provided further that no such alteration, modification or
--------
addition (i) diminishes the value, utility, estimated residual value (with
respect to the Airframe only), condition, remaining useful life or airworthiness
of the Airframe or such Engine below the value, utility, estimated residual
value, condition, remaining useful life or airworthiness thereof immediately
prior to such
-19-
alteration, modification or addition, assuming the Airframe or such Engine was
then in the condition required to be maintained by the terms of this Lease or
(ii) causes the Aircraft to be limited use property, except that the value (but
not the utility, estimated residual value, condition, remaining useful life or
airworthiness) of the Aircraft may be reduced by the value of Parts which the
Lessee (or such Permitted Sublessee) has removed as permitted above. Title to
all Parts incorporated or installed in or attached or added to the Airframe or
any Engine as the result of any alteration, modification or addition effected by
the Lessee (or a Permitted Sublessee) shall, without further act, vest in the
Lessor free and clear of any Liens except Permitted Liens and become subject to
this Lease; provided that the Lessee (or such Permitted Sublessee) may, at any
--------
time during the Term, remove any such Part from the Airframe or an Engine if (i)
such Part is in addition to, and not in replacement of or in substitution for,
any Part originally incorporated or installed in or attached to the Airframe or
such Engine at the time of delivery thereof hereunder or any Part in replacement
of, or in substitution for, any such original Part, (ii) such Part is not
required to be incorporated or installed in or attached or added to the Airframe
or such Engine pursuant to the terms of Section 5(d) or the first sentence of
this Section 7(d) or pursuant to the terms of any insurance policies required to
be carried hereunder or under any Applicable Law and (iii) such Part can be
removed from the Airframe or such Engine without diminishing or impairing the
value, condition, utility, estimated residual value, remaining useful life or
airworthiness which such Airframe or Engine would have had at the time of
removal had such alteration, modification or addition not been effected by the
Lessee (or such Permitted Sublessee) assuming the Aircraft was otherwise
maintained in the condition required by this Lease. Upon the removal by the
Lessee (or such Permitted Sublessee) of any such Part as above provided, title
thereto shall, without further act, vest in the Lessee (or such Permitted
Sublessee), in "as-is, where-is" condition, free and clear of all rights of the
Lessor and the Indenture Trustee and any Lessor's Liens and such Part shall no
longer be deemed a Part hereunder. Any Part not removed by the Lessee (or a
Permitted Sublessee) as above provided prior to the return of the Airframe or
respective Engine to the Lessor hereunder shall remain the property of the
Lessor; provided that nothing in this Section 7(d) shall prohibit the Lessee
--------
(or a Permitted Sublessee) from removing any seats from the Aircraft (which
seats while so removed shall remain in the possession of the Lessee (or such
Permitted Sublessee)) so long as the Aircraft when returned to the Lessor
pursuant to Section 12 hereof shall be in the condition required thereby.
(e) Substitution of Engines.
-----------------------
So long as no Specified Default shall have occurred and be continuing,
the Lessee (or a Permitted Sublessee) shall have the right at its option at any
time, on at least 30 days' prior notice to the Lessor, the Owner Participant and
the Indenture Trustee, to substitute, and if an Event of Loss shall have
occurred with respect to an Engine under circumstances in which there has not
occurred an Event of Loss with respect to the Airframe, shall within 90 days of
the occurrence of such Event of Loss and on at least five days' prior notice to
the Lessor substitute, a Replacement Engine for any Engine not then installed or
held for use on the Airframe. In such event, immediately upon the effectiveness
of such substitution on the date set forth in such notice and without further
act, (i) title to the Replacement Engine shall thereupon vest in the Lessor free
and clear of all Liens (other than
-20-
Permitted Liens), (ii) title to the replaced Engine shall thereupon vest in the
Lessee (or its designee), in "as-is, where-is" condition, free and clear of all
rights of the Lessor and the Indenture Trustee and any Lessor's Liens and shall
no longer be deemed an Engine hereunder, and (iii) such Replacement Engine shall
become subject to this Lease and be deemed part of the Aircraft for all purposes
hereof to the same extent as the Engine originally installed on or attached to
the Airframe. Upon the substitution of a Replacement Engine, the following
conditions shall be satisfied at the Lessee's sole cost and expense and the
parties agree to cooperate with the Lessee to the extent necessary to enable it
to timely satisfy such conditions:
(i) the following documents shall be duly authorized,
executed and delivered by the respective party or parties
thereto, and an executed counterpart of each shall be delivered
to the Lessor, the Owner Participant and, if the Indenture is in
effect, the Indenture Trustee:
(A) a Lease Supplement covering the Replacement
Engine, which shall have been duly filed for recordation
with the FAA;
(B) so long as the Indenture shall not have been
satisfied and discharged, an Indenture Supplement covering
the Replacement Engine, which shall have been duly filed for
recordation with the FAA;
(C) a full warranty ▇▇▇▇ of sale (as to title), in
form and substance satisfactory to the Lessor and the Owner
Participant, covering the Replacement Engine, executed by
the owner thereof in favor of the Lessor;
(D) as long as the Indenture is in effect, such
documents as may be required under Section 9.08 of the
Indenture relating to the Replacement Engine;
(E) (i) so long as the Indenture shall not have been
satisfied and discharged, such Uniform Commercial Code
financing statements covering the security interests created
by the Indenture (or any similar statements or other
documents required to be filed or delivered pursuant to the
laws of the jurisdiction in which the Replacement Engine may
be registered in accordance with Section 5(e)), and (ii)
"precautionary" Uniform Commercial Code financing statements
as are deemed necessary or desirable by counsel for the
Owner Participant or the Indenture Trustee to protect the
ownership interests of the Owner Trustee and the security
interests of the Indenture Trustee in the Replacement
Engine;
-21-
(F) an Officer's Certificate of the Lessee certifying
that (i) in the case of a voluntary replacement only, no
Specified Default shall have occurred and be continuing;
(ii) (x) in the case of a voluntary replacement, the
Replacement Engine has at least the same number of hours or
cycles (whichever is applicable) of operation on such
Replacement Engine remaining until the next scheduled life
limited part replacement as the Engine it replaces, assuming
such Engine had been maintained in the condition required
hereunder; or (y) in the case of a mandatory replacement,
the Lessee has not discriminated in its selection of the
Replacement Engine (based on the leased status of the
Aircraft); and (iii) the Replacement Engine satisfies the
requirements for a Replacement Engine set forth in the
definition thereof;
(G) an opinion of qualified FAA counsel as to the due
recordation of the Lease Supplement, the Indenture
Supplement and all other documents or instruments the
recordation of which is necessary to perfect and protect the
rights of the Lessor and the Indenture Trustee in the
Replacement Engine;
(H) to the extent that an engine warranty in respect
of such Replacement Engine is available to the Lessee, an
engine warranty assignment covering such Replacement Engine,
in substantially the form of the Engine Warranty Assignment
or otherwise in such form and substance satisfactory to the
Lessor and the Owner Participant and a consent to such
engine warranty assignment, in substantially the form of the
Engine Warranty Assignment or otherwise in such form and
substance satisfactory to the Lessor and the Owner
Participant; and
(I) evidence that the insurance requirements of
Section 9 with respect to an Engine are satisfied and that
the insurance covering such Replacement Engine shall be of
the type usually carried by the Lessee (or a Permitted
Sublessee) with respect to similar engines, and covering
risks of the kind customarily insured against by the Lessee
(or a Permitted Sublessee);
(ii) the Lessee shall furnish (or cause to be furnished to)
the Lessor, the Owner Participant and the Indenture Trustee with
an opinion, reasonably satisfactory in form and substance to the
Lessor, the Owner Participant and the Indenture Trustee, of the
Lessee's counsel, which may be the Lessee's General Counsel or
Associate General Counsel, to the effect that
-22-
(x) such bills of sale or other documents reasonably requested by
the Lessor, the Owner Participant or the Indenture Trustee are
sufficient to convey title to such Replacement Engine to the
Lessor and with respect to the effectiveness of the interests in
the Indenture Estate which the Indenture purports to create; (y)
the Lessor and the Indenture Trustee (as assignee of Lessor under
the Indenture), are entitled to the benefits and protections of
Section 1110 with respect to the Replacement Engine to the same
extent as with respect to the replaced Engine immediately
preceding such replacement, provided that if the replaced Engine
--------
was subject to an Event of Loss, then such opinion regarding
Section 1110 shall be required only in the event that a
replacement engine that can so qualify is available in the
Lessee's fleet or is otherwise available to the Lessee (by
exchange or otherwise) without material cost to Lessee; and (z)
the Lease Supplement and Warranty ▇▇▇▇ of Sale have been duly
authorized and delivered and constitute the legal, valid, binding
and enforceable obligation of Lessee (subject to customary
exceptions); and
(iii) either (x) the Owner Participant shall have received
an opinion of independent tax counsel (selected by the Owner
Participant and reasonably acceptable to the Lessee), reasonably
satisfactory to the Owner Participant, to the effect that there
shall be no risk of adverse tax consequences resulting from such
replacement (and the Owner Participant shall use its best efforts
to cause a timely opinion to be delivered) or (y) the Lessee
shall have provided, or caused to be provided, an indemnity in
respect of any adverse tax consequences reasonably satisfactory
(or, in the case of any voluntary substitution, satisfactory) in
form and substance to the Owner Participant.
Upon satisfaction of all conditions to such substitution, (x) the
Lessor shall, at the expense of the Lessee, execute and deliver, and request the
Indenture Trustee to execute and deliver to the Lessee such bills of sale and
other documents and instruments as the Lessee shall reasonably request to
evidence the transfer to the Lessee and vesting of all right, title and interest
in and to the replaced Engine in the Lessee, in "as-is, where-is" condition,
free and clear of all right, title and interest of the Lessor and the Indenture
Trustee, and any Lessor's Liens; (y) the Lessor shall, at the request and
expense of the Lessee, assign to the Lessee all claims it may have against any
other Person relating to an Event of Loss giving rise to such substitution
(other than those in respect of insurance maintained by the Owner Participant
pursuant to Section 9(f)) and shall exercise such rights as it has to cause such
assignment to be free and clear of the Lien of the Indenture and (z) the Lessee
shall be entitled to receive all insurance proceeds (other than those reserved
to others under Section 9(f) hereof) and proceeds in respect of any Event of
Loss giving rise to such replacement to the extent not previously applied to the
purchase price of the Replacement Engine as provided in Sections 9(e)(i) and
8(e)(ii).
-23-
Section 8. Loss, Destruction or Requisition.
--------------------------------
(a) Event of Loss with Respect to the Airframe.
------------------------------------------
Upon the occurrence of an Event of Loss with respect to the Airframe,
the Lessee shall forthwith (and in any event within 15 days after such
occurrence) give the Lessor, the Owner Participant and the Indenture Trustee
notice of such Event of Loss. The Lessee shall, within 60 days after such
occurrence, give the Lessor, the Owner Participant and the Indenture Trustee
written notice of its election to perform one of the following options (it being
agreed that if the Lessee shall not have given the Lessor such notice of such
election, the Lessee shall be deemed to have elected to perform the option
identified in the following clause (ii)):
(i) subject to the satisfaction of the conditions contained
in Section 8(d), on a date not more than 180 days after the
occurrence of the Event of Loss (or, if earlier, the last day of
the Term), convey or cause to be conveyed to the Lessor, and to
be leased by the Lessee hereunder in replacement of the Airframe
and Engines with respect to which the Event of Loss occurred, a
Replacement Airframe (together with the same number of
Replacement Engines as the number of Engines, if any, which were
subject to such Event of Loss), such Replacement Airframe and
Replacement Engines to be free and clear of all Liens except
Permitted Liens and to have a remaining useful life, estimated
residual value, value and utility at least equal to the Airframe
and Engines, if any, so replaced (assuming such Airframe and
Engines were in the condition and repair required by the terms
hereof) and to be an airframe that is the same model and same or
later vintage as the Airframe to be replaced thereby, or an
improved model; provided that, if the Lessee shall not perform
-------- ----
its obligation to effect such replacement under this clause (i)
during the 180-day period of time provided herein (or, if
earlier, the last day of the Term), it shall give the Lessor, the
Owner Participant and the Indenture Trustee notice to such effect
upon or before the expiration of such period of time and shall
promptly pay on the first Termination Date next following the
thirtieth (30th) day after the date of such notice to the Lessor
(or, if earlier, the last day of the Term), in immediately
available funds, the amount specified in clause (ii) below; or
(ii) pay or cause to be paid to the Lessor in immediately
available funds, on a date specified at least 30 days in advance
by the Lessee, which date shall be a Termination Date not more
than 180 days after the occurrence of the Event of Loss, an
amount equal to (A) if such Termination Date is a Basic Rent
Payment Date during the Basic Term, the portion, if any, of Basic
Rent payable on such Termination Date that is specified in column
(3) of Exhibit C-1 as allocable to the Allocation Period ending
on such Termination
-24-
Date plus (B) if such Termination Date is a Basic Rent Payment
Date during a Renewal Term, the Basic Rent payable on such
Termination Date, plus (C) all unpaid Basic Rent, if any, payable
before such Termination Date plus (D) all unpaid Supplemental
Rent (other than Termination Value) due on or before such
Termination Date, plus (E) the Termination Value for the Aircraft
determined as of such Termination Date or, if such Termination
Date is beyond the end of the Term, the Termination Value as of
the last Termination Date of the Term plus (F) all reasonable
out-of-pocket expenses (including reasonable attorneys' fees)
incurred by the Lessor or the Owner Participant in connection
with such Event of Loss plus (G) if such Termination Date is
beyond the end of the Term, interest on the amount of such
payment, at a rate per annum equal to the TV Rate identified on
Exhibit B, for the period from and including the last day of the
Term to but excluding such Termination Date.
(b) Effect of Replacement.
---------------------
Should the Lessee have provided a Replacement Aircraft as provided for
in Section 8(a)(i), (i) this Lease shall continue with respect to such
Replacement Aircraft as though no Event of Loss had occurred; (ii) the Lessor
shall, at the expense of Lessee, convey "as-is, where-is", without recourse or
warranty except for a warranty against Lessor's Liens, to the Lessee all right,
title and interest of the Lessor, in and to the Airframe and the Engine or
Engines, if any, installed on the Airframe upon the occurrence of the Event of
Loss by executing and delivering to the Lessee such bills of sale and other
documents and instruments as the Lessee may reasonably request to evidence such
conveyance and shall request that the Indenture Trustee release such Airframe
and Engines and the Purchase Agreement Assignment with respect to such Airframe
and Engines from the Lien of the Indenture; (iii) the Lessor shall, at the
request and expense of Lessee, assign to the Lessee all claims it may have
against any other Person arising from the Event of Loss (except with respect to
insurance obtained in accordance with Section 9(f)) and (iv) the Lessee shall be
entitled to receive all insurance proceeds (other than those reserved to others
under Section 9(f)) and proceeds from any award in respect of condemnation,
confiscation, seizure or requisition, including any investment interest thereon,
to the extent not previously applied to the purchase price of the Replacement
Aircraft as provided in Sections 9(e)(iii) and 8(e)(i).
(c) Effect of Termination Value Payment.
-----------------------------------
In the event of a payment in full of the Termination Value for the
Aircraft and other Rent payable as provided in Section 8(a)(ii), (i) this Lease
and the obligations of the Lessee to pay Rent (except for Supplemental Rent
obligations which survive pursuant to Section 3(c) and Articles 6 and 7 of the
Participation Agreement or the Tax Indemnity Agreement or which have accrued but
have not otherwise been paid as of the date of such payment) shall terminate and
the Term shall end, (ii) any remaining insurance proceeds (other than those
reserved to others under Section 9(f)),
-25-
including any investment interest thereon, shall be promptly paid over to the
Lessee; and (iii) the Lessor, at the expense of Lessee, shall convey, "as-is,
where-is" without recourse or warranty, except for a warranty against Lessor's
Liens attributable to Lessor and Owner Participant, to the Lessee all right,
title and interest of the Lessor in and to the Airframe and Engines and shall
execute and deliver to the Lessee such bills of sale and other documents and
instruments as the Lessee may reasonably request to evidence such conveyance and
shall request that the Indenture Trustee release from the Lien of the Indenture,
the Airframe and the Engines and the Purchase Agreement Assignment with respect
to such Airframe and Engines, all claims for damage to such Airframe and
Engines, if any, against third persons arising from the Event of Loss and any
interest of the Lessor in engines (which are not Engines) installed on the
Airframe.
(d) Conditions to Airframe Replacement.
----------------------------------
The Lessee's right to substitute a Replacement Aircraft as provided in
Section 8(a)(i) shall be subject to the fulfillment, at the Lessee's sole cost
and expense, in addition to the conditions contained in such Section 8(a)(i), of
the following conditions precedent:
(i) On the date when the Replacement Aircraft is delivered
to the Lessor (such date being referred to in this Section 8(d)
as the "Replacement Closing Date"), no Specified Default shall
have occurred and be continuing and the Lessor, the Owner
Participant and the Indenture Trustee shall have received an
Officer's Certificate so certifying;
(ii) On the Replacement Closing Date the following documents
shall have been duly authorized, executed and delivered by the
respective party or parties thereto and shall be in full force
and effect, and an executed counterpart of each thereof (or, in
the case of the FAA Bills of Sale (or a comparable document, if
any, of another Aeronautical Authority, if applicable) referred
to below, a photocopy thereof) shall have been delivered to the
Lessor, the Owner Participant and the Indenture Trustee:
(A) a Lease Supplement covering the Replacement Aircraft, which
shall have been duly filed for recordation with the FAA;
(B) so long as the Indenture shall not have been discharged and
satisfied, an Indenture Supplement covering the Replacement Aircraft,
which shall have been duly filed for recordation with the FAA;
(C) an FAA ▇▇▇▇ of Sale (or a comparable document, if any, of
another Aeronautical Authority, if applicable) covering the
Replacement Aircraft, executed by the owner thereof in favor of the
Lessor, and dated the Replacement Closing Date;
-26-
(D) a full warranty (as to title) ▇▇▇▇ of sale, in form and
substance satisfactory to the Indenture Trustee, the Owner Participant
and the Lessor, covering the Replacement Aircraft, executed by the
owner thereof in favor of the Lessor, dated the Replacement Closing
Date and guaranteed by the Lessee;
(E) as long as the Indenture is in effect, such documents as may
be required under Section 9.08 of the Indenture;
(F) (1) so long as the Indenture shall not have been discharged,
such Uniform Commercial Code financing statements (or any similar
statements or other documents required to be filed or delivered
pursuant to the laws of the jurisdiction in which the Replacement
Aircraft may be registered in accordance with Section 5(e)) covering
the security interests created by the Indenture, and (2) such
"precautionary" Uniform Commercial Code financing statements as are
deemed necessary or desirable by counsel for the Owner Participant or
the Indenture Trustee to protect the ownership interests of the Owner
Trustee and the security interests of the Indenture Trustee in the
Replacement Aircraft; and
(G) an Officer's Certificate of the Lessee certifying that (i)
the Replacement Aircraft is a Boeing model 737-700 aircraft or a more
advanced model, is in as good operating condition as, and has a value,
remaining useful life, estimated residual value and utility at least
equal to, the Aircraft it replaces, assuming such Aircraft had been
maintained in the condition required hereunder and (ii) in the event
the Event of Loss occurs after the fifth anniversary of the Delivery
Date, the Replacement Airframe shall have no more than 105% of the
total hours of operation, as compared to the Airframe it replaces;
(iii) On or before the Replacement Closing Date, the Lessor,
the Owner Participant and the Indenture Trustee (acting directly
or by authorization to their respective special counsel) shall
have received such documents and evidence with respect to the
Lessee, the Lessor, the Owner Participant, the owner of such
Replacement Aircraft or the Indenture Trustee, as the Lessor, the
Owner Participant or the Indenture Trustee or their respective
special counsel may reasonably request in order to establish the
consummation of the transactions contemplated by Section 8(a)(i)
and this Section 8(d), the taking of all necessary corporate
action in connection therewith and compliance with the conditions
set forth in this Section 8(d), in each case in form and
substance reasonably satisfactory to the Lessor, the Owner
Participant and the Indenture Trustee;
(iv) The Lessor, the Owner Participant and the Indenture
Trustee (acting directly or by authorization to their respective
special counsel) shall
-27-
each have received satisfactory evidence as to the compliance
with Section 9 hereof with respect to the Replacement Aircraft;
(v) On the Replacement Closing Date, (A) the Lessor shall
receive good title to the Replacement Aircraft free and clear of
Liens (other than Permitted Liens), (B) the Replacement Aircraft
shall have been duly certified by the Aeronautical Authority as
to type and airworthiness in accordance with the terms of this
Lease, and (C) application for registration of the Replacement
Aircraft in accordance with Section 5(e) shall have been duly
made with the Aeronautical Authority;
(vi) The Owner Participant shall have received an
appraisal reasonably satisfactory to it with respect to the
Replacement Aircraft;
(vii) The Lessor, the Owner Participant and the Indenture
Trustee shall have received (acting directly or by authorization
to its special counsel) (A) an opinion, satisfactory in form and
substance to the Lessor, the Owner Participant and the Indenture
Trustee, of counsel to the Lessee (which may be the Lessee's
General Counsel) to the effect that (x) the ▇▇▇▇ of sale referred
to in clause (ii)(D) above constitutes an effective instrument
for the conveyance of title to the Replacement Airframe and
Replacement Engines, if any, to the Lessor, (y) all documents
executed and delivered by the Lessee pursuant to this Section
8(d) have been duly authorized, executed and delivered by the
Lessee and constitute legal, valid and binding obligations of,
and are enforceable against, the Lessee in accordance with their
respective terms, and (z) the Lessor and the Indenture Trustee
(as assignee of Lessor under the Indenture), are entitled to the
benefits of Section 1110 with respect to such Replacement
Aircraft to the same extent as with respect to the replaced
Aircraft immediately preceding such replacement; and (B) an
opinion of qualified FAA counsel (or counsel in such jurisdiction
outside of the United States where the Aircraft may be registered
in accordance with Section 5(e)), as to, in the case of FAA
counsel, the due recordation of the Lease Supplement, the
Indenture Supplement and all other documents or instruments the
recordation of which is necessary to perfect and protect the
rights of the Lessor and the Indenture Trustee in the Replacement
Aircraft or, in the case of counsel in another jurisdiction, the
taking of all action necessary in such jurisdiction for such
purposes;
(viii) The Lessor and the Indenture Trustee (as assignee of
Lessor under the Indenture), shall be entitled to the benefits of
Section 1110 with respect to such Replacement Aircraft to the
same extent as with respect to the replaced Aircraft immediately
preceding such replacement;
-28-
(ix) Either (1) the Owner Participant shall have received an
opinion of independent tax counsel (selected by the Owner
Participant and reasonably acceptable to the Lessee), reasonably
satisfactory to the Owner Participant, to the effect that there
shall be no risk of adverse tax consequences resulting from such
replacement (and the Owner Participant shall use its best efforts
to cause a timely opinion to be delivered) or (2) the Lessee
shall have provided, or caused to be provided, an indemnity in
respect of any adverse tax consequences in form and substance
satisfactory to the Owner Participant; and
(x) The Lessor shall have received, to the extent that an
aircraft warranty in respect of such Replacement Aircraft is
available to the Lessee, an aircraft warranty assignment covering
such Replacement Aircraft, in substantially the form of the
Purchase Agreement Assignment or otherwise in such form and
substance satisfactory to the Lessor and a consent to such
aircraft warranty assignment, in substantially the form of the
consent to Purchase Agreement Assignment or otherwise in such
form and substance satisfactory to the Lessor.
Lessee shall reimburse the Lessor and the Owner Participant for all
reasonable out-of-pocket costs (including reasonable attorneys' fees) incurred
by them in connection with any substitution of a Replacement Aircraft pursuant
to this Section 8.
(e) Non-Insurance Payments Received on Account of an Event of Loss.
--------------------------------------------------------------
As between the Lessor and the Lessee, any payments on account of an
Event of Loss (other than insurance proceeds or other payments the application
of which is provided for in this Section 8 or elsewhere in this Lease, as the
case may be, or payments in respect of damage to the business or property of the
Lessee) with respect to the Aircraft, an Engine or any Part received at any time
by the Lessor or by the Lessee from any governmental authority or other Person
will be applied as follows:
(i) if such payments are received with respect to an Event
of Loss as to the Aircraft, and the Airframe or the Airframe and
the Engines or engines installed thereon are being replaced by
the Lessee pursuant to Section 8(a)(i), such payments shall be
paid over to, or retained by, the Lessee, provided that if the
--------
Lessee has not completed such replacement, such payments shall be
paid over to, or retained by, the Lessor as security, and upon
completion of, or in connection with a closing for, such
replacement, be paid over to or retained by the Lessee;
-29-
(ii) if such payments are received with respect to an Event
of Loss to an Engine that has been or is being replaced by the
Lessee pursuant to the terms hereof, such payments shall be paid
over to, or retained by, the Lessee, provided that if the Lessee
--------
has not completed such replacement, such payments shall be paid
over to, or retained by, the Lessor as security, and upon
completion of, or in connection with a closing for, such
replacement, be paid over to or retained by the Lessee; and
(iii) if such payments are received with respect to an Event
of Loss as to the Aircraft, and if the Airframe or the Airframe
and the Engines or engines installed thereon have not been and
will not be replaced as contemplated by Section 8(a), (x) so much
of such payments as shall not exceed the Termination Value
required to be paid by the Lessee pursuant to Section 8(a) hereof
shall be applied in reduction of the Lessee's obligation to pay
such Termination Value and other amounts, to the extent not
already paid by the Lessee, and, after the Termination Value and
all amounts required to be paid to the Lessor pursuant to Section
8(a)(ii) above shall be paid in full, shall be applied to
reimburse the Lessee for such Termination Value up to the full
amount thereof, and (y) the balance, if any, of such payment
remaining thereafter shall be applied to reimburse the Lessee,
the Owner Participant and the Lessor for their reasonable costs
(including attorney's fees), if any, of procuring such payments,
and (z) the balance remaining, if any, shall then be distributed
between the Lessor and the Lessee as their interests may appear.
(f) Requisition for Use.
-------------------
In the event of a requisition for use by any government during the
Term of the Airframe and the Engines, if any, or engines installed on the
Airframe (including the Government pursuant to the CRAF Program), the Lessee
shall promptly notify the Lessor, the Owner Participant and the Indenture
Trustee of such requisition and, if the same does not constitute an Event of
Loss, all of the Lessee's obligations under this Lease shall continue to the
same extent as if such requisition had not occurred except to the extent that
the performance or observance of any obligation by the Lessee shall have been
prevented or delayed by such requisition, provided that the Lessee's obligations
--------
for the payment of money and under Section 9 (except, in the case of Section 9,
while an assumption of liability by the government of the United States of the
scope referred to in Section 5(c) is in effect) and Section 12 shall not be
reduced, delayed or affected by such requisition. Any payments received by the
Lessor or the Lessee from such government with respect to the use of such
Airframe or Engines during the Term shall be paid over to, or retained by, the
Lessee and any payments received by the Lessor or Lessee from such government
with respect to the use of the Airframe or Engines after the Term shall be paid
over to, or retained by, Lessor. In the event of an Event of Loss of an Engine
resulting from the requisition for use by a government of such Engine (but not
the Airframe), the Lessee will replace such Engine hereunder by complying
-30-
with the terms of Section 7(e) and any payments received by the Lessor or the
Lessee from such government with respect to such requisition shall be paid over
to, or retained by, the Lessee.
(g) Certain Payments to be Held As Security.
---------------------------------------
Any amount referred to in this Section 8 or Section 9 hereof which is
payable to the Lessee shall not be paid to the Lessee, or, if it has been
previously paid directly to the Lessee, shall not be retained by the Lessee, if
at the time of such payment a Specified Default shall have occurred and be
continuing, but shall be paid to and held by the Lessor as security for the
obligations of the Lessee under this Lease, unless and until applied by Lessor
to Lessee's obligations and at such time as there shall not be continuing any
such Specified Default, such amount and any gain realized as a result of
Permitted Investments required to be made pursuant to Section 15 or Section 5.08
of the Indenture shall to the extent not so applied be paid over to the Lessee.
Section 9. Insurance.
---------
(a) Public Liability and Property Damage Insurance.
----------------------------------------------
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor, the Indenture Trustee or the Participants,
maintain or cause to be maintained in effect at all times during the Term, with
insurers of nationally or internationally recognized reputation and
responsibility which normally participate in airline insurance programs,
comprehensive airline public liability insurance (including, without limitation,
aircraft third party liability, baggage and mail and aviation general third
party liability, contractual liability, passenger legal liability, cargo
liability, property damage liability, general third party legal liability and
product liability coverage but excluding manufacturer's product liability
coverage) with respect to the Aircraft in an amount not less than the greater of
(i) the amount which Lessee may carry from time to time on other similar
aircraft in its fleet (whether owned or leased) and (ii) the Minimum Liability
Amount; provided that an agreement of the Government for the benefit of the
--------
Additional Insureds to insure against or indemnify for substantially the same
risks to at least the same amount shall satisfy the requirements of this Section
9(a), provided that on or prior to the date of such agreement, the Lessee shall
--------
provide an Officer's Certificate of the Lessee certifying that any such
insurance or indemnity provides protection no less favorable than insurance
coverage that would comply with this Section 9. Such insurance shall be of the
same type and covering the same risks usually carried by the Lessee with respect
to similar aircraft and engines and shall provide coverage that is in
substantially similar form, of such types and having limits within the range of
limits (but no less than the Minimum Liability Amount) as are customarily
obtained by similarly situated United States carriers operating similar aircraft
on similar routes.
During any period that the Aircraft is grounded and not in operation
for any reason, the Lessee may modify the insurance required by this Section
9(a) to modify the amounts of public liability and property damage insurance,
the scope of the risks covered and the type of insurance, in
-31-
all circumstances to conform to such insurance customary in the United States
airlines industry for regional air carriers similarly situated with the Lessee
in respect of similar aircraft which are grounded, not in operation, and stored
or hangared, except that in all instances, the amounts of coverage and scope of
risk covered and the type of insurance shall be at a minimum no less favorable
than the insurance as from time to time applicable to aircraft owned or leased
by Lessee on the ground, not in operation, and stored or hangared.
(b) Insurance Against Loss or Damage to the Aircraft and Engines.
------------------------------------------------------------
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor, the Indenture Trustee or the Participants,
maintain or cause to be maintained in effect at all times during the Term with
insurers of nationally recognized responsibility which normally participate in
airline insurance programs (i) all risk (including U.S. limited form of war risk
insurance covering (but not limited to) hijacking, strikes, civil commotion,
terrorist acts and acts of sabotage while the Aircraft is operated in the U.S.
and Canada), agreed value, ground, taxiing and flight hull insurance, which may,
except as expressly provided in this Section 9(b), exclude war risks and allied
perils, covering the Aircraft for an amount at all times (even when the Aircraft
is grounded or in storage) not less than the Termination Value from time to
time; provided that, neither the Lessee nor any Permitted Sublessee shall be
-------- ----
required to maintain all-risk flight aircraft hull insurance with respect to any
period in which the Aircraft is grounded and properly stored or hangared. Such
insurance shall not provide insurers with a right to replace the Airframe or any
Engine with another airframe or Engine. Such hull insurance or other personal
property insurance of the Lessee (or a Permitted Sublessee) shall cover Engines
or engines and Parts temporarily removed from the Airframe, pending replacement
by installation of the same or similar Engines, engines or Parts on the
Airframe. Such insurance shall be on a repair cost basis in respect of damage
not constituting an Event of Loss and on an agreed value basis in respect of an
Event of Loss and shall be of the same type and covering the same risks usually
carried by the Lessee with respect to similar aircraft and engines and shall
provide coverage that is in substantially similar form, of such types and having
limits within the range of limits (but no less than Termination Value from time
to time) as are customarily obtained by similarly situated United States
carriers operating similar aircraft on similar routes. If and to the extent that
the Lessee or a Permitted Sublessee operates the Aircraft (A) on routes where it
maintains war risk, hijacking or allied perils insurance in effect with respect
to other similar owned or leased aircraft in its fleet, (B) on routes where the
custom in the industry is to carry war risk, hijacking or allied perils
insurance or (C) in any area of recognized hostilities, the Lessee or such
Permitted Sublessee shall maintain or cause to be maintained such insurance in
effect with respect to the Aircraft in the amount at least equal to Termination
Value from time to time. An agreement by the Government to insure against or
indemnify for substantially the same risks to at least the same amount will
satisfy any of the requirements of this Section 9(b). Notwithstanding the
foregoing, the Lessee shall not be required to maintain war risk insurance
(except the U.S. limited form of war risk insurance noted above) so long as the
Aircraft is operated only within the United States and Canada.
-32-
During any period that the Aircraft is on the ground and not in
operation, the Lessee may carry or cause to be carried, in lieu of the insurance
required by this Section 9(b), insurance otherwise conforming with the
provisions of this Section 9(b) except that the scope of the risks and the type
of insurance shall be in substantially similar form, of such types and having
limits within the range of limits (but no less than Termination Value from time
to time) as are customarily obtained by similarly situated United States
carriers in respect of similar aircraft which are grounded, not in operation,
and stored or hangared, provided that the scope of the risks and the type of
--------
insurance shall be the same as from time to time applicable to aircraft owned by
the Lessee of the same type similarly on the ground and not in operation,
provided further that the Lessee shall maintain insurance against risk of loss
-------- -------
or damage to the Aircraft in an amount equal to the Termination Value from time
to time during such period that the Aircraft is on the ground and not in
operation.
(c) Additional Insureds; Loss Payment.
---------------------------------
The Lessee shall cause all policies of insurance carried in accordance
with this Section 9 to name the Additional Insureds as their respective
interests may appear as additional insureds. Such policies shall provide with
respect to such Additional Insureds that (i) none of their respective interests
in such policies shall be invalidated by any act or omission or breach of
warranty or condition contained in such policies by the Lessee or any other
Person (other than such Additional Insured) or, in the case of any particular
Additional Insured, any other Additional Insured and shall insure the respective
interests of the Additional Insureds regardless of any breach or violation of
any warranty, declaration or condition contained in such policies by the Lessee
or any Permitted Sublessee; (ii) in the case of any particular Additional
Insured, no cancellation or lapse of coverage for nonpayment of premium or
otherwise, and no substantial change of coverage which adversely affects the
interests of any such Additional Insured, shall be effective as to such
Additional Insured until thirty (30) days (or such lesser period as may be
applicable in the case of any war risk coverage) after receipt by such
Additional Insured of written notice from the insurers of such cancellation,
lapse or change; (iii) they shall have no liability for premiums, commissions,
calls, assessments or advances with respect to such policies; (iv) such policies
will be primary without any right of contribution from any other insurance
carried by such Additional Insureds; (v) the insurers waive any rights of set-
off (including for unpaid premiums), counterclaim, deduction or subrogation
whether by attachment or otherwise, against such Additional Insureds; (vi) such
policies shall apply worldwide and have no territorial restrictions or
limitations (except, in the case of war, hijacking or related perils insurance,
as otherwise permitted hereunder); (vii) shall contain a 50/50% Clause per
Lloyd's Aviation Underwriter's Association Standard Policy Form AVS 103; and
(viii) losses shall be adjusted with the Lessee (or, if an Event of Default
shall have occurred and be continuing, with the Lessee and the loss payee
referred to in the last sentence of this Section 9(c)); provided, that, in the
--------
case of an Event of Loss, no adjustment (other than hull deductibles) shall
reduce the amount payable under such policy to less than the agreed value
required by Section 9(b). Each liability policy shall provide that all the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured and each hull
policy shall
-33-
provide that the exercise by the insurer of rights of subrogation derived from
rights retained by the Lessee will not delay payment of any claim that would
otherwise be payable but for such rights of subrogation. Each hull policy shall
name the Indenture Trustee as loss payee as long as the Indenture shall remain
in effect and thereafter shall name the Lessor as loss payee; provided that, so
-------- ----
long as the insurers shall not have received written notice that an Event of
Default has occurred and is continuing, if insurance proceeds under a hull
policy in the aggregate equal $1,000,000 or less, then such proceeds shall be
payable to the Lessee and, notwithstanding the foregoing, any amounts (i) of any
proceeds which in the aggregate exceed $1,000,000, (ii) of any proceeds in
respect of a total loss or an Event of Loss or (iii) if the insurers shall have
received written notice that an Event of Default has occurred and is continuing,
any proceeds with respect to any single loss, shall be payable to such loss
payee.
(d) Deductibles and Self-Insurance.
------------------------------
The Lessee may from time to time self-insure, by way of deductible or
premium adjustment provisions in insurance policies or otherwise, the risks
required to be insured against pursuant to this Section 9 under a program
applicable to all aircraft in the Lessee's fleet in such amounts as are then
self-insured with respect to similar owned or leased aircraft in the Lessee's
fleet but in no case shall such self-insurance in the aggregate exceed, on a per
occurrence or on fleetwide basis, an amount equal to 3% of the Lessee's tangible
net worth, calculated as at the end of the Lessee's immediately preceding fiscal
year (but in no event to exceed $15,000,000). A deductible per occurrence that
is not in excess of the prevailing standard market deductible for similar
aircraft shall be permitted, for each aircraft in the Lessee's fleet, in
addition to such self-insurance.
(e) Application of Hull Insurance Proceeds.
--------------------------------------
Subject to Section 8(g), as between the Lessor and the Lessee, any
payments received under policies of hull or other property insurance required to
be maintained by the Lessee pursuant to Section 9(b), shall be applied as
follows:
(i) if such payments are received with respect to loss or
damage (including an Event of Loss with respect to an Engine) not
constituting an Event of Loss with respect to the Airframe,
payments in the aggregate of $1,000,000 or less shall be paid
over to or retained by the Lessee and any payments which in the
aggregate are greater than $1,000,000 shall be paid over to or
retained by the Lessor for payment to the Lessee only upon
performance of its repair or replacement obligation;
(ii) if such payments are received with respect to an Event
of Loss with respect to the Airframe and the Airframe is not
being replaced by the Lessee pursuant to Section 8(a)(i), so much
of such payments as shall not exceed the Termination Value and
other amounts required to be paid by the
-34-
Lessee pursuant to Section 8(a)(ii) shall be applied in reduction
of the Lessee's obligation to pay such amounts if not already
paid by the Lessee, and to reimburse the Lessee if such amounts
shall have been paid, and the balance, if any, of such payments
shall be promptly paid over to or retained by the Lessee; and
(iii) if such payments are received with respect to the
Airframe or the Airframe and Engines or engines installed thereon
and the Airframe is being replaced by the Lessee pursuant to
Section 8(a)(i), such payments shall be paid over to, or retained
by the Lessee, provided that if the Lessee has not completed such
replacement and the performance of all other obligations under
Section 8(d), such payments shall be paid over to, or retained
by, the Lessor as security, and upon completion of, or in
connection with a closing for, such replacement, be paid over to
or retained by the Lessee.
(f) Insurance for Own Account.
-------------------------
Nothing in this Section 9 shall prohibit the Lessor, the Owner
Participant, the Lessee or the Indenture Trustee or any Additional Insured from
obtaining insurance with respect to the Aircraft for its own account (including,
without limitation, in the case of the Lessee, hull insurance under the same
policies maintained pursuant to this Section 9 in amounts in excess of those
required to be maintained pursuant to this Section 9) and any proceeds payable
thereunder shall be payable as provided in the insurance policy relating
thereto, provided that no such insurance may be obtained which would limit or
--------
otherwise adversely affect the availability of coverage or payment of any
insurance required to be obtained or maintained pursuant to this Section 9, it
being understood that all salvage rights to the Airframe or the Engines shall
remain with the Lessee's insurers at all times.
(g) Reports, etc.
------------
Lessee will furnish, or cause to be furnished, to the Lessor, the
Owner Participant and the Indenture Trustee (A) on or prior to the Delivery
Date, insurance certificates describing in reasonable detail the insurance
maintained by Lessee as required pursuant to this Section 9, (B) prior to the
cancellation, lapse or expiration of the insurance policies required pursuant to
this Section 9, evidence of renewal of such insurance policies, and (C) on or
prior to the Delivery Date and on or before the renewal dates of the insurance
policies carried by the Lessee pursuant to this Section 9, a report signed by a
firm of recognized aircraft insurance brokers of good reputation, not affiliated
with the Lessee, which brokers may be regularly retained by the Lessee and
reasonably satisfactory to the Lessor, stating the opinion of such firm that (i)
all premiums in connection with the insurance then due have been paid, (ii) the
insurance then carried and maintained on the Aircraft complies with the terms
hereof and, in the case of renewal insurance, that such renewal insurance will
on and after the effective date thereof so comply with the terms hereof and
(iii) to the best of such firm's knowledge, such insurance provides coverage
that is in substantially similar form, of such types and
-35-
having limits within the range of limits as are customarily obtained by
similarly situated United States carriers operating similar aircraft on similar
routes, provided that all information contained in such report shall be held
--------
confidential by the Lessor, the Indenture Trustee and the Owner Participant, and
shall not be furnished or disclosed by them to any Person except (A) their legal
counsel, independent certified public accountants, insurance brokers or advisors
or other agents who agree to hold such information confidential, (B) to any bona
fide prospective and permitted transferees of the Owner Participant and its
agents (provided that each such transferee shall agree for the benefit of the
--------
Lessee to hold all such information similarly confidential), (C) as may be
required by Applicable Law or by any court or administrative order or decree or
governmental ruling or regulation, (D) as may be necessary for purposes of
enforcement of Operative Agreements, or (E) rating agencies. The Lessee will
instruct such firm to give prompt written advice to the Lessor, the Owner
Participant and the Indenture Trustee of any default in the payment of any
premium and of any other act or omission on the part of the Lessee (or any
Permitted Sublessee) of which it has knowledge and which would in such firm's
opinion invalidate or render unenforceable, in whole or in any material part,
any insurance on the Aircraft. The Lessee will also instruct such firm to advise
the Lessor, the Owner Participant and the Indenture Trustee in writing at least
thirty (30) days prior to the termination or cancellation of, or material
adverse change in, such insurance carried and maintained on the Aircraft
pursuant to this Section 9 (or such lesser period as may be applicable in the
case of war risk coverage), provided, that in respect of war risk or allied
--------
perils coverage, if the notice period specified above is not obtainable, the
insurance broker shall provide for as long a period of prior notice as shall
then be obtainable.
(h) Right to Pay Premiums.
---------------------
The Additional Insureds shall have the rights but not the obligations
of an additional named insured. None of Lessor, Owner Participant, Indenture
Trustee and the other Additional Insureds shall have any obligation to pay any
premium, commission, assessment or call due on any such insurance (including
reinsurance). Notwithstanding the foregoing, in the event of cancellation of
any insurance due to the nonpayment of premiums, each of Lessor, Owner
Participant, Indenture Trustee and the other Additional Insureds shall have the
option, in its sole discretion, to pay any such premium in respect of the
Aircraft that is due in respect of the coverage pursuant to this Lease and to
maintain such coverage, as Lessor, Owner Participant, Indenture Trustee or the
other Additional Insureds may require, until the scheduled expiry date of such
insurance and, in such event, Lessee shall, upon demand, reimburse Lessor, Owner
Participant, Indenture Trustee and the other Additional Insureds for amounts so
paid by them.
(i) Spares Physical Damage Insurance.
--------------------------------
During any period that an Engine is not attached to the Airframe or
any other airframe and not otherwise subject to coverage by a hull policy
maintained by the Lessee (or a Permitted Sublessee), the Lessee shall maintain
or cause to be maintained spares physical damage insurance covering such Engine
in an aggregate amount not less than the amount commercially available in
-36-
aviation insurance markets except that the scope of the risks and the type of
insurance shall be in substantially similar form, of such types and having
limits within the range of limits as are customarily obtained by similarly
situated United States carriers operating similar engines not attached to any
airframe, provided that the scope of the risks and the type of insurance shall
--------
be the same as from time to time applicable to engines owned or leased by the
Lessee of the same type and similarly not attached to any airframe.
Section 10. Liens.
-----
The Lessee shall not during the Term directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
Airframe, any Engine or any Part or title thereto or any interest therein or in
this Lease except (a) the respective rights of the Lessor and the Lessee as
provided herein, the Lien of the Indenture and the rights of the parties to the
other Operative Agreements; (b) the rights of others under agreements or
arrangements to the extent expressly permitted in Sections 5(b) and 7(c); (c)
Liens for Taxes of the Lessee either not yet due or being contested in good
faith by appropriate proceedings (and for which adequate reserves have been
provided in accordance with generally accepted accounting principles) so long as
such proceedings do not involve any non-de minimis risk of the sale, forfeiture
or loss of the Aircraft, Airframe or an Engine or the interest of any
Participant therein or any risk of criminal liability or any material risk of
civil penalty against Lessor, Indenture Trustee or any Participant; (d) Liens of
suppliers, mechanics, workers, repairers, employees, airport operators, air
traffic control authorities or other like Liens arising in the ordinary course
of business and for amounts the payment of which is either not yet delinquent or
is being contested in good faith (and for the payment of which adequate reserves
have been provided in accordance with generally accepted accounting principles)
by appropriate proceedings, so long as such proceedings do not involve a non-de
minimis risk of the sale, forfeiture or loss of the Airframe or an Engine or the
interest of any Participant therein or any risk of criminal liability or any
material risk of civil penalty against Lessor or any Participant; (e) Liens
arising out of judgments or awards against the Lessee with respect to which an
appeal or proceeding for review is being prosecuted in good faith and with
respect to which at the time there shall have been secured a stay of execution,
so long as such proceedings do not involve a non-de minimis risk of the sale,
forfeiture or loss of the Aircraft, Airframe or an Engine or the interest of any
Participant therein; (f) Lessor's Liens and Indenture Trustee's Liens; (g)
salvage and similar rights of insurers under policies of insurance maintained
with respect to the Aircraft and (h) Liens with respect to which the Lessee (or
any sublessee) has provided a bond or other security adequate in the good faith
opinion of the Lessor and the Owner Participant. Liens described in clauses (a)
through (h) above are referred to herein as "Permitted Liens." The Lessee shall
promptly, at its own expense, take such action as may be necessary to duly
discharge (by bonding or otherwise) any Lien other than a Permitted Lien arising
at any time during the Term.
Section 11. Recordation and Further Assurances.
----------------------------------
(a) Recordation of Lease.
--------------------
-37-
The Lessee shall cause this Lease, any Lease Supplements, and any and
all additional instruments which shall be executed pursuant to the terms hereof
to be kept, filed and recorded and to be re-executed, refiled and re-recorded at
all times during the Term with the FAA or other Aeronautical Authority to the
extent required to perfect and preserve the Lessor's interest in the Aircraft.
(b) Further Assurances.
------------------
The Lessee and the Lessor will each promptly and duly execute and
deliver to the other such further documents and assurances and take such further
action as the other may from time to time reasonably request in order to more
effectively carry out the intent and purpose of this Lease and to establish and
protect the rights and remedies created or intended to be created in favor of
the Lessor and the Lessee hereunder, including, without limitation, if requested
by the Lessor or the Lessee, the execution and delivery of supplements or
amendments hereto, in recordable form, subjecting any replacement or substituted
aircraft or engine to this Lease and the recording or filing of counterparts
hereof, or of financing statements with respect hereto.
(c) Markings.
--------
On or reasonably promptly after the Delivery Date, Lessee will cause
to be affixed to, and maintained in, the cockpit of the Airframe and on each
Engine, in a clearly visible location (it being understood that the location of
such placard, as identified to the Owner Participant prior to the Delivery Date,
shall be deemed to be in compliance with this requirement), a placard of a
reasonable size and shape bearing the legend, in English, set forth below:
Leased from
First Union Trust Company, National Association,
not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
and Mortgaged to
Allfirst Bank,
not in its individual capacity
but solely as Indenture Trustee
Such placard to be replaced, if necessary, with a placard reflecting the name of
any successor Owner Trustee or Indenture Trustee, as the case may be, as
permitted under the Operative Agreements. Such placard may be removed
temporarily, if necessary, in the course of maintenance of the
-38-
Airframe. If such placard is damaged or becomes illegible, Lessee shall promptly
replace it with a placard complying with the requirements of this Section 11(c).
Except as above provided, neither the Lessee nor any Permitted Sublessee will
permit the name of any person to be placed on the Airframe or any Engine in a
manner that may be interpreted as a claim of ownership of, or Lien on, the
Airframe or any Engine; provided, however, that nothing herein contained shall
-------- -------
prohibit the Lessee (or any Permitted Sublessee) from placing its customary
colors and insignia on the Airframe or any Engine or from otherwise operating
the Aircraft in its livery.
Section 12. Return of Aircraft and Records.
------------------------------
(a) Return of Aircraft.
------------------
Upon the termination of this Lease at the expiration of the Term or
upon the earlier termination of this Lease pursuant to the terms hereof, unless
the Lessee shall purchase the Aircraft or there shall have been an Event of Loss
with respect to the Aircraft, the Lessee, at its own expense, shall, except as
otherwise expressly provided herein, return the Airframe by delivering the same
to the Lessor in the continental United States of America at a location on the
Lessee's domestic route system chosen by the Lessee and reasonably acceptable to
the Lessor, fully equipped with two Engines or other CFM International model
CFM-56-7B20 engines (or engines of the same manufacturer of a comparable or an
improved model and suitable for installation and use on the Airframe and owned
by the Lessee) duly installed thereon.
(b) Return of Other Engines.
-----------------------
In the event any engine not owned by the Lessor shall be returned
with the Airframe, such engine shall satisfy the requirements for a Replacement
Engine, shall be free and clear of all Liens other than Lessor's Liens and shall
have a value, remaining useful life, utility and condition at least as great as
the Engine replaced (assuming such Engine was maintained in accordance with the
terms thereof) and the Lessee shall, at its own expense and concurrently with
such return, furnish the Lessor with (i) a full warranty ▇▇▇▇ of sale guaranteed
by Lessee, in form and substance reasonably satisfactory to the Lessor and the
Owner Participant, (ii) an Officer's Certificate as described in Section
7(e)(i)(F), and (iii) an opinion of counsel to the Lessee as described in
Section 7(e)(ii), with respect to each such engine and shall take such other
action as required by Section 7(e) to cause such engine to be a Replacement
Engine or as the Lessor may reasonably request in order that such engine shall
be duly and properly titled in the Lessor free and clear of all Liens other than
Lessor's Liens. Upon passage of title such engine shall be deemed to be an
Engine for all purposes hereof and thereupon the Lessor will transfer to the
Lessee, in "as-is, where is" condition, without recourse or warranty except a
warranty against Lessor's Liens, all right, title and interest of the Lessor or
any Affiliate in and to an Engine not installed on the Airframe at the time of
the return thereof and, if the Indenture has not been discharged, shall request
that the Indenture Trustee release such Engine from the Lien of the Indenture.
-39-
(c) Fuel; Records.
-------------
Upon the return of the Aircraft, (i) the Lessor shall have no
obligation with respect to the amount of fuel or oil contained in the Airframe
and (ii) the Lessee shall deliver to the Lessor all logs, manuals, certificates
and inspection, modification and overhaul records which are required to be
maintained with respect thereto under applicable rules and regulations of the
FAA and DOT.
(d) Condition of Aircraft.
---------------------
The Aircraft when returned to the Lessor shall be in the operating
condition required by Exhibit F hereto.
(e) Failure to Return. If Lessee shall, for any reason whatsoever,
-----------------
fail to return the Aircraft and the documents referred to in Section 12(c)(ii)
at the time and place and in the condition specified herein, all obligations of
Lessee under this Lease shall continue in effect with respect to the Aircraft
until the Aircraft is so returned to Lessor and Lessee shall pay to Lessor an
amount equal to the average daily Basic Rent payable by Lessee during the Term
for each day after the end of the Term to but excluding the day of such return;
provided, however, that this Section 12(e) shall not be construed as permitting
-------- -------
Lessee to fail to meet its obligations to return the Aircraft or the documents
referred to in Section 12(c)(ii) in accordance with the requirements hereof or
constitute, or be deemed to constitute, a waiver of any Event of Default
resulting from Lessee's failure to return the Aircraft or such documents or
otherwise; and provided, further, that Lessee shall not be responsible for
-------- -------
Lessor's failure to accept return of the Aircraft and the documents referred to
in Section 12(c)(ii) in accordance with the requirements hereof in a timely
manner or for any rent with respect to periods after Lessee has tendered the
Aircraft and the documents referred to in Section 12(c)(ii) for return in
accordance with this Lease, provided however that if Lessor's inspection of the
-------- -------
Aircraft and the documents referred to in Section 12(c)(ii), which inspection
shall be conducted in good faith and timely manner, reveals any discrepancy from
the condition required by the provisions of this Section 12, Lessee shall
continue to pay rent in accordance with this Section 12(e) until the Aircraft
and the documents referred to in Section 12(c)(ii) are returned to the Lessor in
accordance with this Lease. Any rent owed to Lessor pursuant to this Section
12(e) shall be payable upon acceptance of the Aircraft and the documents
referred to in Section 12(c)(ii) by Lessor.
(f) Storage and Related Matters.
---------------------------
If Lessor gives written notice to Lessee not less than 60 days nor
more than 180 days prior to the end of the Term requesting storage of the
Aircraft upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with outdoor parking facilities for the Aircraft for a period up
to 60 days, commencing on the date of such return, at such storage facility in
the 48 contiguous states of the United States as Lessee may select. Lessee
shall, at Lessor's written request,
-40-
maintain insurance (if available) for the Aircraft during such storage period,
provided that Lessor shall reimburse Lessee for Lessee's out-of-pocket cost of
--------
providing such insurance. Such storage shall be at Lessor's risk, and Lessor
shall pay all applicable storage fees, except that Lessee shall pay the parking
fees for the initial 60 day storage period; provided that Lessee's obligation to
--------
provide parking shall be subject to Lessee and Lessor entering into an agreement
prior to the commencement of the storage period with the storage facility
providing, among other things, that Lessee shall pay only the parking fees for
the initial storage period of up to 60 days and that Lessor shall bear all
maintenance charges and other costs incurred relating to such storage.
Section 13. Renewal Option and Purchase Options.
-----------------------------------
(a) Renewal Terms.
-------------
Upon expiration of the Basic Term, the Lessee shall have the right
to extend this Lease for a period of one year (the "Fixed Renewal Term"). At the
end of the Fixed Renewal Term, the Lessee shall have the right to extend this
Lease for any number of successive periods of one year each (each a "Fair Market
Value Renewal Term"; the Fixed Renewal Term and each Fair Market Value Renewal
Term, being hereinafter sometimes called a "Renewal Term") provided that the
aggregate term of all Fair Market Renewal Terms shall not exceed three years and
the aggregate term of all Renewal Terms shall not exceed four years. The Fixed
Renewal Term will commence at the end of the Basic Term and a Fair Market Value
Renewal Term will commence at the end of the Fixed Renewal Term or the preceding
Fair Market Renewal Term, as the case may be, it being understood that the Fixed
Renewal Term may not follow a Fair Market Value Renewal Term. Such right to
extend this Lease shall be exercised upon notice to the Lessor, specifying the
nature and duration of the Renewal Term, not less than 210 days nor more than
365 days before the expiration of the Basic Term or the preceding Renewal Term,
as the case may be. Such notice shall be irrevocable except that in the event
the Lessee gives such notice to the Lessor 240 or more days before the end of
the Renewal Term then in effect, the Lessee may revoke its election to extend
this Lease within 15 days following the determination of the Fair Market Rental
Value of the Aircraft but in no event later than 210 days prior to the end of
the preceding Renewal Term. If the Lessee requests a determination of Fair
Market Rental Value at least 240 days before the expiration of a Renewal Term,
the Lessor and the Lessee shall comply in a timely manner with their respective
obligations under the definition of "Fair Market Rental Value" to allow any
appraisal of Fair Market Rental Value to be completed in sufficient time to
permit the Lessee to exercise the revocation right provided above. If no
Specified Default shall have occurred and be continuing on the date of such
notice or on the date of the commencement of any Renewal Term, then this Lease
shall be extended for the additional period of such Renewal Term as specified in
such notice on the same conditions as provided for herein. The Basic Rent
payable per annum during the Fixed Renewal Term shall be the Renewal Rental Rate
identified on Exhibit B. The rental payable per annum during any Fair Market
Value Renewal Term shall be the then Fair Market Rental Value for the Aircraft.
Such rental during each Renewal Term shall be payable semi-annually in arrears.
The Termination Value of the Aircraft during each Renewal Term shall be equal to
the sum of (x) the Fair Market Sales Value for
-41-
the Aircraft at the beginning of such Renewal Term declining on a straight line
basis to the projected Fair Market Sales Value for the Aircraft at the end of
such Renewal Term, but in both cases determined prior to the commencement of
such Renewal Term, plus (y) accrued Basic Rent through the applicable
Termination Date (other than a Termination Date coinciding with a Basic Rent
Payment Date). If the Lessee elects to extend this Lease for a Renewal Term
pursuant to this Section 13(a), the Lessor and the Lessee shall enter into a
supplement or amendment to this Lease setting forth the Termination Dates during
such Renewal Term, the Termination Values as of such Termination Dates, the
Basic Rent Payment Dates during such Renewal Term and the Basic Rent payable on
such Basic Rent Payment Dates.
(b) Lessee's Purchase Options.
-------------------------
(i) Rights to Purchase.
------------------
The Lessee shall have the right upon notice as provided herein to
purchase the Aircraft (A) on the EBO Date for a price equal to the EBO Amount;
(B) upon the termination of the Basic Term for a price equal to the then Fair
Market Sales Value of the Aircraft; or (C) at the end of any Renewal Term for a
price equal to the then Fair Market Sales Value of the Aircraft; in each case as
long as no Event of Default of the type referred to in Section 16(f), (g) or (h)
hereof shall have occurred and be continuing on the date of purchase. Upon the
payment by the Lessee of (I) the purchase price for the Aircraft, (II) if such
purchase is pursuant to clause (A) of this Section 13(b)(i), the portion, if
any, of Basic Rent payable on the EBO Date that is specified in column (3) of
Exhibit C-1 as allocable to the Allocation Period ending on the EBO Date, (III)
if such purchase is pursuant to clause (B) or (C) of this Section 13(b)(i), the
Basic Rent, if any, payable on the date of purchase, (IV) all unpaid Basic Rent,
if any, payable before such date and (V) all Supplemental Rent then due and
payable hereunder (including any Supplemental Rent payable in respect of Make-
Whole Premium), the Term shall end and the obligations of the Lessee to pay Rent
hereunder (except for Supplemental Rent obligations surviving pursuant to
Section 3(c), Articles 6 and 7 of the Participation Agreement or the Tax
Indemnity Agreement or which have otherwise accrued but not been paid as of the
date of such payment) shall cease, and the Lessor shall convey to the Lessee all
right, title and interest of the Lessor in and to the Aircraft on an "as-is,
where is" basis, without recourse or warranty except a warranty against Lessor's
Liens.
(ii) Option to Assume Equipment Notes.
--------------------------------
In the event the Lessee elects to purchase the Aircraft pursuant to
clause (A) of Section 13(b)(i), the Lessee may, at its election, assume the
payment obligations of the Lessor with respect to such Equipment Notes as
contemplated by Section 5.10 of the Participation Agreement, in which case the
purchase price to be paid by the Lessee shall be reduced by an amount equal to
the principal of the Equipment Notes so assumed by the Lessee.
(iii) Notice of Exercise of Option.
----------------------------
-42-
The Lessee's right to purchase provided for in clause (B) or (C) of
Section 13(b)(i) shall be exercised upon written notice to the Lessor not less
than 180 days nor more than 365 days before the applicable date of purchase
provided in such clause (B) or (C) as the case may be. Such notice shall be
irrevocable, except that where the purchase price is or may be measured by the
Fair Market Sales Value of the Aircraft the Lessee may revoke its exercise of an
option to purchase the Aircraft within 15 days following the determination of
such Fair Market Sales Value, but in no event later than 180 days prior to the
applicable date of purchase provided in such clause (B) or (C), as the case may
be. The Lessee's right to purchase provided for in clause (A) of Section
13(b)(i) shall be exercised upon written notice to the Lessor not less than 90
days nor more than 365 days before the EBO Date and shall be irrevocable when
given.
Section 14. Voluntary Termination for Obsolescence.
--------------------------------------
(a) Termination by Sale of Aircraft.
-------------------------------
So long as no Specified Default shall have occurred and be
continuing, during the Basic Term the Lessee shall have the right at its option
five years or more after commencement of the Basic Term on at least 180 days',
but not more than 365 days, prior written notice (which notice shall be
irrevocable, except as provided below) to the Lessor and the Indenture Trustee,
specifying a proposed date of termination which shall be a Termination Date
during the Basic Term, to terminate this Lease if the chief financial officer of
the Lessee shall have certified in writing to the Lessor that the Aircraft shall
have become obsolete or shall be surplus to the Lessee's equipment requirements.
Subject to the Lessor's preemptive election under Section 14(c), during the
period following the giving of such notice of termination until the Termination
Date, the Lessee, as agent for the Lessor, shall endeavor to sell the Aircraft
"as is", without any warranty by the Lessor or the Lessee except as to the
Lessor's title, on behalf of the Lessor. If Lessee receives any bid, it shall at
least 10 Business Days prior to the proposed day of sale, certify to Lessor in
writing the amount and terms of such bid, such proposed date of sale and the
name and address of the potential buyer (which shall not be Lessee or any
Affiliate or any Person with whom Lessee or any Affiliate has any arrangement or
understanding for the future purchase, lease, operation or use of the Aircraft).
Lessor may also solicit bids directly or through agents other than Lessee. So
long as the Lessor has not exercised its preemptive election under Section
14(c), the Lessee may, by notice to the Lessor and the Indenture Trustee,
withdraw its notice of termination at any time on or before the date 10 days
prior to the proposed Termination Date (unless such withdrawal is due to the
cancellation of the proposed purchase of the Aircraft by the potential buyer in
which event such notice may be given at any time on or prior to the proposed
Termination Date), and thereupon this Lease shall continue in full force and
effect. Withdrawal of notice of termination shall not exhaust the Lessee's right
to give a further notice of termination as provided herein; provided that Lessee
shall not be entitled to give more than two such notices (excluding one notice
of termination which has been withdrawn due to the cancellation of the proposed
purchase of the Aircraft by the potential buyer). Unless the Lessee shall
withdraw its notice of termination as stated above or the Lessor shall have made
a preemptive election to take possession of the Aircraft in accordance with
Section 14(c), on the
-43-
Termination Date, or such other date of sale as shall be consented to in writing
by the Lessor and the Lessee, which date shall thereafter be deemed the
Termination Date, the Lessee shall, upon payment in full of the amounts
described in Section 14(b), deliver the Airframe and Engines or engines
installed thereon to the party which shall have prior to such date submitted the
highest bona fide cash bid to close such sale and purchase of the same, in the
same manner as if delivery were being made to the Lessor pursuant to Section 12,
and shall duly transfer to such party title to any engines which are not Engines
delivered with the Airframe in accordance with the terms of Section 12. The
Lessor shall, in "as-is, where-is" condition, without recourse or warranty
(except a warranty as to the absence of Lessor's Liens), simultaneously
therewith sell and convey title to the Airframe and the Engines or engines
conveyed to the Lessor as provided in Section 12 for cash to such party and
request that the Indenture Trustee release the Aircraft from the Lien of the
Indenture. Upon the sale of the Airframe and the Engines or engines conveyed to
the Lessor as provided in Section 12 pursuant to this Section 14 and receipt by
the Lessor of all amounts referred to in Section 14(b), the Lessor will transfer
to the Lessee, in "as-is, where-is" condition, without recourse or warranty
(except a warranty as to the absence of Lessor's Liens), all right, title and
interest of the Lessor in and to any Engines constituting part of the Aircraft
but which were not delivered to the purchaser with the Airframe. The Lessee
shall pay all out of pocket expenses of the Lessor, Owner Participant and
Indenture Trustee in connection with any termination or proposed termination of
this Lease except that Lessee shall not be responsible for such expenses of the
Lessor or the Owner Participant in the event the Lessor exercises its preemptive
election under Section 14(c) and thereafter fails to perform its obligations
under such Section.
(b) Payments Due Upon Sale of Aircraft.
----------------------------------
The total selling price realized at any sale of the Airframe and
Engines or engines installed thereon in accordance with this Section 14 shall be
retained by the Lessor and, in addition, on the Termination Date, the Lessee
shall pay to the Lessor or, in the case of Supplemental Rent, to the Persons
entitled thereto, in immediately available funds, an amount equal to the sum of
(A) the excess, if any, of (x) the Termination Value as of the Termination Date,
over (y) the net proceeds of the sale of the Aircraft, plus (B) all unpaid
Supplemental Rent due on or before the Termination Date (including Make-Whole
Premium), plus (C) the portion, if any, of Basic Rent payable on such
Termination Date that is specified in column (3) of Exhibit C-1 as allocable to
the Allocation Period ending on the Termination Date plus (D) all unpaid Basic
Rent, if any, payable before the Termination Date, plus (E) the reasonable fees
and expenses of the Participants, the Indenture Trustee and Lessor in connection
therewith, plus (F) any sales, transfer or similar Taxes incurred on such sale.
(c) Preemptive Election by Lessor.
-----------------------------
Notwithstanding the foregoing provisions of this Section 14, the
Lessor may, not later than 90 days prior to the proposed Termination Date,
notify the Lessee of its preemptive election to take possession of the Aircraft,
and on the Termination Date, concurrently with the payment by the
-44-
Lessee of the amounts specified below in this Section 14(c), the Lessor shall
pay to the Indenture Trustee the amount required to pay in full (after giving
effect to any installment of Basic Rent due and payable on such date) the
aggregate unpaid principal amount of the outstanding Equipment Notes, together
with all accrued interest thereon and Make-Whole Premium, if any (without
releasing Lessee from its obligations under clause (B) of Section 14(b) in
respect of the payment of such amount). Upon payment by the Lessor of such
amount to the Indenture Trustee, and payment of any Basic Rent due on such date,
the Lessee shall have no obligation to pay Termination Value. On the Termination
Date, concurrently with the payment by Lessor of such amount to the Indenture
Trustee, the Lessee shall deliver the Airframe and Engines or engines installed
thereon to the Lessor in accordance with Section 12 and shall pay (A) all unpaid
Basic Rent, if any, payable before the Termination Date, together with (B) the
portion, if any, of Basic Rent payable on such Termination Date that is
specified in column (3) of Exhibit C-1 as allocable to the Allocation Period
ending on the Termination Date, and (C) all unpaid Supplemental Rent due on or
before or after the Termination Date (including Make-Whole Premium), and the
Lessor shall transfer to the Lessee title to any Engines constituting part of
the Airframes but which were not then installed on the Aircraft as provided in
Section 12(b). If the Lessor, having given notice of a preemptive election,
shall fail to perform any of its obligations pursuant to this Section 14(c) and
as a result thereof this Lease shall not be terminated on a proposed Termination
Date, the Lessee may at its option at any time thereafter submit a new
termination notice but the Lessor may only be entitled to exercise on one
additional occasion its preemptive election to retain the Aircraft upon a
subsequent termination pursuant to this Section 14.
(d) Termination of Lease.
--------------------
Upon delivery by the Lessee of the Airframe and Engines or engines
installed thereon and payment by the Lessee of all amounts payable by the Lessee
under either Section 14(b) or 14(c), as the case may be, the obligations of the
Lessee to pay Rent (except for Supplemental Rent obligations surviving pursuant
to the second sentence of Section 3(c) and Articles 6 and 7 of the Participation
Agreement or the Tax Indemnity Agreement or which have otherwise accrued but not
paid as of the Termination Date) shall cease and the Term shall end.
(e) Effect of No Sale or Preemptive Delivery to Lessor.
--------------------------------------------------
If on the Termination Date no sale of the Aircraft shall have occurred
and the Lessee has not delivered the Aircraft to the Lessor pursuant to Section
14(c), the Lessee's notice given pursuant to Section 14(a) shall be deemed to be
withdrawn as of such date and this Lease shall continue in full force and
effect, without prejudice, however, to any claims the Lessee may have against
any Person under the Participation Agreement or otherwise if a failure to
deliver the Aircraft to the Lessor pursuant to Section 14(c) shall have been due
to a failure of the Lessor to make the payment by the Lessor provided for in
such Section.
(f) No Duty on Part of Lessor.
-------------------------
-45-
Lessor shall be under no duty to solicit bids, to inquire into
the efforts of Lessee to obtain bids or otherwise to take any action in
connection with any such sale other than to cooperate with such efforts as
Lessee may reasonably request and to make the transfers described in the last
two sentences of Section 14(a).
Section 15. Investment of Security Funds.
----------------------------
Any monies paid to or retained by the Lessor which are required
to be paid to the Lessee or applied for the benefit of the Lessee (including,
without limitation, amounts payable to the Lessee under Sections 8 and 9), but
which the Lessor is entitled to hold under the terms hereof pending the
occurrence of some event or the performance of some act (including, without
limitation, the remedying of an Event of Default), shall, until paid to the
Lessee or applied as provided herein, be invested by the Lessor (or, if the
Indenture shall not have been discharged, the Indenture Trustee) from time to
time at the direction, risk and expense of the Lessee in Permitted Investments,
subject, in the case of investments by the Indenture Trustee to the terms of
Section 5.08 of the Indenture. There shall be promptly remitted to the Lessee
any gain (including interest received) realized as the result of any such
investment (net of any fees, commissions and other expenses, if any, incurred in
connection with such investment) unless a Specified Default shall have occurred
and be continuing, in which case such gains shall be held or applied in
accordance with the preceding sentence. The Lessee will promptly pay to the
Indenture Trustee or the Lessor, as the case may be, on demand, the amount of
any loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment).
Section 16. Events of Default.
-----------------
The following events shall constitute Events of Default (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body) and each such Event of Default shall be deemed to exist and
continue so long as, but only so long as, it shall not have been remedied:
(a) The Lessee shall fail to make any payment of (i) Basic Rent,
Termination Value or a payment required by clause (iii) of the second
sentence of Section 3(c) when due and such failure shall continue for a
period of 10 days or (ii) Supplemental Rent (other than Termination Value
or the payment required by clause (iii) of the second sentence of Section
3(c)) within 30 days after receipt by the Lessee of a written demand
therefor from the Lessor or the Indenture Trustee, provided, that in the
--------
case of Supplemental Rent which constitutes an Excepted Payment, such
demand shall only be effective for purposes of this paragraph (a) if sent
by the Owner Participant or the Lessor and such failure shall not become an
Event of Default until the Owner Participant shall have notified the
Indenture Trustee that it has elected to treat such failure as an Event of
Default;
-46-
(b) The Lessee shall fail to procure and maintain insurance required
pursuant to Section 9 or such insurance shall be cancelled or lapse;
provided that such lapse or cancellation shall not constitute an Event of
--------
Default until the earlier of 30 days after receipt by the Lessor or the
Indenture Trustee of notice of such lapse or cancellation or the date that
the lapse or cancellation is effective as to the Lessor, the Owner
Participant or the Indenture Trustee;
(c) The Lessee shall operate the Aircraft after having received notice
that the public liability insurance required by Section 9(a) has lapsed or
has been cancelled;
(d) The Lessee shall fail to perform or observe any other covenant or
condition to be performed or observed by it hereunder or under any other
Operative Agreement (other than the Tax Indemnity Agreement), and such
failure shall continue unremedied for a period of 30 days after delivery of
notice of such failure from the Lessor or the Indenture Trustee to the
Lessee, unless such failure is curable and the Lessee shall, after the
delivery of such notice, be diligently proceeding to correct such failure
and shall in fact correct such failure 180 days after delivery of such
notice;
(e) Any representation or warranty made by the Lessee herein or in any
Operative Agreement or in any certificate required to be delivered by the
Lessee pursuant thereto (other than the Tax Indemnity Agreement) shall
prove to have been incorrect in any material respect when made and shall
remain material at the time in question and shall not be remedied within 30
days after notice thereof has been given to the Lessee by the Lessor or the
Indenture Trustee;
(f) The Lessee shall consent to the appointment of or taking
possession by a receiver, assignee, custodian, sequestrator, trustee or
liquidator (or other similar official) of itself or of a substantial part
of its property, or the Lessee shall fail or shall admit in writing its
inability to pay its debts generally as they come due (as provided in 11
U.S.C. (S) 303(h)(1)), or shall make a general assignment for the benefit
of its creditors, or the Lessee shall file a voluntary petition in
bankruptcy or a voluntary petition or answer seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any applicable bankruptcy or insolvency or similar laws, as now or
hereafter constituted or any other applicable Federal or State bankruptcy,
insolvency or other similar law or shall consent to the entry of an order
for relief in an involuntary case under any such law or the Lessee shall
file an answer admitting the material allegations of a petition filed
against the Lessee in any such proceeding, or otherwise seek relief under
the provisions of any now existing or future Federal or State bankruptcy,
insolvency or other similar law providing for the reorganization or
winding-up of corporations, or providing for an agreement, composition,
extension or adjustment with its creditors;
-47-
(g) An order, judgment or decree shall be entered in any proceeding by
any court of competent jurisdiction appointing, without the consent of the
Lessee, a receiver, trustee or liquidator of the Lessee or of any
substantial part of its property, or any substantial part of the property
of the Lessee shall be sequestered, and any such order, judgment of decree
of appointment or sequestration shall remain in force undismissed, unstayed
or unvacated for a period of 90 days after the date of entry thereof;
(h) A petition against the Lessee in a proceeding under any applicable
bankruptcy laws or other insolvency or similar laws as now or hereafter in
effect shall be filed and shall not be withdrawn or dismissed within 90
days thereafter, or, in the case the approval of such petition by a court
of competent jurisdiction is required, the petition as filed or amended
shall be approved by such a court as properly filed and such approval shall
not be withdrawn or the proceeding dismissed within 90 days thereafter, or
a decree or order for relief in respect of the Lessee shall be entered by a
court of competent jurisdiction in an involuntary case under such
bankruptcy, insolvency or similar laws, as now or hereafter constituted and
such decree or order shall remain unstayed in effect for a period of 90
days, or if, under the provisions of any law providing for reorganization
or winding-up of corporations which may apply to the Lessee, any court of
competent jurisdiction shall assume jurisdiction, custody or control of the
Lessee or of any substantial part of its property and such jurisdiction,
custody or control shall remain in force unrelinquished, unstayed or
unterminated for a period of 90 days;
(i) The Lessee shall cease to be a Certificated Air Carrier and such
circumstance results in either (i) the inability of the Lessee to operate
aircraft in revenue service or (ii) the Owner Trustee (or the Indenture
Trustee as assignee of the Owner Trustee) no longer being entitled to the
benefits of Section 1110 of the Bankruptcy Code, and in either case such
condition shall continue for a period of thirty (30) days; or
(j) If, at any time after the Lien of the Indenture (and any other
indenture or security agreement entered into in connection with a
refinancing pursuant to Article 13 of the Participation Agreement) has been
discharged in accordance with its terms or the Owner Participant has
purchased the Equipment Notes (or the evidences of indebtedness under any
such other indenture or security agreement), any "Event of Default" as
defined in any Specified Lease shall occur and be continuing;
provided that, notwithstanding anything to the contrary contained in this Lease,
--------
any failure of the Lessee to perform or observe any covenant, condition, or
agreement herein shall not constitute an Event of Default under clause (d) above
if such failure is caused solely by reason of an event referred to in the
definition of "Event of Loss" so long as the Lessee is continuing to comply with
-------------
the applicable terms of Section 8.
-48-
Section 17. Remedies.
--------
Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, the Lessor may, at its
option, declare this Lease to be in default by a notice to the Lessee (provided
--------
that this Lease shall be deemed to have been declared in default without the
necessity of such notice upon the occurrence of any Event of Default described
in paragraph (f), (g) or (h) of Section 16); and at any time thereafter so long
as the Lessee shall not have remedied all outstanding Events of Default, the
Lessor may do, and the Lessee shall comply with, one or more of the following
with respect to the Airframe and all or any part of the Engines, as the Lessor
in its sole discretion shall elect, to the extent permitted by, and subject to
compliance with any mandatory requirements of, Applicable Law then in effect;
provided that during any period the Aircraft is subject to the Civil Reserve Air
--------
Fleet Program in accordance with the provisions of Section 5(b) and in the
possession of the United States government or an instrumentality or agency
thereof, the Lessor shall not, on account of any Event of Default, be entitled
to do any of the following in such manner as to limit the Lessee's control under
this Lease (or any sublessee's control under any sublease permitted by the terms
of this Lease) of any Airframe or any Engines, unless at least 60 days' (or such
lesser period, if any, as may then be applicable under the Military Airlift
Command Program of the United States Government) prior notice of default
hereunder shall have been given by the Lessor by registered or certified mail to
the Lessee (or any sublessee) with a copy addressed to the Contracting Office
Representative for the Military Airlift Command of the United States Air Force
under any contract with Lessee (or any sublessee) relating to the Aircraft:
(a) Cause the Lessee, upon the written demand of the Lessor and
at the Lessee's expense to, and the Lessee shall, promptly return the
Airframe and all or such part of the Engines as the Lessor may demand to
the Lessor in the manner and condition required by, and otherwise in
accordance with all of the provisions of, Section 12 as if the Airframe and
such Engines were being returned at the end of the Term; or the Lessor, at
its option, may cause public officials acting pursuant to judicial order
obtained in summary proceedings or otherwise to enter upon the premises
where the Airframe or any or all Engines are located or reasonably believed
to be located and take immediate possession of and remove the Airframe or
such Engines, and the Lessee shall comply therewith, all without liability
to the Lessor for or by reason of such entry or taking possession or
removal, whether for the restoration of damage to property caused by such
taking possession or removal; or otherwise; and the Lessee shall promptly
execute and deliver to the Lessor such instruments of title or other
documents as the Lessor may deem necessary or advisable to enable the
Lessor or its agent to obtain possession of the Airframe or the Engines,
provided that if the Lessee shall for any reason fail to execute and
--------
deliver such instruments and documents after such request, the Lessor shall
be entitled to a judgment for specific performance, conferring the right to
immediate possession upon the Lessor and requiring the Lessee to execute
and deliver such instruments and documents to the Lessor;
-49-
(b) Sell or otherwise dispose of all or any part of the Aircraft, at
public or private sale, whether or not the Lessor shall at the time have
possession thereof, as the Lessor may determine, or hold, use, operate,
lease to others or keep idle all or any part of the Aircraft, Airframe or
any Engine as the Lessor, in its sole discretion, may determine, in any
such case free and clear of any rights or claims of whatsoever kind of the
Lessee except as hereinafter set forth in this Section 17 and without any
duty to account to the Lessee with respect to such action or inaction or
for any proceeds with respect thereto except to the extent required by
paragraph (d) below in the event the Lessor elects to exercise its rights
under said paragraph in lieu of its rights under paragraph (c) below;
(c) Whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) above with respect to the Aircraft, the Lessor, by written
notice to the Lessee specifying a payment date (which shall be a
Termination Date) not earlier than 10 days from the date of such notice,
may require the Lessee to pay to the Lessor, and the Lessee shall pay to
the Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty, (i) any installment of
Basic Rent due before such payment date, plus (ii) the portion, if any, of
Basic Rent due on such payment date that is specified in column (3) of
Exhibit C-1 as allocable to the Allocation Period ending on such payment
date, plus (iii) if such payment date is during a Renewal Term, the
installment of Basic Rent due on such payment date, plus (iv) an amount
equal to the excess, if any, of (A) Termination Value for the Aircraft,
determined as of such payment date over (B) the Fair Market Sales Value for
the Aircraft, computed as of such payment date, together with interest, to
the extent permitted by Applicable Law, at the Past Due Rate on the amounts
specified in the foregoing clauses (i), (ii), (iii) and (iv) of this
paragraph (c), from such payment date, to the date of actual payment of
such amounts; provided that, in any such instance in which the Lessor is
-------- ----
unable to repossess the Aircraft due to circumstances not relating to or
caused by any Lessee Person and the Fair Market Sales Value thereof is
deemed to be zero, upon receipt of any such payment under this paragraph
(c) and all other amounts due hereunder, the Lessor shall convey, as-is,
where-is, without recourse or warranty, other than a warranty against
Lessor's Liens, to the Lessee all right, title and interest of the Lessor
in and to the Airframe and Engines, and execute and deliver to the Lessee
such bills of sale and other documents and instruments as the Lessee may
reasonably request to evidence such conveyance;
(d) In the event the Lessor, pursuant to paragraph (b) above, shall
have sold the Aircraft upon reasonable notice to the Lessee, the Lessor in
lieu of exercising its rights under paragraph (c) above with respect to the
Aircraft, may, if it shall so elect, require the Lessee to pay the Lessor,
and the Lessee shall pay to the Lessor, on the date of such sale, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of
the Basic Rent due after the date on which such sale occurs but in addition
to any installment of Basic Rent due on or up to the date on which such
sale occurs), the amount of any deficiency of the net proceeds of such sale
below the Termination Value of the Aircraft, determined as of the
-50-
Termination Date immediately preceding the date of such sale (or the
Termination Date coinciding with the date of such sale if the date of such
sale is a Termination Date), together with interest, to the extent
permitted by Applicable Law, at the Past Due Rate on the amount of such
deficiency from such Termination Date to the date of actual payment; and
(e) (i) Rescind, cancel or terminate this Lease or (ii) exercise any
other right or remedy which may be available under Applicable Law or
proceed by appropriate court action to enforce the terms hereof or to
recover damages (but in all events consistent with the liquidation of
damages agreement set forth herein) for the breach hereof.
In addition, the Lessee shall be liable for any unpaid Supplemental Rent due
hereunder before or after any termination hereof (which obligations shall
survive following such termination), including all reasonable costs and expenses
including attorney's fees and disbursements incurred by the Lessor, the Owner
Participant or the Indenture Trustee by reason of the occurrence of any Event of
Default or the exercise of the Lessor's remedies with respect thereto including
without limitation all costs and expenses incurred in connection with the return
of the Airframe or any Engine in accordance with, and in the condition required
by, the terms of Section 12 or any appraisal of the Aircraft required for
purposes of this Section 17. At any sale of the Aircraft, the Airframe or any
Engine, or portion thereof pursuant to this Section 17, the Lessor or the Owner
Participant may bid for and purchase such property. Except as otherwise
expressly provided above, no remedy referred to in this Section 17 is intended
to be exclusive (but the liquidation of damages provided in this Section 17
shall, to the extent required by Applicable Law, be the exclusive liquidated
damages remedy), but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to the Lessor for the Event of
Default at law or in equity; and the exercise or beginning of exercise by the
Lessor of any one or more of such remedies shall not preclude the simultaneous
or later exercise by the Lessor of any or all such other remedies. No express or
implied waiver by the Lessor of any Event of Default hereunder shall in any way
be, or be construed to be, a waiver of any future or subsequent Event of
Default.
Section 18. Lessor's Right to Perform for the Lessee.
----------------------------------------
If the Lessee fails to make any payment of Rent required to be
made by it hereunder or fails to perform or comply with any of its agreements
contained herein the Lessor may, upon prior notice to the Lessee, itself make
such payment or perform or comply with such agreement, and the amount of such
payment and the amount of the reasonable expenses of the Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Past Due
Rate, shall be deemed Supplemental Rent, payable by the Lessee upon demand;
provided that no such payment or performance by the Lessor shall be deemed to
--------
cure any Default or Event of Default under this Lease or relieve the Lessee of
any of its obligations hereunder; provided further that nothing in this Section
--------
18 shall be deemed to permit the Lessor to exercise any control over the
operation or maintenance of the Aircraft or any part thereof while it is being
utilized in the air transportation services of the Lessee or any Permitted
-51-
Sublessee without the consent of the Lessee; provided further that the
--------
provisions of this Section 18 shall not affect Lessor's right to exercise its
remedies under Section 17 upon the occurrence and continuance of an Event of
Default.
Section 19. Bankruptcy.
----------
It is the intention of the parties that the Lessor (and the
Indenture Trustee as assignee of the Lessor under the Indenture) shall be
entitled to the benefits of 11 U.S.C. (S) 1110 with respect to the right to
repossess the Airframe, Engines and Parts as provided herein, and in any
circumstances where more than one construction of the terms and conditions of
this Lease is possible, a construction which would preserve such benefits shall
control over any construction which would not preserve such benefits or would
render them doubtful. To the extent consistent with the provisions of 11 U.S.C.
(S) 1110 or any analogous section of the Federal bankruptcy laws, as amended
from time to time, it is hereby expressly agreed and provided that,
notwithstanding any other provisions of the Federal bankruptcy laws, as amended
from time to time, any right of the Lessor to take possession of the Aircraft in
compliance with the provisions of this Lease shall not be affected by the
provisions of 11 U.S.C. (S) 362 or 363, as amended from time to time, or any
analogous provisions of any superseding statute or any power of the bankruptcy
court to enjoin such taking of possession.
Section 20. Assignment: Benefit and Binding Effect.
--------------------------------------
(a) Assignment by the Lessee.
------------------------
The Lessee may not, without the prior written consent of the
Lessor and the Owner Participant, assign any of its rights hereunder except as
otherwise expressly provided herein.
(b) Assignment by the Lessor.
------------------------
The Lessor's interest in this Lease has been assigned as security
to the Indenture Trustee pursuant to the Indenture for the benefit of the
holders from time to time of the Equipment Notes, and the Lessee acknowledges
due notice of, and consents to, such security assignment. The Lessor may not,
without the prior consent of the Lessee, otherwise assign any of its rights
under or interest in this Lease except to a successor Owner Trustee or
additional trustee referred to in Section 9.01 of the Participation Agreement
and Section 9.01 of the Trust Agreement or as otherwise expressly provided
herein.
(c) Benefit and Binding Effect.
--------------------------
The terms and provisions of this Lease shall be binding upon and,
subject to the limitations on assignment of rights hereunder, inure to the
benefit of the Lessor and the Lessee and
-52-
their respective successors and permitted assigns. Nothing herein shall be
construed as creating rights in any other Person except, to the extent provided
herein, the Owner Participant.
(d) Sublessee's Performance and Rights.
----------------------------------
Any obligation imposed on the Lessee in this Lease shall require
only that the Lessee perform or cause to be performed such obligation, even if
stated herein as a direct obligation, and the performance of any such obligation
by any sublessee or transferee of the Airframe or any Engine or Part permitted
by the terms hereof under a sublease or transfer agreement then in effect shall
constitute performance by the Lessee and to the extent of such performance
discharge such obligation by the Lessee.
Section 21. Owner Trustee's Limitation on Liability.
---------------------------------------
Trust Company is entering into this Lease solely as Owner Trustee
under the Trust Agreement and not in its individual capacity and neither Trust
Company nor any entity acting as successor Owner Trustee or additional Owner
Trustee under the Trust Agreement shall be personally liable for, or for any
loss in respect of, any of the statements, representations, warranties,
agreements or obligations stated to be those of the Lessor hereunder, as to
which all interested parties shall look solely to the Trust Estate, except to
the extent expressly provided otherwise in any other Operative Agreement,
provided, however, that nothing in this Section 21 shall be construed to limit
-------- -------
in scope or substance the liability of Trust Company or any entity acting as
successor Owner Trustee or additional Owner Trustee under the Trust Agreement in
its individual capacity for the consequences of its own willful misconduct or
gross negligence or (in receiving, handling or remitting funds) its simple
negligence, or the inaccuracy or breach of its representations, warranties or
covenants made in such capacity in any other Operative Agreement.
Section 22. Certain Agreements of Lessee.
----------------------------
The Lessee will take, or cause to be taken, at the Lessee's cost
and expense, such action with respect to the recording, filing, re-recording and
re-filing of this Lease, each Lease Supplement, the Trust Agreement, the
Indenture, each Indenture Supplement and any financing statements or other
instruments as are necessary or requested by the Owner Participant or the
Indenture Trustee and appropriate, to maintain, so long as the Indenture or this
Lease is in effect, the perfection of the security interest created by the
Indenture and any security interest that may be claimed to have been created by
this Lease and the ownership interest of the Owner Trustee in the Aircraft, and
will furnish to the Owner Trustee, the Indenture Trustee and the Owner
Participant timely notice of the necessity of such action, together with such
instruments, in execution form, and such other information as may be required to
enable them to take such action.
-53-
Section 23. Miscellaneous.
-------------
(a) Notices.
-------
Except as otherwise specifically provided herein, all notices,
requests, approvals or consents required or permitted by the terms hereof shall
be in writing (it being understood that the specification of a writing in
certain instances and not in others does not imply an intention that a writing
is not required as to the latter). Any notice shall be effective when received.
Any notice shall either be mailed, certified or registered mail, return receipt
requested with proper first class postage prepaid, or sent in the form of a
telecopy or by overnight courier, provided that there is receipt of such notice
--------
the next Business Day from an overnight courier service, or by overnight
delivery service or delivered by hand. Any notice shall be directed to the
Lessee, the Lessor, the Indenture Trustee or any other party to the
Participation Agreement to the respective addresses set forth in Section 12.01
to the Participation Agreement or to such other address or telecopy number as
any such party may designate pursuant to Section 12.01 of the Participation
Agreement.
(b) Counterparts.
------------
This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall, subject to the
next sentence and the legends appearing on the cover and signature page hereof,
be an original, but all such counterparts shall together constitute but one and
the same instrument. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL
PAPER (AS THE TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL
COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE INDENTURE TRUSTEE ON
THE SIGNATURE PAGE THEREOF.
(c) Amendments.
----------
Neither this Lease nor any of the terms hereof may be terminated,
amended, supplemented, waived or modified orally, but only by an instrument in
writing signed by the Lessor and the Lessee provided, however, that unless and
-------- -------
until the Indenture has been discharged, except as otherwise provided in the
Indenture, no termination, amendment, supplement, waiver or modification of, or
waiver by or consent of the Lessor in respect of, any of the provisions of this
Lease shall be effective unless the Indenture Trustee shall have joined in such
amendment, modification, waiver or consent or shall have given its prior consent
thereto.
-54-
(d) Agreement to Lease.
------------------
It is the intent of the parties to this Lease that for all purposes
(including, without limitation, U.S. Federal income tax purposes) this Lease
will be a true lease, and that this Lease conveys to the Lessee no right, title
or interest in the Aircraft except as a lessee.
(e) Governing Law.
-------------
(i) THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(ii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF
NEW YORK AND OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN
CONNECTION WITH ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTER
RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS LEASE.
(iii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF ANY AND ALL
LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET
FORTH PURSUANT TO SECTION 12.01 OF THE PARTICIPATION AGREEMENT. EACH PARTY
HERETO AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN
ACCORDANCE WITH THIS SECTION 23(e)(iii), SHALL CONSTITUTE VALID AND EFFECTIVE
PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO HEREBY AGREES THAT THE
FAILURE OF ANY OF ITS AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH
PARTY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH
PARTY OR ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.
(iv) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER IN
ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR THAT
THIS LEASE OR ANY OTHER OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH
COURTS.
-55-
(v) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING
TO THIS LEASE.
(f) Severability.
------------
Any provision of this Lease which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
(g) Survival.
--------
The representations, warranties, indemnities and covenants set forth
herein shall survive the delivery of the Aircraft, the transfer of any interest
of Owner Participant in this Lease, the other Operative Agreements, the Trust
Estate and the Trust Agreement and the transfer of any interest by any Holder of
its Equipment Notes.
(h) Article 2A.
----------
The Lessor and the Lessee agree that this Lease is a "finance lease"
for purposes of Article 2A of, and as defined in Section 2-A-103 of the Uniform
Commercial Code. The Lessee agrees that no right or remedy granted solely by
reason of Article 2A of the Uniform Commercial Code shall be available to the
Lessee as against the Lessor unless expressly provided in this Lease.
* * *
-56-
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed by their authorized officers as of the day and year
first above written.
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not in
its individual capacity, except as otherwise expressly
provided herein but solely as Owner Trustee
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
MIDWAY AIRLINES CORPORATION
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------
Name: Senior Vice President
Title: General Counsel
-57-
THE LESSOR HAS ASSIGNED THIS LEASE AGREEMENT TO THE INDENTURE TRUSTEE AS
SECURITY. TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT CONSTITUTES CHATTEL
PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN
ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE AGREEMENT MAY
BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART HEREOF OTHER
THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE
INDENTURE TRUSTEE IMMEDIATELY FOLLOWING THIS LEGEND.
Receipt of this original counterpart of the foregoing Lease Agreement is
hereby acknowledged on this _____ day of ______________, 2000.
ALLFIRST BANK, as Indenture Trustee
By: ____________________________________
Name:
Title:
-58-
APPENDIX A
DEFINITIONS [N361ML]
GENERAL PROVISIONS
The following terms shall have the following meanings for all purposes
of the Operative Agreements (as defined below), unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. In the case
of any conflict between the provisions of this Appendix and the provisions of
any Operative Agreement, the provisions of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean such agreements as amended and supplemented from time to
time, and any agreement, instrument or document entered into in substitution or
replacement therefor (including, without limitation, in the case of the
Liquidity Facility, any Replacement Liquidity Facility (as defined in the
Intercreditor Agreement)), and (ii) references to parties to agreements shall be
deemed to include the successors and permitted assigns of such parties.
"Additional Insureds" means the Owner Trustee (in its individual and trust
-------------------
capacities), the Owner Participant, the Indenture Trustee (in its individual and
trust capacities) and each Liquidity Provider and each of the respective
successors and permitted assigns and respective directors, officers and
employees of the foregoing.
"Aeronautical Authority" means as of any time of determination, the FAA or
----------------------
other governmental airworthiness authority having jurisdiction over the Aircraft
or the Airframe and Engines or engines attached thereto under the laws of the
country in which the Airframe is then registered.
"Affiliate" means, with respect to any Person, any other Person directly or
---------
indirectly controlling 50% or more of any class of voting securities of such
Person or otherwise controlling, controlled by or under common control with such
Person. For the purposes of this definition, "control" (including "controlled
by" and "under common control with") shall mean the power, directly or
indirectly, to direct or cause the direction of the management and policies of
such Person whether through the ownership of voting securities or by contract or
otherwise.
"After Tax Basis" means a basis such that any payment to be received or
---------------
deemed to be received by a Person shall be supplemented by a payment to such
Person so that the sum of such payments, after deduction of all Taxes (taking
into account any related credits or deductions) resulting from the actual or
constructive receipt or accrual of such payments, shall be equal to the payment
to be received.
"Aircraft" means the Airframe together with the two Engines, whether or not
--------
any of the Engines may at the time of determination be installed on the Airframe
or installed on any other airframe or on any other aircraft.
"Airframe" means (i) the Boeing model 737-7BX aircraft (excluding the
--------
Engines and any other engines which may from time to time be installed thereon,
but including any and all Parts which may from time to time be incorporated in,
installed on or attached to such aircraft, and including any and all such Parts
removed therefrom so long as title to such removed Parts remains vested in the
Lessor under the terms of Section 7 of the Lease) originally delivered and
leased under the Lease, identified by national registration number and
manufacturer's serial number in the Lease Supplement executed and delivered on
the Delivery Date, so long as a Replacement Airframe shall not have been
substituted therefor pursuant to Section 8 of the Lease, and (ii) a Replacement
Airframe, so long as another Replacement Airframe shall not have been
substituted therefor pursuant to Section 8 of the Lease.
"Allfirst" means Allfirst Bank, a Maryland state-chartered commercial bank.
--------
"Allocation Period" means, for purposes of Exhibit C-1 to the Lease, each
-----------------
period commencing on and including the day immediately following a date (the
"Column 1 Date") set forth in Exhibit C-2 to the Lease in the column with the
heading "From (but not including)" and ending on and including the date set
forth opposite such Column 1 Date in Exhibit C-2 to the Lease in the column with
the heading "Through".
"Applicable Law" means all applicable laws, statutes, treaties, rules,
--------------
codes, ordinances, regulations, certificates, orders, interpretations, licenses
and permits of any Governmental Authority of competent jurisdiction and
judgments, decrees, injunctions, writs, orders or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction.
"Average Life Date" means, for any Equipment Note, the date which follows
-----------------
the prepayment date by a period equal to the Remaining Weighted Average Life of
such Equipment Note.
"Bankruptcy Code" means Title 11 of the United States Code, as amended, and
---------------
any successor thereto.
-2-
"Basic Rent" means the rent payable on Basic Rent Payment Dates throughout
----------
the Basic Term for the Aircraft pursuant to Section 3(b) of the Lease and rent
payable during any Renewal Term pursuant to Section 13(a) of the Lease.
"Basic Rent Payment Date" means each date listed under the heading "Basic
-----------------------
Rent Payment Date" in Exhibit C to the Lease or, during a Renewal Term, such
dates as are provided for in Section 13(a) of the Lease.
"Basic Term" means the period commencing at the beginning of the day on the
----------
Delivery Date and ending at end of the day on the Expiration Date, or such
earlier date on which the Lease shall be terminated as provided therein.
"Beneficial Interest" means the interest of the Owner Participant under the
-------------------
Trust Agreement.
"Bills of Sale" means the FAA ▇▇▇▇ of Sale and the Warranty ▇▇▇▇ of Sale.
-------------
"Business Day" means any day other than a Saturday or Sunday or other day
------------
on which commercial banks are authorized or required by law to close in New York
City, Charlotte, North Carolina and the city in the United States in which the
office or agency is maintained by the Pass-Through Trustee for the payment of
the Pass-Through Certificates, and after the Lien of the Indenture is
discharged, Wilmington, Delaware.
"CFM Warranty" means certain General Terms Agreement No. 6-13593 dated as
------------
of June 11, 1999 by and between the Engine Manufacturer and the Lessee, to the
extent relating to the Engines.
"Certificated Air Carrier" means an "air carrier" within the meaning of the
------------------------
Transportation Code and a "citizen of the United States" within the meaning of
Section 40102(a)(15) (or any successor provision) of the Transportation Code
holding an "air carrier operating certificate" issued under Chapter 447 (or any
successor provision) of the Transportation Code for aircraft capable of carrying
ten or more individuals or 6,000 pounds or more of cargo, with each such
certificate in full force and effect.
"Citizen of the United States" means a citizen of the United States as
----------------------------
defined in (S) 40102(a)(15) of the Transportation Code, or any analogous part of
any successor or substituted legislation or regulation at the time in effect.
"Class A Liquidity Provider" has the meaning given to such term in Section
--------------------------
1.1 of the Intercreditor Agreement.
"Class B Liquidity Provider" has the meaning given to such term in Section
--------------------------
1.1 of the Intercreditor Agreement.
-3-
"Class C Liquidity Provider" has the meaning given to such term in Section
--------------------------
1.1 of the Intercreditor Agreement.
"Code" means the United States Federal Internal Revenue Code of 1986, as
----
amended from time to time, or any similar legislation of the United States
enacted to supersede, amend, or supplement such Code (and any reference to a
provision of the Code shall refer to any successor provision(s), however
designated).
"Commitment" of a Loan Participant shall have the meaning given such term
----------
in Section 2.01(d) of the Participation Agreement; "Commitment" of the Owner
----------
Participant shall have the meaning given such term in Section 2.01(c) of the
Participation Agreement.
"CRAF Program" has the meaning specified in Section 5(b)(vii) of the Lease.
-------------
"Debt Rate" means the weighted average (based on Outstanding principal
---------
amount) rate of interest on the Equipment Notes.
"Default" means any event or condition which, with the lapse of time or the
-------
giving of notice, or both, would constitute an Event of Default.
"Delivery Date" means the date on which the Aircraft is delivered and sold
-------------
to the Lessor and leased by the Lessor to the Lessee under the Lease, which date
shall be the date of the initial Lease Supplement.
"Deposit Agreement" means each of the three Deposit Agreements between the
-----------------
Depositary and the Escrow Agent, dated as of the Issuance Date, each of which
relates to one of the Pass-Through Trusts.
"Depositary" means Allfirst Bank, a Maryland state-chartered commercial
----------
bank, as Depositary under each Deposit Agreement.
"Dollars", "Dollar" and "$" means the lawful currency of the United States
------- ------ -
of America.
"DOT" means the United States Department of Transportation and any agency
---
or instrumentality of the United States Government succeeding to its functions.
"Downgrade Drawing" has the meaning given to such term in Section 1.1 of
-----------------
the Intercreditor Agreement.
"EBO Amount" has the meaning given to such term in Exhibit B to the Lease.
----------
"EBO Date" has the meaning given to such term in Exhibit B to the Lease.
--------
-4-
"Engine" means (A) each of the two CFM-56-7B20 engines originally delivered
------
and leased under the Lease, identified by manufacturer's serial number in the
Lease Supplement executed and delivered on the Delivery Date, so long as a
Replacement Engine shall not have been substituted therefor pursuant to Section
7(e) of the Lease, and (B) a Replacement Engine, so long as another Replacement
Engine shall not have been substituted therefor pursuant to Section 7(e) of the
Lease, whether or not such engine or Replacement Engine, as the case may be, is
from time to time installed on the Airframe or installed on any other aircraft,
and including in each case all Parts incorporated or installed in or attached
thereto and any and all Parts removed therefrom so long as title to such Parts
remains vested in the Lessor under the terms of Section 7 of the Lease. The
term "Engines" means, as of any date of determination, the two engines each of
-------
which is an Engine on that date.
"Engine Manufacturer" means CFM International, Inc., a Delaware
-------------------
corporation, and its successors and assigns.
"Engine Manufacturer's Consent" means the consent to the Engine Warranty
-----------------------------
Assignment delivered by the Engine Manufacturer on the Delivery Date and
pertaining to the Aircraft.
"Engine Warranty Assignment" means the engine warranty assignment
--------------------------
agreement, in form and substance reasonably acceptable to the Owner Participant,
entered into by the Lessor and the Lessee on the Delivery Date and pertaining to
the Aircraft.
"Equipment Notes" means the Equipment Notes issued by the Owner Trustee
---------------
pursuant to the Indenture and any equipment note issued in exchange therefor or
replacement thereof pursuant to the Indenture, each substantially in the form
set forth in Exhibit B to the Indenture.
"ERISA" means the Employee Retirement Income Security Act of 1974 and any
-----
regulations and rulings issued thereunder all as amended and in effect from time
to time.
"ERISA Plan" means, individually or collectively, an employee benefit plan,
----------
as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA or any
applicable regulation thereunder or a plan or individual retirement account
which is subject to Section 4975(c) of the Code.
"Escrow Agent" means First Union Trust Company, National Association, a
------------
national banking association, as Escrow Agent under each of the Escrow
Agreements.
"Escrow Agreement" means each of the three Escrow and Paying Agent
----------------
Agreements, among the Escrow Agent, the Paying Agent, certain initial purchasers
of the Pass-Through Certificates named therein and one of the Pass-Through
Trustees, dated as of the Issuance Date, each of which relates to one of the
Pass Through Trusts.
"Event of Default" has the meaning given to such term in Section 16 of the
----------------
Lease.
-5-
"Event of Loss" means any of the following events with respect to the
-------------
Aircraft, the Airframe or any Engine:
(i) any theft, hijacking or disappearance of such property for a
period of 30 consecutive days (provided that, so long as Lessee shall be
diligently pursuing recovery of such property, such period shall be
extended to 60 consecutive days) or more or, if earlier for a period that
extends until the end of the Term;
(ii) destruction, damage beyond economic repair or rendition of such
property permanently unfit for normal use for any reason whatsoever;
(iii) any event which results in an insurance settlement with respect
to such property on the basis of an actual, constructive or compromised
total loss;
(iv) with respect to the Airframe only, requisition of use of such
property by any foreign government or purported government or any agency or
instrumentality thereof (other than the Government), for a period in excess
of 180 consecutive days (for countries listed in Exhibit E to the Lease) or
30 consecutive days (for any other country) or such shorter period ending
on the expiration of the Term;
(v) with respect to the Airframe only, requisition of use of such
property by the Government for a period extending beyond the Term;
(vi) condemnation, confiscation or seizure of, or requisition of
title to, such property by any foreign government or purported government
or any agency or instrumentality thereof or by the Government, for a period
in excess of 10 consecutive days or such shorter period ending on the
expiration of the Term;
(vii) as a result of any law, rule, regulation, order or other action
by the Aeronautical Authority, the use of the Aircraft or Airframe in the
normal course of air transportation of passengers shall have been
prohibited by virtue of a condition affecting all Boeing model 737-700
aircraft equipped with engines of the same make and model as the Engines
for a period of 180 consecutive days (or beyond the end of the Term),
unless the Lessee, prior to the expiration of such 180-day period, shall be
diligently carrying forward all necessary and desirable steps to permit
normal use of the Aircraft and shall within 12 months have conformed at
least one Boeing model 737-700 aircraft (but not necessarily the Aircraft)
to the requirements of any such law, rule, regulation, order or action, and
shall be diligently pursuing conformance of the Aircraft in a non-
discriminatory manner provided that, notwithstanding the foregoing, if such
normal use of such property subject to the Lease shall be prohibited at the
end of the Term, an Event of Loss shall be deemed to have occurred; and
-6-
(viii) with respect to an Engine only, the requisition or taking of
use thereof by any government, or instrumentality or agency thereof and any
divestiture of title or ownership deemed to be an Event of Loss with
respect to an Engine under Section 5(b)(iii) or 5(b)(vi) of the Lease.
The date of such Event of Loss shall be (aa) the 31st day following loss of such
property or its use due to theft or disappearance or the 61st day following such
loss if such period shall have been extended (or the end of the Term if
earlier); (bb) the date of any destruction, damage beyond economic repair or
rendition of such property permanently unfit for normal use; (cc) the date of
any insurance settlement on the basis of an actual, constructive or compromised
total loss; (dd) the 181st day (for countries listed in Exhibit E to the Lease)
or 31st day (for any other country) following requisition of use of such
property by a foreign government or other Governmental Authority referred to in
clause (iv) above, or the end of the Term if earlier than such 181st or 31st
day; (ee) the 11th day following condemnation, confiscation or seizure of, or
requisition of title to, such property by a foreign government or other
Governmental Authority referred to in clause (vi) above or the Government or the
end of the Term if earlier than such 11th day; (ff) the last day of the Term in
the case of requisition of use of such property by the Government; and (gg) the
last day of the applicable period referred to in clause (vii) above (or if
earlier, the end of the Term). An Event of Loss with respect to the Aircraft
shall be deemed to have occurred if any Event of Loss occurs with respect to the
Airframe.
"Excepted Payments" means collectively, (i) indemnity, expense,
-----------------
reimbursement or other payments (including without limitation, Transaction
Costs) paid or payable by the Lessee in respect of the Owner Participant, the
Owner Trustee in its individual capacity or any of their respective successors,
permitted assigns, directors, officers, employees, servants and agents or
Affiliates, pursuant to the Participation Agreement or any other Operative
Agreement or any indemnity hereafter granted to the Owner Participant or the
Owner Trustee in its individual capacity pursuant to the Lease or the
Participation Agreement, (ii) proceeds of public liability insurance (or
government indemnities in lieu thereof) in respect of the Aircraft payable as a
result of insurance claims paid for the benefit of, or losses suffered by, the
Owner Trustee or the Indenture Trustee in their respective individual capacities
or by the Owner Participant, or their respective successors, permitted assigns
or Affiliates, (iii) proceeds of insurance maintained with respect to the
Aircraft by the Owner Participant or any Affiliate thereof (whether directly or
through the Owner Trustee) in accordance with Section 9(f) of the Lease, (iv)
payments by the Lessee in respect of any amounts payable under the Tax Indemnity
Agreement, (v) any purchase price paid to the Owner Participant for its interest
in the Trust Estate, (vi) any payments in respect of interest to the extent
attributable to payments referred to in clauses (i) through (v) above, (vii) any
right to demand, collect or otherwise receive and enforce the payment of any
amount described in clauses (i) through (vii) above.
"Expenses" has the meaning given to such term in Section 7.01(a) of the
--------
Participation Agreement.
-7-
"Expiration Date" means the date specified as such in the Lease Supplement
---------------
executed and delivered on the Delivery Date.
"FAA ▇▇▇▇ of Sale" means (A) the ▇▇▇▇ of sale for the Airframe on AC Form
----------------
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the Seller in favor of the Owner Trustee and to be dated the
Delivery Date, and (B) a ▇▇▇▇ of sale for a Replacement Airframe on AC Form
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the seller thereof in favor of the Owner Trustee.
"Fair Market Rental Value" or "Fair Market Sales Value" of the Airframe or
------------------------ -----------------------
any Engine shall mean the value that would be obtained in an arms'-length
transaction between an informed and willing lessee-user or buyer-user (other
than a lessee currently in possession or a used equipment dealer) under no
compulsion to lease or buy, as the case may be, and an informed and willing
lessor or seller, as the case may be, under no compulsion to lease or sell, as
the same shall be specified by agreement between the Lessor and the Lessee or,
if not agreed to by the Lessor and the Lessee within a period of 15 days after
either party requests a determination, then as specified in an appraisal
prepared and delivered in New York City mutually agreed to by two recognized
independent aircraft appraisers, one of which shall be appointed by the Lessor
and the other of which shall be appointed by the Lessee, or, if such appraisers
cannot agree on such appraisal, an appraisal arrived at by a third independent
recognized appraiser chosen by the mutual consent of the two aircraft
appraisers. If either party should fail to appoint an appraiser within 15 days
of receiving notice of the appointment of an appraiser by the other party, then
such appraisal shall be made by the appraiser appointed by the first party. If
the two appraisers cannot agree on such appraisal and fail to appoint a third
independent recognized aircraft appraiser within 15 days after the appointment
of the second appraiser, then either party may apply to the American Arbitration
Association to make such appointment. The appraisal shall be completed within
30 days of the appointment of the last appraiser appointed. In determining Fair
Market Rental Value or Fair Market Sales Value by appraisal or otherwise, it
will be assumed that the Aircraft, Airframe or Engine is in the condition,
location and overhaul status in which it is required to be returned to the
Lessor pursuant to Section 12 of the Lease and that the Lessee has removed all
Parts which it is entitled to remove pursuant to Section 7 of the Lease and that
the Aircraft is not encumbered by the Lease. Except as otherwise expressly
provided in the Lease, all appraisal costs will be shared equally by the Lessor
and the Lessee; provided that if the Lessee elects not to renew the Lease or
--------
purchase the Aircraft following the conclusion of such appraisal, the Lessee
shall pay all appraisal costs. Notwithstanding the foregoing, for purposes of
Section 17 of the Lease, the "Fair Market Rental Value" or "Fair Market Sales
Value" of the Aircraft, the Airframe or any Engine, shall be determined on an
"as is, where is" basis and shall take into account customary brokerage and
other out-of-pocket fees and expenses which typically would be incurred in
connection with a re-lease or sale of the Aircraft, the Airframe or any Engine.
Any such determination pursuant to Section 17 of the Lease shall be made by a
recognized independent aircraft appraiser selected by Lessor and the costs and
expenses associated therewith shall be borne by Lessee, unless Lessor does not
obtain possession of the Aircraft, Airframe and Engines pursuant to Section 17
of the Lease, in which case an appraiser shall
-8-
not be appointed and Fair Market Rental Value and Fair Market Sales Value for
purposes of Section 17 of the Lease shall be zero.
"Fair Market Value Renewal Term" has the meaning given to such term in
------------------------------
Section 13(a) of the Lease.
"Federal Aviation Administration" or "FAA" means the United States Federal
-------------------------------- ---
Aviation Administration, the Administrator thereof and any agency or
instrumentality of the United States government succeeding to their functions.
"Final Drawing" has the meaning given to such term in Section 1.1 of the
-------------
Intercreditor Agreement.
"Fixed Renewal Term" has the meaning given to such term in Section 13(a) of
------------------
the Lease.
"Government" means the United States of America or an agency or
----------
instrumentality thereof the obligations of which bear the full faith and credit
of the United States of America.
"Governmental Authority" means (a) any federal, state, county, provincial,
----------------------
municipal, foreign, international, regional or other governmental or regulatory
authority, agency, department, board, body, instrumentality, commission, court
or any political subdivision of any of the foregoing, and (b) each person who
shall, from time to time, be vested with the control and supervision of, or have
jurisdiction over, the registration, airworthiness, operation or other matters
relating to aviation including any competent airport authority, air traffic
control or navigation authority (including European Organization for the Safety
of Air Navigation (Eurocontrol) and the Federal Aviation Administration of the
United States of America or any person acting on its behalf).
"Holder" means, as of any particular time, the Person in whose name an
------
Equipment Note shall be registered, provided that as long as an Equipment Note
is registered in the name of the Subordination Agent, the Holder of such
Equipment Note will include the Pass-Through Trustee for the Pass-Through Trust,
the property of which includes such Equipment Note.
"Indemnitee" means each of Trust Company, in its individual capacity and as
----------
Owner Trustee, the Subordination Agent, in its individual capacity and in its
capacity as Subordination Agent, each Liquidity Provider, the Owner Participant,
the Owner Participant Guarantor, the Indenture Trustee, in its individual
capacity and as trustee, the Escrow Agent, the Paying Agent, the Pass Through
Trustees and each Affiliate, officer, director, employee, agent and servant of
any of the foregoing Persons. No holder of a Pass-Through Certificate shall be
deemed to be an Indemnitee.
"Indenture" means the Trust Indenture and Security Agreement [N361ML],
---------
dated as of September 27, 2000, between the Owner Trustee and the Indenture
Trustee.
-9-
"Indenture Default" means any event or condition which, with the lapse of
-----------------
time or the giving of notice, or both, would constitute an Indenture Event of
Default.
"Indenture Documents" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
"Indenture Estate" means all estate, right, title and interest of the
----------------
Indenture Trustee in and to any of the property, rights, interest, and
privileges granted to the Indenture Trustee pursuant to the Granting Clause of
the Indenture, other than Excepted Payments and any and all other rights of the
Owner Trustee or the Owner Participant expressly reserved to the Owner Trustee
or the Owner Participant pursuant to the Indenture.
"Indenture Event of Default" means each of the events specified in Section
--------------------------
7.01 of the Indenture.
"Indenture Indemnitee" means (i) the Indenture Trustee and each separate or
--------------------
additional trustee appointed pursuant to the Indenture, (ii) the Escrow Agent,
(iii) the Subordination Agent, (iv) each Liquidity Provider, (v) the Paying
Agent, (vi) each Pass- Through Trustee and (vii) each of the respective
directors, officers, employees, agents and servants of each of the persons
described in clauses (i) through (vi).
"Indenture Supplement" means (a) the Trust Indenture and Security Agreement
--------------------
Supplement No. 1, substantially in the form of Exhibit A to the Indenture, which
shall describe with particularity the Aircraft included in the property of the
Owner Trustee covered by the Indenture by reference to the Lease Supplement, and
which creates a first priority security interest in the Aircraft and (b) any
other supplement to the Indenture from time to time executed and delivered in
accordance with the Indenture.
"Indenture Trustee" means Allfirst Bank, a Maryland state-chartered
-----------------
commercial bank, as indenture trustee under the Operative Agreements.
"Indenture Trustee's Liens" means any Lien against, on or with respect to
-------------------------
the Aircraft, any Engine, the Lessor's Estate or the Indenture Estate or any
part thereof resulting from (i) claims against the Indenture Trustee not related
to the administration of the Indenture Estate or any transactions pursuant to
the Indenture or any document included in the Indenture Estate, (ii) any act or
omission of the Indenture Trustee which is not related to the transactions
contemplated by the Operative Agreements or is in violation of any of the terms
of the Operative Agreements, or (iii) Taxes imposed against the Indenture
Trustee in its individual capacity in respect of which the Lessee has not
indemnified (and is not obligated to indemnify) the Indenture Trustee in such
capacity.
"Independent Investment Banker" means an independent investment banking
-----------------------------
institution of national standing appointed by the Lessee that is independent in
fact, does not have any direct financial interests, or any material indirect
financial interest, in the Lessee or any Affiliate of the
-10-
Lessee, and is not connected with the Lessee or any Affiliate of the Lessee, as
an officer, employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions; provided, that if the Indenture Trustee
--------
shall not have received written notice of such an appointment at least 10 days
prior to the Prepayment Date, "Independent Investment Banker" shall mean such an
institution appointed by the Indenture Trustee.
"Intercreditor Agreement" means the Intercreditor Agreement dated as of
-----------------------
September 27, 2000, among the Pass Through Trustees, the Class A Liquidity
Provider, the Class B Liquidity Provider, the Class C Liquidity Provider and the
Subordination Agent.
"Interest Drawing" has the meaning given to such term in Section 1.1 of the
----------------
Intercreditor Agreement.
"Investment Earnings" has the meaning given to such term in Section 1.1 of
-------------------
the Intercreditor Agreement.
"Issuance Date" means September 27, 2000.
-------------
"Lease" means the Lease Agreement [N361ML], dated as of September 27, 2000
-----
between the Owner Trustee and the Lessee.
"Lease Supplement" means any Lease Supplement, substantially in the form of
----------------
Exhibit A to the Lease, entered into between the Lessor and the Lessee for the
purpose of leasing the Aircraft under and pursuant to the terms of the Lease,
including any amendment thereto entered into subsequent to the Delivery Date.
"Lessee" means Midway Airlines Corporation, a Delaware corporation.
------
"Lessee Documents" means (x) the Operative Agreements to which the Lessee
----------------
is a party and (y) the Pass-Through Trust Agreements.
"Lessor" means First Union Trust Company, National Association, a national
------
banking association, not in its individual capacity but solely as Owner Trustee
under the Trust Agreement.
"Lessor's Cost" has the meaning given to such term in Exhibit B of the
-------------
Lease.
"Lessor's Estate" means all estate, right, title and interest of the Owner
---------------
Trustee in and to the Aircraft, and Engines and the Operative Agreements (other
than the Tax Indemnity Agreement) including, without limitation, all amounts of
Rent, insurance proceeds and requisition, indemnity or other payments of any
kind, but specifically excluding any Excepted Payments.
-11-
"Lessor's Liens" means Liens against, on or with respect to the Aircraft,
--------------
any Engine, the Lessor's Estate or the Indenture Estate or any part thereof,
title thereto or any interest therein arising as a result of (i) claims against
or affecting the Lessor, in its individual capacity or as Owner Trustee, or the
Owner Participant, in each case not related to the Operative Agreements or the
transactions contemplated thereby, (ii) acts or omissions of the Lessor in its
individual capacity or as Owner Trustee, or of the Owner Participant not
contemplated or permitted under the terms of the Operative Agreements, (iii)
Taxes or Expenses imposed against the Lessor, in its individual capacity or as
Owner Trustee, Owner Participant, Lessor's Estate or the trust created by the
Trust Agreement which are not required to be indemnified against by the Lessee
pursuant to the Participation Agreement or the Tax Indemnity Agreement, or (iv)
claims against the Lessor, in its individual capacity or as Owner Trustee, or
the Owner Participant arising from the transfer by the Lessor or the Owner
Participant of its interests in the Aircraft or any Engine other than a transfer
of the Aircraft or any other portion of the Lessor's Estate pursuant to Section
5(b), 7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b), 14(a) or 17 of the Lease and
other than a transfer pursuant to the exercise of the remedies set forth in
Section 17 of the Lease, or any other transfer pursuant to or required by the
Operative Agreements.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
"Liquidity Facility" means each of the three Revolving Credit Agreements
------------------
(consisting of a separate Revolving Credit Agreement with the Liquidity Provider
with respect to each Pass-Through Trust) between the Subordination Agent, as
borrower, and the Liquidity Provider, each dated as of the Issuance Date.
"Liquidity Provider" has the meaning given to such term in Section 1.1 of
------------------
the Intercreditor Agreement.
"Loan Participant" means and includes each registered holder from time to
----------------
time of an Equipment Note issued under the Indenture including, so long as it
holds any Equipment Notes issued under the Indenture, the Pass-Through Trustee
under each Pass-Through Trust Agreement.
"Majority in Interest of Holders" means, as of a particular date of
-------------------------------
determination, the Holders of more than 50% of the aggregate unpaid principal
amount of all Equipment Notes Outstanding as of such date (excluding any
Equipment Notes held by Owner Trustee, Lessee or the Owner Participant or any
Affiliate of any such party or any interests of Owner Trustee or the Owner
Participant therein by reason of subrogation pursuant to Section 8.02 of the
Indenture (unless all Equipment Notes Outstanding shall be held by Owner
Trustee, Lessee, the Owner Participant or any Affiliate thereof)).
"Make-Whole Premium" means with respect to any Equipment Note, an amount
------------------
determined on the 3rd Business Day prior to the applicable Prepayment Date (or
date of purchase, as the case may be) which an Independent Investment Banker
determines to be equal to the excess, if any, of
-12-
(i) the present value, as of the applicable Prepayment Date (or date of
purchase, as the case may be) of the remaining scheduled payments of such
principal amount or portion thereof and interest thereon to the maturity date of
such Equipment Note assuming a 360-day year consisting of twelve 30-day months
at a discount rate equal to the Treasury Yield (in the case of the Series A
Equipment Notes and Series B Equipment Notes) and the Treasury Yield plus .50%
(in the case of the Series C Equipment Notes) over (ii) the outstanding
principal amount of such Equipment Note plus accrued interest to the applicable
Prepayment Date (or date of purchase, as the case may be) (other than any
overdue portion thereof).
"Manufacturer" means The Boeing Company, and its successors and assigns.
------------
"Material Adverse Change" means, with respect to any Person, any event,
-----------------------
condition or circumstance that materially and adversely affects such Person's
business or consolidated financial condition.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
"Moody's" means ▇▇▇▇▇'▇ Investors Service, Inc.
-------
"Net Economic Return" means the Owner Participant's nominal after-tax book
-------------------
yield (utilizing the multiple investment sinking fund method of analysis),
aggregate net after-tax cash and periodic FASB 13 earnings (plus or minus 5%),
computed on the basis of the same methodology, constraints and assumptions as
were utilized by the initial Owner Participant in determining Basic Rent
percentages and Termination Value percentages as of the Delivery Date; provided,
--------
that, if the initial Owner Participant shall have transferred its interest, Net
Economic Return shall be calculated as if the initial Owner Participant had
retained its interest; provided, further, that, notwithstanding the preceding
-------- -------
proviso, solely for purposes of Article 13 of the Participation Agreement and
calculating any adjustments to Basic Rent percentages and Termination Values
percentages in connection with a refinancing pursuant to such Article 13 at a
time when the Owner Participant is a transferee (other than an Affiliate of the
initial Owner Participant), the after-tax yield (but not the after-tax cash)
component of Net Economic Return shall be calculated on the basis of the
methodology and assumptions utilized by the transferee Owner Participant as of
the date on which it acquired its interest.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"Note Purchase Agreement" means the Note Purchase Agreement, dated as of
-----------------------
the Issuance Date, among the Lessee, the Subordination Agent, the Escrow Agent,
the Paying Agent and the Pass-Through Trustee under each Pass-Through Trust
Agreement providing for, among other things, the issuance and sale of certain
equipment notes, including the Equipment Notes.
-13-
"Offering Memo" means the Lessee's September 22, 2000 Offering Memorandum
-------------
concerning the Pass-Through Certificates.
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
"Operative Agreements" means the Participation Agreement, the Trust
--------------------
Agreement, the FAA ▇▇▇▇ of Sale, the Warranty ▇▇▇▇ of Sale, the Purchase
Agreement, the Purchase Agreement Assignment, the Engine Warranty Assignment,
the PAA Consent, the Engine Manufacturer's Consent, the Lease, each Lease
Supplement, any Owner Participant Guaranty, the Equipment Notes outstanding at
the time of reference, the Indenture, each Indenture Supplement and the Tax
Indemnity Agreement.
"Opinion of Counsel" means when delivered pursuant to the Indenture, a
------------------
written opinion of legal counsel, who in the case of counsel (a) for the Lessee
may be (i) an attorney employed by the Lessee who is generally empowered to
deliver such written opinions, (ii) Fulbright & ▇▇▇▇▇▇▇▇ L.L.P., or (iii) other
counsel designated by the Lessee and reasonably satisfactory to the Indenture
Trustee, and (b) for the Owner Trustee or the Indenture Trustee, an attorney
selected by such Person and reasonably satisfactory to the Lessee and, in the
case of the Owner Trustee, reasonably satisfactory to the Indenture Trustee.
"Outstanding" means, when used with respect to Equipment Notes, as of the
-----------
date of determination and subject to the provisions of Section 10.04 of the
Indenture, all Equipment Notes theretofore executed and delivered under the
Indenture, with the exception of the following:
(i) Equipment Notes theretofore canceled by the Indenture Trustee or
delivered to the Indenture Trustee for cancellation pursuant to
Section 2.08 of the Indenture or otherwise;
(ii) Equipment Notes for which prepayment money in the necessary
amount has been theretofore deposited with the Indenture Trustee in
trust for the Holders of such Equipment Notes pursuant to Section
14.01 of the Indenture; provided that if such Equipment Notes are to
-------- ----
be prepaid, notice of such prepayment has been duly given pursuant to
the Indenture or provision therefor satisfactory to the Indenture
Trustee has been made; and
(iii) Equipment Notes in exchange for or in lieu of which other
Equipment Notes have been executed and delivered pursuant to Article
II of the Indenture.
"Owner Participant" means Silvermine River Finance One, Inc., a Delaware
-----------------
corporation and its successors and permitted transferees and assigns.
-14-
"Owner Participant Guarantor" means the provider of an Owner Participant
---------------------------
Guaranty.
"Owner Participant Guaranty" means the guaranty delivered by General
--------------------------
Electric Capital Corporation on the Delivery Date or any other guaranty
delivered or to be delivered to support the obligations of the Owner Participant
under the Operative Agreements in connection with the transfer by the Owner
Participant of the Beneficial Interest.
"Owner Trustee" means Trust Company, not in its individual capacity except
-------------
as otherwise expressly stated, but solely as trustee under the Trust Agreement.
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N361ML], dated as of September 27, 2000, from the Manufacturer.
"Participants" means, collectively, the Owner Participant and the Pass-
------------
Through Trustee with respect to each of the Pass-Through Trust Agreements;
"Participant" means, individually, one of the Participants.
-----------
"Participation Agreement" means the Participation Agreement [N361ML], dated
-----------------------
as of September 27, 2000, among the Lessee, the Owner Trustee not in its
individual capacity except as otherwise expressly provided therein, but solely
as owner trustee, the Owner Participant, the Indenture Trustee, the Pass-Through
Trustees and the Subordination Agent.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines or engines and temporary replacement parts
as provided in Section 8 of the Lease and cargo containers) which may from time
to time be incorporated or installed in or attached to any Airframe or any
Engine, exclusive of any items leased by the Lessee from third parties and not
required in the navigation of the Aircraft.
"Pass-Through Certificates" means any of the Pass-Through Certificates,
-------------------------
2000-1A, the Pass-Through Certificates, 2000-1B or the Pass-Through
Certificates, 2000-1C, in each case as issued by the related Pass-Through Trust;
and "Pass-Through Certificates" means all of such Pass-Through Certificates.
"Pass-Through Documents" means the Pass-Through Trust Agreements, the
----------------------
Escrow Agreements, the Intercreditor Agreement, the Note Purchase Agreement and
the Liquidity Facilities.
"Pass-Through Trust" means the Midway Airlines 2000-1 Pass-Through Trust
------------------
Class A, Midway Airlines 2000-1 Pass-Through Trust Class B and Midway Airlines
2000-1 Pass-Through Trust Class C, in each case formed pursuant to the related
Series Supplement in accordance with the Pass-Through Trust Agreement; and
"Pass-Through Trusts" means all of such Pass-Through Trusts.
-15-
"Pass-Through Trust Agreement" means each of the three Pass-Through Trust
----------------------------
Agreements dated as of September 27, 2000 between the Lessee and the Pass-
Through Trustee (which shall include each Successor Pass-Through Trust Agreement
entered into pursuant to Section 11.01 of each thereof).
"Pass-Through Trustee" means Allfirst Bank, a Maryland state-chartered
--------------------
commercial bank, in its capacity as Pass-Through Trustee under each Pass-Through
Trust Agreement.
"Past Due Rate" means (i) in respect of any payment of Rent relating to
-------------
principal of or interest on or any other amounts payable in respect of any
Equipment Note that is not paid when due to any Holder, a rate per annum during
the period from and including the due date to but excluding the date on which
such amount is paid in full equal to 1% plus the interest rate applicable to
such Equipment Note and (ii) in respect of any other payment or amount, a rate
per annum equal to 2% plus the Debt Rate or, if the Equipment Notes have been
paid in full, a rate per annum equal to the TV Rate identified in Exhibit B to
the Lease.
"Payment Date" means each April 1 and October 1, commencing on the first
------------
such date occurring after the Delivery Date.
"Permitted Air Carrier" means (a) any Section 1110 Person and (b) any
---------------------
foreign air carrier that is principally based in any foreign country listed on
Exhibit E to the Lease, except those that do not maintain normal diplomatic
relations with the United States.
"Permitted Investments" means (a) direct obligations of the United States
---------------------
of America or any agency or instrumentality thereof, (b) obligations fully
guaranteed by the United States of America or any agency or instrumentality
thereof, (c) any mutual fund the portfolio of which is limited to obligations of
the type described in clauses (a) and (b), including any proprietary mutual fund
of Allfirst Bank for which such bank or an affiliate is investment advisor or to
which such bank provides other services and receives reasonable compensation for
such services, (d) certificates of deposit issued by, or bankers' acceptances
of, or time deposits or a deposit account with, any bank, trust company, or
national banking association incorporated or doing business under the laws of
the United States of America or one of the states thereof, having a combined
capital and surplus of at least $100,000,000 and having a rating of AA" or
better from the ▇▇▇▇▇ Bank Watch Service, (e) commercial paper issued by
companies in the United States which directly issue their own commercial paper
and which are doing business under the laws of the United States of America or
one of the states thereof and in each case having a rating assigned to such
commercial paper by a nationally recognized rating organization in the United
States of America equal to the highest rating assigned by such organization, or
(f) obligations of the type described in clause (a), (b), (d), or (e) above,
purchased from any bank, trust company, or banking association referred to in
clause (d) above pursuant to repurchase agreements obligating such bank, trust
company, or banking association to repurchase any such obligation not later than
30 days after the purchase of any such
-16-
obligation. Unless otherwise specified in writing by the Owner Trustee, all such
Permitted Investments shall mature not later than 30 days from the date of
purchase.
"Permitted Lien" has the meaning given to such term in Section 10 of the
--------------
Lease.
"Permitted Sublessee" means (a) any Permitted Air Carrier, (b) any airframe
-------------------
or engine manufacturer, or Affiliate of such a manufacturer, who is domiciled in
the United States of America or a country listed on Exhibit E to the Lease or
(c) the United States of America or any instrumentality or agency thereof.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, entity or government (federal, state, local, foreign
or any agency, instrumentality, division or body thereof) or other entity of
whatever nature.
"Placement Agents" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated and Seabury
----------------
Securities LLC.
"Placement Agreement" means the Purchase Agreement dated September 27, 2000
-------------------
among the Lessee and the Placement Agents.
"Prepayment Date" has the meaning given to such term in Section 6.02(b) of
---------------
the Indenture.
"Prepayment Price" has the meaning given to such term in Section 6.02(b) of
----------------
the Indenture.
"Purchase Agreement" means Aircraft Purchase Agreement No. 2235 dated as of
------------------
June 11, 1999, as amended, between the Lessee and the Manufacturer (including
all exhibits thereto, together with all letter agreements entered into that by
their terms constitute part of any such Purchase Agreement).
"Purchase Agreement Assignment" means the Purchase Agreement Assignment
-----------------------------
[N361ML], dated as of September 27, 2000, between Lessee and Owner Trustee.
"Purchase Price" means an amount equal to Lessor's Cost.
--------------
"Rating Agency" means Moody's or S&P, as the context requires.
-------------
"Reasonable Basis" means that a realistic possibility of success, within
----------------
the meaning of ABA Formal Opinion No. 85-352, exists for pursuing such contest.
"Record Date" means, with respect to Payment Dates under the Indenture
-----------
(except a date for payment of defaulted interest), March 15 for April 1 Payment
Dates and September 15 for October 1 Payment Dates, whether or not such date is
a Business Day.
-17-
"Recourse Amount" has the meaning given to such term in Section 15.07 of
---------------
the Participation Agreement (in the case of the Participation Agreement) or
Section 2.05 of the Indenture (in the case of the Indenture), as the case may
be.
"Recovery Period" means "Tax Attribute Period" as defined in the Tax
---------------
Indemnity Agreement.
"Refinancing" has the meaning given to such term in Section 13.01 of the
-----------
Participation Agreement.
"Register" has the meaning given to such term in Section 3.02 of the
--------
Indenture.
"Registrar" has the meaning given to such term in Section 3.02 of the
---------
Indenture.
"Registration Rights Agreement" means the Exchange and Registration Rights
-----------------------------
Agreement, dated as of September 27, 2000, among the Placement Agents, Allfirst
Bank, as Pass-Through Trustee, and the Lessee.
"Registration Rights Event" has the meaning given to such term in the
-------------------------
Registration Rights Agreement.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System (or any successor), as the same may be modified and supplemented
and in effect from time to time.
"Related Indentures" means the "Indentures" (other than the Indenture), as
------------------
defined in the Pass-Through Trust Agreements.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Remaining Weighted Average Life" means on a given date with respect to any
-------------------------------
Equipment Note the number of days equal to the quotient obtained by dividing (i)
the sum of each of the products obtained by multiplying (a) the amount of each
then remaining scheduled payment of principal of such Equipment Note by (b) the
number of days from and including such prepayment date to but excluding the
dates on which each such payment of principal is scheduled to be made; by (ii)
the then outstanding principal amount of such Equipment Note.
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Rent Payment Date" means each Payment Date during the Term.
-----------------
-18-
"Replacement Aircraft" means any Aircraft of which a Replacement Airframe
--------------------
is part.
"Replacement Airframe" means a Boeing model 737-700 aircraft or a
--------------------
comparable or improved model of such aircraft of the Manufacturer (except
Engines or engines from time to time installed thereon) which shall have become
subject to the Lease pursuant to Section 8 thereof.
"Replacement Closing Date" has the meaning given such term in Section 8(d)
------------------------
of the Lease.
"Replacement Engine" means a CFM-56-7B20 engine (or engine of the same
------------------
manufacturer of a comparable or an improved model and suitable for installation
and use on the Airframe), which has a value, utility and remaining useful life
at least equal to, and which is in good operating condition as, the Engine to be
replaced thereby (assuming that such Engine being replaced was in the condition
required to be maintained in accordance with the Lease), and which shall have
become subject to the Lease pursuant to Section 7(e) thereof.
"Responsible Officer" means, with respect to the Owner Trustee or the
-------------------
Indenture Trustee, any officer in its Corporate Trust Administration, as the
case may be, designated by such Person to perform obligations under the
Operative Agreements, and with respect to any other party, any corporate officer
of a party who, in the normal performance of his or her operational
responsibilities, with respect to the subject matter of any covenant, agreement
or obligation of such party pursuant to any Operative Agreement, would have
responsibility for and knowledge of such matter and the requirements of any
Operative Agreement with respect thereto.
"S&P" means Standard & Poor's Ratings Services, a division of the McGraw-
---
Hill Companies Inc.
"SEC" means the Securities and Exchange Commission of the United States and
---
any successor agencies or authorities.
"Section 1110" means 11 U.S.C. (S) 1110 or any successor or analogous
------------
section of the federal bankruptcy law in effect from time to time.
"Section 1110 Person" means a Citizen of the United States who is an air
-------------------
carrier holding a valid air carrier operating certificate issued pursuant to 49
U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.
"Secured Obligations" has the meaning specified in the Granting Clause of
-------------------
the Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
-19-
"Series "A" or "Series A Equipment Notes" means the Equipment Notes issued
---------------------------------------
and designated as "Series A" under the Indenture, in the principal amount and
maturities and bearing interest as specified in Exhibit B to the Indenture under
the heading "Series A".
"Series "B" or "Series B Equipment Notes" means the Equipment Notes issued
---------------------------------------
and designated as "Series B" under the Indenture, in the principal amount and
maturities and bearing interest as specified in Exhibit B to the Indenture under
the heading "Series B".
"Series "C" or "Series C Equipment Notes" means the Equipment Notes issued
---------------------------------------
and designated as "Series C" under the Indenture, in the principal amount and
maturities and bearing interest as specified in Exhibit B to the Indenture under
the heading "Series C".
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (f), (g) or (h) of the Lease that, after the giving of notice or lapse of
time, or both, would become an Event of Default, or (b) any Event of Default.
"Specified Investments" means (a) direct obligations of the United States
---------------------
of America or obligations fully guaranteed by the United States of America; (b)
any mutual fund the portfolio of which is limited to obligations of the type
described in clause (a), including any proprietary mutual fund of Allfirst Bank
for which such bank or an affiliate is investment advisor or to which such bank
provides other services and receives reasonable compensation for such services;
(c) commercial paper rated A-1/P-1 by S&P and Moody's, respectively or, if such
ratings are unavailable, rated by any nationally recognized rating organization
in the United States equal to the highest rating assigned by such rating
organization; (d) investments in negotiable certificates of deposit, time
deposits, banker's acceptances, commercial paper or other direct obligations of,
or obligations guaranteed by, commercial banks organized under the laws of the
United States or of any political subdivision thereof (or any U.S. branch of a
foreign bank) with issuer ratings of at least B/C by Thomson Bankwatch, having
maturities no later than 90 days following the date of such investment; (e)
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers; or (f) overnight repurchase agreements with
respect to the securities described in clause (a) above entered into with an
office of a bank or trust company which is located in the United States of
America or any bank or trust company which is organized under the laws of the
United States or any state thereof and has capital, surplus and undivided
profits aggregating at least $500 million.
"Specified Lease" means, at any time of determination, any lease under
---------------
which an aircraft is leased to the Lessee, if the Owner Participant or an
Affiliate of the Owner Participant, or a trustee for the benefit of the Owner
Participant or an Affiliate of the Owner Participant, shall be the lessor under
such lease.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
-20-
"Subordination Agent" means Allfirst Bank, a Maryland state-chartered
-------------------
commercial bank, in its capacity as Subordination Agent.
"Supplemental Rent" means (a) all amounts, liabilities, indemnities and
-----------------
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Participation Agreement or Tax Indemnity Agreement or any other
Operative Agreement to the Lessor, the Owner Participant, the Indenture Trustee,
the Subordination Agent, any Liquidity Provider or others, including payments of
Termination Value, EBO Amount, and amounts calculated by reference to
Termination Value, any amounts of Make-Whole Premium payable under the Indenture
to the extent provided in Section 3(c) or Section 14 of the Lease, all other
amounts payable under Section 3(c) of the Lease, and all amounts required to be
paid by Lessee under the agreements, covenants, and indemnities contained in the
Lease or in the Participation Agreement or the Tax Indemnity Agreement or any
other Operative Agreement, but excluding Basic Rent, and (b) all amounts that
the Owner Trustee is obligated to pay in accordance with clause (b) of the last
paragraph of Section 2.04 of the Indenture.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each of Trust Company, individually and as Owner
--------------
Trustee, the Owner Participant and any Affiliate thereof and the Indenture
Trustee.
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N361ML], dated
-----------------------
as of September 27, 2000 between the Lessee and the Owner Participant.
"Term" has the meaning given to such term in Section 3(a) of the Lease.
----
"Termination Date" means (i) each date listed in the column entitled
----------------
"Termination Date" in Exhibit D to the Lease, (ii) during any period following
the last day of the Basic Term (other than any period during or following a
Renewal Term), the first day of each calendar month, and (iii) during any
Renewal Term or any period following the last day of a Renewal Term, each day
during each calendar month occurring in whole or in part during or following
such Renewal Term which numerically corresponds to the day of the month on which
the Expiration Date occurs, unless there is no such corresponding day in such
calendar month, in which case the Termination Date during such calendar month
shall be the last day of such calendar month.
"Termination Value" means (a) as of any Termination Date during the Basic
-----------------
Term, the amount determined as set forth in Exhibit D to the Lease for that
Termination Date, and (b) during any Renewal Term, the amount for the date
involved, determined in accordance with Section 13(a) of the Lease, in either
case adjusted as required by Section 3(d) of the Lease.
"Transaction Costs" means those costs and expenses set forth in Section
-----------------
8.01(a) of the Participation Agreement.
-21-
"Transportation Code" means Title 49 of the United States Code, subtitle
-------------------
VII, as amended and in effect on the date of the Lease or as subsequently
amended, or any successor or substituted legislation at the time in effect and
applicable, and the regulations promulgated pursuant thereto.
"Treasury Yield" means, at the time of determination with respect to any
--------------
Equipment Note, the interest rate (expressed as a semi-annual equivalent and as
a decimal and, in the case of United States Treasury bills, converted to a bond
equivalent yield) determined to be the per annum rate equal to the semi-annual
yield to maturity for United States Treasury securities maturing on the Average
Life Date on such Equipment Note and trading in the public securities markets
either as determined by interpolation between the most recent weekly average
yield to maturity for two series of United States Treasury securities, trading
in public securities markets, (i) one maturing as close as possible to, but
earlier than, the Average Life Date of such Equipment Note and (ii) the other
maturing as close as possible to, but later than, the Average Life Date of such
Equipment Note, in each case as published in the most recent H.15(519) or, if a
weekly average yield to maturity for United States Treasury securities maturing
on the Average Life Date of such Equipment Note is reported on the most recent
H.15(519), such weekly average yield to maturity as published in such H.15(519).
"H.15(519)" means the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System. The date of determination of a Make-Whole Premium will be the
third Business Day prior to the applicable prepayment date and the "most recent
H.15(519)" means the H.15(519) published prior to the close of business on the
third Business Day prior to the applicable prepayment date.
"Trust Agreement" means the Trust Agreement [N361ML], dated as of September
---------------
27, 2000, between the Owner Participant and Trust Company.
"Trust Company" means First Union Trust Company, National Association, a
-------------
national banking association.
"Trust Estate" means the Lessor's Estate.
------------
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
-------------------
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in any relevant jurisdiction.
"United States", "U.S." or "US" means the United States of America.
------------- ---- --
"U.S. Person" means a Person described in (S) 7701(a)(30) of the Code.
-----------
"Warranty ▇▇▇▇ of Sale" means (A) the full warranty ▇▇▇▇ of sale covering
---------------------
the Aircraft (and specifically referring to each Engine) executed by the Seller
in favor of the Owner Trustee and to be
-22-
dated the Delivery Date, and (B) a full warranty ▇▇▇▇ of sale covering a
Replacement Aircraft (and specifically referring to each Engine) executed by the
seller thereof in favor of the Owner Trustee.
-23-
Exhibit A
to Lease
LEASE SUPPLEMENT NO. 1 [N361ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N361ML] dated September __, 2000, between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not in its individual capacity,
but solely as Owner Trustee, except as otherwise provided herein, the Lessor,
and MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee;
W I T N E S S E T H
WHEREAS, the Lessor and the Lessee have heretofore entered into that
certain Lease Agreement [N361ML], dated as of September 27, 2000 (the "Lease",
the terms defined therein being herein used with the same meaning), which Lease
provides, among other things, for the execution and delivery of Lease
Supplements in substantially the form hereof for the purpose of leasing a
specific Aircraft under the Lease when delivered by the Lessor to the Lessee in
accordance with the terms thereof;
WHEREAS, the Lease, a counterpart of which is attached hereto and made
a part hereof, relates to the Aircraft and Engines described in Schedule I
hereto and this Lease Supplement, together with such attachment, is being filed
for recordation on the date hereof with the FAA as one document;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Section 2 of the Lease, the Lessor and
the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee, and the
Lessee hereby accepts and leases from the Lessor, under the Lease as herein
supplemented, the Aircraft, described in Schedule I hereto.
2. The Delivery Date is the date of this Lease Supplement set forth
in the opening paragraph hereof.
3. The Basic Term shall commence on the Delivery Date and continue
through __________, 20__ (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
4. Lessee hereby confirms to Lessor that Lessee has duly and
irrevocably accepted the Aircraft under and for all purposes hereof, of the
Lease and of the other Lessee Documents.
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto in
separate counterparts and all such counterparts shall together constitute but
one and the same instrument. To the extent, if any, that this Lease Supplement
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease Supplement or the Lease may be created through the transfer or possession
of any counterpart other than the original counterpart of each thereof
containing the receipt therefor executed by the Indenture Trustee on the
signature page of each thereof.
7. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease Supplement to be duly executed by their authorized officers as of the day
and year first above written.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual
capacity, except as otherwise expressly
provided herein but solely as Owner Trustee
By: ______________________________________
Name:
Title:
MIDWAY AIRLINES CORPORATION
By: ______________________________________
Name:
Title:
THE LESSOR HAS ASSIGNED THIS LEASE SUPPLEMENT TO THE INDENTURE TRUSTEE
AS SECURITY. TO THE EXTENT, IF ANY, THAT THIS LEASE SUPPLEMENT CONSTITUTES
CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN
EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE
SUPPLEMENT MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART
HEREOF OTHER THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR
EXECUTED BY THE INDENTURE TRUSTEE IMMEDIATELY FOLLOWING THIS LEGEND.
Receipt of this original counterpart of the foregoing Lease Supplement
is hereby acknowledged on this _____ day of _______________, 2000.
ALLFIRST BANK, as Indenture Trustee
By:______________________________
Name:
Title:
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model Number Serial Number
------------ ----- ------ -------------
The Boeing Company 737-7BX N361ML 30736
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Numbers
------------ ----- --------------
CFM International, Inc. CFM-56-7B20 876573
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
-----------------------------------
Exhibit B
Certain Economic Information
----------------------------
"EBO Amount" shall mean $ * .
---------- ---
"EBO Date" shall mean * .
-------- ---
"Lessor's Cost" shall mean $ * .
------------- ---
"Minimum Liability Amount" shall mean *.
------------------------
"Assumed Transaction Costs" shall mean * % of Lessor's Cost.
------------------------- ---
"Seller" shall mean The Boeing Company.
------
"Estimated Value" shall mean $ * .
--------------- ---
"Compounded Discounted Rate" shall mean * % per annum.
-------------------------- ---
"TV Rate" shall mean a rate equal to the rate per annum announced from time to
-------
time by Citibank, N.A. as * per annum.
"Renewal Rental Rate" shall mean $ * per annum.
------------------- ---
__________________
* Indicates information deleted for confidentiality purposes.
Exhibit B
Certain Economic Information
----------------------------
*
___________________
* Indicates information deleted for confidentiality purposes.
Exhibit C-1
Basic Rent Payment Schedule
---------------------------
*
____________________
* Indicates information deleted for confidentiality purposes.
Exhibit C-2
Basic Rent Allocation Schedule
------------------------------
*
____________________
* Indicates information deleted for confidentiality purposes.
Exhibit D
Termination Values
------------------
*
_________________
* Indicates information deleted for confidentiality purposes.
Exhibit E
List of Countries - Permitted for Re-Registration and Subleasing
----------------------------------------------------------------
Australia Italy
Austria Japan
Belgium Luxembourg
Canada Netherlands
Denmark New Zealand
Finland Norway
France Portugal
Germany Sweden
Iceland Switzerland
Ireland United Kingdom
Exhibit F
RETURN CONDITIONS
-----------------
*
____________________
* Indicates information deleted for confidentiality purposes.