Exhibit 4(a)(4)
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LEASE AGREEMENT
[NW 1997 L]
Dated as of
May 1, 1998
Between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
Not in its Individual Capacity, except as expressly
provided herein, but solely as Owner Trustee,
Lessor
AND
NORTHWEST AIRLINES, INC.,
Lessee
One British Aerospace Avro 146-RJ85A Aircraft
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As set forth in Section 20 hereof, Lessor has assigned to the Indenture Trustee
(as defined herein) certain of its right, title and interest in and to this
Lease. To the extent, if any, that this Lease constitutes chattel paper (as
such term is defined in the Uniform Commercial Code as in effect in any
applicable jurisdiction) no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the original
executed counterpart, which shall be identified as the counterpart containing
the receipt therefor executed by the Indenture Trustee on the signature page
thereof.
TABLE OF CONTENTS TO LEASE AGREEMENT
Page
SECTION 1. Definitions.......................................... 1
SECTION 2. Acceptance and Lease................................. 17
SECTION 3. Term and Rent........................................ 18
(a) Basic Term...................................... 18
(b) [Intentionally Omitted]......................... 18
(c) Basic Rent...................................... 18
(d) Adjustments to Basic Rent....................... 18
(e) Supplemental Rent............................... 20
(f) Payments in General............................. 20
SECTION 4. Lessor's Representations and Warranties.............. 21
SECTION 5. Return of the Aircraft............................... 22
(a) Condition Upon Return........................... 22
(b) Return of the Engines........................... 23
(c) Fuel; Manuals................................... 24
(d) Storage Upon Return............................. 24
SECTION 6. Liens................................................ 24
SECTION 7. Registration, Maintenance and Operation; Possession
and Subleases; Insignia.............................. 25
(a) Registration and Maintenance.................... 25
(b) Possession and Subleases........................ 26
(c) Insignia........................................ 30
SECTION 8. Replacement and Pooling of Parts; Alterations,
Modifications and Additions.......................... 31
(a) Replacement of Parts............................ 31
(b) Pooling of Parts................................ 32
(c) Alterations, Modifications and Additions........ 32
SECTION 9. Voluntary Termination................................ 33
(a) Termination Event............................... 33
(b) [Intentionally Omitted]......................... 33
(c) Optional Sale of the Aircraft................... 33
(d) Termination as to Engines....................... 35
(i)
Page
SECTION 10. Loss, Destruction, Requisition, etc. ................ 35
(a) Event of Loss with Respect to the Aircraft...... 35
(b) Event of Loss with Respect to an Engine......... 38
(c) Application of Payments from Governmental
Authorities for Requisition of Title, etc. ..... 39
(d) Requisition for Use of the Aircraft by the
United States Government or the Government of
Registry of the Aircraft........................ 39
(e) Requisition for Use of an Engine by the United
States Government or the Government of Registry
of the Aircraft................................. 40
(f) Application of Payments During Existence of
Event of Default................................ 41
SECTION 11. Insurance............................................ 41
(a) Public Liability and Property Damage Insurance.. 41
(b) Insurance Against Loss or Damage to the
Aircraft........................................ 42
(c) Reports, etc. .................................. 45
(d) Self-Insurance.................................. 46
(e) Additional Insurance by Lessor and Lessee....... 46
(f) Indemnification by Government in Lieu of
Insurance....................................... 46
(g) Application of Payments During Existence of
an Event of Default............................. 46
SECTION 12. Inspection........................................... 47
SECTION 13. Assignment........................................... 47
SECTION 14. Events of Default.................................... 48
SECTION 15. Remedies............................................. 50
SECTION 16. Lessee's Cooperation Concerning Certain Matters...... 53
SECTION 17. Notices.............................................. 54
SECTION 18. No Set-Off, Counterclaim, etc. ...................... 55
SECTION 19. Renewal Options; Purchase Options; Valuation......... 55
(a) Renewal Options................................. 55
(b) Purchase Options................................ 57
(c) Valuation....................................... 57
(d) Special Purchase Option......................... 58
SECTION 20. Security for Lessor's Obligation to Holders of
Secured Certificates................................. 59
SECTION 21. Lessor's Right to Perform for Lessee................. 59
SECTION 22. Investment of Security Funds; Liability of Lessor
Limited.............................................. 59
(a) Investment of Security Funds.................... 59
(b) Liability of Lessor Limited..................... 60
(ii)
Page
SECTION 23. Service of Process................................... 60
SECTION 24. Miscellaneous........................................ 60
SECTION 25. Successor Trustee.................................... 61
SECTION 26. Covenant of Quiet Enjoyment.......................... 61
(iii)
EXHIBITS
EXHIBIT A - Form of Lease Supplement
EXHIBIT B - Basic Rent, Lessor's Cost and Special Purchase Price Schedule
EXHIBIT C - Stipulated Loss Value Schedule
EXHIBIT D - Termination Value Schedule
EXHIBIT E - Rent Recalculation Verification
EXHIBIT F - Schedule of Domiciles of Permitted Sublessees
EXHIBIT G - Return Conditions
EXHIBIT H - Return Conditions (EBT)
(iv)
LEASE AGREEMENT
[NW 1997 L]
This LEASE AGREEMENT [NW 1997 L], dated as of May 1, 1998, between FIRST
SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, except as
expressly provided herein, but solely as Owner Trustee under the Trust
Agreement (as defined in Section 1 hereof) (in such capacity, "Lessor"), and
NORTHWEST AIRLINES, INC., a corporation organized and existing pursuant to the
laws of the State of Minnesota ("Lessee");
W I T N E S S E T H:
SECTION 1. Definitions. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this
Lease Agreement [NW 1997 L] and shall be equally applicable to both the
singular and the plural forms of the terms herein defined:
"Affiliate" means, with respect to any person, any other person
directly or indirectly 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.
"Aircraft" means the Airframe to be delivered and leased
hereunder (or any airframe from time to time substituted for such
Airframe pursuant to Section 10(a) hereof) together with the four
Engines initially leased hereunder (or any engine substituted for
either of such Engines pursuant to the terms hereof), whether or not
any of such initial or substituted Engines may from time to time be
installed on such initial or substituted Airframe or may be installed
on any other airframe or on any other aircraft.
"Airframe" means: (i) the British Aerospace Avro 146-RJ85A
aircraft (except Engines or engines from time to time installed
thereon) specified in the initial Lease Supplement, which aircraft
shall be leased by Lessor to Lessee hereunder and under such Lease
Supplement, and any aircraft (except Engines or engines from time to
time installed thereon) which may from time to time be substituted
for such aircraft (except Engines or engines from time to time
installed thereon) pursuant to clause (ii) of the first paragraph of
Section 10(a); and (ii) any and all Parts (A) so long as the same
shall be incorporated or installed in or attached to such aircraft
(except Engines or engines from time to time installed thereon), or
(B) so long as title thereto shall remain vested in Lessor in
accordance with the terms of Section 8 after removal from such
aircraft (except Engines or engines from time to time installed
thereon); provided, however, that at such time as an aircraft (except
Engines or engines from time to time installed thereon) shall be
deemed part of the property leased hereunder in substitution for the
Airframe pursuant to the applicable provisions hereof, the replaced
Airframe shall cease to be an Airframe hereunder.
"Applicable Rate" means as of any date the weighted average of
the interest rates borne by the Secured Certificates then outstanding
and, if no Secured Certificates shall be outstanding, the Base Rate.
"Asset Value Agreement" means that certain Asset Value Agreement
(N512XJ), dated April 27, 1998, between the Manufacturer and Lessee,
as such Asset Value Agreement may be amended or supplemented from
time to time pursuant to the applicable provisions thereof.
"Assignment and Assumption Agreement" means that certain
Assignment and Assumption Agreement [NW 1997 L], dated as of the date
hereof, between the Initial Owner Participant and the Owner
Participant, as such Assignment and Assumption Agreement may be
amended or supplemented from time to time pursuant to the applicable
provisions thereof.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
amended, or any subsequent legislation that amends, supplements or
supersedes such provisions.
"Base Rate" means the rate of interest announced publicly by
Citibank, N.A. in New York, New York from time to time as its base
rate.
"Basic Rent" means, for the Basic Term, the rent payable for the
Aircraft pursuant to Section 3(c) as adjusted as provided in Section
3(d) but subject always to the provisions of Section 3(d)(v) hereof
and, for any Renewal Term, Basic Rent determined pursuant to Section
19.
"Basic Term" means the term for which the Aircraft is leased
hereunder pursuant to Section 3(a) hereof commencing on the Delivery
Date and ending on April 27, 2017, or such earlier date as this Lease
may be terminated in accordance with the provisions hereof.
"Beneficial Interest" means the interest of the Owner
Participant (or the Initial Owner Participant, as the case may be)
under the Trust Agreement.
"▇▇▇▇ of Sale" means a full warranty ▇▇▇▇ of sale covering the
Aircraft, executed by Lessee in favor of the Owner Trustee, dated the
Delivery Date, specifically referring to the Airframe and each
Engine, which ▇▇▇▇ of Sale shall contain, among other things, a
statement that such ▇▇▇▇ of Sale thereby conveys to the Owner Trustee
good title to the Airframe and each Engine described in
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such ▇▇▇▇ of Sale, free and clear of all liens, encumbrances and rights
of others except Liens permitted by clause (v) of Section 6 of the Lease.
"Business Day" means any day other than a Saturday or Sunday or
a day on which commercial banks are required or authorized to close
in the City of New York, New York; Boston, Massachusetts; or
Minneapolis, Minnesota.
"Certificate Closing Date" means September 25, 1997.
"Certificate Holder" means Certificate Holder as defined in the
Trust Indenture.
"Certificated Air Carrier" means a Citizen of the United States
holding a carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49, United States
Code, for aircraft capable of carrying ten or more individuals or
6,000 pounds or more of cargo or that otherwise is certified or
registered to the extent required to fall within the purview of 11
U.S.C. Section 1110 or any analogous successor provision of the
Bankruptcy Code.
"Citizen of the United States" has the meaning specified in
Section 40102(a)(15) of Title 49 of the United States Code or any
similar legislation of the United States of America enacted in
substitution or replacement therefor.
"Civil Reserve Air Fleet Program" means the Civil Reserve Air
Fleet Program currently administered by the United States Air Force
Air Mobility Command pursuant to Executive Order No. 11490, as
amended, or any substantially similar program.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Account Control Agreement" means that certain
Collateral Account Control Agreement [NW 1997 L], dated as of the
Certificate Closing Date, among State Street Bank and Trust Company,
the Indenture Trustee and the Owner Trustee.
"Commitment" means the amount of the Owner Participant's
participation in Lessor's Cost for the Aircraft required to be made
available or paid as provided in Section 1(d) of the Participation
Agreement.
"Consent and Agreement" means that certain Consent and Agreement
[NW 1997 L], dated as of the date hereof, executed by the
Manufacturer, as the same may be amended, modified or supplemented
from time to time in accordance with the applicable provisions
thereof.
3
"Contract Rights" means all of Lessee's right, title and
interest in and to Part H and Part J of the Manufacturer Support
Agreement, as and to the extent that the same relate to the
warranties with respect to the Aircraft, including, without
limitation, (a) all claims for damages in respect of the Aircraft
arising as a result of any default by the Manufacturer under Part H
or Part J of the Manufacturer Support Agreement, including, without
limitation, all warranty, service life policy and indemnity
provisions in Part H and Part J of the Manufacturer Support Agreement
in respect of the Aircraft and all claims thereunder and (b) any and
all rights of Lessee to compel performance of the terms of Part H and
Part J of the Manufacturer Support Agreement in support thereof.
"Default" means any event which with the giving of notice or the
lapse of time or both would become an Event of Default.
"Delivery Date" means the date of the initial Lease Supplement
for the Aircraft, which date shall be the date the Aircraft is leased
by Lessor to Lessee and accepted by Lessee hereunder.
"Depreciation Period" means the period commencing on the
Delivery Date and ending on December 31, 2005, or such earlier date
as this Lease may be terminated in accordance with the provisions
hereof.
"Dollars" and "$" means the lawful currency of the United States
of America.
"EBO Date" means [July 2, 2013] (or, if [July 2, 2013] is not a
Business Day, the Business Day immediately succeeding [July 2, 2013].
"Engine" means (i) each of the four AlliedSignal LF507 type
engines listed by manufacturer's serial number in the initial Lease
Supplement, whether or not from time to time thereafter installed on
the Airframe or installed on any other airframe or on any other
aircraft; and (ii) any engine which may from time to time be
substituted, pursuant to the terms hereof, for either of such four
engines, together in each case with any and all Parts incorporated or
installed in or attached thereto or any and all Parts removed
therefrom so long as title thereto shall remain vested in Lessor in
accordance with the terms of Section 8 after removal from such
Engine; provided, however, that at such time as an engine shall be
deemed part of the property leased hereunder in substitution for an
Engine pursuant to the applicable provisions hereof, the replaced
Engine shall cease to be an Engine hereunder. The term "Engines"
means, as of any date of determination, all Engines then leased
hereunder.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated
and rulings issued thereunder. Section references to ERISA are to
ERISA, as in effect at
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the date of the Participation Agreement and any subsequent provisions of
ERISA, amendatory thereof, supplemental thereto or substituted therefor.
"Event of Default" has the meaning specified in Section 14
hereof.
"Event of Loss" with respect to the Aircraft, Airframe or any
Engine means any of the following events with respect to such
property: (i) the loss of such property or of the use thereof due to
the destruction of or damage to such property which renders repair
uneconomic or which renders such property permanently unfit for
normal use by Lessee (or any Sublessee) for any reason whatsoever;
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of a total
loss, or a constructive or compromised total loss; (iii) the theft or
disappearance of such property, or the confiscation, condemnation, or
seizure of, or requisition of title to, or use of, such property
(other than a requisition for use by the United States Government or
any other government of registry of the Aircraft, or any agency or
instrumentality of any thereof) which in the case of any event
referred to in this clause (iii) (other than a requisition of title)
shall have resulted in the loss of possession of such property by
Lessee (or any Sublessee) for a period in excess of 180 consecutive
days or, if earlier, until the end of the Term or, in the case of a
requisition of title, the requisition of title shall not have been
reversed within 90 days from the date of such requisition of title
or, if earlier, at the end of the Term; (iv) as a result of any law,
rule, regulation, order or other action by the Federal Aviation
Administration or other governmental body of the government of
registry of the Aircraft having jurisdiction, the use of such
property in the normal course of the business of air transportation
shall have been prohibited for a period of 180 consecutive days,
unless Lessee (or any Sublessee), prior to the expiration of such 180
day period, shall have undertaken and shall be diligently carrying
forward all steps which are necessary or desirable to permit the
normal use of such property by Lessee (or such Sublessee), but in any
event if such use shall have been prohibited for a period of two
consecutive years, provided that no Event of Loss shall be deemed to
have occurred if such prohibition has been applicable to the entire
U.S. registered fleet of British Aerospace Avro 146-RJ85A aircraft of
Lessee (or any Sublessee) and Lessee (or a Sublessee), prior to the
expiration of such two-year period, shall have conformed at least one
such aircraft in its fleet to the requirements of any such law, rule,
regulation, order or other action and commenced regular commercial
use of the same in such jurisdiction and shall be diligently carrying
forward, in a manner which does not discriminate against the Aircraft
in so conforming the Aircraft, all steps which are necessary or
desirable to permit the normal use of the Aircraft by Lessee (or such
Sublessee), provided, further that, notwithstanding any of the
foregoing, such prohibition shall constitute an Event of Loss if such
use shall have been prohibited for a period of three consecutive
years or such use shall be prohibited at the expiration of the Term;
(v) the requisition for use by the United States
5
Government or any other government of registry of the Aircraft or any
instrumentality or agency of any thereof, which shall have occurred
during the Basic Term (or any Renewal Term) and shall have continued for
thirty (30) days beyond the Term, provided, however, that no Event of
Loss pursuant to this clause (v) shall exist if Lessor shall have
furnished to Lessee the written notice specified in Section 10(d)
hereof; and (vi) any divestiture of title to or interest in an Engine
treated as an Event of Loss pursuant to Section 7(b) hereof. An Event
of Loss with respect to the Aircraft shall be deemed to have occurred if
an Event of Loss occurs with respect to the Airframe.
"Expenses" has the meaning specified in Section 7(c) of the
Participation Agreement.
"FAA ▇▇▇▇ of Sale" means a ▇▇▇▇ of sale for the Aircraft on AC
Form 8050-2 or such other form as may be approved by the Federal
Aviation Administration on the Delivery Date for the Aircraft,
executed by Lessee in favor of the Owner Trustee and dated the
Delivery Date.
"Federal Aviation Act" means that portion of the United States
Code comprising those provisions formerly referred to as the Federal
Aviation Act of 1958, as amended, or any subsequent legislation that
amends, supplements or supersedes such provisions.
"Federal Aviation Administration" and "FAA" mean the United
States Federal Aviation Administration and any agency or
instrumentality of the United States government succeeding to their
functions.
"First Amendment to Trust Indenture" means that certain First
Amendment to Trust Indenture and Security Agreement [NW 1997 L],
dated as of the date hereof, between Lessor and the Indenture
Trustee, amending the Original Trust Indenture.
"Foreign Air Carrier" means any air carrier which is not a U.S.
Air Carrier and which performs maintenance, preventative maintenance
and inspections for the Aircraft, Airframe and/or any Engine or
engine to standards which are approved by, or which are substantially
equivalent to those required by, the Federal Aviation Administration,
the Civil Aviation Authority of the United Kingdom, the Direction
Generale de l'Aviation Civile of the French Republic, the Luftfahrt
Bundesamt of the Federal Republic of Germany, the
Rijflauchtraatdienst of the Kingdom of the Netherlands, the Ministry
of Transportation of Japan or the Federal Ministry of Transport of
Canada (and any agency or instrumentality of the applicable
government succeeding to the functions of any of the foregoing
entities).
"Guarantee" means that certain Amended and Restated ▇▇▇▇▇▇▇▇▇
[▇▇ ▇▇▇▇ L], dated as of the date hereof, made by the Guarantor, as
such Guarantee
6
may be amended or supplemented from time to time pursuant to the
applicable provisions thereof, which Guarantee amended and restated in
its entirety the Original Guarantee.
"Guarantor" means Northwest Airlines Corporation, a Delaware
corporation.
"Half-Life Adjustment" has the meaning specified in Exhibit H
hereto.
"Indemnitee" means (i) the Owner Trustee, in its individual
capacity and as trustee under the Trust Agreement, (ii) the Indenture
Trustee, (iii) the Owner Participant, (iv) the Trust Estate, (v) the
Loan Participants and each other Certificate Holder, (vi) the
Subordination Agent, (vii) the Liquidity Provider, (viii) the Pass
Through Trustees, (ix) each Affiliate of the Persons described in
clauses (i) through (iv), inclusive, (x) each Affiliate of the
Persons described in clauses (vi), (vii) and (viii) inclusive, (xi)
the respective directors, officers, employees, agents and servants of
each of the Persons described in clauses (i) through (viii),
inclusive, (xii) the successors and permitted assigns of the Persons
described in clauses (i) through (iv), inclusive, and (xiii) the
successors and permitted assigns of the Persons described in clauses
(v), (vi), (vii) and (viii) inclusive.
"Indenture Trustee" means the Indenture Trustee under the Trust
Indenture, and any entity which may from time to time be acting as
indenture trustee under the Trust Indenture.
"Indenture Trustee Documents" means the Participation Agreement
and the Trust Indenture.
"Indenture Trustee's Liens" means any Lien which arises as a
result of (A) claims against the Indenture Trustee not related to its
interest in the Aircraft or the administration of the Trust Estate
pursuant to the Trust Indenture, (B) acts of the Indenture Trustee
not permitted by, or failure of the Indenture Trustee to take any
action required by, the Operative Documents to the extent such acts
arise or such failure arises from or constitutes gross negligence or
willful misconduct, (C) claims against the Indenture Trustee relating
to Taxes or Expenses which are excluded from the indemnification
provided by Section 7 of the Participation Agreement pursuant to said
Section 7, or (D) claims against the Indenture Trustee arising out of
the transfer by the Indenture Trustee of all or any portion of its
interest in the Aircraft, the Trust Estate, the Trust Indenture
Estate or the Operative Documents other than a transfer of the
Aircraft pursuant to Section 9, 10 or 19 of the Lease or Article IV
or V of the Trust Indenture, or a transfer of the Aircraft pursuant
to Section 15 of the Lease while an Event of Default is continuing
and prior to the time that the Indenture Trustee has received all
amounts due pursuant to the Trust Indenture.
7
"Initial Owner Participant" means Lessee.
"Intercreditor Agreement" means that certain Intercreditor
Agreement among the Pass Through Trustees, the Liquidity Provider and
the Subordination Agent.
"Lease Agreement", "this Lease Agreement", "this Lease", "this
Agreement", "herein", "hereof", "hereunder", "hereby" or other like
words mean this Lease Agreement [NW 1997 L] as originally executed or
as modified, amended or supplemented pursuant to the applicable
provisions hereof and in accordance with the Trust Agreement and the
Trust Indenture, including, without limitation, supplementation
hereof by one or more Lease Supplements entered into pursuant to the
applicable provisions hereof.
"Lease Period" means each of the consecutive periods throughout
the Basic Term and any Renewal Term ending on a Lease Period Date,
the first such period commencing on and including the Delivery Date.
"Lease Period Date" means July 2, 1998 and each succeeding
January 2 and July 2 to and including January 2, 2017, April 27,
2017, and each succeeding October 27 and April 27, to and including
the last such date in the Term.
"Lease Supplement" means a Lease Supplement, substantially in
the form of Exhibit A hereto, to be entered into between Lessor and
Lessee on the Delivery Date for the purpose of leasing the Aircraft
under and pursuant to the terms of this Lease Agreement, and any
subsequent Lease Supplement entered into in accordance with the terms
hereof.
"Lessee Documents" means the Participation Agreement, the Lease,
the Lease Supplement covering the Aircraft, the Purchase Agreement
(insofar as it relates to the Aircraft), the FAA ▇▇▇▇ of Sale, the
▇▇▇▇ of Sale, the Purchase Agreement Assignment, the Assignment and
Assumption Agreement and the Tax Indemnity Agreement.
"Lessor Liens" means any Lien or disposition of title or
interest arising as a result of (i) claims against Lessor, First
Security Bank, National Association, in its individual capacity, or
the Owner Participant not related to the transactions contemplated by
the Operative Documents, (ii) any act or omission of the Owner
Participant, Lessor, or First Security Bank, National Association, in
its individual capacity, which is not related to the transactions
contemplated by the Operative Documents or is in violation of any of
the terms of the Operative Documents, (iii) claims against the Owner
Participant, Lessor, or First Security Bank, National Association, in
8
its individual capacity, with respect to Taxes or Expenses against
which Lessee is not required to indemnify the Owner Participant,
Lessor or First Security Bank, National Association, in its
individual capacity, pursuant to Section 7 of the Participation
Agreement or (iv) claims against Lessor or the Owner Participant
arising out of any transfer by Lessor or the Owner Participant of all
or any portion of the respective interests of Lessor or the Owner
Participant in the Aircraft, the Trust Estate or the Operative
Documents other than the transfer of possession of the Aircraft by
Lessor pursuant to this Agreement, the transfer pursuant to the Trust
Indenture or a transfer of the Aircraft pursuant to Section 9, 10 or
19 hereof or pursuant to the exercise of the remedies set forth in
Section 15 hereof, provided, however, that any Lien which is
attributable solely to First Security Bank, National Association or
the Owner Participant and would otherwise constitute a Lessor Lien
hereunder shall not constitute a Lessor Lien hereunder so long as (1)
the existence of such Lien poses no material risk of the sale,
forfeiture or loss of the Aircraft, (2) the existence of such Lien
does not interfere in any way with the use, possession, operation, or
quiet enjoyment of the Aircraft by Lessee (or any Sublessee), (3) the
existence of such Lien does not affect the priority or perfection of,
or otherwise jeopardize, the Lien of the Trust Indenture, (4) First
Security Bank, National Association or the Owner Participant, as
appropriate, is diligently contesting such Lien and (5) the existence
of such Lien does not pose a material threat of interference with the
payment of Rent (other than Excluded Payments in favor of First
Security Bank, National Association or the Owner Participant, as
appropriate).
"Lessor's Cost" for the Aircraft means the amount denominated as
such in Exhibit B to the Lease.
"Lien" means any mortgage, pledge, lien, charge, claim,
encumbrance, lease, sublease, sub-sublease or security interest.
"Liquidity Facilities" means the three Revolving Credit
Agreements between the Subordination Agent, as borrower, and the
Liquidity Provider, and any replacement thereof, in each case as the
same may be amended, modified or supplemented.
"Liquidity Provider" means Royal Bank of Canada, as Class A
Liquidity Provider, Class B Liquidity Provider and Class C Liquidity
Provider under the Liquidity Facilities, or any successor thereto.
"Loan Participant" means each Purchaser and its respective
successors and registered assigns, including any Certificate Holder.
"Loan Participant Liens" means any Lien which arises from acts
or claims against any Loan Participant not related to the
transactions contemplated by the Operative Documents.
"Loss Payment Date" has the meaning specified in Section 10(a)
hereof.
9
"Majority in Interest of Certificate Holders" has the meaning
set forth in the Trust Indenture.
"Make-Whole Amount" has the meaning assigned to that term in the
Trust Indenture.
"Manufacturer" means British Aerospace (Operations) Limited, a
limited company incorporated under the laws of England and Wales, and
its successors and assigns.
"Manufacturer Documents" means the Purchase Agreement, the
Residual Agreement and the Consent and Agreement.
"Manufacturer Support Agreement" means that certain Manufacturer
Support Agreement, dated February 5, 1997, between the Manufacturer
and Lessee.
"Net Economic Return" shall have the meaning ascribed to such
term in paragraph 2 of Exhibit E to the Lease.
"Net Present Value of Rents" means the net present value, as of
the Delivery Date, of Basic Rent set forth in Exhibit B hereto,
discounted at an annual interest rate of 7.0 percent on a semi-annual
basis.
"Operative Documents" and "Operative Document" means each of the
Participation Agreement, the Lease, the Trust Indenture, the Trust
Agreement, an acceptance certificate covering the Aircraft in the
form agreed to by the Participants and Lessee, the Tax Indemnity
Agreement, the Lease Supplement covering the Aircraft, the Trust
Supplement covering the Aircraft, the Secured Certificates, the ▇▇▇▇
of Sale, the FAA ▇▇▇▇ of Sale, the Purchase Agreement (insofar as it
relates to the Aircraft), the Guarantee, the Residual Agreement, the
Collateral Account Control Agreement, the Assignment and Assumption
Agreement, the Purchase Agreement Assignment and the Consent and
Agreement.
"Original Guarantee" means that certain Guarantee [NW 1997 L],
dated as of the Certificate Closing Date, made by the Guarantor, as
such Guarantee may have been amended or supplemented from time to
time pursuant to the applicable provisions thereof prior to the
Delivery Date.
"Original Participation Agreement" means that certain
Participation Agreement [NW 1997 L], dated as of the Certificate
Closing Date, among Lessee, the Guarantor, the Purchasers, the
Indenture Trustee, the Subordination Agent, the Initial Owner
Participant and Owner Trustee, as such Participation Agreement was
amended or supplemented from time to time prior to the Delivery Date
pursuant to the applicable provisions thereof.
10
"Original Trust Agreement" means that certain Trust Agreement
[NW 1997 L], dated as of the Certificate Closing Date, between the
Initial Owner Participant and First Security Bank, National
Association, in its individual capacity, as originally executed or as
modified, amended or supplemented prior to the Delivery Date pursuant
to the applicable provisions thereof.
"Original Trust Indenture" means that certain Trust Indenture
and Security Agreement [NW 1997 L], dated as of the Certificate
Closing Date, between Lessor and the Indenture Trustee, as originally
executed or as modified, amended or supplemented in accordance with
its terms but prior to being amended by the First Amendment to Trust
Indenture.
"Overall Transaction" means all the transactions contemplated by
the Operative Documents.
"Owner Participant" means the corporation executing the
Participation Agreement as the Owner Participant, and thereafter any
Person to which such corporation transfers all of its right, title
and interest in and to the Trust Agreement, the Trust Estate and the
Participation Agreement, to the extent permitted by Section 8.01 of
the Trust Agreement and Section 8 of the Participation Agreement.
"Owner Participant Documents" means the Participation Agreement,
the Trust Agreement, the Assignment and Assumption Agreement, the
Residual Agreement and the Tax Indemnity Agreement.
"Owner Trustee" means the entity executing the Original
Participation Agreement as Owner Trustee and any entity appointed as
successor Owner Trustee pursuant to Section 9.01 of the Trust
Agreement, and references to a predecessor Owner Trustee in its
individual capacity by name in the Operative Documents shall include
such successor Owner Trustee in its individual capacity from and
after such succession.
"Owner Trustee Documents" means the Participation Agreement, the
Trust Agreement, the Trust Supplement covering the Aircraft, the
Lease, the Lease Supplement covering the Aircraft, the Purchase
Agreement Assignment, the Residual Agreement, the Trust Indenture and
the Secured Certificates.
"Participants" means and includes the Loan Participants and the
Owner Participant.
"Participation Agreement" means that certain Amended and
Restated Participation Agreement [NW 1997 L], dated as of the date
hereof, among Lessee, the Guarantor, the Purchasers, the Indenture
Trustee, the Subordination Agent, the Owner Participant and Owner
Trustee, as such Participation Agreement may be amended or
supplemented from time to time pursuant to the
11
applicable provisions thereof, which Participation Agreement amended and
restated in its entirety the Original Participation Agreement.
"Parties" means the Owner Trustee, the Indenture Trustee and the
Participants.
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature
(other than (a) complete Engines or engines, (b) any items leased by
Lessee from a third party (other than Lessor) and (c) cargo
containers) which may from time to time be incorporated or installed
in or attached to the Airframe or any Engine or so long as title
thereto shall remain vested in Lessor in accordance with Section 8
after removal therefrom.
"Pass Through Certificates" means the pass through certificates
to be issued by the Pass Through Trustee in connection with the
Overall Transaction.
"Pass Through Trust Agreement" means the pass through trust
agreement and each of the three separate pass through trust
supplements referred to on Schedule I to the Participation Agreement.
"Pass Through Trustee" means State Street Bank and Trust
Company, a Massachusetts trust company, in its capacity as trustee
under each Pass Through Trust Agreement, and each other person that
may from time to time be acting as successor trustee under any such
Pass Through Trust Agreement.
"Past Due Rate" means (i) with respect to the portion of any
payment of Rent that may be required by the Trust Indenture to be
paid by the Indenture Trustee to the Loan Participants, or the
holders of any outstanding Secured Certificates, the "Past Due Rate"
as defined in the Trust Indenture and (ii) with respect to the
remaining portion of any payment of Rent (and the entire amount of
any payment of Rent after the satisfaction and discharge of the Trust
Indenture), a rate per annum equal to 1% over the Base Rate.
"Permitted Lien" means any Lien referred to in clauses (i)
through (viii) of Section 6 hereof.
"Permitted Sublessee" means any entity domiciled in a country
listed in Exhibit F hereto.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
12
"Purchase Agreement" means that certain Sale and Purchase
Agreement, dated as of February 5, 1997, between the Manufacturer and
Lessee relating to the purchase by Lessee of the Aircraft (including
the Manufacturer Support Agreement), as originally executed or as
modified, amended or supplemented in accordance with the terms
thereof, but only insofar as the foregoing relates to the Aircraft.
"Purchase Agreement Assignment" means that certain Purchase
Agreement Assignment [NW 1997 L], dated as of the date hereof,
between Lessee and Lessor, as the same may be amended, supplemented
or modified from time to time, with a form of Consent and Agreement
to be executed by the Manufacturer attached thereto.
"Purchasers" means the Pass Through Trustees under each Pass
Through Trust Agreement.
"Related Indemnitee Group" means, with respect to any
Indemnitee, any officer, director, servant, employee, agent or
Affiliate thereof.
"Renewal Term" means any Fixed Renewal Term or Fair Market
Renewal Term as those terms are defined in Section 19 hereof.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Residual Agreement" means that certain Agreement (N512XJ),
dated as of the date hereof, among the Manufacturer, the Owner
Participant and the Owner Trustee.
"Secured Certificates" has the meaning assigned to that term in
the Trust Indenture.
"Special Purchase Price" means the amount denominated as such in
Exhibit B to the Lease.
"Stipulated Loss Value" with respect to the Aircraft as of any
date through and including April 27, 2017, means, but subject always
to the provisions of Section 3(d)(v) hereof, the amount determined by
multiplying Lessor's Cost for the Aircraft by the percentage
specified in Exhibit C hereto opposite the Stipulated Loss Value Date
with respect to which the amount is determined (as such Exhibit C may
be adjusted from time to time as provided in Section 3(d) hereof and
in Section 7 of the Tax Indemnity Agreement). "Stipulated Loss
Value" as of any date after April 27, 2017 shall be the amount
determined as provided in Section 19(a) hereof.
13
"Stipulated Loss Value Date" means the 2nd calendar day of each
calendar month during the Basic Term and the 27th calendar day of
each calendar month during any Renewal Term.
"Sublease" means any sublease permitted by the terms of Section
7(b)(x) hereof.
"Sublessee" means any Person for so long, but only so long, as
such Person is in possession of the Airframe and/or any Engine
pursuant to the terms of a Sublease which is then in effect pursuant
to Section 7(b)(x) hereof.
"Subordination Agent" means State Street Bank and Trust Company
of Connecticut, National Association, a national banking association,
as subordination agent under the Intercreditor Agreement, or any
successor thereto.
"Successor Residual Agreement" means an agreement in
substantially the same form as the Residual Agreement, or with such
changes in such form as are reasonably approved by the Owner
Participant, among the Owner Participant, Lessor and the Manufacturer
or, in lieu of the Manufacturer, another Person whose unsecured
long-term debt is rated "A" or better by Standard & Poor's Rating
Group or equivalent rating of ▇▇▇▇▇'▇ Investor Services, Inc., which
Successor Residual Agreement shall protect an Agreed Residual Value
(as such term is used in the Residual Agreement) at the end of such
Renewal Term in an amount that shall be calculated to preserve the
Owner Participant's originally assumed economic return, taking into
account the Basic Rent paid during the previous Renewal Terms and to
be paid during such Renewal Term (such calculation to be made by the
Owner Participant and subject to verification pursuant to Exhibit E
hereto).
"Supplemental Rent" means, without duplication, (a) all amounts,
liabilities, indemnities and obligations (other than Basic Rent)
which Lessee assumes or agrees to pay under any Lessee Document to or
on behalf of Lessor or any other Person, (b) amounts payable by
Lessor pursuant to clause (b) of the third paragraph of Section 2.02
of the Trust Indenture, (c) Lessor's pro rata share of all
compensation and reimbursement of expenses, disbursements and
advances payable by Lessee under the Pass Through Trust Agreements,
and (d) Lessor's pro rata share of all compensation and reimbursement
of expenses and disbursements payable to the Subordination Agent
under the Intercreditor Agreement except with respect to any income
or franchise taxes incurred by the Subordination Agent in connection
with the transactions contemplated by the Intercreditor Agreement.
As used herein, "Lessor's pro rata share" means as of any time a
fraction, the numerator of which is the principal balance then
outstanding of Secured Certificates and the denominator of which is
14
the aggregate principal balance then outstanding of all "Equipment
Notes" (as such term is defined in the Intercreditor Agreement).
"Tax Indemnitee" means (i) the Owner Participant, the Owner
Trustee, in its individual capacity and as trustee under the Trust
Agreement, the Trust Estate, the Indenture Trustee, (ii) the
respective Affiliates, successors and permitted assigns of each of
the entities described in the preceding clause (i), and (iii) the
Trust Indenture Estate.
"Tax Indemnity Agreement" means that certain Tax Indemnity
Agreement [NW 1997 L], dated as of the date hereof, between the Owner
Participant and Lessee, as originally executed or as modified,
amended or supplemented pursuant to the applicable provisions
thereof.
"Taxes" means any and all fees (including, without limitation,
license, recording, documentation and registration fees), taxes
(including, without limitation, income, gross receipts, sales,
rental, use, turnover, value added, property (tangible and
intangible), excise and stamp taxes), license, levies, imposts,
duties, charges, assessments or withholdings of any nature
whatsoever, together with any and all penalties, fines, additions to
tax and interest thereon (each, individually a "Tax").
"Term" means the Basic Term and, if actually entered into, any
Renewal Term.
"Termination Date" has the meaning set forth in Section 9(a)
hereof.
"Termination Value" with respect to the Aircraft as of any date
through and including April 27, 2017, means, but subject always to
the provisions of Section 3(d)(v) hereof, the amount determined by
multiplying Lessor's Cost for the Aircraft by the percentage
specified in Exhibit D hereto opposite the Termination Date with
respect to which the amount is determined (as such Exhibit D may be
adjusted from time to time as provided in Section 3(d) hereof and in
Section 7 of the Tax Indemnity Agreement).
"Transaction Expenses" means: all of the reasonable
out-of-pocket costs, fees and expenses incurred by the Owner Trustee,
the Owner Participant, the Pass Through Trustee, the Subordination
Agent and the Indenture Trustee in connection with the transactions
contemplated by the Participation Agreement, the other Operative
Documents, the Pass Through Trust Agreements, the Intercreditor
Agreement, the Liquidity Facilities and the Underwriting Agreement
(except, in each case, as otherwise provided therein) including,
without limitation:
(1) the reasonable and actual fees, expenses and
disbursements of (A) ▇▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP, special
counsel for
15
the Pass Through Trustee and the Indenture Trustee, (B) Ray,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, special counsel for the Owner Trustee, (C)
Shearman & Sterling, special counsel for the Underwriters, and (D)
▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., special counsel in Oklahoma City, Oklahoma;
(2) the initial fees and reasonable and actual
disbursements of the Owner Trustee under the Trust
Agreement;
(3) the initial fee and reasonable and actual
disbursements of the Indenture Trustee under the Trust
Indenture;
(4) the initial fees and expenses of the Liquidity
Provider, the Pass Through Trustee and the Subordination
Agent;
(5) underwriting fees and commissions;
(6) the fees and expenses with respect to the
appraisals of the Aircraft;
(7) the reasonable fees, expenses and disbursements
of Thelen, Marrin, ▇▇▇▇▇▇▇ & Bridges LLP, special counsel
to the Owner Participant, such fees not to exceed the
amount previously agreed to by the Owner Participant and
Lessee;
(8) the reasonable fees, expenses and disbursements
of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇, special counsel for Lessee;
(9) the costs of filing and recording documents with
the FAA and filing Uniform Commercial Code statements in
the United States;
(10) the reasonable fees, expenses and disbursements
of Powell, Goldstein, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, special counsel to
the Liquidity Provider;
(11) the reasonable fees, expenses and disbursements
of Vedder, Price, ▇▇▇▇▇▇▇ & Kammholz, special counsel to
the Manufacturer; and
(12) the equity placement fee and reasonable
disbursements of ▇▇▇▇▇▇▇ and ▇▇▇▇▇ Financial Corporation.
"Trust Agreement" means that certain Amended and Restated Trust
Agreement [NW 1997 L], dated as of the date hereof, between the Owner
Participant and First Security Bank, National Association, in its
individual capacity, as originally executed or as modified, amended
or supplemented
16
pursuant to the applicable provisions thereof, including, without
limitation, supplementation thereof by one or more Trust Supplements
entered into pursuant to the applicable provisions thereof, which Trust
Agreement amended and restated in its entirety the Original Trust
Agreement and continued the trusts thereby created.
"Trust Agreement and Indenture Supplement" or "Trust Supplement"
means a supplement to the Trust Agreement and the Trust Indenture,
substantially in the form of Exhibit A to the Trust Indenture.
"Trust Estate" means the Trust Estate as that term is defined in
the Trust Agreement.
"Trust Indenture" means the Original Trust Indenture, as
originally executed or as modified, amended or supplemented in
accordance with the provisions thereof (including, without
limitation, by the First Amendment to Trust Indenture).
"Trust Indenture Estate" has the meaning assigned to that term
in the Trust Indenture.
"Underwriting Agreement" means that certain Underwriting
Agreement, dated as of September 16, 1997, among Lessee, the
Guarantor, and the underwriters named therein.
"U.S. Air Carrier" means any Certificated Air Carrier as to
which there is in force an air carrier operating certificate issued
pursuant to Part 121 of the regulations under the Federal Aviation
Act, or which may operate as an air carrier by certification or
otherwise under any successor or substitute provisions therefor or in
the absence thereof.
"Wet Lease" means any arrangement whereby the Lessee (or any
Sublessee) agrees to furnish the Airframe and Engines or engines
installed thereon to a third party pursuant to which such Airframe
and Engines or engines (i) shall be operated solely by regular
employees of Lessee (or any Sublessee) possessing all current
certificates and licenses that would be required under the Federal
Aviation Act or, if the Aircraft is not registered in the United
States, all certificates and licenses required by the laws of the
jurisdiction of registry, for the performance by such employees of
similar functions within the United States of America or such other
jurisdiction of registry (it is understood that cabin attendants need
not be regular employees of Lessee (or any Sublessee)) and (ii) shall
be maintained by Lessee (or any Sublessee) in accordance with its
normal maintenance practices.
SECTION 2. Acceptance and Lease. Lessor hereby agrees (subject to
satisfaction of the conditions set forth in Section 5(a) of the Participation
Agreement) to accept
17
the transfer of title from and simultaneously to lease to Lessee hereunder,
and Lessee hereby agrees (subject to satisfaction of the conditions set forth
in Section 5(b) of the Participation Agreement) to lease from Lessor
hereunder, the Aircraft as evidenced by the execution by Lessor and Lessee of
a Lease Supplement leasing the Aircraft hereunder. Lessee hereby agrees that
such acceptance of the Aircraft by Lessor shall, without further act,
irrevocably constitute acceptance by Lessee of such Aircraft for all purposes
of this Lease.
SECTION 3. Term and Rent. (a) Basic Term. The Basic Term shall
commence on the Delivery Date and end on April 27, 2017, or such earlier date
as this Lease may be terminated in accordance with the provisions hereof.
(b) [Intentionally Omitted].
(c) Basic Rent. Lessee shall pay Basic Rent with respect to each Lease
Period during the Basic Term on each Lease Period Date during the Basic Term,
in consecutive installments in the amounts as provided in the next sentence,
each such installment to cover the Lease Period specified in Exhibit B. Each
such installment of Basic Rent shall be equal to Lessor's Cost multiplied by
the percentage for the applicable Lease Period Date specified in Exhibit B
hereto. Lessor and Lessee agree that each installment of Basic Rent that is
indicated to be payable in advance shall be allocated over the six-month period
beginning on the Lease Period Date on which such advance payment is scheduled
to be made, and each installment of Basic Rent that is indicated to be payable
in arrears shall be allocated over the six-month period ending on the Lease
Period Date on which such arrears payment is scheduled to be made.
(d) Adjustments to Basic Rent.
(i) In the event that (A) the Delivery Date occurs other than
on May 4, 1998, (B) Transaction Expenses paid by Lessor pursuant to
Section 16(a) of the Participation Agreement are determined to be
other than 2.085% of Lessor's Cost, or (C) there is a change in tax
law (including the issuance of proposed regulations) after December
1, 1997 and on or prior to the Delivery Date, then in each case the
Basic Rent percentages set forth in Exhibit B, the Stipulated Loss
Value percentages set forth in Exhibit C, the Termination Value
percentages set forth in Exhibit D and the Special Purchase Price
shall be recalculated by the Owner Participant, on or prior to July
15, 1998, using the same methods and assumptions used to calculate
original Basic Rent, Stipulated Loss Value and Termination Value
percentages and the Special Purchase Price in order to: (1) maintain
the Owner Participant's Net Economic Return and (2) minimize the Net
Present Value of Rents to Lessee to the extent possible consistent
with clause (1) hereof. In such recalculation there will be no
change in the amortization of the Secured Certificates.
(ii) (A) In the event of a refinancing as contemplated by
Section 17 of the Participation Agreement, then the Basic Rent
percentages set forth in
18
Exhibit B, the Stipulated Loss Value percentages set forth in Exhibit
C, the Termination Value percentages set forth in Exhibit D and the
Special Purchase Price shall be recalculated (upwards or downwards) by
the Owner Participant as contemplated by such Section to (1) maintain
the Owner Participant's Net Economic Return and (2) to the extent
possible consistent with clause (1) hereof, minimize the Net Present
Value of Rents to Lessee and (B) in the event that Lessee elects to
satisfy any indemnity obligation under the Tax Indemnity Agreement
pursuant to Section 4(d)(ii) of the Tax Indemnity Agreement, then the
Basic Rent percentages set forth in Exhibit B, the Stipulated Loss Value
percentages set forth in Exhibit C, the Termination Value percentages
set forth in Exhibit D and the Special Purchase Price shall be
recalculated (upwards or downwards) by the Owner Participant, using the
same methods and assumptions (except to the extent such assumptions
shall be varied to take into account the Loss (as defined in the Tax
Indemnity Agreement) that is the subject of such indemnification and any
prior or contemporaneous Loss) used to calculate the Basic Rent
percentages, the Stipulated Loss Value percentages, the Termination
Value percentages and the Special Purchase Price on the Delivery Date,
in order to (1) maintain the Owner Participant's Net Economic Return and
(2) to the extent possible consistent with clause (1) hereof, minimize
the Net Present Value of Rents to Lessee.
(iii) [Intentionally Omitted].
(iv) Any recalculation of Basic Rent, Stipulated Loss Value and
Termination Value percentages and the Special Purchase Price pursuant
to this Section 3(d) shall be determined by the Owner Participant and
shall be subject to the verification procedures set forth in Exhibit
E hereto. Such recalculated Basic Rent, Stipulated Loss Value and
Termination Value percentages and Special Purchase Price shall be set
forth in a Lease Supplement or an amendment to this Lease.
(v) Anything contained in the Participation Agreement or this
Lease to the contrary notwithstanding, each installment of Basic Rent
payable hereunder, whether or not adjusted in accordance with this
Section 3(d), shall, and each payment of Termination Value and
Stipulated Loss Value, whether or not adjusted in accordance with
this Section 3(d), shall, together with all other amounts (including
an amount equal to the premium, if any, payable by Lessor on the
Secured Certificates) payable simultaneously by Lessee pursuant to
this Lease, in each case be, under any circumstances and in any
event, in an amount at least sufficient to pay in full, on the date
on which such amount of Rent is due, any payments then required to be
made on account of the principal of, premium, if any, and interest on
the Secured Certificates. It is agreed that no installment of Basic
Rent or payment of Termination Value or Stipulated Loss Value shall
be increased or adjusted by reason of (i) any attachment or diversion
of Rent on account of (A) Lessor Liens or (B) any Loan Participant
Lien on or
19
against the Trust Estate, any part thereof or the Operative Documents
arising as a result of claims against the Indenture Trustee not related
to the transactions contemplated by the Operative Documents, (ii) any
modification of the payment terms of the Secured Certificates made
without the prior written consent of Lessee or (iii) the acceleration of
any Secured Certificate or Secured Certificates due to the occurrence of
an "Event of Default" (as defined in the Trust Indenture) which does not
constitute an Event of Default hereunder.
(vi) All adjustments to Basic Rent under this Section 3(d) shall
be (A) in compliance with the tests of Sections 4.02(5) and 4.07 of
Rev. Proc. 75-28 and will not cause this Lease to constitute a
"disqualified leaseback or long-term agreement" within the meaning of
Section 467 of the Internal Revenue Code of 1986, as amended, as each
is then in effect and (B) subject to verification pursuant to Exhibit
E.
(e) Supplemental Rent. Lessee shall pay (or cause to be paid) promptly
to Lessor, or to whomsoever shall be entitled thereto, any and all Supplemental
Rent constituting Stipulated Loss Value or Termination Value as the same shall
become due and owing and all other amounts of Supplemental Rent within five
days after demand or within such other relevant period as may be provided in
any Operative Document, and in the event of any failure on the part of Lessee
to pay any Supplemental Rent when due, Lessor shall have all rights, powers and
remedies provided for herein or in any other Operative Document or by law or
equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall pay
as Supplemental Rent the Make-Whole Amount, if any, due pursuant to Section
2.10(b) or Section 2.11 of the Trust Indenture in connection with a prepayment
of the Secured Certificates upon redemption of such Secured Certificates in
accordance with Section 2.10(b) or Section 2.11 of the Trust Indenture. Lessee
also will pay to Lessor, or to whomsoever shall be entitled thereto, on demand,
as Supplemental Rent, to the extent permitted by applicable law, interest at
the Past Due Rate on any part of any installment of Basic Rent not paid when
due for any period for which the same shall be overdue and on any payment of
Supplemental Rent not paid when due for the period until the same shall be
paid.
(f) Payments in General. All payments of Rent shall be made directly by
Lessee (whether or not any Sublease shall be in effect) by wire transfer of
immediately available funds prior to 10:30 A.M., New York time, on the date of
payment, to Lessor at its account at First Security Bank, National Association,
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ABA No. ▇▇▇-▇▇▇▇-▇▇, Account
No. 051-▇▇▇▇▇▇▇, Attention: Corporate Trust Department, Credit Northwest/NW
1997 L (or such other account of Lessor in the continental United States as
Lessor shall direct in a notice to Lessee at least 10 Business Days prior to
the date such payment of Rent is due); provided that so long as the Trust
Indenture shall not have been fully discharged, Lessor hereby irrevocably
directs and Lessee agrees, that, unless the Indenture Trustee shall otherwise
direct, all Rent payable to Lessor and assigned to the Indenture Trustee
pursuant to the Trust Indenture shall be paid prior to 10:30 A.M., New York
time on the due date thereof in funds of the type specified in this Section
3(f) directly to the Indenture Trustee at its account at State Street Bank and
Trust Company, ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ABA No. 011-00-0028, Account No.
▇▇▇▇-▇▇▇-▇, Attention: Corporate Trust Department, Reference: Northwest/NW
1997 L (or such other account of the Indenture Trustee in the continental
United States as the Indenture Trustee shall direct in a notice to Lessee at
least 10 Business Days prior to the date such payment of Rent is due).
Lessor hereby directs and Lessee agrees that all payments of Supplemental
Rent owing to the Indenture Trustee or to a Loan Participant or any other
Certificate Holder pursuant to the Participation Agreement shall be made in
Dollars in immediately available funds prior to 10:30 A.M., New York time, on
the due date thereof at the office of the Indenture Trustee or at such other
office of such other financial institution located in the continental United
States as the party entitled thereto may so direct at least 10 Business Days
prior to the due date thereof. All payments of Supplemental Rent payable to
the Owner Participant, to the extent that such amounts constitute Excluded
Payments (as defined in the Trust Indenture), shall be made in Dollars in
immediately available funds prior to 10:30 A.M., New York time, on the due
date thereof, to the account of the Owner Participant specified in Schedule I
to the Participation Agreement (or to such other account as may be specified
in writing by the Owner Participant from time to time).
Notwithstanding anything to the contrary contained herein, if any date on
which a payment of Rent becomes due and payable is not a Business Day, then
such payment shall not be made on such scheduled date but shall be made on the
next succeeding Business Day with the same force and effect as if made on such
scheduled date and (provided such payment is made on such next succeeding
Business Day) no interest shall accrue on the amount of such payment from and
after such scheduled date.
SECTION 4. Lessor's Representations and Warranties. LESSOR LEASES AND
LESSEE TAKES THE AIRCRAFT AND EACH PART THEREOF "AS-IS," "WHERE-IS." NEITHER
LESSOR, THE INDENTURE TRUSTEE NOR ANY PARTICIPANT MAKES, HAS MADE OR SHALL BE
DEEMED TO HAVE MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS AND WILL BE DEEMED TO
HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
AS TO THE TITLE, AIRWORTHINESS, WORKMANSHIP, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OR A PARTICULAR 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 STRICT LIABILITY IN TORT,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that First Security Bank,
National Association, in its individual capacity, (i) represents and warrants
that on the Delivery Date, Lessor shall have received whatever title to the
Aircraft was conveyed to it by Lessee, (ii) represents and warrants that on the
Delivery Date the Aircraft shall be free of Lessor Liens (including for this
purpose Liens which would be Lessor Liens but for the proviso in the definition
of Lessor Liens) attributable to it, (iii) covenants that it will not, through
its own actions or inactions, interfere in Lessee's quiet enjoyment of the
Aircraft during the Term, (iv) agrees that it will
21
not directly or indirectly create, incur, assume or suffer to exist any
Lessor Lien attributable to it on or with respect to the Airframe or any
Engine or any portion of the Trust Estate and (v) represents and warrants
that it is a Citizen of the United States without making use of a voting
trust, voting powers agreement or similar arrangement, and agrees that if at
any time it shall cease to be a Citizen of the United States without making
use of a voting trust, voting powers agreement or similar arrangement it will
promptly resign as Owner Trustee (if and so long as such citizenship is
necessary under the Federal Aviation Act as in effect at such time or, if it
is not necessary, if and so long as the Owner Trustee's citizenship would
have any material adverse effect on the Loan Participants, the Owner
Participant or Lessee), effective upon the appointment of a successor Owner
Trustee in accordance with Section 9.01 of the Trust Agreement. None of the
provisions of this Lease shall be deemed to amend, modify or otherwise affect
the representations, warranties or other obligations (express or implied) of
the Manufacturer, any subcontractor or supplier of the Manufacturer with
respect to the Airframe, the Engines or any Parts, or to release the
Manufacturer, or any such subcontractor or supplier, from any such
representation, warranty or obligation. Lessor covenants that during the
Term (so long as this Lease shall not have been declared or deemed to have
been declared in default pursuant to Section 15 hereof) it will not, through
its own actions or inactions interfere in the quiet enjoyment of the Aircraft
by Lessee or any Sublessee and agrees that it will not directly or indirectly
create, incur, assume or suffer to exist any Lessor Lien attributable to it
on or with respect to the Airframe or any Engine.
SECTION 5. Return of the Aircraft. (a) Condition Upon Return.
Unless purchased by Lessee pursuant to Section 19 hereof, upon the termination
of this Lease at the end of the Basic Term or any Renewal Term or pursuant to
Section 9(c) or 15, Lessee, at its own expense, will return the Airframe to
Lessor at a major airport in one of the forty-eight contiguous states of the
United States chosen by Lessee and reasonably acceptable to Lessor (taking into
account whether the state or local government of such proposed place of return
would impose any transfer taxes on Lessor in connection with a sale of the
Aircraft by Lessor on the date of such return while the Aircraft is located at
the place of such return), and Lessee will give Lessor at least ten (10) days'
prior written notice of the place of such return; provided, however, that if
Lessor shall have made the request for storage pursuant to Section 5(d) hereof,
Lessee shall return the Airframe to Lessor at the site of the storage at the
end of the storage period. At the time of such return, Lessee will, unless
otherwise requested by Lessor at least ninety (90) days prior to the return
hereunder, cause the Aircraft, if it is not then so registered, to be
registered under the laws of the United States with the Federal Aviation
Administration in the name of the Lessor or its designee, provided that Lessee
shall be relieved of its obligations under this sentence if (i) such
registration is prohibited by reason of the failure of Lessor or its designee
to be eligible on such date to own an aircraft registered with the Federal
Aviation Administration or (ii) such registration is otherwise prohibited by
applicable law; the Airframe will be fully equipped with the Engines (or other
AlliedSignal LF507 type engines or four engines of the same or another
manufacturer of not less than equivalent utility, value and remaining useful
life, and suitable for installation and use on the Airframe without impairing
the value, utility or remaining useful life of the Aircraft; provided that all
engines shall be of the same make and model) duly installed thereon. Also, at
the time of such return, such Airframe and Engines or engines (i) shall be
certified (or, if not then
22
registered under the Federal Aviation Act, shall be eligible for
certification) as an airworthy aircraft by the Federal Aviation
Administration, (ii) shall be free and clear of all Liens (other than Lessor
Liens (including for this purpose Liens which would be Lessor Liens but for
the proviso in the definition of Lessor Liens)) and rights of third parties
under pooling, interchange, overhaul, repair or other similar agreements or
arrangements, (iii) shall be in as good an operating condition as when
delivered by the Manufacturer to Lessee, ordinary wear and tear excepted, or,
in the case of any such engines owned by Lessee, shall have a value, utility
and remaining useful life at least equal to, and shall be in as good an
operating condition as required by the terms hereof with respect to, Engines
constituting part of the Aircraft but not then installed on the Airframe, and
(iv) shall be in compliance with the return conditions, if any, set forth in
(a) unless the return conditions set forth in Exhibit H are applicable,
Exhibit G, or (b) Exhibit H, in the event such return occurs at the
expiration of this Lease on April 27, 2017 or at the expiration of any
Renewal Term but only if, in any such case, Lessor shall have irrevocably
exercised its option to sell the Aircraft at such expiration, and shall be
simultaneously exercising its rights, pursuant to the Residual Agreement or a
Successor Residual Agreement. If a Half-Life Adjustment is required to be
calculated pursuant to the terms of Exhibit H, if the Half-Life Adjustment is
a positive number Lessee shall pay Lessor the Half-Life Adjustment and if the
Half-Life Adjustment is a negative number Lessor shall pay Lessee the
Half-Life Adjustment. In view of the fact that the required return
conditions of the Aircraft for purposes of the Residual Agreement are
identical to Lessee's obligations herein, Lessee agrees that any
determination of Half-Life Adjustment under the Residual Agreement or any
Successor Residual Agreement shall be binding on Lessee for purposes of
Exhibit H to this Lease. Lessee further agrees to pay to Lessor on the
expiration of the Term the amount deducted from the Agreed Residual Value (as
such term is used in the Residual Agreement or any comparable term is used in
any Successor Residual Agreement) pursuant to clause (y) in the definition of
Agreed Residual Value. Lessor authorizes Lessee, with the participation of
Lessor, to negotiate such Half-Life Adjustments and amount directly with the
Manufacturer or any Person who is the counterparty to any Successor Residual
Agreement.
During the last six (6) months of the Term (unless Lessee shall have
elected to purchase the Aircraft or renew this Lease in accordance with the
terms of this Lease), with reasonable notice, Lessee will cooperate, and cause
any Sublessee to cooperate, in all reasonable respects with the efforts of
Lessor to sell or lease the Aircraft, including, without limitation, permitting
prospective purchasers or lessees to inspect fully the Aircraft and the records
relating thereto, provided that such cooperation shall not interfere with the
operation or maintenance of the Aircraft by Lessee or any Sublessee. Without
limiting the foregoing, Lessee agrees to fully cooperate with any requests by
the Manufacturer under the Residual Agreement or any Person who is the
counterparty to any Successor Residual Agreement in connection with the
remarketing of the Aircraft.
(b) Return of the Engines. In the event that any engine not owned by
Lessor shall be delivered with the returned Airframe as set forth in paragraph
(a) of this Section 5, Lessee, concurrently with such delivery, will, at no
cost to Lessor, furnish, or cause to be furnished, to Lessor a full warranty
(as to title) ▇▇▇▇ of sale with respect to each such engine, in form and
substance satisfactory to Lessor (together with an opinion of counsel to the
effect that
23
such full warranty ▇▇▇▇ of sale has been duly authorized and delivered and is
enforceable in accordance with its terms and that such engines are free and
clear of Liens other than Lessor Liens (including for this purpose Liens
which would be Lessor Liens but for the proviso in the definition of Lessor
Liens)), against receipt from Lessor of a ▇▇▇▇ of sale or other instrument
evidencing the transfer, without recourse or warranty (except as to the
absence of Lessor Liens, including for this purpose Liens which would be
Lessor Liens but for the proviso in the definition of Lessor Liens), by
Lessor to Lessee or its designee of all of Lessor's right, title and interest
in and to any Engine constituting part of the Aircraft but not installed on
the Airframe at the time of the return of the Airframe.
(c) Fuel; Manuals. Upon the return of the Airframe upon any termination
of this Lease in accordance with paragraph (a) of this Section 5, (i) Lessor
shall pay Lessee, as compensation for any fuel or oil contained in the fuel or
oil tanks of such Airframe, the value of such fuel or oil at the price paid by
Lessee for such fuel or oil, as the case may be, and (ii) Lessee shall deliver
or cause to be delivered to Lessor all logs, manuals and data and inspection,
maintenance, modification and overhaul records required to be maintained with
respect thereto under applicable rules and regulations of each country under
the laws of which the Aircraft has been registered during the period of
operation thereof, which logs, manuals, data and records, if not maintained in
English, shall be translated into English at Lessee's expense.
(d) Storage Upon Return. If, at least sixty (60) days prior to
termination of this Lease at the end of the Basic Term or any Renewal Term or
pursuant to Section 9(c), Lessee receives from Lessor a written request for
storage of the Aircraft upon its return hereunder, Lessee will provide Lessor,
or cause Lessor to be provided, with (i) free parking facilities for the
Aircraft (maintenance costs and other out-of-pocket costs other than parking
fees to be for the account of Lessor) for a period not exceeding thirty (30)
days commencing on the date of such termination and (ii) parking facilities for
the Aircraft (maintenance costs, other out-of-pocket costs and parking fees to
be for the account of Lessor) for a period not exceeding an additional thirty
(30) days commencing at the end of such initial thirty (30) day period, in each
case at a location in the continental United States selected by Lessee and
which Lessee would utilize as a location for the parking or storage of aircraft
owned or leased by Lessee; provided that Lessee shall have no obligation to
move the Aircraft from such location during the storage periods. Lessee,
unless instructed by Lessor to the contrary, will maintain insurance for the
Aircraft during such period not exceeding sixty (60) days and be reimbursed by
Lessor for the premiums thereon.
SECTION 6. Liens. Lessee will not directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
title thereto or any interest therein or in this Lease, except (i) the
respective rights of Lessor as owner of the Aircraft and Lessee as herein
provided, the Lien of the Trust Indenture, and any other rights existing
pursuant to the Operative Documents, (ii) the rights of others under agreements
or arrangements to the extent permitted by the terms of Sections 7(b) and 8(b)
hereof, (iii) Lessor Liens (including for this purpose Liens which would be
Lessor Liens but for the proviso in the definition of Lessor Liens), Loan
Participant Liens, and Indenture Trustee's Liens, (iv) Liens for taxes of
Lessee
24
(or any Sublessee) either not yet due or being contested in good faith
by appropriate proceedings so long as such proceedings do not involve any
material risk of the sale, forfeiture or loss of the Airframe or any Engine or
any interest therein, or, so long as any Secured Certificates shall be
outstanding, adversely affect the Lien of the Trust Indenture,
(v) materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising in the ordinary course of Lessee's (or, if a Sublease is then in
effect, Sublessee's) business (including those arising under maintenance
agreements entered into in the ordinary course of business) securing
obligations that are not overdue for a period of more than sixty (60) days or
are being contested in good faith by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture or loss
of the Airframe or any Engine or any interest therein or, so long as any
Secured Certificates shall be outstanding, adversely affect the Lien of the
Trust Indenture, (vi) Liens arising out of any judgment or award against Lessee
(or any Sublessee), unless the judgment secured shall not, within sixty (60)
days after the entry thereof, have been discharged, vacated, reversed or
execution thereof stayed pending appeal or shall not have been discharged,
vacated or reversed within sixty (60) days after the expiration of such stay,
(vii) any other Lien with respect to which Lessee (or any Sublessee) shall have
provided a bond, cash collateral or other security adequate in the reasonable
opinion of Lessor, and (viii) Liens approved in writing by Lessor. Lessee will
promptly, at its own expense, take (or cause to be taken) such actions as may
be necessary duly to discharge any such Lien not excepted above if the same
shall arise at any time.
SECTION 7. Registration, Maintenance and Operation; Possession and
Subleases; Insignia. (a)(I) Registration and Maintenance. Lessee, at its own
cost and expense, shall (or shall cause any Sublessee to): (i) forthwith upon
the delivery thereof hereunder, cause the Aircraft to be duly registered in the
name of Lessor, and, subject to the second paragraph of this Section 7(a) and
Section 8(f) of the Participation Agreement, to remain duly registered in the
name of Lessor under the Federal Aviation Act, provided that Lessor shall
execute and deliver all such documents as Lessee (or any Sublessee) may
reasonably request for the purpose of effecting and continuing such
registration, and shall not register the Aircraft or permit the Aircraft to be
registered under any laws other than the Federal Aviation Act at any time
except as provided in Section 8(f) of the Participation Agreement and shall
cause the Trust Indenture to be duly recorded and maintained of record as a
first mortgage on the Aircraft; (ii) maintain, service, repair and overhaul (or
cause to be maintained, serviced, repaired and overhauled) the Aircraft so as
to keep the Aircraft in as good an operating condition as when delivered by the
Manufacturer to Lessee, ordinary wear and tear excepted, so as to maintain in
effect all material Manufacturer's warranties, and as may be necessary to
enable the applicable airworthiness certification for the Aircraft to be
maintained in good standing at all times (other than during temporary periods
of storage in accordance with applicable regulations or during maintenance or
modification permitted hereunder) under the Federal Aviation Act, except when
all British Aerospace Avro 146-RJ85A aircraft powered by engines of the same
type as those with which the Airframe shall be equipped at the time of such
grounding and registered in the United States have been grounded by the FAA
(although such certification need actually be maintained only during such
periods as the Aircraft is registered in the United States), or the applicable
laws of any other
25
jurisdiction in which the Aircraft may then be registered from time to time
in accordance with Section 8(f) of the Participation Agreement, and
utilizing, except during any period that a Sublease is in effect, the same
manner and standard of maintenance, service, repair or overhaul used by
Lessee with respect to similar aircraft operated by Lessee in similar
circumstances and utilizing, during any period that a Sublease is in effect,
the same manner and standard of maintenance, service, repair or overhaul used
by the Sublessee with respect to similar aircraft operated by the Sublessee
in similar circumstances; provided, however, that in all circumstances the
Aircraft shall be maintained by Lessee (or any Sublessee) in accordance with
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; (iii) maintain
or cause to be maintained all records, logs and other materials required to
be maintained in respect of the Aircraft by the FAA or the applicable
regulatory agency or body of any other jurisdiction in which the Aircraft may
then be registered; and (iv) promptly furnish or cause to be furnished to
Lessor and the Owner Participant such information as may be required to
enable Lessor to file any reports required to be filed by Lessor or the Owner
Participant with any governmental authority because of Lessor's ownership of
the Aircraft. (II) Operation. Lessee will not maintain, use, service,
repair, overhaul or operate the Aircraft (or permit any Sublessee to
maintain, use, service, repair, overhaul or operate the Aircraft) in
violation of any law or any rule, regulation, order or certificate of any
government or governmental authority (domestic or foreign) having
jurisdiction, or in violation of any airworthiness certificate, license or
registration relating to the Aircraft issued by any such authority, except to
the extent Lessee (or, if a Sublease is then in effect, any Sublessee) is
contesting in good faith the validity or application of any such law, rule,
regulation or order in any reasonable manner which does not materially
adversely affect Lessor or, so long as any Secured Certificates shall be
outstanding, the first priority Lien of the Trust Indenture and does not
involve any material risk of sale, forfeiture or loss of the Aircraft.
Lessee will not operate the Aircraft, or permit any Sublessee to operate the
Aircraft, in any area excluded from coverage by any insurance required by the
terms of Section 11; provided, however, that the failure of Lessee to comply
with the provisions of this sentence shall not give rise to an Event of
Default hereunder where such failure is attributable to causes beyond the
reasonable control of Lessee (or any Sublessee) or to Lessee's or any
Sublessee's response to extraordinary circumstances involving an isolated
occurrence or isolated series of incidents not in the ordinary course of the
regular operations of Lessee (or any Sublessee) and in each such case Lessee
(or such Sublessee, as the case may be) is taking all reasonable steps to
remedy such failure as soon as is reasonably practicable.
At any time after the Depreciation Period, Lessor, upon compliance with
all of the terms of Section 8(f) of the Participation Agreement, shall, at the
request and sole expense of Lessee, cooperate with Lessee to take all actions
required to change the registration of the Aircraft to another country.
(b) Possession and Subleases. Lessee will not, without the prior written
consent of Lessor, sublease or otherwise in any manner deliver, transfer or
relinquish possession of the Airframe or any Engine or install or permit any
Engine to be installed on any airframe other than the Airframe or enter into
any Wet Lease; provided that, so long as no
26
Default of the type referred to in Section 14(a), 14(b) or 14(e) or Event of
Default shall have occurred and be continuing at the time of such sublease,
delivery, transfer or relinquishment of possession or installation or such
Wet Lease, and so long as the action to be taken shall not deprive the
Indenture Trustee of the perfected first priority Lien of the Trust Indenture
on the Airframe or (subject to the further proviso (B) to clause (i) of this
Section 7(b)) any Engine, and so long as Lessee (or any Sublessee) shall
comply with the provisions of Sections 7(a) and 11 hereof, Lessee (or, except
with respect to clause (x) below, any Sublessee) may, without the prior
written consent of Lessor:
(i) subject the Airframe and the Engines or engines then
installed thereon to normal interchange agreements or any Engine to
normal pooling or similar arrangements, in each case customary in the
airline industry and entered into by Lessee (or, if a Sublease is
then in effect, by Sublessee) in the ordinary course of its business;
provided that (A) no such agreement or arrangement contemplates or
requires the transfer of title to the Airframe, (B) if Lessor's title
to any Engine shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of Loss
with respect to such Engine and Lessee shall (or shall cause
Sublessee to) comply with Section 10(b) hereof in respect thereof,
and (C) any interchange agreement to which the Airframe may be
subject shall be with a U.S. Air Carrier or a Foreign Air Carrier;
(ii) deliver possession of the Airframe or any Engine to the
manufacturer thereof (or for delivery thereto) or to any organization
(or for delivery thereto) for testing, service, repair, maintenance
or overhaul work on the Airframe or Engine or any part of any thereof
or for alterations or modifications in or additions to such Airframe
or Engine to the extent required or permitted by the terms of Section
8(c) hereof;
(iii) install an Engine on an airframe which is owned by
Lessee (or any Sublessee) free and clear of all Liens, except: (A)
Permitted Liens and those which apply only to the engines (other than
Engines), appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment (other than Parts) installed on such
airframe (but not to the airframe as an entirety), (B) the rights of
third parties under interchange agreements which would be permitted
under clause (i) above, provided that Lessor's title to such Engine
and, if any Secured Certificates shall be outstanding, the first
priority Lien of the Trust Indenture shall not be divested or
impaired as a result thereof and (C) mortgage liens or other security
interests, provided that (as regards this clause (C)) such mortgage
liens or other security interests effectively provide that such
Engine shall not become subject to the lien of such mortgage or
security interest, notwithstanding the installation thereof on such
airframe;
(iv) install an Engine on an airframe leased to Lessee (or any
Sublessee) or purchased by Lessee (or any Sublessee) subject to a
conditional sale or other security agreement, provided that (x) such
airframe is free and
27
clear of all Liens, except: (A) the rights of the parties to the lease
or conditional sale or other security agreement covering such airframe,
or their assignees, and (B) Liens of the type permitted by subparagraph
(iii) of this paragraph (b) and (y) such lease, conditional sale or
other security agreement effectively provides that such Engine shall not
become subject to the lien of such lease, conditional sale or other
security agreement, notwithstanding the installation thereof on such
airframe;
(v) install an Engine on an airframe owned by Lessee (or any
Sublessee), leased to Lessee (or any Sublessee) or purchased by
Lessee (or any Sublessee) subject to a conditional sale or other
security agreement under circumstances where neither subparagraph
(iii) nor subparagraph (iv) of this paragraph (b) is applicable,
provided that such installation shall be deemed an Event of Loss with
respect to such Engine and Lessee shall (or shall cause any Sublessee
to) comply with Section 10(b) hereof in respect thereof, Lessor not
intending hereby to waive any right or interest it may have to or in
such Engine under applicable law until compliance by Lessee with such
Section 10(b);
(vi) to the extent permitted by Section 8(b) hereof, subject any
appliances, Parts or other equipment owned by Lessor and removed from
the Airframe or any Engine to any pooling arrangement referred to in
Section 8(b) hereof;
(vii) subject (or permit any Sublessee to subject) the
Airframe or any Engine to the Civil Reserve Air Fleet Program and
transfer (or permit any Sublessee to transfer) possession of the
Airframe or any Engine to the United States of America or any
instrumentality or agency thereof pursuant to the Civil Reserve Air
Fleet Program, so long as Lessee (or any Sublessee) shall
(A) promptly notify Lessor upon subjecting the Airframe or any Engine
to the Civil Reserve Air Fleet Program in any contract year and
provide Lessor with the name and address of the Contracting Office
Representative for the Air Mobility Command of the United States Air
Force to whom notice must be given pursuant to Section 15 hereof, and
(B) promptly notify Lessor upon transferring possession of the
Airframe or any Engine to the United States of America or any agency
or instrumentality thereof pursuant to such program;
(viii) for a period not to extend beyond the end of the Term,
enter into a Wet Lease for the Airframe and Engines or engines then
installed thereon with any third party; provided that if Lessee (or
any Sublessee) shall enter into any Wet Lease for a period of more
than one year (including renewal options) Lessee shall provide Lessor
written notice of such Wet Lease (such notice to be given prior to
entering into such Wet Lease, if practicable, but in any event
promptly after entering into such Wet Lease);
28
(ix) for a period not to extend beyond the end of the Term,
transfer possession of the Airframe or any Engine to the United
States of America or any instrumentality or agency thereof pursuant
to a contract, a copy of which shall be provided to Lessor; or
(x) Lessee may, at any time, enter into any sublease with (1) a
U.S. Air Carrier, (2) any Person approved in writing by Lessor, which
approval shall not be unreasonably withheld or (3) after the
Depreciation Period, any Permitted Sublessee if (A) 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, (B) in the event that
the Sublessee under such sublease is a foreign air carrier (other
than a foreign air carrier principally based in Taiwan), the United
States maintains diplomatic relations with the country in which such
proposed Sublessee is principally based at the time such sublease is
entered into (or, in the case of a sublease to a proposed Sublessee
principally based in Taiwan, maintains diplomatic relations at least
as good as those in effect on the Delivery Date) and (C) in the event
that the Sublessee under such sublease is a foreign air carrier,
Lessor and the Indenture Trustee shall have received an opinion of
counsel to Lessee to the effect that (I) the terms of the proposed
sublease will be legal, valid, binding and (subject to customary
exceptions in foreign opinions generally) 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 Lessee and assuming at such time such Sublessee is
not insolvent or bankrupt, prevent the return or repossession of the
Aircraft in accordance with the terms of this Lease, (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 the Aircraft in the
event of the requisition by such government of such use, and (IV) the
laws of such Sublessee's country of domicile would give recognition
to Lessor's title to the Aircraft, to the registry of the Aircraft in
the name of the Lessor (or Lessee, as "lessee", or the proposed
Sublessee, as "sublessee", as appropriate) and to the Lien of the
Trustee Indenture, provided, however, that no sublease entered into
pursuant to this clause (x) shall extend beyond the expiration of the
Basic Term or any Renewal Term then in effect unless Lessee shall
have irrevocably committed to purchase the Aircraft.
The rights of any Sublessee or other transferee who receives possession by
reason of a transfer permitted by this paragraph (b) (other than the transfer
of an Engine which is deemed an Event of Loss) shall be effectively subject and
subordinate to, and any Sublease permitted by this paragraph (b) shall be
expressly subject and subordinate to, all the terms of this Lease and to the
Lien of the Trust Indenture, including, without limitation, the covenants
contained in Section 7(a) hereof and Lessor's rights to repossession pursuant
to Section 15
29
hereof and to avoid such Sublease upon such repossession, and Lessee shall
remain primarily liable hereunder for the performance of all of the terms of
this Lease to the same extent as if such Sublease or transfer had not
occurred, and, except as otherwise provided herein, the terms of any such
Sublease shall not permit any Sublessee to take any action not permitted to
be taken by Lessee in this Lease with respect to the Aircraft. No pooling
agreement, sublease or other relinquishment of possession of the Airframe or
any Engine or Wet Lease shall in any way discharge or diminish any of
Lessee's obligations to Lessor hereunder or constitute a waiver of Lessor's
rights or remedies hereunder. Any sublease permitted under this Section 7(b)
shall expressly prohibit any further sub-sublease by the Sublessee. Lessor
agrees, for the benefit of Lessee (and any Sublessee) and for the benefit of
any mortgagee or other holder of a security interest in any engine (other
than an Engine) owned by Lessee (or any Sublessee), any lessor of any engine
(other than an Engine) leased to Lessee (or any Sublessee) and any
conditional vendor of any engine (other than an Engine) purchased by Lessee
(or any Sublessee) subject to a conditional sale agreement or any other
security agreement, that no interest shall be created hereunder in any engine
so owned, leased or purchased and that none of Lessor, its successors or
assigns will acquire or claim, as against Lessee (or any Sublessee) or any
such mortgagee, lessor or conditional vendor or other holder of a security
interest or any successor or assignee of any thereof, any right, title or
interest in such engine as the result of such engine being installed on the
Airframe; provided, however, that such agreement of Lessor shall not be for
the benefit of any lessor or secured party of any airframe (other than the
Airframe) leased to Lessee (or any Sublessee) or purchased by Lessee (or any
Sublessee) 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 Lessee (or any Sublessee), unless such lessor,
conditional vendor, other secured party or mortgagee has expressly agreed
(which agreement may be contained in such lease, conditional sale or other
security agreement or mortgage) that neither it nor its successors or assigns
will acquire, as against Lessor, any right, title or interest in an Engine as
a result of such Engine being installed on such airframe. Lessee shall
provide to the Owner Participant and the Indenture Trustee (i) written notice
of any Sublease hereunder (such notice to be given not later than five days
prior to entering into such Sublease, if practicable, but in any event
promptly after entering into any such Sublease) and (ii) a copy of each
Sublease which has a term of more than three months.
(c) Insignia. On or prior to the Delivery Date, or as soon as
practicable thereafter, Lessee agrees to affix and maintain (or cause to be
affixed and maintained), at its expense, in the cockpit of the Airframe
adjacent to the airworthiness certificate therein and on each Engine a
nameplate bearing the inscription:
Leased From
First Security Bank, National Association, as Owner Trustee,
Lessor
and, for so long as the Airframe and each Engine shall be subject to the Lien
of the Trust Indenture, bearing the following additional inscription:
30
Mortgaged To
State Street Bank and Trust Company,
as Indenture Trustee
(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Lessor or successor Indenture Trustee, in each case as
permitted under the Operative Documents). Except as above provided, Lessee
will not allow the name of any Person to be placed on the Airframe or on any
Engine as a designation that might be interpreted as a claim of ownership;
provided that nothing herein contained shall prohibit Lessee (or any Sublessee)
from placing its customary colors and insignia on the Airframe or any Engine.
SECTION 8. Replacement and Pooling of Parts; Alterations,
Modifications and Additions. (a) Replacement of Parts. Lessee, at its own
cost and expense, will promptly replace or cause to be replaced all Parts which
may from time to time be incorporated or installed in or attached to the
Airframe or any Engine and which may from time to time become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever, except as otherwise provided
in paragraph (c) of this Section 8 or if the Airframe or an Engine to which a
Part relates has suffered an Event of Loss. In addition, Lessee (or any
Sublessee) may, at its own cost and expense, remove in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair
or permanently rendered unfit for use, provided that Lessee (or any Sublessee),
except as otherwise provided in paragraph (c) of this Section 8, will, at its
own cost and expense, replace such Parts as promptly as practicable. All
replacement Parts shall be free and clear of all Liens (except for Permitted
Liens and pooling arrangements to the extent permitted by paragraph (b) of this
Section 8 and except in the case of replacement property temporarily installed
on an emergency basis) 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. Except as otherwise provided in paragraph (c) of this
Section 8, all Parts at any time removed from the Airframe or any Engine shall
remain the property of Lessor, no matter where located, until such time as such
Parts shall be replaced by Parts which have been incorporated or installed in
or attached to the Airframe or such Engine and which meet the requirements for
replacement Parts specified above. Immediately upon any replacement part
becoming incorporated or installed in or attached to the Airframe or any Engine
as above provided, without further act (subject only to Permitted Liens and any
pooling arrangement to the extent permitted by paragraph (b) of this Section 8
and except in the case of replacement property temporarily installed on an
emergency basis), (i) title to such replacement Part shall thereupon vest in
Lessor, (ii) such replacement Part shall become subject to this Lease and be
deemed part of the Airframe or such Engine for all purposes hereof to the same
extent as the Parts originally incorporated or installed in or attached to the
Airframe or such Engine, and (iii) title to the replaced Part shall thereupon
vest in Lessee (or, if a Sublease is then in effect, any Sublessee), free and
clear of all rights of Lessor, and shall no longer be deemed a Part hereunder.
31
(b) Pooling of Parts. Any Part removed from the Airframe or any Engine
as provided in paragraph (a) of this Section 8 may be subjected by Lessee (or
any Sublessee) to a normal pooling arrangement customary in the airline
industry of which Lessee (or, if a Sublease is then in effect, any Sublessee)
is a party entered into in the ordinary course of Lessee's (or any Sublessee's)
business; provided that the Part replacing such removed Part shall be
incorporated or installed in or attached to such Airframe or Engine in
accordance with such paragraph (a) 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 such
paragraph (a) may be owned by any third party subject to such a normal pooling
arrangement, provided that Lessee (or any Sublessee), at its expense, as
promptly thereafter as practicable, either (i) causes title to such replacement
Part to vest in Lessor in accordance with such paragraph (a) by Lessee (or any
Sublessee) acquiring title thereto for the benefit of, and transferring such
title to, Lessor free and clear of all Liens except Permitted Liens (other than
pooling arrangements) or (ii) replaces such replacement Part by incorporating
or installing in or attaching to the Airframe or Engine a further replacement
Part owned by Lessee (or any Sublessee) free and clear of all Liens except
Permitted Liens (other than pooling arrangements) and by causing title to such
further replacement Part to vest in Lessor in accordance with such paragraph
(a).
(c) Alterations, Modifications and Additions. Lessee, at its own
expense, will make (or cause to be made) such alterations and modifications in
and additions to the Airframe and Engines as may be required from time to time
to meet the applicable standards of the FAA or any other governmental authority
having jurisdiction; provided, however, that Lessee (or, if a Sublease is then
in effect, any Sublessee) may, in good faith, contest the validity or
application of any such law, rule, regulation or order in any reasonable manner
which does not adversely affect Lessor or, so long as any Secured Certificates
are outstanding, the Indenture Trustee. In addition, Lessee (or any
Sublessee), at its own expense, may from time to time add further parts or
accessories and make such alterations and modifications in and additions to the
Airframe or any Engine as Lessee (or any Sublessee) may deem desirable in the
proper conduct of its business, including, without limitation, removal of Parts
which Lessee (or any Sublessee) has determined in its reasonable judgment to be
obsolete or no longer suitable or appropriate for use on the Airframe or such
Engine (such parts, "Obsolete Parts"); provided that no such alteration,
modification or addition shall by more than a de minimis amount diminish the
value, utility or remaining useful life of the Airframe or such Engine below
the value, utility or remaining useful life thereof immediately prior to such
alteration, modification or addition, assuming the Airframe or such Engine was
then in the condition required to be maintained by the terms of this Lease,
except that the value (but not the utility or remaining useful life) of the
Airframe or any Engine may be reduced by the value of Obsolete Parts which
shall have been removed so long as the aggregate original cost of all Obsolete
Parts which shall have been removed and not replaced shall not exceed $200,000.
Title to all Parts incorporated or installed in or attached or added to the
Airframe or an Engine as the result of such alteration, modification or
addition (the "Additional Parts") shall, without further act, vest in Lessor.
Notwithstanding the foregoing sentence, Lessee (or any Sublessee) may remove or
suffer to be removed any Additional Part, provided that such Additional Part
(i) is in addition to, and not in replacement of or substitution for, any Part
32
originally incorporated or installed in or attached to the Airframe or any
Engine at the time of delivery thereof hereunder or any Part in replacement of,
or substitution for, any such Part, (ii) is not required to be incorporated or
installed in or attached or added to the Airframe or any Engine pursuant to the
terms of Section 7 hereof or the first sentence of this paragraph (c) and (iii)
can be removed from the Airframe or such Engine without diminishing or
impairing the value, utility or remaining useful life which the Airframe or
such Engine would have had at the time of removal had such alteration,
modification or addition not occurred, assuming that such Airframe or Engine
was in the condition and repair required to be maintained by the terms hereof.
Upon the removal by Lessee (or Sublessee) of any Part as provided above, title
thereto shall, without further act, vest in Lessee (or any Sublessee, as the
case may be) and such Part shall no longer be deemed part of the Airframe or
Engine from which it was removed. Any Part not removed by Lessee (or any
Sublessee) as above provided prior to the return of the Airframe or Engine to
Lessor hereunder shall remain the property of Lessor.
SECTION 9. Voluntary Termination. (a) Termination Event. (1)
[Intentionally Omitted].
(2) Lessee shall have the right to elect to terminate this Lease on any
Lease Period Date occurring on or after the fifth anniversary of the Delivery
Date if Lessee shall have made the good faith determination, which shall be
evidenced by a resolution duly adopted by its Board of Directors (or the
Executive Committee thereof), that the Aircraft is obsolete or surplus to its
needs.
(3) Lessee shall give to Lessor at least one hundred twenty (120) days'
revocable advance written notice of Lessee's intention to so terminate this
Lease (any such notice, a "Termination Notice") specifying (i) the Lease Period
Date on which Lessee intends to terminate this Lease in accordance with this
Section 9 (such specified date, a "Termination Date") and (ii) that Lessee has
determined that the Aircraft is obsolete or surplus to its needs. Any
Termination Notice shall become irrevocable fifteen (15) days prior to the
Termination Date.
(b) [Intentionally Omitted].
(c) Optional Sale of the Aircraft. In the event that Lessee shall have
exercised its right to terminate this Lease under Section 9(a)(2), then during
the period from the giving of the notice referred to in Section 9(a)(3) until
the proposed Termination Date (unless Lessee shall have revoked the Termination
Notice specifying such proposed Termination Date), Lessee, as agent for Lessor
and at no expense to Lessor, shall use commercially reasonable efforts to
obtain all-cash bids in the worldwide market for the purchase of the Aircraft
and, in the event it receives any bid, Lessee shall, within five Business Days
after receipt thereof and at least ten Business Days prior to the proposed
Termination Date, certify to Lessor in writing the amount and terms of such
bid, and the name and address of the party or parties (who shall not be Lessee
or any Affiliate of Lessee or any Person with whom Lessee or any such Affiliate
has an arrangement or understanding regarding the future use of the Aircraft by
Lessee or any such Affiliate but who may be the Owner Participant, any
33
Affiliate thereof or any Person contacted by the Owner Participant) submitting
such bid. After Lessee shall have certified to Lessor all bids received, the
Owner Participant, any Affiliate thereof or any Person contacted by the Owner
Participant may submit a further bid or bids to Lessee not later than five
Business Days prior to the Termination Date proposed by Lessee (unless Lessee
shall have revoked the Termination Notice specifying such proposed Termination
Date). Subject to the next succeeding sentence, on or before the Termination
Date, subject to the release of all mortgage and security interests with
respect to the Aircraft under the Trust Indenture: (1) Lessee shall deliver
the Aircraft, or cause the Aircraft to be delivered, to the bidder(s), if any,
which shall have submitted the highest all-cash bid therefor at least ten (or,
in the case of the Owner Participant, any Affiliate thereof, or Person
contacted by the Owner Participant, five) Business Days prior to such
Termination Date, in the same manner and in the same condition and otherwise in
accordance with all the terms of this Lease as if delivery were made to Lessor
pursuant to Section 5, and shall duly transfer to Lessor title to any engines
not owned by Lessor all in accordance with the terms of Section 5, (2) Lessor
shall comply with the terms of the Trust Indenture and shall, without recourse
or warranty (except as to the absence of Lessor Liens, including for this
purpose Liens which would be Lessor Liens but for the proviso in the definition
of Lessor Liens), subject to prior or concurrent payment by Lessee of all
amounts due under clause (3) of this sentence, sell all of Lessor's right,
title and interest in and to the Aircraft for cash in Dollars to such
bidder(s), the total sales price realized at such sale to be retained by
Lessor, and (3) Lessee shall simultaneously pay or cause to be paid to Lessor
in funds of the type specified in Section 3(f) hereof, an amount equal to the
sum of (A) the excess, if any, of (i) the Termination Value for the Aircraft,
computed as of the Termination Date, over (ii) the net cash proceeds from the
sale of the Aircraft after deducting the reasonable expenses, including
reasonable brokerage commissions and transfer taxes, incurred by Lessor in
connection with such sale, (B) all unpaid Basic Rent with respect to the
Aircraft due prior to such Termination Date and, if such Basic Rent is payable
in arrears on such Termination Date as indicated on Exhibit B, on such
Termination Date, and all unpaid Supplemental Rent due on or prior to the
Termination Date with respect to the Aircraft, and (C) the Make-Whole Amount,
if any, due on the Secured Certificates, and upon such payment Lessor
simultaneously will transfer to Lessee, without recourse or warranty (except as
to the absence of Lessor Liens, including for this purpose Liens which would be
Lessor Liens but for the proviso in the definition of Lessor Liens), all of
Lessor's right, title and interest in and to any Engines constituting part of
the Aircraft which were not sold with the Aircraft. Notwithstanding the
preceding sentence, Lessor may, if Lessee has not revoked the Termination
Notice, elect to retain title to the Aircraft. If Lessor so elects, Lessor
shall give to Lessee written notice of such election at least five Business
Days prior to the Termination Date accompanied by an irrevocable undertaking by
the Owner Participant to make available to Lessor for payment to the Indenture
Trustee on the Termination Date the amount required to pay in full the unpaid
principal amount of the Secured Certificates outstanding on the Termination
Date plus interest accrued thereon through the Termination Date and, without
affecting the obligations of Lessee in respect of such amounts under the second
succeeding sentence, together with the Make-Whole Amount, if any, due on the
Secured Certificates. Upon receipt of notice of such an election by Lessor and
the accompanying undertaking by the Owner Participant, Lessee shall cease its
efforts to obtain bids as provided above and shall reject all bids theretofore
or thereafter received. On the
34
Termination Date, Lessor shall (subject to the payment by Lessee of all Rent
due on or prior to such date as set forth below) pay in full the unpaid
principal amount of the Secured Certificates outstanding on the Termination
Date plus interest accrued thereon through the Termination Date together with
all Make-Whole Amount, if any, due on the Secured Certificates and, so long
as the Secured Certificates are paid as aforesaid, Lessee shall deliver the
Airframe and Engines or engines to Lessor in accordance with Section 5 and
shall pay all Basic Rent due prior to the Termination Date and, if such Basic
Rent is payable in arrears on such Termination Date as indicated on Exhibit
B, on such Termination Date, and all Supplemental Rent (other than
Termination Value) due on or prior to the Termination Date, including
Supplemental Rent of the type described in the second sentence of Section
3(e). If no sale shall have occurred on the Termination Date and Lessor has
not made the payment contemplated by the preceding sentence and thereby
caused this Lease to terminate, or if Lessee revokes its Termination Notice,
this Lease shall continue in full force and effect as to the Aircraft, Lessee
shall pay the reasonable costs and expenses incurred by the Owner Participant
and Lessor (unless such failure to terminate the Lease is a consequence of
the failure of Lessor or the Owner Participant without due cause to make, or
cause to be made, the payment referred to in the immediately preceding
sentence), if any, in connection with preparation for such sale and Lessee
may give one or more additional Termination Notices in accordance with
Section 9(a)(2), subject to the last sentence of this Section 9(c). In the
event of any such sale or such retention of the Aircraft by Lessor and upon
compliance by Lessee with the provisions of this paragraph, the obligation of
Lessee to pay Basic Rent or any other amounts hereunder shall cease to accrue
and this Lease shall terminate. Lessor may, but shall be under no duty to,
solicit bids, inquire into the efforts of Lessee to obtain bids or otherwise
take any action in connection with any such sale other than to transfer (in
accordance with the foregoing provisions) to the purchaser named in the
highest bid certified by Lessee to Lessor all of Lessor's right, title and
interest in the Aircraft, against receipt of the payments provided herein.
Lessee may revoke a Termination Notice given pursuant to Section 9(a)(2) no
more than two times during the Term.
(d) Termination as to Engines. So long as no Event of Default shall have
occurred and be continuing, Lessee shall have the right at its option at any
time during the Term, on at least thirty (30) days' prior written notice, to
terminate this Lease with respect to any Engine. In such event, and prior to
the date of such termination, Lessee shall replace such Engine hereunder by
complying with the terms of Section 10(b) to the same extent as if an Event of
Loss had occurred with respect to such Engine, and Lessor shall transfer such
right, title and interest as it may have to the replaced Engine as provided in
Section 5(b). No termination of this Lease with respect to any Engine as
contemplated by this Section 9(d) shall result in any reduction of Basic Rent.
SECTION 10. Loss, Destruction, Requisition, etc. (a) Event of Loss
with Respect to the Aircraft. Upon the occurrence of an Event of Loss with
respect to the Airframe or the Airframe and the Engines and/or engines then
installed thereon, Lessee shall forthwith (and in any event, within fifteen
(15) days after such occurrence) give Lessor written notice of such Event of
Loss, and within forty-five (45) days after such Event of Loss Lessee shall
give Lessor written notice of its election to perform one of the following
options (it being
35
agreed that if Lessee shall not have given such notice of election within
such period, Lessee shall be deemed to have elected the option set forth in
clause (i) below). Lessee may elect either to:
(i) make the payments specified in this clause (i), in which
event not later than the earlier of (x) the Business Day next
succeeding the 120th day following the occurrence of such Event of
Loss or (y) an earlier Business Day irrevocably specified fifteen
(15) days in advance by notice from Lessee to Lessor and the
Indenture Trustee (the "Loss Payment Date"), Lessee shall pay or
cause to be paid to Lessor in funds of the type specified in Section
3(f) hereof, an amount equal to the Stipulated Loss Value of the
Aircraft corresponding to the Stipulated Loss Value Date occurring on
or immediately following the Loss Payment Date; provided, however,
that if a Lease Period Date shall occur on or prior to the Loss
Payment Date with respect to which Stipulated Loss Value is
determined, Lessee shall pay on such Lease Period Date (A) if the
Lease Period Date occurs on the Loss Payment Date with respect to
which Stipulated Loss Value is determined, an amount equal to the
Basic Rent that would have been due on such Lease Period Date (but
only to the extent payable in arrears as indicated on Exhibit B) if
such Event of Loss had not occurred and (B) if the Lease Period Date
occurs prior to the Loss Payment Date with respect to which
Stipulated Loss Value is determined, an amount equal to the Basic
Rent that would have been due on such Lease Period Date if such Event
of Loss had not occurred, or
(ii) so long as no Default of the type referred to in Section
14(a), 14(b) or 14(e) or Event of Default shall have occurred and be
continuing, substitute an aircraft or an airframe or an airframe and
one or more engines, as the case may be;
provided that, if Lessee does not perform its obligation to effect such
substitution in accordance with this Section 10(a), during the period of time
provided herein, then Lessee shall pay or cause to be paid to Lessor on the
Business Day next succeeding the 120th day following the occurrence of such
Event of Loss the amount specified in clause (i) above.
At such time as Lessor shall have received the amounts specified in
subparagraph (i) above, together with all other amounts that then may be due
hereunder (including, without limitation, all Basic Rent due before the date of
such payment and all Supplemental Rent), under the Participation Agreement and
under the Tax Indemnity Agreement, (1) the obligation of Lessee to pay the
installments of Basic Rent, Supplemental Rent, Stipulated Loss Value,
Termination Value or any other amount shall cease to accrue, (2) this Lease
shall terminate, (3) Lessor will comply with the terms of the Trust Indenture
and transfer to or at the direction of Lessee, without recourse or warranty
(except as to the absence of Lessor Liens, including for this purpose Liens
which would be Lessor Liens but for the proviso in the definition of Lessor
Liens), all of Lessor's right, title and interest in and to the Airframe and
any Engines subject to such Event of Loss, as well as any Engines not subject
to
36
such Event of Loss, and furnish to or at the direction of Lessee a ▇▇▇▇ of
sale in form and substance reasonably satisfactory to Lessee (or any
Sublessee), evidencing such transfer, and (4) Lessee will be subrogated to all
claims of Lessor, if any, against third parties, for damage to or loss of the
Airframe and any Engines which were subject to such Event of Loss to the extent
of the then insured value of the Aircraft.
In the event Lessee shall elect to substitute an aircraft (or an airframe
or an airframe and one or more engines, as the case may be) Lessee shall, at
its sole expense, not later than the Business Day next succeeding the 120th day
following the occurrence of such Event of Loss, (A) convey or cause to be
conveyed to Lessor and to be leased by Lessee hereunder, an aircraft (or an
airframe or an airframe and one or more engines which, together with the
Engines constituting a part of the Aircraft but not installed thereon at the
time of such Event of Loss constitute the Aircraft) free and clear of all Liens
(other than Permitted Liens) and having a value, utility and remaining useful
life (without regard to hours or cycles) at least equal to the Aircraft subject
to such Event of Loss assuming that the Aircraft had been maintained in
accordance with this Lease; provided that any aircraft, airframe or engine so
substituted hereunder shall be of the same or improved model as those initially
leased hereunder and any airframe so substituted hereunder shall have been
delivered by the Manufacturer pursuant to the Purchase Agreement on a date
after the Airframe was delivered by the Manufacturer pursuant to the Purchase
Agreement and Lessee shall comply with the provisions of any asset value
agreement applicable to such substituted airframe which are comparable to
Section 10(d) of the Asset Value Agreement and (B) prior to or at the time of
any such substitution, Lessee (or any Sublessee), at its own expense, will (1)
furnish Lessor with a full warranty ▇▇▇▇ of sale and a Federal Aviation
Administration ▇▇▇▇ of sale, in form and substance reasonably satisfactory to
Lessor, evidencing such transfer of title, (2) cause a Lease Supplement and a
Trust Supplement to be duly executed by Lessee and filed for recording pursuant
to the Federal Aviation Act, or the applicable laws, rules and regulations of
any other jurisdiction in which the Airframe may then be registered as
permitted by Section 8(f) of the Participation Agreement, (3) cause a financing
statement or statements with respect to such substituted property to be filed
in such place or places as are deemed necessary or desirable by Lessor to
perfect its and the Indenture Trustee's interest therein and herein, (4)
furnish Lessor with such evidence of compliance with the insurance provisions
of Section 11 with respect to such substituted property as Lessor may
reasonably request, (5) furnish Lessor with copies of the documentation
required to be provided by Lessee pursuant to Section 5.06 of the Trust
Indenture, and Lessor simultaneously will comply with the terms of the Trust
Indenture and transfer to or at the direction of Lessee, without recourse or
warranty (except as to the absence of Lessor Liens, including for this purpose
Liens which would be Lessor Liens but for the proviso in the definition of
Lessor Liens), all of Lessor's right, title and interest, if any, in and to the
Aircraft or the Airframe and one or more Engines, as the case may be, with
respect to which such Event of Loss occurred and furnish to or at the direction
of Lessee a ▇▇▇▇ of sale in form and substance reasonably satisfactory to
Lessee (or any Sublessee), evidencing such transfer, (6) furnish Lessor with an
opinion of counsel (which shall be Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ and, if not,
other counsel chosen by Lessee and reasonably acceptable to Lessor) reasonably
satisfactory to Lessor to the effect that Lessor and the Indenture Trustee as
assignee of Lessor will be entitled to the benefits of Section 1110 of the U.S.
Bankruptcy Code
37
with respect to the substitute aircraft, provided that such opinion need not
be delivered to the extent that immediately prior to such substitution the
benefits of Section 1110 of the U.S. Bankruptcy Code were not, solely by
reason of a change in law or governmental interpretation thereof, available
to Lessor and, so long as any Secured Certificates are outstanding, the
Indenture Trustee as assignee of Lessor's rights under the Lease with respect
to the Aircraft, and (7) Lessee will be subrogated to all claims of Lessor,
if any, against third parties for damage to or loss of the Airframe and any
Engine which were subject to such Event of Loss to the extent of the then
insured value of the Aircraft. For all purposes hereof, the property so
substituted shall after such transfer be deemed part of the property leased
hereunder and shall be deemed an "Aircraft", "Airframe" and "Engine", as the
case may be, as defined herein. No Event of Loss with respect to the
Airframe or the Airframe and the Engines or engines then installed thereon
for which substitution has been elected pursuant to Section 10(a)(ii) hereof
shall result in any reduction in Basic Rent.
(b) Event of Loss with Respect to an Engine. Upon the occurrence of an
Event of Loss with respect to an Engine under circumstances in which there has
not occurred an Event of Loss with respect to the Airframe, Lessee shall
forthwith (and in any event, within fifteen days after such occurrence) give
Lessor written notice thereof and shall, within sixty (60) days after the
occurrence of such Event of Loss, convey or cause to be conveyed to Lessor, as
replacement for the Engine with respect to which such Event of Loss occurred,
title to another AlliedSignal LF507 type engine (or engine of the same or
another manufacturer of the same, an equivalent or an improved model and
suitable for installation and use on the Airframe without impairing the value,
utility or remaining useful life of the Aircraft; provided that all Engines
shall be of the same make and model) free and clear of all Liens (other than
Permitted Liens, which engine may upon its transfer to Lessor become subject to
any and all Permitted Liens) and having a value, utility and remaining useful
life (without regard to hours or cycles) at least equal to the Engine subject
to such Event of Loss assuming that such Engine had been maintained in
accordance with this Lease. Prior to or at the time of any such conveyance,
Lessee, at its own expense, will (i) furnish Lessor with a warranty (as to
title) ▇▇▇▇ of sale, in form and substance reasonably satisfactory to Lessor,
with respect to such replacement engine, (ii) cause a Lease Supplement and
Trust Supplement to be duly executed by Lessee and to be filed for recording
pursuant to the Federal Aviation Act, or the applicable laws, rules and
regulations of any other jurisdiction in which the Airframe may then be
registered as permitted by Section 8(f) of the Participation Agreement, (iii)
furnish Lessor with such evidence of compliance with the insurance provisions
of Section 11 hereof with respect to such replacement engine as Lessor may
reasonably request and furnish Lessor with copies of the documentation required
to be provided by Lessee pursuant to Section 5.06 of the Trust Indenture, and
Lessor will comply with the terms of the Trust Indenture and transfer to or at
the direction of Lessee without recourse or warranty (except as to absence of
Lessor Liens, including for this purpose Liens which would be Lessor Liens but
for the proviso in the definition of Lessor Liens) all of Lessor's right, title
and interest, if any, in and to (A) the Engine with respect to which such Event
of Loss occurred and furnish to or at the direction of Lessee a ▇▇▇▇ of sale in
form and substance reasonably satisfactory to Lessee, evidencing such transfer
and (B) all claims, if any, against third parties, for damage to or loss of the
Engine subject to such Event of Loss, and such Engine shall thereupon cease to
be the Engine leased
38
hereunder. For all purposes hereof, each such replacement engine shall,
after such conveyance, be deemed part of the property leased hereunder, and
shall be deemed an "Engine". No Event of Loss with respect to an Engine
under the circumstances contemplated by the terms of this paragraph (b) shall
result in any reduction in Basic Rent.
(c) Application of Payments from Governmental Authorities for Requisition
of Title, etc. Any payments (other than insurance proceeds the application of
which is provided for in Section 11) received at any time by Lessor or by
Lessee from any governmental authority or other Person with respect to an Event
of Loss will be applied as follows:
(i) if payments are received with respect to the Airframe (or
the Airframe and any Engine or engines then installed thereon), (A)
unless the same are replaced pursuant to the last paragraph of
Section 10(a), after reimbursement of Lessor (as provided in Section
7.01 of the Trust Agreement) for reasonable costs and expenses, so
much of such payments remaining as shall not exceed the Stipulated
Loss Value required to be paid by Lessee pursuant to Section 10(a),
shall be applied in reduction of Lessee's obligation to pay
Stipulated Loss Value, if not already paid by Lessee, or, if already
paid by Lessee, shall be applied to reimburse Lessee for its payment
of Stipulated Loss Value, and following the foregoing application,
the balance, if any, of such payments will be paid over to, or
retained by Lessee, provided that Lessor shall be entitled to so much
of the excess, if any, of such payment over the Stipulated Loss Value
as is attributable to compensation for loss of Lessor's interest in
the Aircraft as distinguished from the loss of use of the Aircraft;
or (B) if such property is replaced pursuant to the last paragraph of
Section 10(a), such payments shall be paid over to, or retained by,
Lessee; provided that Lessee shall have fully performed or,
concurrently therewith, will fully perform the terms of the last
paragraph of Section 10(a) with respect to the Event of Loss for
which such payments are made; and
(ii) if such payments are received with respect to an Engine
under circumstances contemplated by Section 10(b) hereof, so much of
such payments remaining after reimbursement of Lessor (as provided
for in Section 7.01 of the Trust Agreement) for reasonable costs and
expenses shall be paid over to, or retained by, Lessee, provided that
Lessee shall have fully performed, or concurrently therewith will
perform, the terms of Section 10(b) with respect to the Event of Loss
for which such payments are made.
(d) Requisition for Use of the Aircraft by the United States Government
or the Government of Registry of the Aircraft. In the event of the requisition
for use of the Airframe and the Engines or engines installed on the Airframe
during the Term by the United States Government or any other government of
registry of the Aircraft or any instrumentality or agency of any thereof,
Lessee shall promptly notify Lessor of such requisition, and all of Lessee's
obligations under this Lease Agreement with respect to the Aircraft shall
continue to
39
the same extent as if such requisition had not occurred, provided that if
such Airframe and Engines or engines installed thereon are not returned by
such government prior to the end of the Term, Lessee shall be obligated to
return the Airframe and such Engines or engines to Lessor pursuant to, and in
all other respects in compliance with the provisions of, Section 5 promptly
on the date of such return by such government. If, in the event of any such
requisition, Lessee shall fail to return the Aircraft on or before the
thirtieth day beyond the end of the Term, such failure shall constitute an
Event of Loss which shall be deemed to have occurred on the last day of the
Term and in such event Lessee shall make the payment contemplated by Section
10(a)(i) in respect of such Event of Loss; provided, however, that Lessor may
notify Lessee in writing on or before the twentieth day prior to the last day
of the Term that, in the event Lessee shall fail by reason of such
requisition to return the Airframe and such Engines or engines on or before
the thirtieth day beyond the end of the Term, such failure shall not be
deemed an Event of Loss. Upon the giving of such notice and such failure to
return by the thirtieth day beyond the end of the Term, Lessee shall be
relieved of all of its obligations pursuant to the provisions of Section 5
(including Exhibits G and H) but not under any other Section, except that if
any engine not owned by Lessor shall then be installed on the Airframe,
Lessee will, at no cost to Lessor, furnish, or cause to be furnished, to
Lessor a full warranty (as to title) ▇▇▇▇ of sale with respect to each such
engine, in form and substance reasonably satisfactory to Lessor (together
with an opinion of counsel to the effect that such full warranty ▇▇▇▇ of sale
has been duly authorized and delivered and is enforceable in accordance with
its terms and that such engines are free and clear of Liens other than Lessor
Liens (including for this purpose Liens which would be Lessor Liens but for
the proviso in the definition of Lessor Liens), Loan Participant Liens and
Indenture Trustee Liens), against receipt from Lessor of a ▇▇▇▇ of sale
evidencing the transfer, without recourse or warranty (except as to the
absence of Lessor Liens, including for this purpose Liens which would be
Lessor Liens but for the proviso in the definition of Lessor Liens), by
Lessor to Lessee or its designee of all of Lessor's right, title and interest
in and to any Engine constituting part of the Aircraft but not then installed
on the Airframe. All payments received by Lessor or Lessee from such
government for the use of such Airframe and Engines or engines during the
Term shall be paid over to, or retained by, Lessee (or, if directed by
Lessee, any Sublessee); and all payments received by Lessor or Lessee from
such government for the use of such Airframe and Engines or engines after the
end of the Term shall be paid over to, or retained by, Lessor unless Lessee
shall have exercised its purchase option hereunder, in which case such
payments shall be made to Lessee.
(e) Requisition for Use of an Engine by the United States Government or
the Government of Registry of the Aircraft. In the event of the requisition
for use of an Engine by the United States Government or any other government of
registry of the Aircraft or any agency or instrumentality of any thereof (other
than in the circumstances contemplated by subsection (d)), Lessee shall replace
such Engine hereunder by complying (or causing any Sublessee to comply) with
the terms of Section 10(b) to the same extent as if an Event of Loss had
occurred with respect thereto, and, upon compliance with Section 10(b) hereof,
any payments received by Lessor or Lessee from such government with respect to
such requisition shall be paid over to, or retained by, Lessee.
40
(f) Application of Payments During Existence of Event of Default. Any
amount referred to in this Section 10 which is payable to or retainable by
Lessee (or any Sublessee) shall not be paid to or retained by Lessee (or such
Sublessee) if at the time of such payment or retention an Event of Default shall
have occurred and be continuing, but shall be held by or paid over to Lessor as
security for the obligations of Lessee (or such Sublessee) under this Lease and,
if Lessor declares this Lease to be in default pursuant to Section 15 hereof,
applied against Lessee's obligations hereunder as and when due. At such time as
there shall not be continuing any such Event of Default, such amount shall be
paid to Lessee (or such Sublessee) to the extent not previously applied in
accordance with the preceding sentence.
SECTION 11. Insurance. (a) Public Liability and Property Damage
Insurance. (I) Except as provided in clause (II) of this Section 11(a), Lessee
will carry or cause to be carried at its or any Sublessee's expense (i) aircraft
public liability (including, without limitation, passenger legal liability) (and
including aircraft war risk and hijacking insurance, if and to the extent the
same is maintained by Lessee (or, if a Sublease is then in effect, if and to the
extent maintained by Sublessee) with respect to other aircraft owned or leased,
and operated by Lessee (or such Sublessee) on the same routes) insurance and
property damage insurance (exclusive of manufacturer's product liability
insurance) with respect to the Aircraft, in an amount not less than the greater
of (x) the amount of public liability and property damage insurance from time to
time applicable to aircraft owned or operated by Lessee (or, if a Sublease is
then in effect, by Sublessee) of the same type as the Aircraft and (y) such
amount per occurrence as may have been agreed to on the Delivery Date by the
Owner Participant and (ii) cargo liability insurance, in the case of both clause
(i) and clause (ii), (A) of the type and covering the same risks as from time to
time applicable to aircraft operated by Lessee (or, if a Sublease is then in
effect, by Sublessee) of the same type as the Aircraft and (B) which is
maintained in effect with insurers of recognized responsibility. Any policies of
insurance carried in accordance with this paragraph (a) and any policies taken
out in substitution or replacement for any of such policies (A) shall be amended
to name Lessor, in its individual capacity and as owner trustee, the Indenture
Trustee and the Owner Participant (but without imposing on any such parties
liability to pay the premiums for such insurance) (and, if any Sublease shall be
in effect, Lessee in its capacity as sublessor under the Sublease) as additional
insureds as their respective interests may appear, (B) shall provide that in
respect of the respective interests of Lessor, the Indenture Trustee and the
Owner Participant (and, if any Sublease shall be in effect, Lessee in its
capacity as sublessor under the Sublease) in such policies the insurance shall
not be invalidated by any action or inaction of Lessee (or, if any Sublease is
then in effect, any Sublessee) or any other Person and shall insure Lessor, the
Indenture Trustee and the Owner Participant (and, if any Sublease shall be in
effect, Lessee in its capacity as sublessor under the Sublease) regardless of
any breach or violation of any warranty, declaration or condition contained in
such policies by Lessee (or, if any Sublease is then in effect, any Sublessee),
(C) may provide for self-insurance to the extent permitted by Section 11(d) and
(D) shall provide that if the insurers cancel such insurance for any reason
whatever or if any material change is made in such insurance which adversely
affects the interest of Lessor, the Indenture Trustee or the Owner Participant
(or, if any Sublease shall be in effect, Lessee in its capacity as sublessor
under the Sublease), or such insurance shall lapse for non-payment of premium,
such cancellation, lapse or change shall not be effective as to
41
Lessor, the Indenture Trustee or the Owner Participant (or, if any Sublease
shall be in effect, Lessee in its capacity as sublessor under the Sublease)
for thirty (30) days (seven (7) days in the case of war risk and allied
perils coverage) after issuance to Lessor, the Indenture Trustee or the Owner
Participant (or, if any Sublease shall be in effect, Lessee in its capacity
as sublessor under the Sublease), respectively, of written notice by such
insurers of such cancellation, lapse or change; provided, however, that if
any notice period specified above is not reasonably obtainable, such policies
shall provide for as long a period of prior notice as shall then be
reasonably obtainable. Each liability policy (1) shall be primary without
right of contribution from any other insurance which is carried by Lessor,
the Indenture Trustee or the Owner Participant (or, if any Sublease shall be
in effect, Lessee in its capacity as sublessor under the Sublease), (2) shall
expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate
policy covering each insured, and (3) shall waive any right of the insurers
to any set-off or counterclaim or any other deduction, whether by attachment
or otherwise, in respect of any liability of Lessor or the Indenture Trustee
or the Owner Participant (or, if any Sublease shall be in effect, Lessee in
its capacity as sublessor under the Sublease) to the extent of any moneys due
to Lessor, the Indenture Trustee or the Owner Participant (or, if any
Sublease shall be in effect, Lessee in its capacity as sublessor under the
Sublease).
(II) During any period that the Aircraft is on the ground and not in
operation, Lessee may carry or cause to be carried, in lieu of the insurance
required by clause (I) above, insurance otherwise conforming with the provisions
of said clause (I) except that (A) the amounts of coverage shall not be required
to exceed the amounts of public liability and property damage insurance from
time to time applicable to aircraft owned or operated by Lessee (or, if a
Sublease is then in effect, by Sublessee) of the same type as the Aircraft which
are on the ground and not in operation; and (B) the scope of the risks covered
and the type of insurance shall be the same as from time to time shall be
applicable to aircraft owned or operated by Lessee (or, if a Sublease is then in
effect, by Sublessee) of the same type which are on the ground and not in
operation.
(b) Insurance Against Loss or Damage to the Aircraft. (I) Except as
provided in clause (II) of this Section 11(b), Lessee shall maintain or cause to
be maintained in effect, at its or any Sublessee's expense, with insurers of
recognized responsibility, all-risk ground and flight aircraft hull insurance
covering the Aircraft and all-risk ground and flight coverage of Engines and
Parts while temporarily removed from the Aircraft and not replaced by similar
components (including, without limitation, war risk and governmental
confiscation and expropriation (other than by the government of registry of the
Aircraft) and hijacking insurance, if and to the extent the same is maintained
by Lessee (or, if a Sublease is then in effect, by Sublessee) with respect to
other aircraft owned or operated by Lessee (or such Sublessee) on the same
routes, except that Lessee (or such Sublessee) shall maintain war risk and
governmental confiscation and expropriation (other than by the government of
registry of the Aircraft) and hijacking insurance if the Aircraft is operated on
routes where the custom is for major international air carriers flying
comparable routes to carry such insurance) which is of the type as from time to
time applicable to aircraft owned or operated by Lessee (or, if a Sublease is
then in effect, by Sublessee) of the same type as the Aircraft; provided that
such
42
insurance shall at all times while the Aircraft is subject to this Lease be
for an amount (subject to self-insurance to the extent permitted by Section
11(d)) not less than the Stipulated Loss Value for the Aircraft. Any policies
carried in accordance with this paragraph (b) covering the Aircraft and any
policies taken out in substitution or replacement for any such policies (i)
shall name Lessor, as owner trustee, the Indenture Trustee and the Owner
Participant (and, if any Sublease shall be in effect, Lessee in its capacity as
sublessor under the Sublease) as additional insureds, as their respective
interests may appear (but without imposing on any such party liability to pay
premiums with respect to such insurance), (ii) may provide for self-insurance to
the extent permitted in Section 11(d), (iii) shall provide that (A) in the event
of a loss involving proceeds in excess of $3,500,000 (or, if the Aircraft is
then under a Sublease, in excess of $2,000,000), the proceeds in respect of such
loss up to an amount equal to the Stipulated Loss Value for the Aircraft shall
be payable to Lessor (or, so long as the Trust Indenture shall not have been
discharged, the Indenture Trustee) (except in the case of a loss with
respect to an Engine installed on an airframe other than the Airframe, in which
case Lessee (or any Sublessee) shall arrange for any payment of insurance
proceeds in respect of such loss to be held for the account of Lessor (or, so
long as the Trust Indenture shall not have been discharged, the Indenture
Trustee) whether such payment is made to Lessee (or any Sublessee) or any third
party), it being understood and agreed that in the case of any payment to Lessor
(or the Indenture Trustee) otherwise than in respect of an Event of Loss, Lessor
(or the Indenture Trustee) shall, upon receipt of evidence satisfactory to it
that the damage giving rise to such payment shall have been repaired or that
such payment shall then be required to pay for repairs then being made, pay the
amount of such payment to Lessee or its order, and (B) the entire amount of any
loss involving proceeds of $3,500,000 (or, if the Aircraft is then under a
Sublease, of $2,000,000) or less or the amount of any proceeds of any loss in
excess of the Stipulated Loss Value for the Aircraft shall be paid to Lessee or
its order unless an Event of Default shall have occurred and be continuing and
the insurers have been notified thereof by Lessor or the Indenture Trustee, (iv)
shall provide that if the insurers cancel such insurance for any reason
whatever, or such insurance lapses for non-payment of premium or if any material
change is made in the insurance which adversely affects the interest of Lessor,
the Indenture Trustee or the Owner Participant, such cancellation, lapse or
change shall not be effective as to Lessor, the Indenture Trustee or the Owner
Participant (or, if any Sublease shall be in effect, Lessee in its capacity as
sublessor under the Sublease) for thirty (30) days (seven (7) days in the case
of hull war risk and allied perils coverage) after issuance to Lessor, the
Indenture Trustee or the Owner Participant (or, if any Sublease shall be in
effect, Lessee in its capacity as sublessor under the Sublease), respectively,
of written notice by such insurers of such cancellation, lapse or change,
provided, however, that if any notice period specified above is not reasonably
obtainable, such policies shall provide for as long a period of prior notice as
shall then be reasonably obtainable, (v) shall provide that in respect of the
respective interests of Lessor, the Indenture Trustee and the Owner Participant
(and, if any Sublease shall be in effect, Lessee in its capacity as sublessor
under the Sublease) in such policies the insurance shall not be invalidated by
any action or inaction of Lessee (or, if a Sublease is then in effect, any
Sublessee) or any other Person and shall insure the respective interests of
Lessor, the Indenture Trustee and the Owner Participant (and, if any Sublease
shall be in effect, Lessee in its capacity as sublessor under the Sublease), as
they appear, regardless of any breach or
43
violation of any warranty, declaration or condition contained in such
policies by Lessee (or, if a Sublease is then in effect, any Sublessee), (vi)
shall be primary without any right of contribution from any other insurance
which is carried by Lessor, the Owner Participant or the Indenture Trustee
(or, if any Sublease shall be in effect, Lessee in its capacity as sublessor
under the Sublease), (vii) shall waive any right of subrogation of the
insurers against Lessor, the Owner Participant and the Indenture Trustee
(and, if any Sublease shall be in effect, Lessee in its capacity as sublessor
under the Sublease), and (viii) shall waive any right of the insurers to
set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of Lessor, the Indenture Trustee, the
Owner Participant or Lessee (or any Sublessee) to the extent of any moneys
due to Lessor, the Indenture Trustee or the Owner Participant. In the case of
a loss with respect to an engine (other than an Engine) installed on the
Airframe, Lessor shall hold any payment to it of any insurance proceeds in
respect of such loss for the account of Lessee or any other third party that
is entitled to receive such proceeds.
As between Lessor and Lessee, it is agreed that all insurance payments
received as the result of the occurrence of an Event of Loss will be applied as
follows:
(x) if such payments are received with respect to the
Airframe (or the Airframe and the Engines installed thereon), (i)
unless such property is replaced pursuant to the last paragraph of
Section 10(a), so much of such payments remaining, after
reimbursement of Lessor (as provided in Section 7.01 of the Trust
Agreement) for reasonable costs and expenses, as shall not exceed
the Stipulated Loss Value required to be paid by Lessee pursuant to
Section 10(a) hereof shall be applied in reduction of Lessee's
obligation to pay such Stipulated Loss Value, if not already paid
by Lessee, or, if already paid by Lessee, shall be applied to
reimburse Lessee for its payment of such Stipulated Loss Value, and
the balance, if any, of such payments remaining thereafter will be
paid over to, or retained by, Lessee (or if directed by Lessee, any
Sublessee); or (ii) if such property is replaced pursuant to the
last paragraph of Section 10(a), such payments shall be paid over
to, or retained by, Lessee (or if directed by Lessee, any
Sublessee), provided that Lessee shall have fully performed, or
concurrently therewith will fully perform, the terms of the last
paragraph of Section 10(a) with respect to the Event of Loss for
which such payments are made; and
(y) if such payments are received with respect to an Engine
under the circumstances contemplated by Section 10(b) hereof, so much
of such payments remaining, after reimbursement of Lessor (as provided
in Section 7.01 of the Trust Agreement) for reasonable costs and
expenses, shall be paid over to, or retained by, Lessee (or if directed
by Lessee, any Sublessee), provided that Lessee shall have fully
performed, or concurrently therewith will fully perform, the terms of
Section 10(b) with respect to the Event of Loss for which such payments
are made.
As between Lessor and Lessee, the insurance payments for any property
damage loss to the Airframe or any engine not constituting an Event of Loss with
respect thereto will
44
be applied in payment for repairs or for replacement property in accordance
with the terms of Sections 7 and 8, if not already paid for by Lessee (or any
Sublessee), and any balance (or if already paid for by Lessee (or any
Sublessee), all such insurance proceeds) remaining after compliance with such
Sections with respect to such loss shall be paid to Lessee (or any Sublessee
if directed by Lessee).
(II) During any period that the Aircraft is on the ground and not in
operation, Lessee may carry or cause to be carried, in lieu of the insurance
required by clause (I) above, insurance otherwise conforming with the provisions
of said clause (I) except that the scope of the risks and the type of insurance
shall be the same as from time to time applicable to aircraft owned or operated
by Lessee (or, if a Sublease is then in effect, by Sublessee) of the same type
similarly on the ground and not in operation, provided that Lessee shall
maintain insurance against risk of loss or damage to the Aircraft in an amount
equal to the Stipulated Loss Value of the Aircraft during such period that the
Aircraft is on the ground and not in operation.
(c) Reports, etc. Lessee will furnish, or cause to be furnished, to
Lessor, the Indenture Trustee and the Owner Participant, on or before the
Delivery Date and on or before July 1 in each year thereafter during the Term
commencing July, 1998, a report, signed by Aon Risk Services, Inc., Aon Risk
Services of Minnesota, Inc. or any other independent firm of insurance brokers
reasonably acceptable to Lessor (the "Insurance Brokers"), describing in
reasonable detail the insurance and reinsurance then carried and maintained with
respect to the Aircraft and stating the opinion of such firm that the insurance
then carried and maintained with respect to the Aircraft complies with the terms
hereof; provided, however, that all information contained in the foregoing
report shall not be made available by Lessor, the Indenture Trustee, the Loan
Participants or the Owner Participant to anyone except (A) to permitted
transferees of Lessor's, the Loan Participants', the Owner Participant's or the
Indenture Trustee's interest who agree to hold such information confidential,
(B) to Lessor's, the Loan Participants', the Owner Participant's or the
Indenture Trustee's counsel or independent certified public accountants or
independent insurance advisors who agree to hold such information
confidential or (C) as may be required by any statute, court or administrative
order or decree or governmental ruling or regulation. Lessee will cause such
Insurance Brokers to agree to advise Lessor, the Indenture Trustee and the Owner
Participant in writing of any default in the payment of any premium and of any
other act or omission on the part of Lessee of which it has knowledge and which
might invalidate or render unenforceable, in whole or in part, any insurance on
the Aircraft. To the extent such agreement is reasonably obtainable, Lessee will
also cause such Insurance Brokers to agree to advise Lessor, the Indenture
Trustee and the Owner Participant in writing at least thirty (30) days (seven
(7) days in the case of war risk and allied perils coverage), prior to the
expiration or termination date of any insurance carried and maintained on the
Aircraft pursuant to this Section 11. In addition, Lessee will also cause such
Insurance Brokers to deliver to Lessor, the Indenture Trustee and the Owner
Participant, on or prior to the date of expiration of any insurance policy
referenced in a previously delivered certificate of insurance, a new certificate
of insurance, substantially in the same form as delivered by Lessee to such
parties on the Delivery Date. In the event that Lessee or any Sublessee shall
fail to maintain or cause to be maintained insurance as herein
45
provided, Lessor or the Indenture Trustee may at its sole option provide such
insurance and, in such event, Lessee shall, upon demand, reimburse Lessor or
the Indenture Trustee, as Supplemental Rent, for the cost thereof to Lessor
or the Indenture Trustee, as the case may be, without waiver of any other
rights Lessor or the Indenture Trustee may have; provided, however, that no
exercise by Lessor or the Indenture Trustee, as the case may be, of said
option shall affect the provisions of this Lease, including the provisions of
Section 14(g) hereof.
(d) Self-Insurance. Lessee may self-insure by way of deductible,
premium adjustment or franchise provisions or otherwise (including, with respect
to insurance maintained pursuant to Section 11(b), insuring for a maximum amount
which is less than the Stipulated Loss Value of the Aircraft) in the insurance
covering the risks required to be insured against pursuant to this Section 11
under a program applicable to all aircraft in Lessee's fleet, but in no case
shall the aggregate amount of self-insurance in regard to Section 11(a) and
Section 11(b) exceed during any policy year, with respect to all of the aircraft
in Lessee's fleet (including, without limitation, the Aircraft), the lesser of
(a) 50% of the largest replacement value of any single aircraft in Lessee's
fleet or (b) 1-1/2% of the average aggregate insurable value (during the
preceding policy year) of all aircraft (including, without limitation, the
Aircraft) on which Lessee carries insurance. In addition, Lessee (and any
Sublessee) may self-insure to the extent of any applicable mandatory minimum per
aircraft (or, if applicable, per annum or other period) hull or liability
insurance deductible imposed by the aircraft hull or liability insurers.
(e) Additional Insurance by Lessor and Lessee. Lessee (and any
Sublessee) may at its own expense carry insurance with respect to its interest
in the Aircraft in amounts in excess of that required to be maintained by this
Section 11; the Owner Participant either directly or through Lessor may carry
for its own account at its sole cost and expense insurance with respect to its
interest in the Aircraft, provided that such insurance does not prevent Lessee
(or any Sublessee) from carrying the insurance required or permitted by this
Section 11 or adversely affect such insurance or the cost thereof.
Notwithstanding any other provision of this Lease, all proceeds of insurance
carried by Lessor shall be paid to Lessor.
(f) Indemnification by Government in Lieu of Insurance. Notwithstanding
any provisions of this Section 11 requiring insurance, Lessor agrees to accept,
in lieu of insurance against any risk with respect to the Aircraft,
indemnification from, or insurance provided by, the United States Government or
any agency or instrumentality thereof or, upon the written consent of Lessor,
other government of registry of the Aircraft or any agency or instrumentality
thereof, against such risk in an amount which, when added to the amount of
insurance against such risk maintained by Lessee (or any Sublessee) with respect
to the Aircraft (including permitted self-insurance) shall be at least equal to
the amount of insurance against such risk otherwise required by this
Section 11.
(g) Application of Payments During Existence of an Event of Default.
Any amount referred to in paragraph (b) of this Section 11 which is payable to
or retainable by Lessee (or any Sublessee) shall not be paid to or retained by
Lessee (or any Sublessee) if at the
46
time of such payment or retention an Event of Default shall have occurred and
be continuing, but shall be held by or paid over to Lessor as security for
the obligations of Lessee (or any Sublessee) under this Lease and, if Lessor
declares this Lease to be in default pursuant to Section 15 hereof, applied
against Lessee's obligations hereunder as and when due. At such time as there
shall not be continuing any such Event of Default, such amount shall be paid
to Lessee (or such Sublessee) to the extent not previously applied in
accordance with the preceding sentence.
SECTION 12. Inspection. At all reasonable times and upon at
least 15 days' prior written notice to Lessee, Lessor, the Owner Participant
or the Indenture Trustee or their respective authorized representatives may
(not more than once every calendar year (unless an Event of Default has
occurred and is continuing when such inspection right shall not be so
limited)) inspect the Aircraft and inspect and make copies (at Lessor's, the
Owner Participant's or the Indenture Trustee's expense, as the case may be)
of the books and records of Lessee relating to the maintenance of the
Aircraft; any such inspection of the Aircraft shall be limited to a visual,
walk-around inspection and shall not include opening any panels, bays or the
like without the express consent of Lessee; provided that no exercise of such
inspection right shall interfere with the operation or maintenance of the
Aircraft by, or the business of, Lessee (or any Sublessee). Upon receipt by
Lessee of a written request from the Owner Participant specifying that the
Owner Participant desires to have an authorized representative observe the
next scheduled major overhaul to be performed on the Aircraft, Lessee shall
cooperate with the Owner Participant to enable the Owner Participant's
authorized representative to observe the next scheduled major overhaul to be
performed on the Aircraft; provided that, unless an Event of Default has
occurred and is continuing (when such observation right shall not be so
limited), Lessee shall be required to so cooperate only to the extent
necessary to enable the Owner Participant's authorized representative to
observe (i) one scheduled major overhaul during each three year period of the
Term and (ii) (notwithstanding the foregoing clause (i) but only if a major
overhaul is scheduled during the last year of the Term) one scheduled major
overhaul during the last year of the Term; provided, further that the Owner
Participant's authorized representative shall merely observe such major
overhaul, shall not interfere with or extend in any manner the conduct or
duration of the major overhaul and shall not be entitled to direct any of the
work performed in connection with such overhaul. In addition and
notwithstanding the foregoing, Lessee agrees to (i) perform all of Owner
Participant's obligations under Section 3(c) of the Residual Agreement or any
comparable provision of any Successor Residual Agreement and (ii) fully
cooperate with any inspections of the Aircraft and any books, record or logs
related thereto, conducted by or behalf of by the Manufacturer under the
Residual Agreement or any Person who is the counterparty to any Successor
Residual Agreement. None of Lessor, the Owner Participant or the Indenture
Trustee shall have any duty to make any such inspection nor shall any of them
incur any liability or obligation by reason of not making such inspection.
SECTION 13. Assignment. Except as otherwise provided herein,
Lessee will not, without prior written consent of Lessor, assign in whole or
in part any of its rights or obligations hereunder. Lessor agrees that it
will not assign or convey its right, title and interest in and to this Lease
or the Aircraft except as provided herein, in the Trust Agreement
47
or in the Participation Agreement. Subject to the foregoing, the terms and
provisions of this Lease shall be binding upon and inure to the benefit of
Lessor and Lessee and their respective successors and permitted assigns.
SECTION 14. Events of Default. Each of the following events
shall constitute an Event of Default (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body)
and each such Event of Default shall continue so long as, but only as long
as, it shall not have been remedied:
(a) Lessee shall not have made a payment of Basic Rent or
Stipulated Loss Value within ten (10) Business Days after the same
shall have become due; or
(b) Lessee shall have failed to make a payment of Supplemental
Rent (other than Stipulated Loss Value) after the same shall have
become due and such failure shall continue for ten (10) Business Days
after Lessee's receipt of written demand therefor by the party entitled
thereto (provided that any failure to pay any amount owed by Lessee
under the Tax Indemnity Agreement or any failure of Lessee to pay to
Lessor or the Owner Participant when due any Excluded Payments (as
defined in the Trust Indenture) shall not constitute an Event of
Default unless notice is given by the Owner Participant to Lessee and
the Indenture Trustee that such failure shall constitute an Event of
Default); or
(c) Lessee shall have failed to perform or observe (or caused
to be performed and observed) any covenant or agreement (except the
covenants set forth in the Tax Indemnity Agreement and in clauses
(i)(B) and (ii) of the first sentence of second paragraph of Exhibit G)
to be performed or observed by it under any Operative Document, and
such failure shall continue unremedied for a period of thirty (30) days
after receipt by Lessee of written notice thereof from Lessor or the
Indenture Trustee; provided, however, that if Lessee shall have
undertaken to cure any such failure which arises under clause (ii) or
clause (iii) of the first sentence of Section 7(a), or under the second
sentence of Section 7(a) as it relates to maintenance, service, repair
or overhaul or under Section 8 and, notwithstanding the diligence of
Lessee in attempting to cure such failure, such failure is not cured
within said thirty day period but is curable with future due diligence,
there shall exist no Event of Default under this Section 14 so long as
Lessee is proceeding with due diligence to cure such failure and such
failure is remedied not later than two hundred seventy (270) days after
receipt by Lessee of such written notice; or
(d) any representation or warranty made by Lessee herein or in
the Participation Agreement or any document or certificate furnished by
Lessee in connection herewith or therewith or pursuant hereto or
thereto (except the
48
representations and warranties set forth in Section 3 of the Tax
Indemnity Agreement and such documents or certificates as are
furnished to the Owner Participant solely in connection with matters
dealt with in the Tax Indemnity Agreement and for no other purpose
and except for representations or warranties contained in the Pass
Through Trust Agreement or the Underwriting Agreement (as defined in
the Participation Agreement) or any document or instrument furnished
pursuant to either thereof) shall prove to have been incorrect in
any material respect at the time made and such incorrectness shall
not have been cured (to the extent of the adverse impact of such
incorrectness on the interests of the Owner Participant, Lessor or
the Certificate Holders) within thirty (30) days after the receipt
by Lessee of a written notice from Lessor or the Indenture Trustee
advising Lessee of the existence of such incorrectness; or
(e) the commencement of an involuntary case or other
proceeding in respect of Lessee in an involuntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law
in the United States or seeking the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Lessee or for all or substantially all of its property,
or seeking the winding-up or liquidation of its affairs and the
continuation of any such case or other proceeding undismissed and
unstayed for a period of ninety (90) consecutive days or an order,
judgment or decree shall be entered in any proceeding by any court of
competent jurisdiction appointing, without the consent of Lessee, a
receiver, trustee or liquidator of Lessee, or of any substantial part
of its property, or sequestering any substantial part of the property
of Lessee and any such order, judgment or decree or appointment or
sequestration shall be final or shall remain in force undismissed,
unstayed or unvacated for a period of ninety (90) days after the date
of entry thereof; or
(f) the commencement by Lessee of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or other
similar law in the United States, or the consent by Lessee to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of Lessee or for all or substantially all of its property, or the
making by Lessee of any assignment for the benefit of creditors, or
Lessee shall take any corporate action to authorize any of the
foregoing; or
(g) Lessee shall fail to carry and maintain on or with respect
to the Aircraft (or cause to be carried and maintained) insurance
required to be maintained in accordance with the provisions of Section
11 hereof;
provided, however, that, notwithstanding anything to the contrary contained in
this Section 14, any failure of Lessee to perform or observe any covenant,
condition, agreement or any error in a representation or warranty shall not
constitute an Event of Default if such failure or error is
49
caused solely by reason of an event that constitutes an Event of Loss so long
as Lessee is continuing to comply with all of the terms of Section 10 hereof.
SECTION 15. Remedies. Upon the occurrence of any Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare by written notice to Lessee this Lease
Agreement to be in default, provided, that, if an Event of Default referred
to in Section 14(e) or 14(f) shall have occurred, this Lease Agreement shall
be deemed to be declared in default without further act; and at any time
thereafter, so long as any such outstanding Events of Default shall not have
been remedied, Lessor may do one or more of the following with respect to all
or any part of the Airframe and any or all of the Engines as Lessor in its
sole discretion shall elect, to the extent permitted by, and subject to
compliance with any mandatory requirements of, applicable law then in effect;
provided, however, that during any period the Aircraft is subject to the
Civil Reserve Air Fleet Program in accordance with the provisions of Section
7(b) hereof and in possession of the United States government or an agency or
instrumentality of the United States, Lessor shall not, on account of any
Event of Default, be entitled to do any of the following in such manner as to
limit Lessee's control under this Lease (or any Sublessee's control under any
Sublease) of any Airframe or any Engines installed thereon, unless at least
sixty (60) days' (or such lesser period as may then be applicable under the
Air Mobility Command program of the United States Government) written notice
of default hereunder shall have been given by Lessor by registered or
certified mail to Lessee (and any Sublessee) with a copy addressed to the
Contracting Office Representative for the Air Mobility Command of the United
States Air Force under any contract with Lessee (or any Sublessee) relating
to the Aircraft:
(a) upon the written demand of Lessor and at Lessee's expense,
cause Lessee to return promptly, and Lessee shall return promptly, the
Airframe or any Engine as Lessor may so demand to Lessor or its order
in the manner and condition required by, and otherwise in accordance
with all the provisions of, Section 5 as if such Airframe or Engine
were being returned at the end of the Term, or Lessor, at
its option, may enter upon the premises where all or any part of the
Airframe or any Engine is located and take immediate possession of and
remove the same by summary proceedings or otherwise (and/or, at
Lessor's option, store the same at Lessee's premises until disposal
thereof by Lessor), all without liability accruing to Lessor for or by
reason of such entry or taking of possession or removing whether for
the restoration of damage to property caused by such action or
otherwise;
(b) sell the Airframe and/or any Engine at public or private
sale, as Lessor may determine, or otherwise dispose of, hold, use,
operate, lease to others or keep idle the Aircraft as Lessor, in its
sole discretion, may determine, all free and clear of any rights of
Lessee, except as hereinafter set forth in this Section 15;
(c) whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a)
or paragraph (b) above
50
with respect to the Airframe and/or any Engine, Lessor, by written
notice to Lessee specifying a payment date which shall be the Lease
Period Date not earlier than ten days from the date of such notice,
may demand that Lessee pay to Lessor, and Lessee shall pay Lessor, on
the payment date so specified, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the installments of Basic
Rent for the Aircraft due for Lease Periods commencing on or after
the Delivery Date or the Lease Period Date specified as the payment
date in such notice), any unpaid Basic Rent due on Lease Period
Dates prior to the payment date so specified and, if any Basic Rent
is payable in arrears on such payment date as indicated on Exhibit
B, any Basic Rent payable on such payment date (including, in each
case, without limitation, any adjustments to Basic Rent payable
pursuant to Section 3(d)) plus whichever of the following amounts
Lessor, in its sole discretion, shall specify in such notice
(together with interest, if any, on such amount at the Past Due
Rate from such specified payment date until the date of actual
payment of such amount): (i) an amount equal to the excess, if any,
of the Stipulated Loss Value for the Aircraft, computed as of the
Lease Period Date specified as the payment date in such notice,
over the aggregate fair market rental value (computed as hereafter
in this Section 15 provided) of such Aircraft for the remainder of
the Term, after discounting such aggregate fair market rental value
to present value as of the Lease Period Date specified as the
payment date in such notice at an annual rate equal to the Base
Rate plus 1%; or (ii) an amount equal to the excess, if any, of the
Stipulated Loss Value for such Aircraft, computed as of the Lease
Period Date specified as the payment date in such notice over the
fair market sales value of such Aircraft (computed as hereafter in
this Section provided) as of the Lease Period Date specified as the
payment date in such notice;
(d) in the event Lessor, pursuant to paragraph (b) above,
shall have sold the Airframe and/or any Engine, Lessor, in lieu of
exercising its rights under paragraph (c) above with respect to such
Aircraft, may, if it shall so elect, demand that Lessee pay Lessor, and
Lessee shall pay to Lessor, on the date of such sale, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of the
installments of Basic Rent for the Aircraft due on or after such date),
any unpaid Basic Rent with respect to the Aircraft due prior to such
date (including, in each case, without limitation, any adjustments to
Basic Rent payable pursuant to Section 3(d)) plus the amount of any
deficiency between the net proceeds of such sale (after deduction of
all reasonable costs of sale) and the Stipulated Loss Value of such
Aircraft, computed as of the Stipulated Loss Value Date on or
immediately preceding the date of such sale together with interest, if
any, on the amount of such deficiency, at the Past Due Rate, from the
date of such sale to the date of actual payment of such amount; and/or
(e) Lessor may rescind, terminate or cancel this Lease
Agreement as to the Aircraft, and/or may exercise any other right or
remedy which may be
51
available to it under applicable law or proceed by appropriate court
action to enforce the terms hereof or to recover damages for breach
hereof.
For the purposes of paragraph (c) above, the "fair market rental value"
or the "fair market sales value" of the Aircraft shall be the rental value or
sales value, as the case may be, which would be obtained in an arm's-length
transaction between an informed and willing lessee or purchaser, as the case may
be, under no compulsion to lease or purchase, as the case may be, and an
informed and willing lessor or seller in possession under no compulsion to sell,
as the case may be, in each case based upon the actual condition and location of
the Aircraft, which value shall be determined by mutual agreement or, in the
absence of mutual written agreement, pursuant to an appraisal prepared and
delivered by a nationally recognized firm of independent aircraft appraisers
nominated by Lessor, and Lessor shall immediately notify Lessee of such
nomination. Unless Lessee shall have objected in writing within ten days after
its receipt of Lessor's notice, Lessor's nomination shall be conclusive and
binding. If Lessee shall object, however, Lessor and Lessee shall endeavor,
within ten days after such objection is made, to select a mutually acceptable
appraiser; provided that, if Lessee shall not so endeavor to make such
selection, Lessor's nomination referred to in the preceding sentence hereof
shall be conclusive and binding. If Lessor and Lessee fail to reach agreement
(except for the reason referred to in the proviso in the preceding sentence), or
if any appraiser selected fails to act for any reason, then the question shall
be determined by an appraisal (applying the definitions of "fair market rental
value" and "fair market sales value" as set forth above based upon the actual
condition of the Aircraft) mutually agreed to by two recognized independent
aircraft appraisers, one of which appraisers shall be chosen by Lessor and one
by Lessee within five Business Days after Lessor or Lessee shall have received
written notice from the other party of a demand that such an appraisal be made,
which notice shall specify the appraiser chosen by the party giving the notice
or, if such appraisers cannot agree on the amount of such appraisal within
twenty Business Days after the end of such five-day period, each shall render
its own appraisal and shall by mutual consent choose another appraiser within
five Business Days after the end of such twenty-day period. If, within such
five-day period, such two appraisers fail to appoint a third appraiser, then
either Lessor or Lessee, on behalf of both, may request such appointment by the
then President of the Association of the Bar of the City of New York (or any
successor organization thereto) or, in his absence, failure, refusal or
inability to act, then either Lessor or Lessee may apply to the American
Arbitration Association (or any successor organization thereto) in New York, New
York for the appointment of such third appraiser. The decision of the third
appraiser so appointed shall be given within twenty Business Days after the
appointment of such third appraiser. As soon as the third appraiser has
delivered his appraisal, that appraisal shall be compared with the appraisals
given by the other two appraisers. If the determination of one appraiser is more
disparate from the average of all three determinations than each of the other
two determinations, then the determination of such appraiser shall be excluded,
the remaining two determinations shall be averaged and such average shall be
final and binding upon the parties hereto. If no determination is more disparate
from the average of all three determinations than each of the other
determinations, then such average shall be final and binding upon the parties
thereto. The cost of such appraisal or appointment shall be borne by Lessee.
52
In addition, Lessee shall be liable, except as otherwise provided above
and without duplication of amounts payable hereunder, for any and all unpaid
Rent due hereunder before, after or during the exercise of any of the foregoing
remedies and for all reasonable legal fees and other costs and expenses
(including fees of the appraisers hereinabove referred to) incurred by Lessor,
the Indenture Trustee, the Loan Participants and the Owner Participant in
connection with the return of the Airframe or any Engine in accordance with the
terms of Section 5 or in placing such Airframe or Engine in the condition and
airworthiness required by such Section.
At any sale of the Aircraft or any part thereof pursuant to this
Section 15, Lessor (or the Indenture Trustee, any Loan Participant or the Owner
Participant) or Lessee may bid for and purchase such property. Lessor agrees to
give Lessee at least fifteen (15) days' prior written notice of the date fixed
for any public sale of the Airframe or any Engine or of the date on or after
which will occur the execution of any contract providing for any private sale
and any such public sale shall be conducted in general so as to afford Lessee
(and any Sublessee) a reasonable opportunity to bid. Except as otherwise
expressly provided above, no remedy referred to in this Section 15 is intended
to be exclusive, but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity;
and the exercise or beginning of exercise by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Lessor of any
or all of such other remedies. No waiver by Lessor of any Event of Default shall
in any way be, or be construed to be, a waiver of any future or subsequent Event
of Default.
SECTION 16. Lessee's Cooperation Concerning Certain Matters.
Forthwith upon the execution and delivery of each Lease Supplement and Trust
Supplement from time to time required by the terms hereof and upon the
execution and delivery of any amendment to this Lease, to the Trust Indenture
or to the Trust Agreement, Lessee will cause such Lease Supplement, Trust
Supplement (and, in the case of the initial Lease Supplement and Trust
Supplement, this Lease, the Trust Agreement and the Trust Indenture as well)
or amendment to be duly filed and recorded, and maintained of record, in
accordance with the applicable laws of the government of registry of the
Aircraft. In addition, Lessee will promptly and duly execute and deliver to
Lessor such further documents and take such further action as Lessor or the
Indenture Trustee may from time to time reasonably request in order more
effectively to carry out the intent and purpose of this Lease and to
establish and protect the rights and remedies created or intended to be
created in favor of Lessor and the Indenture Trustee hereunder, including,
without limitation, if requested by Lessor or the Indenture Trustee, at the
expense of Lessee, the execution and delivery of supplements or amendments
hereto or to the Trust Indenture, each in recordable form, subjecting to this
Lease and the Trust Indenture, any airframe or engine substituted for the
Airframe or any Engine pursuant to the terms thereof and the recording or
filing of counterparts thereof, in accordance with the laws of such
jurisdictions as Lessor or the Indenture Trustee may from time to time deem
advisable. Lessee agrees to furnish to Lessor and the Indenture Trustee
promptly after execution and delivery of any supplement and amendment hereto
and promptly after the execution and delivery of any supplement and amendment
to the Trust Indenture (except for any such supplement or amendment which
does not require or receive the approval of Lessee
53
pursuant to the Operative Documents and is not required pursuant to the terms
of the Operative Documents), an opinion of counsel reasonably satisfactory to
Lessor and the Indenture Trustee as to the due recording or filing of such
supplement or amendment. Commencing in 1999, on or before April 30 of each
year during the Term, Lessee will deliver to Lessor and the Indenture Trustee
a certificate of Lessee, signed by the President, a Vice President or the
Chief Financial Officer of Lessee to the effect that the signer is familiar
with or has reviewed the relevant terms of this Lease and the signer does not
have actual knowledge of the existence, as of the date of such certificate,
of any condition or event which constitutes a Default or an Event of Default.
Lessee agrees that if the Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer, Treasurer or an Assistant Treasurer of Lessee has
actual knowledge of the existence of a Default, then Lessee shall promptly
give to Lessor, the Owner Participant and the Indenture Trustee notice
thereof and such other information relating thereto as Lessor, the Owner
Participant or the Indenture Trustee may reasonably request. Lessee agrees
that if an officer of Lessee has knowledge of the existence of an Event of
Default, Lessee shall promptly give to Lessor and the Indenture Trustee
notice thereof and such other information relating thereto as Lessor or the
Indenture Trustee may reasonably request. Lessee will deliver to Lessor, the
Owner Participant and the Indenture Trustee (i) within sixty (60) days after
the end of each of the first three quarterly periods of each fiscal year of
the Guarantor, the publicly filed Form 10Q report of the Guarantor; and (ii)
within one hundred twenty (120) days after the close of such fiscal year, the
publicly filed annual report and Form 10K report of the Guarantor.
SECTION 17. Notices. All notices required under the terms and
provisions hereof shall be by telecopier or other telecommunication means
(with such telecopy or other telecommunication means to be confirmed in
writing), or if such notice is impracticable, by registered, first-class
airmail, with postage prepaid, or by personal delivery of written notice and
any such notice shall become effective when received, addressed:
(i) if to Lessee, for U.S. mail at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇▇▇), ▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and for overnight courier at
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ (▇▇▇▇▇), ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
Senior Vice President-Finance and Treasurer (Telecopy No. (612)
726-0665), or to such other address or telecopy number as Lessee shall
from time to time designate in writing to Lessor,
(ii) if to Lessor, at ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, Attention: Corporate Trust Department (Telecopy No. (801)
246-5053), or to such other address or telecopy number as Lessor shall
from time to time designate in writing to Lessee, and
(iii) if to a Loan Participant, the Indenture Trustee or the
Owner Participant, addressed to such Loan Participant, the Indenture
Trustee or the Owner Participant at such address or telecopy number as
such Loan Participant, the Indenture Trustee or the Owner Participant
shall have furnished by notice to Lessor and to Lessee, and, until an
address is so furnished, addressed to such
54
Loan Participant, the Indenture Trustee or the Owner Participant at its
address or telecopy number set forth in Schedule I to the Participation
Agreement.
SECTION 18. No Set-Off, Counterclaim, etc. All Rent shall be
paid by Lessee to Lessor in funds of the type specified in Section 3(f).
Lessee's obligation to pay all Rent payable hereunder shall be absolute and
unconditional and shall not be affected by any circumstance, including,
without limitation, (i) any set-off, counterclaim, recoupment, defense or
other right which Lessee may have against Lessor, in its individual capacity
or as Owner Trustee under the Trust Agreement, the Indenture Trustee (in its
individual capacity or as Indenture Trustee), any Loan Participant, the Owner
Participant, or anyone else for any reason whatsoever (whether in connection
with the transactions contemplated hereby or any other transactions),
including, without limitation, any breach by Lessor or the Owner Participant
of their respective warranties, agreements or covenants contained in any of
the Operative Documents, (ii) any defect in the title, registration,
airworthiness, condition, design, operation, or fitness for use of, or any
damage to or loss or destruction of, the Aircraft, or any interruption or
cessation in or prohibition of the use or possession thereof by Lessee (or
any Sublessee) for any reason whatsoever, including, without limitation, any
such interruption, cessation or prohibition resulting from the act of any
government authority, (iii) any insolvency, bankruptcy, reorganization or
similar case or proceedings by or against Lessee (or any Sublessee) or any
other person, or (iv) any other circumstance, happening, or event whatsoever,
whether or not unforeseen or similar to any of the foregoing. If for any
reason whatsoever this Lease shall be terminated in whole or in part by
operation of law or otherwise except as specifically provided herein, Lessee
nonetheless agrees without limitation of the other rights or remedies of
Lessor hereunder to pay to Lessor an amount equal to each Rent payment at the
time such payment would have become due and payable in accordance with the
terms hereof had this Lease not been terminated in whole or in part. Lessee
hereby waives, to the extent permitted by applicable law, any and all rights
which it may now have or which at any time hereafter may be conferred upon
it, by statute or otherwise, to terminate, cancel, quit or surrender this
Lease except in accordance with the express terms hereof.
SECTION 19. Renewal Options; Purchase Options; Valuation. (a)
Renewal Options. (1) Fixed Renewal Term. Subject to mutual agreement between
Lessor and Lessee at the time notice is required to be delivered, Lessee
shall have the option to renew this Lease for a one year renewal term which
shall commence only upon the expiration of the Basic Term (the "first Fixed
Renewal Term"), a one year renewal term which shall commence only upon the
expiration of the first Fixed Renewal Term (the "second Fixed Renewal Term"),
and a one year renewal term which shall commence only upon the expiration of
the second Fixed Renewal Term (the "third Fixed Renewal Term") (the first
Fixed Renewal Term, the second Fixed Renewal Term and the third Fixed Renewal
Term, each a "Fixed Renewal Term") by delivery to Lessor at least ninety (90)
days before the end of the Basic Term, the first Fixed Renewal Term or the
second Fixed Renewal Term, as the case may be, a written notice irrevocably
electing to renew this Lease for a Fixed Renewal Term. Basic Rent during any
Fixed Renewal Term shall be payable in an amount and at the times specified
in Section 19(a)(4).
55
(2) Fair Market Renewal Term. Not less than ninety (90) days before the
end of the third Fixed Renewal Term or any Fair Market Renewal Term and subject
to mutual agreement between Lessor and Lessee at such time, Lessee shall have
the option to renew this Lease by delivery to Lessor of a written notice
irrevocably electing to renew this Lease for a renewal term of one year for a
Basic Rent equal to the "fair market rental value" of the Aircraft for such
period (such renewal term, a "Fair Market Renewal Term"). The aggregate length
of all Fair Market Renewal Terms pursuant to this Section 19(a)(2) may not
exceed two years.
(3) If no written notice is delivered by Lessee to Lessor pursuant to
Section 19(a)(1) or 19(a)(2) on or before the day specified therefor, Lessee
shall be deemed to have waived any right to renew this Lease.
(4) At the end of the Basic Term or any Renewal Term, if Lessee has
elected to renew this Lease as aforesaid, and provided that there shall not then
have occurred and be continuing a Default of the type referred to in Section
14(a), 14(b) or 14(e) or an Event of Default and that a Successor Residual
Agreement applicable to the expiration date of the proposed Renewal Term shall
have been delivered to Lessor and the Owner Participant at least ninety (90)
days prior to the commencement of such Renewal Term and that all necessary
governmental authorizations and approvals shall have been received and that
Basic Rent for the Renewal Term has already been determined as above provided
and a Lease Supplement evidencing such renewal has been executed and filed for
recordation with the Federal Aviation Administration, this Lease shall continue
in full force and effect during the Renewal Term, except that (x) Lessee shall
pay Lessor Basic Rent for the Aircraft during the Renewal Term in an amount
equal to the "fair market rental value" thereof determined in accordance with
Section 19(c), each semi-annual installment of Basic Rent not to exceed in the
case of a Fixed Renewal Term 66.66% of the average Basic Rent during the Basic
Term (such average being determined as the total of all payments of Basic Rent
during the Basic Term added together and divided by the number of payments of
Basic Rent during the Basic Term), which Basic Rent shall be payable in
semi-annual installments in arrears, each such installment being due and payable
on each Lease Period Date occurring during the Renewal Term, commencing with the
Lease Period Date immediately following the commencement of the Renewal Term,
and (y) the Stipulated Loss Values applicable during the Renewal Term shall be
determined separately for each Renewal Term by the Owner Participant in good
faith to reflect Stipulated Loss Values determined in accordance with the
following sentence. Stipulated Loss Values during a Renewal Term shall on the
date on which such Renewal Term begins be equal to the "agreed residual value"
(as in effect under the Residual Agreement or Successor Residual Agreement, as
the case may be) for such date and shall be calculated on a monthly basis based
on the same methodology utilized to calculate Stipulated Loss Values during the
Basic Term on a continuing basis and assuming that the last such Stipulated Loss
Value for such Renewal Term is the "agreed residual value" (as in effect under a
Successor Residual Agreement) for the last day of such Renewal Term.
56
In determining fair market sales value for purposes of calculating
Stipulated Loss Value for any Renewal Term effect shall be given to the
encumbrance on the Aircraft of any Renewal Term available or in force under
this Section 19.
(b) Purchase Options. Lessee shall have the option, upon at least
ninety (90) days' irrevocable prior written notice to Lessor, to purchase the
Aircraft on the last Business Day of the Basic Term or any Renewal Term for a
purchase price equal to the fair market sales value of the Aircraft; provided,
however, that, notwithstanding any such notice, in the event that the purchase
price would not be equal to or greater than the "Agreed Residual Value"
applicable to such date pursuant to the Residual Agreement or a Successor
Residual Agreement, as the case may be, or in the event that the fair market
sales value shall not have been determined by the ninetieth day prior to the end
of the Basic Term or any Renewal Term, as the case may be, Lessor shall be
entitled to exercise its option to sell the Aircraft pursuant to the Residual
Agreement or a Successor Residual Agreement, as the case may be, and Lessee
shall not be entitled to exercise its purchase option pursuant to this Section
19(b). Upon payment to Lessor in immediately available funds of the full amount
of the purchase price and payment of any other amounts then due hereunder
(including all Rent and all costs or expenses of the Owner Participant in
connection with such purchase), Lessor will transfer to Lessee, without recourse
or warranty (except as to the absence of Lessor Liens, including for this
purpose Liens which would be Lessor Liens but for the proviso in the definition
of Lessor Liens), all of Lessor's right, title and interest in and to the
Aircraft.
(c) Valuation. At any time not earlier than three hundred sixty-five
(365) days prior to the date on which Lessee may purchase the Aircraft pursuant
to Section 19(b) hereof or renew this Lease pursuant to Section 19(a)(1) or
Section 19(a)(2) hereof, Lessee may deliver to Lessor a revocable notice of its
intent to exercise its renewal option or purchase option. For all purposes of
this Section 19, including the appraisal referred to in this Section 19(c), in
determining "fair market rental value" or "fair market sales value", the
Aircraft shall be valued (i) as if in the condition and otherwise in compliance
with the terms of Section 5 upon a return of the Aircraft to the United States
and as if it had been maintained at all times as required in accordance with
Section 7(a)(I) during periods when no Sublease was in effect, (ii) on the basis
of the value which would obtain in an arm's-length transaction between an
informed and willing buyer-user or lessee (other than a lessee or an Affiliate
of a lessee currently in possession or a used equipment scrap dealer) under no
compulsion to buy or lease and an informed and willing seller or lessor
unaffiliated with such buyer-user or lessee and under no compulsion to sell or
lease and disregarding the purchase and renewal options of the lessee provided
in this Lease, and (iii) in the case of such valuation for determining "fair
market rental value", assuming such lessee would have substantially the same
obligations during the Fair Market Renewal Term as provided hereunder including
without limitation the obligations of Lessee to carry and maintain the insurance
required by Section 11 hereof and to make certain payments with reference to
Stipulated Loss Value during the applicable Fair Market Renewal Term. Upon
receipt of such notice Lessor and Lessee shall confer in good faith with a view
to reaching agreement on the "fair market rental value" or "fair market sales
value" of the Aircraft. If the parties have not so agreed by two hundred seventy
(270) days prior to the end of the Basic Term or the Renewal Term in question,
then the question shall be
-57-
determined by an appraisal mutually agreed to by two recognized independent
aircraft appraisers, one of which appraisers shall be chosen by Lessor and
one by Lessee within five Business Days after Lessor or Lessee shall have
received written notice from the other party of a demand that such an
appraisal be made, which notice shall specify the appraiser chosen by the
party giving the notice or, if such appraisers cannot agree on the amount of
such appraisal within twenty Business Days after the end of such five-day
period, each shall render its own appraisal and shall by mutual consent
choose another appraiser within five Business Days after the end of such
twenty-day period. If, within such five-day period, such two appraisers fail
to appoint a third appraiser, then either Lessor or Lessee, on behalf of
both, may request such appointment by the then President of the Association
of the Bar of the City of New York (or any successor organization thereto)
or, in his absence, failure, refusal or inability to act, then either Lessor
or Lessee may apply to the American Arbitration Association (or any successor
organization thereto) in New York, New York for the appointment of such third
appraiser. The decision of the third appraiser so appointed shall be given
within twenty Business Days after the appointment of such third appraiser. As
soon as the third appraiser has delivered his appraisal, that appraisal shall
be compared with the appraisals given by the other two appraisers. If the
determination of one appraiser is more disparate from the average of all
three determinations than each of the other two determinations, then the
determination of such appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall be final and binding
upon the parties hereto. If no determination is more disparate from the
average of all three determinations than each of the other determinations,
then such average shall be final and binding upon the parties thereto. Lessee
and Lessor shall share equally all expenses relating to such appraisal
procedure provided if Lessee elects not to renew this Lease or purchase the
Aircraft following such appraisal, Lessee shall pay all expenses of such
appraisal.
(d) Special Purchase Option. On the EBO Date, Lessee shall have the
option, upon at least ninety (90) days' irrevocable prior notice to Lessor and,
if any Secured Certificates are then outstanding, the Indenture Trustee, to
purchase the Aircraft on such date for a purchase price equal to the Special
Purchase Price. In addition, if on such date there shall be any Secured
Certificates outstanding, Lessee shall have the option to assume, pursuant to
Section 8(x) of the Participation Agreement and Section 2.13 of the Trust
Indenture, all of the obligations of Lessor under the Trust Indenture. If such
assumption is made, in lieu of paying the Special Purchase Price on the EBO Date
Lessee shall pay Lessor a purchase price equal to (I) the Special Purchase Price
minus (II) an amount equal to principal of, and accrued but unpaid interest on,
any Secured Certificates that are outstanding on such date. Upon such payment in
full and payment of any other amounts then due hereunder (including costs or
expenses of the Owner Participant in connection with such purchase, any
installments of Basic Rent due prior to such date and, if Basic Rent is payable
in arrears on such date as indicated on Exhibit B, on such date (but not any
installment of Basic Rent due on such date if Basic Rent is payable in advance
on such date), and all unpaid Supplemental Rent due on or prior to such date),
Lessor will transfer to Lessee, without recourse or warranty (except as to the
absence of Lessor Liens, including for this purpose Liens which would be Lessor
Liens but for the proviso in the definition of Lessor Liens), all of Lessor's
right, title and interest in and to the Aircraft and under the Trust Indenture
and, unless there shall be any Secured Certificates
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outstanding after such payment, exercise such rights as it has to cause the
Aircraft to be released from the Lien of the Trust Indenture.
SECTION 20. Security for Lessor's Obligation to Holders of Secured
Certificates. In order to secure the indebtedness evidenced by the Secured
Certificates, Lessor has agreed in the Trust Indenture, among other things, to
assign to the Indenture Trustee this Lease, the Lease Supplements and any
amendments to this Lease and to mortgage its interest in the Aircraft in favor
of the Indenture Trustee, subject to the reservations and conditions therein set
forth. To the extent, if any, that this Lease, the Lease Supplements and any
amendments to this Lease constitute chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction), no
security interest in this Lease, the Lease Supplements and any amendments to
this Lease may be created through the transfer or possession of any counterpart
other than the original counterpart, which shall be identified as the
counterpart containing the receipt therefor executed by the Indenture Trustee on
the signature page thereof. Lessee hereby accepts and consents to the assignment
of all Lessor's right, title and interest in and to this Lease pursuant to the
terms of the Trust Indenture. Subject to Section 3(f) hereof, Lessee agrees to
pay directly to the Indenture Trustee (or, after receipt by Lessee of notice
from the Indenture Trustee of the discharge of the Trust Indenture, to Lessor),
all amounts of Rent due or to become due hereunder and assigned to the Indenture
Trustee and Lessee agrees that the Indenture Trustee's right to such payments
hereunder shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, the circumstances set forth in
clauses (i) through (iv) of Section 18 hereof. Notwithstanding the foregoing
assignment of this Lease, the obligations of Lessor to Lessee to perform the
terms and conditions of this Lease shall remain in full force and effect.
SECTION 21. Lessor's Right to Perform for Lessee. If Lessee fails to
make any payment of Rent required to be made by it hereunder or fails to perform
or comply with any of its agreements contained herein, then (but in each case,
except in the case of failure to pay Rent or in the case of failure to maintain
insurance as required hereunder, no earlier than the fifteenth day after the
occurrence of such failure, whether or not it shall yet constitute an Event of
Default hereunder) Lessor may itself make such payment or perform or comply with
such agreement but shall not be obligated hereunder to do so, and the amount of
such payment and the amount of the reasonable expenses of Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Past Due
Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand.
SECTION 22. Investment of Security Funds; Liability of Lessor Limited.
(a) Investment of Security Funds. Any moneys held by Lessor as security
hereunder for future payments to Lessee at a time when there is not continuing
an Event of Default shall, until paid to Lessee, be invested by Lessor or, if
the Trust Indenture shall not have been discharged, by the Indenture Trustee, as
the case may be, as Lessee may from time to time direct in writing (and in
absence of a written direction by Lessee, there shall be no obligation to invest
such moneys) in (i) direct obligations of the United States of America and
agencies guaranteed by the United States government having a final maturity of
ninety (90) days or less from date of purchase thereof; (ii) certificates of
deposit issued by, bankers' acceptances of, or time deposits with, any bank,
trust company or national banking association incorporated under the laws of the
United States of America or one of the states thereof having combined capital
and surplus and retained earnings as of its last report of condition of at least
$500,000,000 and having a rating of Aa or better by ▇▇▇▇▇'▇ Investors Service,
Inc. ("Moody's") or AA or better by Standard & Poor's Corporation ("S&P") and
having a final maturity of ninety (90) days or less
-59-
from date of purchase thereof; and (iii) commercial paper of any holding
company of a bank, trust company or national banking association described in
(ii) and commercial paper of any corporation or finance company incorporated
or doing business under the laws of the United States of America or any state
thereof having a rating assigned to such commercial paper of A1 by S&P or P1
by Moody's and having a final maturity of ninety (90) days or less from the
date of purchase thereof; provided, however, that the aggregate amount at any
one time so invested in certificates of deposit issued by any one bank shall
not be in excess of 5% of such bank's capital and surplus. There shall be
promptly remitted to Lessee or its order (but no more frequently than monthly)
any gain (including interest received) realized as a result of any such
investment (net of any fees, commissions and other expenses, if any, incurred
in connection with such investment) unless an Event of Default shall have
occurred and be continuing. Lessee shall be responsible for any net loss
realized as a result of any such investment and shall reimburse Lessor (or
the Indenture Trustee, as the case may be) therefor on demand.
(b) Liability of Lessor Limited. It is expressly agreed and understood
that all representations, warranties and undertakings of Lessor hereunder shall
be binding upon Lessor only in its capacity as trustee under the Trust
Agreement, and the institution acting as Lessor shall not be liable in its
individual capacity for any breach thereof except for its gross negligence or
willful misconduct or for breach of its covenants, representations and
warranties contained herein, to the extent covenanted or made in its individual
capacity.
SECTION 23. Service of Process. Lessor and Lessee each hereby
irrevocably submits itself to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York and to the
non-exclusive jurisdiction of the Supreme Court of the State of New York, New
York County, for the purposes of any suit, action or other proceeding arising
out of this Lease, the subject matter hereof or any of the transactions
contemplated hereby brought by Lessor, Lessee, the Indenture Trustee, the Loan
Participants or the Owner Participant or their successors or assigns.
SECTION 24. Miscellaneous. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No term or provision of
this Lease may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by Lessor, Lessee and any assignee of Lessor's
rights hereunder. This Lease shall constitute an agreement of lease, and nothing
contained herein shall be construed as conveying to Lessee any right, title or
interest in the Aircraft except as a lessee only. Neither
-60-
Lessee nor any affiliate of Lessee will file any tax returns in a manner
inconsistent with the foregoing fact or with Lessor's ownership of the
Aircraft. The section and paragraph headings in this Lease and the table of
contents are for convenience of reference only and shall not modify, define,
expand or limit any of the terms or provisions hereof and all references
herein to numbered sections, unless otherwise indicated, are to sections of
this Lease. THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK AND SHALL
IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE. This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 25. Successor Trustee. Lessee agrees that in the case of the
appointment of any successor Owner Trustee pursuant to the terms of the Trust
Agreement, such successor Owner Trustee shall, upon written notice by such
successor Owner Trustee, succeed to all the rights, powers and title of Lessor
hereunder and shall be deemed to be Lessor and the owner of the Aircraft for all
purposes hereof without the necessity of any consent or approval by Lessee
(subject to Section 10 of the Participation Agreement) and without in any way
altering the terms of this Lease or Lessee's obligations hereunder. One such
appointment and designation of a successor Owner Trustee shall not exhaust the
right to appoint and designate further successor Owner Trustees pursuant to the
Trust Agreement, but such right may be exercised repeatedly as long as this
Lease shall be in effect.
SECTION 26. Covenant of Quiet Enjoyment. So long as no Event of Default
shall have occurred and be continuing and notwithstanding any default by Lessor,
the Owner Participant or the Indenture Trustee under the Participation
Agreement, the Trust Agreement or the Trust Indenture, Lessor shall not
interfere with Lessee's (or any Sublessee's) continued possession, use and
operation of, and quiet enjoyment of, the Aircraft or Lessee's rights, benefits
and obligations pursuant to the Overall Transaction during the Term of this
Lease, and this Lease shall not be terminated except as expressly provided
herein.
-61-
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to
be duly executed as of the day and year first above written.
FIRST SECURITY BANK,
NATIONAL ASSOCIATION,
not in its individual capacity,
except as expressly provided
herein, but solely as Owner
Trustee,
Lessor
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Title: Vice President
NORTHWEST AIRLINES, INC.,
Lessee
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President-Finance and
Assistant Treasurer
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged on the _____ day of May, 1998.
STATE STREET BANK AND
TRUST COMPANY,
Indenture Trustee
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
-Signature Page-
EXHIBIT A
to
Lease Agreement
[NW 1997 L]
LEASE SUPPLEMENT No.
[NW 1997 L]
LEASE SUPPLEMENT NO. __, dated _________, 19___, between FIRST SECURITY
BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Owner
Trustee under the Amended and Restated Trust Agreement [NW 1997 L], dated as of
May 1, 1998, between _____________________, as Owner Participant, and such
Owner Trustee (such Owner Trustee, in its capacity as such Owner Trustee, being
herein called "Lessor"), and NORTHWEST AIRLINES, INC. ("Lessee").
Lessor and Lessee have heretofore entered into that certain Lease
Agreement [NW 1997 L], dated as of May 1, 1998, relating to one British
Aerospace Avro 146-RJ85A aircraft (herein called the "Lease," and the defined
terms therein being hereinafter used with the same meanings). The Lease provides
for the execution and delivery from time to time of Lease Supplements for the
purpose of leasing the Airframe and Engines under the Lease as and when
delivered by Lessor to Lessee in accordance with the terms thereof.
(1)The Lease relates to the Airframe and Engines described below,
and a counterpart of the Lease is attached hereto, and made a part hereof,
and this Lease Supplement, together with such attachment, is being filed for
recordation on the date hereof with the Federal Aviation Administration as
one document.
(2)The Lease Agreement relates to the Airframe and Engines described
below, and a counterpart of the Lease Agreement, attached and made a part of
Lease Supplement No. 1 dated _______________, 19__ to the Lease Agreement,
has been recorded by the Federal Aviation Administration on ________________,
19__, as one document and assigned Conveyance No. __.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease and
Lessee hereby accepts and leases from Lessor under the Lease the following
described British Aerospace Avro 146-RJ85A aircraft (the "Aircraft"), which
Aircraft as of the date hereof consists of the following components:
(i)Airframe: FAA Registration No. ______; manufacturer's serial no.
_____; and
------------------
(1) This language for Lease Supplement No. 1.
(2) This language for other Lease Supplements.
(ii) Engines: four (4) AlliedSignal LF507 type engines
bearing, respectively, manufacturer's serial nos. ______, ______,
______ and ______ (each of which engines has 750 or more rated takeoff
horsepower or the equivalent of such horsepower).
2. The Delivery Date of the Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof. Except as otherwise
provided in the Lease, the Term for the Aircraft shall commence on the Delivery
Date and end on April 27, 2017.
3. Lessee hereby confirms its agreement to pay Lessor Basic Rent for
the Aircraft throughout the Term therefor in accordance with Section 3 of the
Lease.
4. Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof and of the Lease as being airworthy, in good
working order and repair and without defect or inherent vice in title,
condition, design, operation or fitness for use; provided, however, that nothing
contained herein or in the Lease shall in any way diminish or otherwise affect
any right Lessee or Lessor may have with respect to the Aircraft against British
Aerospace (Operations) Limited, or any subcontractor or supplier of British
Aerospace (Operations) Limited, under the Purchase Agreement or otherwise.
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, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument. 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 jurisdiction), no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
original counterpart, which shall be identified as the counterpart containing
the receipt therefor executed by the Indenture Trustee on the signature page
hereof.
EXHIBIT A - PAGE 2
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease
Supplement to be duly executed on the day and year first above written.
FIRST SECURITY BANK,
NATIONAL ASSOCIATION,
not in its Individual Capacity,
but solely as Owner Trustee,
Lessor
By:
--------------------------------------
Title:
NORTHWEST AIRLINES, INC.,
Lessee
By:
--------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President - Finance and
Assistant Treasurer
Receipt of this original counterpart of the foregoing Lease Supplement
is hereby acknowledged on this ____ day of May, 1998.
STATE STREET BANK AND
TRUST COMPANY,
Indenture Trustee
By:
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
-----------------------------
(3) This language contained in the original counterpart only.
EXHIBIT A - PAGE 3
EXHIBIT B
to
Lease Agreement
[NW 1997 L]
BASIC RENT, LESSOR'S COST
AND SPECIAL PURCHASE PRICE SCHEDULE
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
Basic Rent:
Basic Rent Payable in Basic Rent Payable in Total Basic Rent
Lease Period Advance (Percentage of Arrears (Percentage (Percentage of
Date Lessor's Cost) of Lessor's Cost) Lessor's Cost)
-------------- ----------------------- ---------------------- ----------------
EXHIBIT C
to
Lease Agreement
[NW 1997 L]
STIPULATED LOSS VALUE SCHEDULE
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
Stipulated Stipulated Loss
Loss Value Date Value Percentage
--------------- ----------------
EXHIBIT D
to
Lease Agreement
[NW 1997 L]
TERMINATION VALUE SCHEDULE
The portion of this Exhibit appearing below this text is intentionally deleted
form the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
Termination
Termination Value
Date Percentage
---------------- -------------
EXHIBIT E
to
Lease Agreement
[NW 1997 L]
RENT RECALCULATION VERIFICATION
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
1. Any recalculation of Basic Rent, Stipulated Loss Value percentages,
Termination Value percentages and the Special Purchase Price pursuant to the
Lease shall be determined by the Owner Participant, and shall maintain the Owner
Participant's Net Economic Return except as assumptions have been modified
pursuant to Section 3 of the Lease or pursuant to the Tax Indemnity Agreement or
the Participation Agreement, as the case may be; provided, however, that Lessee
may request (A) Lessee's independent public accountants to verify such
calculations but without any requirement that the Owner Participant disclose to
such persons the methodology and assumptions and (B) if Lessee believes that
such calculations by the Owner Participant are in error then a nationally
recognized firm of accountants selected by Lessee and reasonably acceptable to
the Owner Participant shall be permitted to verify such calculations and the
Owner Participant will make available to such firm (subject to the execution by
such firm of a confidentiality agreement reasonably acceptable to the Owner
Participant) the methodology and assumptions and any changes made therein
pursuant to Section 3 of the Lease. In the event of a verification under clause
(B) of the first sentence of this paragraph 1 the determination by such firm of
accountants shall be final. Lessee will pay the reasonable costs and expenses of
the verification under clause (B) of the first sentence of this paragraph 1
unless an error adverse to Lessee is established by such firm, and if as a
result of such verification process the Basic Rent is adjusted and such
adjustment causes the Net Present Value of Rents to decline by 10 or more basis
points (in which event the Owner Participant shall pay the reasonable costs and
expenses of such verification process). Such recalculated Basic Rent, Stipulated
Loss Value percentages, Termination Value percentages and Special Purchase Price
shall be set forth in a Lease Supplement or an amendment to the Lease.
2. "Net Economic Return" means the Owner Participant's net after-tax
yield and aggregate after-tax cash flow, in each case computed from the Delivery
Date through the EBO Date and through April 27, 2017, utilizing the multiple
investment sinking fund method of analysis, computed on the basis of the same
methodology and assumptions as were utilized by the Owner Participant in
determining Basic Rent, the Special Purchase Price, Stipulated Loss Value and
Termination Value percentages as of the Delivery Date.
EXHIBIT F
to
Lease Agreement
[NW 1997 L]
SCHEDULE OF DOMICILES OF PERMITTED SUBLESSEES
Argentina Malta
Australia Mexico
Austria Morocco
Bahamas Netherlands
Belgium New Zealand
Brazil Norway
Canada Paraguay
Chile People's Republic of China
Denmark Philippines
Egypt Portugal
Finland Republic of China (Taiwan)*
France Singapore
Germany South Africa
Greece South Korea
Hungary Spain
Iceland Sweden
India Switzerland
Indonesia Thailand
Ireland Tobago
Italy Trinidad
Japan United Kingdom
Luxembourg Uruguay
Malaysia Venezuela
------------------------------------
* So long as on the date of entering into the proposed sublease such country and
the United States have diplomatic relations at least as good as those in effect
on the Delivery Date.
EXHIBIT G
to
Lease Agreement
[NW 1997 L]
RETURN CONDITIONS
The portion of this Exhibit appearing below this text is intentionally
deleted from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
Unless purchased by Lessee pursuant to Section 19 of the Lease, at the
time of return of the Airframe upon the expiration of the Lease at the end of
the Basic Term or any Renewal Term (unless at the expiration of the Basic Term
or such Renewal Term, as the case may be, Lessor shall have irrevocably
exercised its option to sell the Aircraft, and shall be simultaneously
exercising its rights, pursuant to the Residual Agreement or a Substitute
Residual Agreement) or upon the termination of the Lease pursuant to Section
9(c) or 15 of the Lease: (i) in the event that Lessee (or any Sublessee then in
possession of the Aircraft) shall not then be using a continuous maintenance
program with respect to the Airframe, Lessee agrees that during the period of
operation of the Aircraft immediately prior to such return (A) Lessee or such
Sublessee, as the case may be, shall have been using a block overhaul program
with respect to the Airframe which shall have been approved by all necessary
governmental approvals of the country under the laws of which the Aircraft shall
then have been registered and (B) the Airframe shall have remaining until the
next scheduled block overhaul at least 25% of the allowable hours between block
overhauls permitted under the block overhaul program then used by Lessee or such
Sublessee, (ii) in the event that Lessee (or any Sublessee then in possession of
the Aircraft) during the period of operation of the Aircraft immediately prior
to such return shall not have been using an on-condition maintenance program
with respect to the Engines or engines, Lessee agrees that the average number of
hours or cycles of operation (whichever shall be applicable under the
maintenance program then in use with respect to such Engines or engines) on such
Engines or engines remaining until the next scheduled engine refurbishment shall
be at least 25% of the hours or cycles (whichever shall be applicable) between
engine refurbishment allowed under the maintenance program then in use with
respect to such Engines or engines which shall have been approved by all
necessary governmental approvals of the country under the laws of which the
Aircraft shall have then been registered, (iii) shall have all Lessee's and any
Sublessee's exterior markings removed or painted over and the areas where such
markings were removed or painted over refurbished as necessary to blend with
adjacent areas, (iv) shall have no outstanding airworthiness directives issued
by the FAA requiring terminating action by the date of return, and (v) shall be
in Lessee's or such Sublessee's passenger configuration and the interior of the
Airframe shall be clean in accordance with Lessee's customary standards for a
"between flights" cleaning. In the event the FAA shall issue any directive which
would require improvements to the Aircraft in order for the airworthiness
certificate of the Aircraft to be maintained in good standing, Lessee shall not
apply for an extension of the date of compliance with the directive as to the
Aircraft to a
date after the date of return of the Aircraft pursuant to Section
5 of the Lease, unless it shall previously or concurrently have applied for
such an extension with respect to all British Aerospace Avro 146-RJ85A aircraft
in its fleet affected by such directive.
If clause (i)(B) of the first sentence of the preceding paragraph shall
be applicable but the Airframe does not meet the conditions specified in said
clause (i)(B), Lessee shall pay or cause to be paid to Lessor a Dollar amount
computed by multiplying (I) 120% of the average direct cost to Lessee (based
upon the actual direct cost to Lessee for similar aircraft in the fleet of
Lessee) during the preceding 12 months of performing an airframe block overhaul
of the type referred to in such clause (i) by (II) a fraction of which (x) the
numerator shall be the excess of 25% of hours of operation allowable between
such block overhauls over the actual number of hours of operation remaining on
the Airframe to the next such block overhaul and (y) the denominator shall be
the number of hours of operation allowable between such block overhauls in
accordance with such block overhaul program.
If clause (ii) of the first sentence of the second preceding paragraph
shall be applicable but the Engines or engines do not meet the conditions
specified in said clause (ii), Lessee shall pay or cause to be paid to Lessor a
Dollar amount computed by multiplying (aa) four by (bb) 120% of the average
direct cost to Lessee (based upon the actual direct cost to Lessee for similar
aircraft in the fleet of Lessee) during the preceding 12 months of performing
for an engine of the same model as the Engines the scheduled engine
refurbishment under the maintenance program then used by Lessee or any Sublessee
for engines of the same model as the Engines by (cc) a fraction of which (x) the
numerator shall be the excess of 25% of the hours or cycles of operation
(whichever is applicable) between engine refurbishment allowable for an engine
under the maintenance program then in use with respect to such Engines or
engines over the actual average number of hours or cycles of operation on such
Engines or engines remaining until the next such scheduled engine refurbishment
and (y) the denominator shall be the number of hours or cycles allowable between
such scheduled engine refurbishment.
EXHIBIT G - PAGE 2
EXHIBIT H
to
Lease Agreement
[NW 1997 L]
RETURN CONDITIONS (EBT)
The portion of this Exhibit appearing below this text is intentionally
deleted from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
Unless purchased by Lessee pursuant to Section 19 of the Lease, the
following return conditions apply to a return of the Airframe upon the
expiration of the Lease at the end of the Basic Term or any Renewal Term but
only if, in any such case, Lessor shall have irrevocably exercised its option to
sell the Aircraft at such expiration, and shall be simultaneously exercising its
rights, pursuant to the Residual Agreement or a Successor Residual Agreement:
1. Definitions. Capitalized terms used in this Exhibit H without other
definition have the respective meanings ascribed thereto in the Lease Agreement
[NW 1997 L], dated as of May 1, 1998, as amended from time to time (the
"Lease"), between First Security Bank, National Association, not in its
individual capacity but solely as Owner Trustee, and Northwest Airlines, Inc. In
addition, the following capitalized terms shall have the respective meanings set
forth below:
"Aircraft Documentation" means all logs, manuals, certificates, data
and inspection, modification, repair, and overhaul records which are required to
be maintained with respect to the Aircraft under the Maintenance Program or by
the Relevant Aviation Authority.
"APU" means the Sundstrand Model APIC 10000 auxiliary power unit
originally installed on the Aircraft on the Delivery Date or any auxiliary power
unit of a comparable or improved model substituted for such originally installed
auxiliary power unit.
"BFE" means the equipment described in Annex II to the Residual
Agreement, or any equivalent replacement equipment that may from time to time be
substituted for any such BFE.
"Country of Registration" means the country in which the Aircraft is
registered on the date the Aircraft is returned under the Lease at the
expiration of the Basic Term or at the expiration of a Renewal Term, as
applicable, which shall be one of the United States, the United Kingdom, Japan,
Canada or the Netherlands.
"HSI" means with respect to an Engine or the APU a hot section
inspection of such Engine or APU in accordance with the Maintenance Program.
"Maintenance Planning Document" means the Manufacturer's maintenance
planning document for Avro 146-RJ85 aircraft as in effect on the date the
Aircraft is returned under the Lease.
"Maintenance Program" means the maintenance program for the Aircraft
required to be maintained pursuant to Section 7(a)(I) of the Lease, as in effect
on the date the Aircraft is returned under the Lease at the expiration of the
Basic Term or at the expiration of a Renewal Term.
"Manufacturer" means, with respect to the Airframe, British Aerospace
(Operations) Limited, and its successors and assigns, and, with respect to the
Engines, AlliedSignal Engines, a division of AlliedSignal.
"MRB" means the Maintenance Review Board for British Aerospace Avro
146-RJ85 aircraft.
"Operator" means the operator of the Aircraft immediately prior to the
date the Aircraft is returned under the Lease.
"Relevant Aviation Authority" means the civil aviation authority of the
Country of Registration.
"Structural Repair Manual" means the Manufacturer's structural repair
manual for Avro 146-RJ85 aircraft as in effect on the date the Aircraft is
returned under the Lease.
2. Aircraft Return Conditions at the expiration of the Basic Term or a
Renewal Term in the event that Lessor shall have irrevocably exercised
its option to sell the Aircraft at such expiration, and shall be
simultaneously exercising its rights, pursuant to the Residual
Agreement or a Successor Residual Agreement.
(a) General Conditions. On the date the Aircraft is returned under the
Lease, the Aircraft shall be in compliance with the conditions set forth below,
ordinary wear and tear excepted:
(i) The Aircraft shall be registered in a Country of
Registration.
(ii) The Aircraft shall be airworthy, possess a currently
valid standard certificate of airworthiness, transport category, issued
by the Relevant Aviation Authority and be eligible for commercial
passenger transportation in the Country of Registration.
(iii) The Aircraft shall be fully equipped with four Engines
and the APU.
(iv) All maintenance required by the Maintenance Program to
have been performed on or prior to the date the Aircraft is returned
under the Lease
EXHIBIT H - PAGE 2
shall have been accomplished. The Airframe, each Engine, the APU and
the landing gear shall be serviceable and free from all known
defects and discrepancies outside the limits of the Maintenance
Program other than fair wear and tear not affecting airworthiness.
All major dents and abrasions, scab patches and loose or pulled
rivets shall be within the prescribed limits referred to in the
Structural Repair Manual or the Maintenance Program.
(v) All mandatory modifications to the Aircraft required to be
made on or prior to the date the Aircraft is returned under the Lease
by the Relevant Aviation Authority shall have been made, provided that
if an inspection program is permitted as an alternative to a mandatory
modification and the Aircraft is in compliance with such inspection
program, then such mandatory modification shall not be required. All
Manufacturer's Mandatory Service Bulletins and Airworthiness Directives
issued by the Relevant Aviation Authority and, in either case,
applicable to the Aircraft, which are in force on the date the Aircraft
is returned under the Lease and which require termination within six
months of the date the Aircraft is returned under the Lease shall have
been accomplished on the Aircraft.
(vi) Brakes and tires shall be serviceable and in good
condition. The landing gear and wheel ▇▇▇▇▇ shall be clean, free of
leaks and in good repair as required to be serviceable in accordance
with the Maintenance Program. The fuel system shall be in compliance
with the Maintenance Program. Except for BFE, the cockpit, all
calendar lifed emergency equipment, toilets and galley areas and the
interior shall be in serviceable condition and shall meet applicable
fire resistance regulations issued by the Relevant Aviation Authority
in effect on the date the Aircraft is returned under the Lease.
(vii) The Aircraft shall be clean by the Operator's normal
operating conditions. The Aircraft shall have all of the Operator's
exterior logos removed.
(b) Life Remaining. On the date the Aircraft is returned under the
Lease at the expiration of the Basic Term or a Renewal Term in the event Lessor
shall have irrevocably exercised its option to sell the Aircraft at such
expiration, and shall be simultaneously exercising its rights, pursuant to the
Residual Agreement or a Successor Residual Agreement, the Aircraft shall comply
with the following additional requirements:
(i) The Engines shall have on average a minimum of one-half
HSI period remaining in accordance with MRB limits current on the date
the Aircraft is returned under the Lease, provided that in the event
the Engines do not have an average of at least one-half HSI period
remaining in accordance with such MRB limits, an Engine HSI Half-Life
Adjustment under clause (c)(i) shall be made in lieu of meeting such
condition, provided, however, that in no event shall any Engine have
less than one-quarter HSI period remaining in accordance
EXHIBIT H - PAGE 3
with such MRB limits or have any defects or discrepancies outside of
the limits set forth in the Maintenance Planning Document.
(ii) Engine life limited parts shall have on average at least
half-life remaining to their respective scheduled replacement in
accordance with the Engine Manufacturer's published life limited part
replacement schedule current on the date the Aircraft is returned under
the Lease, provided that in the event the Engine life limited parts do
not have an average of at least half-life remaining to their respective
scheduled replacement, an Engine life limited part Half-Life Adjustment
under clause (c)(ii) shall be made in lieu of meeting such condition,
provided, however, that in no event shall any Engine life limited part
have less than one-quarter life remaining to its scheduled replacement
in accordance with the Engine Manufacturer's published life limited
part replacement schedule current on the date the Aircraft is returned
under the Lease.
(iii) The APU shall have remaining at least half of any
applicable HSI period remaining on the date the Aircraft is returned
under the Lease in accordance with the then current MRB standards,
provided that in the event the APU does not have at least half of any
applicable HSI period remaining, an APU Half-Life Adjustment under
clause (c)(iii) shall be made in lieu of meeting such condition.
(iv) The landing gear shall have at least half-life remaining
to the next landing gear overhaul according to MRB requirements current
on the date the Aircraft is returned under the Lease, provided that in
the event the landing gear does not have at least half-life remaining
to such next landing gear overhaul, a landing gear Half-Life Adjustment
under clause (c)(iv) shall be made in lieu of meeting such condition.
(v) The Aircraft's next sequential block C check (which C
check shall include full fault rectification) shall have been completed
immediately prior to the date the Aircraft is returned under the Lease,
provided that in the event the Aircraft has at least 25% of the time
remaining until its next scheduled sequential block C check, a C check
Half-Life Adjustment under clause (c)(v) shall be made in lieu of such
block C check. If the Maintenance Program permits a block C check to be
performed in phases, all phases of such block C check shall have been
performed in order to align such block C check with the BAe/Avro "block
type" Maintenance Planning Document schedule.
(vi) The Airframe shall have a minimum of half-time remaining
until its next scheduled major structural inspections, provided that in
the event the Aircraft has at least 25% of the time remaining until its
next scheduled major structural inspection, but less than half-time, a
structural inspection Half-Life Adjustment under the first sentence of
clause (c)(vi) shall be made in lieu of
EXHIBIT H - PAGE 4
meeting such condition and in the event the Aircraft has more than 75%
of the time remaining until its next scheduled major structural
inspection, a structural inspection Half-Life Adjustment under the
second sentence of clause (c)(vi) shall be made.
For purposes of determining whether the foregoing requirements have been
satisfied:
(x) to the extent the Maintenance Program provides that a part
or component (for purposes of this clause (x) and clause (y) below, the
term "part or component" may include the entire Airframe, an entire
Engine, the APU or the landing gear) is maintained on a continuous or
on condition maintenance program with no fixed overhaul or major repair
required in accordance with the Manufacturer's requirements, such part
or component shall be deemed to have half-life or half-time (as the
case may be) remaining; and
(y) in the event that a part or component is subject to a
power by the hour program, or the equivalent, on terms and conditions
acceptable to Lessor, and provided that such program is fully
assignable with no material buy-in fees and for a sufficient term
remaining to provide the equivalent of half-life remaining on the
affected part or component, such part or component shall be deemed to
have half-life remaining.
(c) Half-Life Adjustment. The Half-Life Adjustment shall equal the sum
of the Engine HSI Half-Life Adjustment, the Engine life limited parts Half-Life
Adjustment, the APU Half-Life Adjustment, the landing gear Half-Life Adjustment,
the C check Half-Life Adjustment and the structural inspection Half-Life
Adjustment (which shall be added if calculated pursuant to the first sentence of
clause (vi) below and subtracted if calculated pursuant to the second sentence
of clause (vi) below), each as calculated as set forth below:
(i) In the event that the Engines do not have an average of at
least a half HSI period remaining in accordance with MRB limits current
on the date the Aircraft is returned under the Lease, the Engine HSI
Half-Life Adjustment shall be an amount computed by multiplying (A)
four by (B) the cost (as evidenced by industry norms) of performing an
HSI for engines of the same type as the Engines by (C) a fraction, of
which (x) the numerator shall be the excess of 50% of the HSI period in
accordance with such MRB limits over the actual average amount of the
HSI period remaining and (y) the denominator shall be the HSI period.
(ii) In the event the Engine life limited parts do not have an
average of at least half-life remaining to their respective scheduled
replacement, the Engine life limited parts Half-Life Adjustment shall
be an amount computed by multiplying (A) four by (B) the average cost
(as evidenced by industry norms) of scheduled replacements of life
limited parts for engines of the same type as the Engines by (C) a
fraction, of which (x) the numerator shall be the excess of 50% of the
life remaining to scheduled replacement over the actual average
EXHIBIT H - PAGE 5
remaining life to scheduled replacement and (y) the denominator shall
be the life between scheduled replacements of Engine life limited
parts.
(iii) In the event the APU does not have at least half of any
applicable HSI period remaining, the APU Half-Life Adjustment
shall be an amount computed by multiplying (A) the average cost (as
evidenced by industry norms) of an HSI for auxiliary power units of the
same type as the APU by (B) a fraction, of which (x) the numerator
shall be the excess of 50% of the HSI period over the actual amount of
the HSI period remaining and (y) the denominator shall be the entire
HSI period.
(iv) In the event the landing gear does not have at least
half-life remaining to such next scheduled landing gear overhaul, the
landing gear Half-Life Adjustment shall be an amount computed by
multiplying (A) the average cost (as evidenced by industry norms) of a
landing gear overhaul for landing gear of the same type as the landing
gear installed on the Aircraft by (B) a fraction, of which (x) the
numerator shall be the excess of 50% of the period between landing gear
overhauls over the actual period remaining to the next scheduled
landing gear overhaul and (y) the denominator shall be the period
between scheduled landing gear overhauls.
(v) In the event the Aircraft's next sequential block C check
(which C check shall include the full fault rectification) shall not
have been completed immediately prior to the date the Aircraft is
returned under the Lease, the C check Half-Life Adjustment shall be an
amount computed by multiplying (A) the average cost (as evidenced by
industry norms) of a block C check (including full fault rectification)
for aircraft of the same type as the Aircraft by (B) a fraction, of
which (x) the numerator shall be the excess of period between
sequential block C checks over the actual period remaining to the
sequential block C check and (y) the denominator shall be the period
between sequential block C checks.
(vi) In the event the Aircraft has less than half-time
remaining until its next scheduled major structural inspection, the
structural inspection Half-Life Adjustment shall be an amount computed
by multiplying (A) the average cost (as evidenced by industry norms) of
a scheduled major structural inspection for aircraft of the same type
as the Aircraft by (B) a fraction, of which (x) the numerator shall be
the excess of 50% of the period between scheduled major structural
inspections over the actual period remaining to the next scheduled
major structural inspection and (y) the denominator shall be the period
between scheduled major structural inspections. In the event the
Aircraft has more than 75% of the time remaining until its next
scheduled major structural inspection, the structural inspection
Half-Life Adjustment shall be an amount computed by multiplying (A) the
average cost (as evidenced by industry norms) of a scheduled major
structural inspection for aircraft of the same type as the Aircraft by
(B) a fraction, of which (x) the numerator shall be the excess of the
EXHIBIT H - PAGE 6
actual period remaining to the next scheduled structural inspection
over 75% of the period between scheduled major structural inspection
and (y) the denominator shall be the period between scheduled major
structural inspections.
(d) Aircraft Documentation. On the expiration of the Basic Term or a
Renewal Term in the event Lessor shall have irrevocably exercised its option to
sell the Aircraft at such expiration, and shall be simultaneously exercising its
rights, pursuant to the Residual Agreement or a Successor Residual Agreement,
the Aircraft shall be returned with all Aircraft Documentation. The Aircraft
Documentation shall be current as of the date the Aircraft is returned under the
Lease and in full compliance with the requirements of the Relevant Aviation
Authority. In the event that the Maintenance Program deviates from the
Maintenance Planning Document, the Aircraft Documentation shall include a
document which shall cross-reference all deviations. The Aircraft Documentation
shall document all repairs to the Aircraft with appropriate references to the
Structural Repair Manual and a repair scheme approved by the Manufacturer or the
Relevant Aviation Authority.
EXHIBIT H - PAGE 7