EXHIBIT 10.59
DUPLICATE ORIGINAL
RECORDED
Federal Aviation Administration
Date 8-26-96 Time 9:05 A.M.
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Conveyance Number TT007843
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By "ILLEGIBLE"
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AIRCRAFT LEASE AGREEMENT
dated as of
August 13, 1996
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY BUT
SOLELY AS OWNER TRUSTEE,
LESSOR
and
ALOHA AIRLINES, INC.,
LESSEE
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT, made as of this 13th day of August, 1996
(the "Lease"), by and between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a
national banking association, not in its individual capacity but solely as owner
trustee ("LESSOR"), and ALOHA AIRLINES, INC. a corporation formed under the laws
of Hawaii ("LESSEE").
WHEREAS, LESSEE desires to lease the Aircraft (as hereinafter defined)
from LESSOR and LESSOR is willing to lease the Aircraft to LESSEE, in accordance
with and subject to the terms and conditions of this Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is acknowledged by the parties hereto, LESSOR and LESSEE
agree as follows:
SECTION 1
DEFINITIONS
The following terms shall have the following respective meanings for all
purposes of this Lease and shall be equally applicable to both the singular and
the plural forms of the terms herein defined. Any agreement referred to below
shall mean such agreement, as amended, supplemented and modified from time to
time:
"ACQUISITION COST" means (i) LESSOR's cost to purchase the Aircraft,
plus (ii) all sales and excise taxes paid by LESSOR on, or with respect to the
acquisition of the Aircraft, plus (iii) all costs and expenses approved and paid
by LESSOR in connection with the delivery of the Aircraft.
"ACT" shall mean Subtitle VII of Title 49 of the United States Code and
the rules and regulations promulgated thereunder, as amended from time to time.
"AFFILIATE" shall mean, with respect to any Person, any other Person
which, directly or indirectly, controls or is controlled by or is under common
control with such Person.
"AGREED VALUE" with respect to all risks insurance shall mean Twelve
Million (US$12,000,000) Dollars with respect to the hull (including all engines
installed thereon).
"AIRGROUP" shall mean Aloha AirGroup, Inc., a corporation formed under
the laws of Hawaii.
"AIR AUTHORITY" shall mean the United States Federal
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Aviation Administration, or any predecessor or successor thereto having
jurisdiction over the registration, use, operation and maintenance of the
Aircraft.
"AIR CARRIER" shall mean a citizen of the United States (as defined in
40102 of Title 49 of the United States Code) holding an air carrier operating
certificate issued by the Secretary of Transportation of the United States
pursuant to chapter 447 of Title 49 of the United States Code for aircraft
capable of carrying 10 or more individuals or 6,000 pounds or more of cargo.
"AIRCRAFT" shall mean the Airframe, together with the two (2) Engines
(or any Replacement Engine substituted for either of such Engines hereunder),
all as more particularly described on Exhibit "A" hereto, whether or not any of
such initial or Replacement Engines may, from time to time, be installed on such
Airframe or may be installed on any other airframe or any other aircraft.
"AIRCRAFT DOCUMENTS" shall mean the items identified in Exhibit "B"
hereto.
"AIRFRAME" means (i) the Boeing model 737-230ADV aircraft (excluding
Engines or engines from time to time installed thereon), bearing United States
registration no. N820AL and manufacturer's serial no. 22138, and (ii) any and
all Parts, so long as the same shall be incorporated in such Airframe, and any
and all Parts removed from such Airframe, so long as title to such Parts shall
remain vested in LESSOR in accordance with the terms of Section 8(A).
"APPROVED INSURER" shall mean any reputable and financially sound
insurance company or insurance broker, in the U.S., London, French, German or
Japanese insurance markets, that provides or confirms the existence of any
insurance required under this Lease.
"AUTHORIZED MAINTENANCE PERFORMER" shall mean LESSEE, Air New Zealand
(▇▇▇▇▇▇ Church), Sabre Tech (Arizona), Pemco (Alabama), Tramco (Washington),
Evergreen Air Center, Inc. (Arizona), Mobile Aerospace (Alabama), Greenwich Air
Services (Florida) or such other FAA certified maintenance performer of
comparable quality and reputation to that of any of the above listed entities,
and which is approved in advance by Lessor.
"BASE TERM" means the period commencing on the Effective Date and
expiring on the Expiration Date.
"BASIC RENT" shall mean One Hundred Twenty Thousand(US$120,000) Dollars
per month during the Base Term.
"BENEFICIARY" means Diamond Head Associates LLC, a limited liability
company formed under the laws of Delaware.
"BENEFICIARY'S ADDRESS" shall mean c/o NSJ Corporation, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn.: President;
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Telefax No.: (▇▇▇) ▇▇▇-▇▇▇▇.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or day
on which banks are required or authorized to close in New York, New York, USA or
in Honolulu, Hawaii.
"CAPITAL LEASE" shall mean any lease of any property (whether real,
personal or mixed) which, in conformity with generally accepted accounting
principles, is or should be accounted for as a Capital Lease on a balance sheet.
"CASH FLOW" shall mean LESSEE's net cash provided by operating
activities, as determined in accordance with Generally Accepted Accounting
Principles, consistently applied, adjusted for interest paid during such period,
calculated on a rolling twelve month basis and computed at the end of each
calendar quarter, with the first computation being made as of the calendar
quarter ending March 31, 1997.
"CERTIFICATE OF ACCEPTANCE" shall mean the written certificate of
LESSEE, in substantially the form of Exhibit "C" hereto, pursuant to which
LESSEE accepts delivery of the Aircraft and confirms that the Aircraft is in the
condition required by this Lease.
"CODE" means the Internal Revenue Code of 1986, as amended and as may
hereafter be amended, and the rules and regulations promulgated pursuant
thereto.
"COMPENSATION" shall have the meaning set forth in Section 12(D).
"COMPONENT INVENTORY" shall have the meaning set forth in Section 3(D)
hereof.
"COVERED MAINTENANCE" shall have the meaning set forth in Section
6(D)(iii) hereof.
"CYCLE" shall mean one takeoff and landing of the Aircraft.
"DEBT SERVICE" shall mean the sum of regularly scheduled principal
payments, interest payments and payments under Capital Leases made by LESSEE,
calculated on a rolling twelve months basis and computed at the end of each
calendar quarter, with the first computation being made as of the calendar
quarter ending March 31, 1997.
"DEFAULT" shall have the meaning set forth in Section 18 hereof.
"DELIVERY LOCATION" shall mean Berlin, Germany.
"DOLLARS" or "$" shall mean the legal currency of the United States of
America.
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"DOT" shall mean the United States Department of Transportation or any
governmental person, agency or authority succeeding to the functions of such
Department of Transportation.
"EFFECTIVE DATE" shall mean the date on which LESSEE signs and delivers
to LESSOR Lease Supplement No. 1 to this Lease.
"ENGINE" means (i) on the Effective Date, each of the two (2) ▇▇▇▇▇ &
Whitney model JT8D-15 engines, bearing manufacturer's serial nos. 708332 and
702984, respectively, whether or not from time to time installed on the Airframe
or installed on any other airframe or any other aircraft, (ii) within sixty (60)
days of the Effective Date, each of the two (2) ▇▇▇▇▇ & ▇▇▇▇▇▇▇ model JT8D-9A
engines identified on a Lease Supplement to this Lease, whether or not from time
to time installed on the Airframe or installed on any other airframe or any
other aircraft, and (iii) any Replacement Engine, whether or not from time to
time installed on the Airframe or any other airframe or any other aircraft,
together, in each case, with any and all Parts incorporated in such Engine and
any and all Parts removed from such Engine, so long as title to such Parts shall
remain vested in LESSOR in accordance with the terms of Section 8(A). At such
time as a Replacement Engine shall be substituted hereunder and the Engine for
which the substitution is made shall be released, such Replacement Engine shall
constitute an Engine hereunder and such replaced Engine shall cease to be an
Engine hereunder. The term "Engines" means, as of any date of determination, all
Engines leased hereunder.
"ENGINE MANUFACTURER" means United Technologies Corporation, ▇▇▇▇▇ &
Whitney Group, Commercial Products Division, a Delaware corporation, in its
capacity as manufacturer of the Engines, and its successors and assigns.
"EQUIPMENT CHANGE" shall have the meaning set forth in Section 8(C)
hereof.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 18
hereof.
"EVENT OF LOSS" shall mean, with respect to the Aircraft, Airframe or
any Engine, any of the following events with respect to such property: (i) loss
of such property due to destruction, damage beyond repair or rendition of such
property unfit for normal use by LESSEE by any cause whatsoever, or 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 total loss or a
compromised total loss; (ii) the disappearance, loss, theft, hijacking or
condemnation, of such property for a period in excess of thirty (30) consecutive
days; (iii) the confiscation or seizure of, or requisition of use or title of
such property for a period in excess of sixty (60) consecutive days; or (iv) any
divestiture of title to an Engine treated as an Event of Loss pursuant to
Section 12(B) or any other provision 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
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which constitutes a part of the Aircraft.
"EXPIRATION DATE" shall mean August 12, 2003.
"FAA" shall mean the Federal Aviation Administration of the DOT or any
governmental person, agency or other authority succeeding to some or all of the
functions of the Federal Aviation Administration.
"FAR" shall mean the United States Federal Aviation Regulations
currently in effect or as hereafter amended or modified.
"FIXED CHARGES COVERAGE RATIO" shall mean Cash Flow divided by Debt
Service.
"FLIGHT HOUR" shall mean each hour or fraction thereof elapsed from the
moment the wheels of the Aircraft leave the ground through the moment the wheels
of the Aircraft touch down upon the ground.
"GOVERNMENTAL ENTITY" shall mean and include: (i) any national
government and any political subdivision thereof or local jurisdiction therein;
(ii) any board, commission, department, division, organ, instrumentality, court
or agency of the foregoing, however constituted; and (iii) any association,
organization or institution of which any of the foregoing is a member, or to
whose jurisdiction any of the foregoing is subject, or in whose activities any
of the foregoing is a participant, but only to the extent that any such
association, organization or institution has jurisdiction over the Aircraft or
its operations.
"INDEMNITEE" means LESSOR, Beneficiary, Lender and their respective
successors and permitted assigns and their respective directors, officers,
shareholders, members and employees.
"LAW" shall mean and include: (i) any statute, decree, constitution,
regulation, order or other directive of any Governmental Entity; (ii) any
treaty, pact, compact or other agreement to which any Governmental Entity is a
signatory or party; (iii) any judicial or administrative interpretation or
application of any of the foregoing; and (iv) any amendment or revision of any
of the foregoing.
"LEASE" "THIS LEASE" "THIS AGREEMENT" "HEREBY," "HEREIN," "HEREOF,"
"HEREUNDER" or other like words shall mean this Aircraft Lease Agreement, as the
same may be supplemented or amended, in writing, from time to time.
"LEASE DOCUMENTS" shall mean this Lease, each Lease Supplement, the
collateral assignment of this Lease to Lender, the Certificate of Acceptance and
the Power of Attorney.
"LEASE SUPPLEMENT" means a supplement to this Lease, substantially in
the form attached as Exhibit "D" hereto, subjecting the property described
therein to this Lease.
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"LENDER" means the entity or group of entities that shall have provided,
or may hereafter provide, financing to LESSOR, which financing is secured in
whole or in part by the Aircraft, this Lease and the rights of LESSOR hereunder.
"LESSEE'S ADDRESS" shall mean ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇;
Attn.: Senior Vice President and CFO; Telefax No.: 808-833-3100.
"LESSOR'S ADDRESS" shall mean ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇; Attn.: Corporate Trust Department; Telefax ▇▇▇-▇▇▇-▇▇▇▇.
"LESSOR'S LIENS" means the Liens of any Person claiming by, through or
under LESSOR, which arises as a result of (i) claims by or against any such
Person not related to, or expressly permitted by, the Lease, (ii) any act or
omission of any such Person which is not expressly permitted by the Lease, (iii)
taxes or expenses imposed by or against any such Person (or the consolidated
group of taxpayers of which it is a member) for which LESSEE is not obligated to
indemnify pursuant to Section 11, (iv) claims by or against any such Person
arising out of any transfer by such Person of its interest in the Aircraft,
other than a transfer resulting from LESSOR's exercise of remedies while an
Event of Default has occurred and is continuing pursuant to Section 19, or (v)
the lien of any Lender with respect to the Aircraft (or any part thereof), this
Lease or the rights of LESSOR under this Lease.
"LIEN" shall mean any mortgage, pledge, lien, encumbrance, security
interest or other claim affecting the title to, or any interest in, property.
"LUFTHANSA" shall mean Deutsche Lufthansa Aktiengesellschaft.
"MAINTENANCE PROGRAM" shall mean LESSEE's FAA approved Part 121
maintenance program or the Air Authority FAR Part 121 approved maintenance
program of an approved sublessee, covering scheduled maintenance,
condition-monitored maintenance and oncondition maintenance of airframe, engines
and components of the Aircraft, including, but not limited to, servicing,
testing, preventive maintenance, repairs, structural inspections, system checks,
overhauls, approved modifications, service bulletins, engineering orders,
airworthiness directives, corrosion control inspections and treatments.
"MANUFACTURER" shall mean The Boeing Company, a Washington corporation,
in its capacity as manufacturer of the Airframe, and its successors and assigns.
"MINIMUM LIABILITY COVERAGE" shall mean Three Hundred Fifty
Million(US$350,000,000) Dollars per occurrence.
"OFFICER'S CERTIFICATE" shall mean a certificate signed by
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the chairman, the president, any vice president, the treasurer, any
assistant treasurer, the secretary or any assistant secretary of the Person
providing such certificate.
"OVERDUE RATE" shall mean the prime or base lending rate (or such other
rate as may replace such prime or base lending rate) announced or published on
any date on which the Overdue Rate is required to be calculated, by Citibank,
N.A., New York, New York, plus six percent (6%) per annum.
"PARTS" means all appliances, parts, instruments, avionics,
appurtenances, accessories, furnishings and other equipment or components, of
whatever nature (other than complete Engines) and other than removable Parts,
along with any seats and galleys leased from third parties, which are, from time
to time, incorporated in the Airframe or any Engine, or so long as title to such
Parts shall remain vested in LESSOR, in accordance with Section 8(A) hereof,
after removal from the Airframe or any Engine.
"PERMITTED LIENS" shall mean, with respect to the Aircraft, the Airframe
or any Engine (a) the respective rights of the parties under this Lease and each
Lease Supplement; (b) LESSOR's Liens; (c) liens for taxes, assessments or other
governmental charges either not yet due or being contested in good faith by
appropriate proceedings, so long as such proceedings do not involve any material
danger of the sale, forfeiture or loss of the Aircraft, the Airframe or any
Engine and provided that with respect to such liens, assessments or governmental
charges, LESSEE has provided for adequate reserves, as determined in accordance
with generally accepted accounting principles, to satisfy in full the amount of
such lien plus interest and penalties thereon, or has posted a bond, issued by a
bonding or insurance company reasonably acceptable to LESSOR, and in an amount
sufficient to satisfy in full the amount of such lien plus interest and
penalties thereon; (d) materialmen's, mechanic's, worker's, repairer's,
employee's or other like liens for amounts, the payment of which is either not
yet delinquent for more than thirty (30) days or is 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 Aircraft, the Airframe or
any Engine and so long as LESSEE has provided for adequate reserves, as
determined in accordance with generally accepted accounting principles, to
satisfy in full the amount of such lien plus interest and penalties thereon, or
has posted a bond, issued by a bonding or insurance company reasonably
acceptable to LESSOR, and in an amount sufficient to satisfy in full the amount
of such lien plus interest and penalties thereon ; (e) liens arising out of any
judgment or award, unless the judgment secured shall not, within thirty (30)
days after entry thereof, have been discharged or vacated or execution thereof
stayed pending appeal or shall not have been discharged, vacated or reversed
within thirty (30) days after the execution of such stay, and provided such lien
presents no material danger of the sale, forfeiture or loss of the Aircraft, the
Airframe or any Engine or of LESSOR's interest therein and so long as LESSEE
has provided for adequate reserves, as determined in accordance with generally
accepted accounting principles, to
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satisfy in full the amount of such lien plus interest and penalties
thereon, or has posted a bond, issued by a bonding or insurance company
reasonably acceptable to LESSOR, and in an amount sufficient to satisfy in full
the amount of such lien plus interest and penalties thereon.
"PERSON" shall mean and include any individual, corporation, limited
liability company, partnership, limited liability partnership, firm, joint
venture, trust, unincorporated organization, association, Governmental Entity,
or any organization or association of which any of the foregoing is a member or
participant.
"POWER OF ATTORNEY" shall mean that certain power of attorney from
LESSEE to LESSOR, to be executed in the form attached hereto as Exhibit "E",
pursuant to which LESSEE designates LESSOR as attorney-in-fact to do all things
which LESSEE could do under this Lease in the event LESSEE fails to fulfill any
of its obligations hereunder, including but not limited to, terminating this
Lease and LESSEE's interest herein.
"RENT" shall mean Basic Rent and Supplemental Rent.
"RENT DATE" shall mean each date on which a payment of Basic Rent is
due. The first Rent Date shall be the Effective Date and each subsequent Rent
Date shall be the corresponding date in each consecutive month during the Base
Term. If a Rent Date shall in any month not be a Business Day, then the Rent
Date shall be the immediately following Business Day.
"REPLACEMENT ENGINE" shall have the meaning set forth in Section 12(B)
hereof.
"RETURN LOCATION" shall mean LESSEE's maintenance facilities in
Honolulu, Hawaii or such location in the western continental United States, as
LESSOR shall designate (provided that facilities exist at such location
designated by LESSOR so as to permit the performance of a boroscope inspection
and engine power assurance run), or such other location as LESSOR and LESSEE
shall agree upon. In the event LESSOR directs LESSEE to return the Aircraft in
the western continental United States, LESSOR shall pay LESSEE's ferry costs
(including the cost of fuel, which cost to LESSOR shall be the same cost as
charged to LESSEE at the point of fueling) from Honolulu to such location
(unless the Aircraft is being returned due to the occurrence of an Event of
Default).
"RETURN OCCASION" shall have the meaning set forth in Section 17(A)
hereof.
"SECURITY DEPOSIT" shall have the meaning set forth in Section 5(D)
hereof.
"SUPPLEMENTAL RENT" shall mean all amounts, liabilities and obligations
(other than Basic Rent) which LESSEE assumes or agrees to pay to LESSOR or any
other Person hereunder, including, without limitation, all amounts required to
be paid by LESSEE under
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its indemnification pursuant to Section 14 hereof.
"TAXES" shall mean any and all sales, withholding, use, excise, personal
property, ad valorem, value added, stamp, interest equalization, taxes levied
upon LESSEE's income, gross levies, customs or other duties, or other charges of
any nature, together with any penalties, fines or interest thereon, imposed,
levied or assessed by, or otherwise payable to, any Governmental Entity.
Excluded from this definition shall be any taxes imposed by any taxing authority
within the jurisdiction of the Delivery Location and any taxes based on or
measured by the gross or net income of LESSOR or any Indemnitee (including,
without limitation, any franchise tax, any capital gains tax, any minimum or
alternative minimum tax and any taxes measured on or by any items of tax
preference).
"TRUST AGREEMENT" means that certain Trust Agreement dated as of August
____, 1996, between Beneficiary, as grantor thereunder, and Trustee.
"TRUSTEE" means First Security Bank, N.A., a national banking
association.
SECTION 2
LEASE OF AIRCRAFT
LESSOR hereby agrees to lease the Aircraft to LESSEE and LESSEE hereby
agrees to lease the Aircraft from LESSOR pursuant to the provisions of this
Lease.
SECTION 3
DELIVERY AND ACCEPTANCE; TERM
(A) DATE OF DELIVERY. LESSEE shall take delivery of the Aircraft and
Aircraft Documents on the Effective Date on not less than five (5) days' prior
written notice from LESSOR to LESSEE.
(B) PLACE OF DELIVERY AND ACCEPTANCE. The Aircraft and Aircraft
Documents shall be delivered to and accepted by LESSEE at the Delivery Location,
unless LESSOR and LESSEE otherwise agree in writing upon another location
subsequent to the execution of this Lease.
(C) CASUALTY TO AIRCRAFT PRECEDING DELIVERY. In the event that an Event
of Loss occurs with respect to the Aircraft prior to the Effective Date hereof,
this Lease shall thereupon terminate and neither LESSOR nor LESSEE shall have
any further obligation to the other hereunder except that LESSOR shall, as
promptly as is reasonably practicable, return so much of the
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Security Deposit that has been paid to it to LESSEE.
(D) ACCEPTANCE OF AIRCRAFT. The Aircraft to be leased hereunder shall be
delivered to LESSEE in its "AS IS," "WHERE IS" condition, SUBJECT TO EACH AND
EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET FORTH IN SUBSECTION
6(A)HEREOF, except that the Aircraft shall comply with the conditions set forth
on Exhibit "F". LESSEE shall indicate and confirm its acceptance of the Aircraft
by delivery to LESSOR of a (i) Lease Supplement, and (ii) Certificate of
Acceptance, dated on the Effective Date. At or preceding the time of acceptance
of the Aircraft, LESSOR shall deliver to LESSEE a written equipment inventory of
the Aircraft, prepared by LESSOR (the "Component Inventory") or Lufthansa,
Component Inventory shall be attached to the Certificate of Acceptance.
(E) TERM OF LEASE. The term of this Lease, as to the Aircraft, shall be
for the Base Term.
SECTION 4
CONDITIONS PRECEDENT
(A) LESSEE'S CONDITIONS PRECEDENT. LESSOR's obligation to lease the
Aircraft hereunder to LESSEE shall be subject to the receipt by LESSOR or the
performance or occurrence, on or before the Effective Date (or such other date
as provided for herein), of the following from LESSEE, all of which shall be
satisfactory in form and substance to LESSOR and Lender:
(1) Certified copy of a resolution of LESSEE's Board of Directors,
certified by an officer of LESSEE, authorizing the entering into and performance
of this Lease together with an incumbency certificate as to the person or
persons authorized to execute and deliver this Lease and the other Lease
Documents on behalf of LESSEE;
(2) Certified copy of LESSEE's articles or certificate of incorporation
and by-laws certified by an officer of LESSEE;
(3) A favorable opinion of counsel to LESSEE, dated the Effective Date,
addressed to LESSOR and Lender, and which opinion shall opine, among other
things, that the Lease and all of the terms thereof constitutes the valid and
binding obligation of LESSEE enforceable in accordance with its terms and that
the interests of LESSOR and Lender, respectively, in the Aircraft and this Lease
are fully protected and perfected;
(4) A copy of LESSEE's air carrier operating certificate, as issued by
the Secretary of Transportation of the United States pursuant to Chapter 47 of
Title 49 of the United States Code for aircraft capable of carrying ten or more
individuals or 6,000 pounds or more of cargo, and the Certificate of
Airworthiness for the Aircraft issued by the Air Authority or other Governmental
Entity having jurisdiction, each duly certified as being true,
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correct, accurate and complete by an officer of LESSEE;
(5) The LESSOR shall be satisfied that all necessary licenses and
permits for the exportation of the Aircraft from Germany and the importation of
the Aircraft into United States have been obtained by LESSEE and remain valid
and in full force and effect and that any applicable customs duties, stamp
duties and all other Taxes shall have been paid as a consequence of the
importation of the Aircraft, the entering into of this Lease, the performance of
the terms of this Lease and the leasing of the Aircraft;
(6) An Officer's Certificate of LESSEE, dated as of the Effective Date,
stating that:
(a) The representations and warranties contained in Subsection 6(C)
hereof are true and accurate on and as of such date as though made on
and at such time (except to the extent that such representations and
warranties relate solely to an earlier date); and
(b) No event has occurred and is continuing, or would result from
the leasing of the Aircraft, which constitutes a Default or an Event of
Default or would constitute a Default or an Event of Default with the
giving of notice or the passage of time or both;
(7) Not less than three (3) Business Days prior to the Date,
certificates and a broker's undertaking letter, an Approved Insurer(s), as to
due compliance with the provisions of Section 13 hereof with respect to the
Aircraft;
(8) The Security Deposit;
(9) The Power of Attorney;
(10) The collateral assignment of this Lease in favor of the Lender;
(11) A written statement, on the letterhead of LESSEE, for presentation
to the export control authority of the Federal Republic of Germany (Bundesamt
fur Wirtschaft) that neither the Aircraft nor parts thereof nor any spare parts,
if any, delivered to the LESSEE shall directly or indirectly be sold, leased,
released, assigned, transferred, conveyed or in any manner disposed of in or to
any country other than the United States of America without due prior written
consent of the Bundesamt fur Wirtschaft, except to Australia, Austria, Belgium,
Luxembourg, Denmark, France, Greece, Great Britain, Ireland, Italy, Switzerland
or Turkey; and
(12) Such other documents which LESSOR or its counsel may reasonably
require.
(B) LESSOR'S CONDITIONS PRECEDENT. LESSEE's obligation to lease the
Aircraft hereunder from LESSOR shall be subject to the
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receipt by LESSEE or the performance or occurrence, on or before the
Effective Date (or such other date as provided for herein),of the following from
LESSOR, all of which shall be satisfactory in form and substance to LESSEE:
(1) The Aircraft shall be in the condition required by Exhibit "F"
hereto;
(2) The Aircraft shall be registered in the United States in the name of
LESSOR;
(3) Lufthansa shall have provided to LESSEE, on a reasonably timely
basis prior to the Effective Date, such information as LESSEE shall reasonably
require in connection with obtaining all necessary licenses, permits and
authorizations for the exportation of the Aircraft from Germany and the
importation of the Aircraft to the United States;
(4) LESSOR's Lender shall have given to LESSEE a covenant of quiet
enjoyment; and
(5) LESSOR shall have tendered the Aircraft to LESSEE for delivery not
later than August 15, 1996.
SECTION 5
RENT; SECURITY DEPOSIT AND MAINTENANCE RESERVES
(A) RENT. LESSEE covenants and agrees to pay to LESSOR, or to any of
LESSOR's assigns designated to LESSEE in writing by LESSOR, the Rent.
(1) BASIC RENT. The Basic Rent shall be paid by LESSEE to LESSOR in
respect of the Aircraft, in advance, on each Rent Date. The first
payment of Basic Rent shall be paid by LESSEE to LESSOR on the Effective
Date.
(2) SUPPLEMENTAL RENT. LESSEE agrees to pay to LESSOR, or to
whomsoever shall be entitled thereto, any and all Supplemental Rent
promptly as the same shall become due and owing, and in the event of any
failure on the part of LESSEE to pay any Supplemental Rent, LESSOR shall
have all rights, powers and remedies provided for in this Lease or by
Law or equity or otherwise in the case of nonpayment of Basic Rent.
LESSEE will also pay to LESSOR, on demand, as Supplemental Rent, to the
extent permitted by applicable Law, interest at the Overdue Rate on any
part of any installment of Basic Rent not paid when due for the period
from and including the Rent Date to and including the date of actual
payment in full, and on any Supplemental Rent not paid when due or
demanded by LESSOR for any period for which the same shall be overdue.
13
(B) FORM OF PAYMENT. Payment of Rent and any other payments due under
this Lease, shall be made in Dollars by wire transfer of immediately available
funds to LESSOR or its assignee at such address and account as LESSOR may
specify in writing. Payment shall be made on the Rent Date, or the Business Day
thereafter if the Rent Date is not a Business Day, so as to reach LESSOR or its
designated depository not later than 2:00 p.m. local time, New York, New York,
on the Rent Date or the Business Day thereafter, as the case may be.
(C) RENT NOT REDUCED BY TAXES. LESSEE agrees that each payment of Rent
pursuant to this Lease shall be free of all Taxes and, in the event that any
Taxes are imposed, levied, assessed by, or otherwise payable with respect to or
arising out of the leasing or operation of the Aircraft by LESSEE, LESSEE shall
pay such amounts as are necessary to enable LESSOR and each assignee of LESSOR
to whom payments of Rent are to be made by LESSEE, to receive each payment of
Rent hereunder, under any circumstances and in any event, in the full amounts
required hereunder on an aftertax basis, without any reduction whatsoever.
(D) SECURITY DEPOSIT. LESSEE shall deliver to LESSOR a security deposit
in the amount of Two Hundred Forty Thousand(US$240,000) Dollars (the "Security
Deposit") to secure the performance of LESSEE's obligations under this Lease,
including, but not limited to, LESSEE's obligations to pay Rent. The Security
Deposit shall be paid by LESSEE to LESSOR as follows:
(i) LESSOR acknowledges receipt from LESSEE on June 5, 1996 of
Seventy Five Thousand(US$75,000) Dollars (such amount is hereinafter
referred to as the Initial Deposit); and
(ii) LESSEE shall pay to LESSOR, on the Effective Date, One Hundred
Sixty Five Thousand (US$165,000) Dollars.
The Security Deposit shall be paid by LESSEE to LESSOR when due to the
following account:
LGT Bank in Liechtenstein AG
▇▇▇▇▇▇▇▇▇▇▇ ▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
Account No.: 113 451 5-10 333 01
For the account of Jetz Ventures Inc.
Reference: Diamond Head Associates/Aloha
The Security Deposit, if in cash, shall be held by LESSOR (or Lender) in
an interest bearing account. Upon the occurrence and continuation of an Event of
Default hereunder, LESSOR may use all or any part of the Security Deposit,
together with all interest accrued thereon, in the manner provided for in this
Lease. At the end of the Base Term of this Lease, and assuming no Event of
Default has occurred and is continuing, and the Aircraft and
14
Aircraft Documents have been returned by LESSEE to LESSOR in accordance
with the provisions hereof, LESSOR shall return the Security Deposit then held
by LESSOR, together with all interest accrued thereon (if the Security Deposit
has been held in the form of cash), to LESSEE, to such account as LESSEE shall
designate to LESSOR in writing.
In lieu of a cash Security Deposit, LESSEE may post an irrevocable
standby letter of credit (the "Letter of Credit") in the full amount of the
Security Deposit. Any Letter of Credit issued by LESSEE to LESSOR shall be in
form and substance satisfactory to LESSOR and Lender (the form and substance of
which shall be submitted to LESSOR for approval not less than four (4) Business
Days prior to the Effective Date), shall be issued and/or confirmed by a bank
acceptable to LESSOR and Lender, shall be renewed not less than thirty (30) days
prior to the stated expiration date thereof, shall remain in full force and
effect for not less than a one year period of time following the Expiration Date
and shall be drawable in either New York, New York or San Francisco, California.
In the event LESSEE delivers a Letter of Credit to LESSOR on the
Effective Date as and for the Security Deposit, LESSOR shall apply the Initial
Deposit in partial payment of the first month's payment of Basic Rent that is
due on the Effective Date.
In the event LESSOR has drawn any part of the Security Deposit in
accordance with the terms of this Lease, LESSEE shall as promptly as practicable
supplement the Security Deposit so that at all times during the Base Term the
Security Deposit (whether in the form of cash or Letter of Credit) shall be
equal to Two Hundred Forty Thousand (US$240,000) Dollars.
(E) MAINTENANCE RESERVE. Provided AirGroup meets the Credit Standards,
then LESSEE shall not be required to pay Reserves for any period for which
Reserves would otherwise be payable, as provided below. AirGroup shall be deemed
to have satisfied the Credit Standards provided AirGroup maintains (1) a Fixed
Charges Coverage Ratio equal to not less than 1.05, calculated on a rolling
twelve month basis and (2) a minimum tangible net worth (tangible net worth
being determined in accordance with Generally Accepted Accounting Principles,
consistently applied) of $4,000,000, calculated on a rolling twelve month basis
and computed at the end of each calendar quarter, with the first computation
being made as of the calendar quarter ending March 31, 1997.
Commencing as of the calendar quarter ending March 31, 1997, and for
each calendar quarter thereafter (each such date a "Review Date") during the
Base Term, if LESSEE failed to meet the Credit Standards as calculated on a
rolling twelve month basis, LESSEE shall pay to LESSOR Reserves on account of
the operation for the Aircraft for each subsequent month following the Review
Date on which it was determined that LESSEE failed to meet the Credit Standards
up through and including the next Review Date on which it is determined that
LESSEE meets the Credit Standards, in an amount equal to Two Hundred Forty Five
(US$245.00) Dollars per each Flight
15
Hour incurred on the Aircraft in the previous calendar month, which
amount shall be allocated at Seventy Five (US$75.00) Dollars per Flight Hour for
the Airframe (the "Airframe Reserve"), Seventy (US$70.00) Dollars per Engine for
each Engine Flight Hour (the "Engine Reserve"), Twenty ($20.00) Dollars per
Flight Hour for the landing gear (the "Landing Gear Reserve") and Ten ($10.00)
Dollars per Flight Hour for the APU (the "APU Reserve") (each a "Reserve" and
collectively, the "Reserves"). All Reserves to be paid by LESSEE to LESSOR shall
be paid in arrears, not later than ten (10) days following the last day of the
month for which the Reserves payment was calculated except the Reserve payment
for the month immediately preceding the date of the Return Occassion (as defined
in Section 17(A)) shall be paid on the date of the Return Occassion. All
Reserves paid by LESSEE to LESSOR will be held by LESSOR (or Lender) and shall
be disbursed by LESSOR (or LESSOR shall cause the same to be disbursed) only to
pay for Covered Maintenance pursuant to Section 7(D) hereof.
(F) NET LEASE, LESSEE'S OBLIGATIONS; NO SETOFF; COUNTERCLAIM, ETC. This
is a net operating lease. It is the intent of the parties hereto that this Lease
be a "true lease" and a lease for United States federal income tax purposes.
LESSEE acknowledges and agrees that it has no interest herein other than that of
a lessee. Except as otherwise provided herein, LESSEE's obligation to pay all
Rent payable hereunder shall be absolute and unconditional and shall not be
affected by any circumstance whatsoever, including, without limitation, (i) any
Taxes (other than Taxes applicable to said Rent for which LESSEE has no
indemnification obligation under Section 11 hereof), any setoff, counterclaim,
recoupment, defense or other right which LESSEE may have against LESSOR; (ii)
any defect in the title, airworthiness, condition, design, operation or fitness
for use of, or any damage to or loss or destruction of, the Aircraft, Airframe
or any Engine, or any interruption or cessation in the use or possession thereof
by LESSEE for any reason whatsoever; (iii) any insolvency, bankruptcy,
reorganization or similar proceedings by or against LESSEE; (iv) any
restriction, prevention or curtailment of, or interference with, any use of the
Aircraft, Airframe or any Engine; (v) any invalidity or unenforceability or
disaffirmance of this Lease or any provision hereof, whether against or by
LESSEE or otherwise; or (vi) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing. The foregoing
provisions shall not be construed as a waiver by LESSEE of any right to bring a
separate action against LESSOR to recover amounts allegedly due from LESSOR to
LESSEE.
SECTION 6
REPRESENTATIONS AND WARRANTIES
(A) DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH HEREIN TO
THE CONTRARY, NEITHER LESSOR NOR BENEFICIARY HAS MADE AND SHALL NOT BE DEEMED TO
HAVE MADE, BY VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER THIS LEASE, AND LESSOR
HEREBY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
16
AIRWORTHINESS, VALUE, CONDITION, COMPLIANCE WITH SPECIFICATIONS,
DURABILITY, RELIABILITY, DESIGN, OPERATION, MERCHANTABILITY, OR FITNESS FOR USE
OR PARTICULAR PURPOSE OF THE AIRCRAFT, OR ANY PART THEREOF, AS TO THE ABSENCE OF
LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT, OR ANY PART THEREOF, OR AS TO ANY
OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO
THE AIRCRAFT, OR ANY PART THEREOF, INCLUDING, WITHOUT LIMITATION, ANY LIABILITY
IN CONTRACT, TORT, OBLIGATION OR LIABILITY ARISING FROM NEGLIGENCE, STRICT
LIABILITY, ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE OR DEALING OR
USAGE OR TRADE, OR LOSS OR INTERRUPTION OF USE, PROFIT, OR BUSINESS, OR OTHER
CONSEQUENTIAL DAMAGES; AND LESSEE HEREBY WAIVES, RELEASES, RENOUNCES, AND
DISCLAIMS EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR WARRANTIES.
As an exception to the foregoing, LESSOR represents and warrants that,
on the Effective Date:
(1) LESSOR shall have the lawful right to lease the Aircraft to
LESSEE in accordance with the terms of this Lease;
(2) LESSOR is a national banking association and has the trust
power and authority to enter into and perform its obligations under this
Lease and all other Lease Documents to which LESSOR is a party; and
(3) This Lease and all other Lease Documents to which LESSOR is a
party have been duly entered into and delivered by LESSOR and
constitutes a valid, legal and binding obligation of LESSOR, enforceable
in accordance with its terms, except as such enforceability may be
limited by bankruptcy, moratorium, reorganization and similar Laws and
by general principles of equity, whether considered in a proceeding at
Law or in equity.
THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE PRECEDING
EXCEPTION CLAUSE CONSTITUTE THE SOLE EXCEPTION TO THIS SUBSECTION 6(A)
AND IS EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES
OF LESSOR EXPRESS OR IMPLIED.
(B) MANUFACTURER'S WARRANTIES. So long as no Event of Default under this
Lease has occurred and is continuing, LESSOR agrees to assign or otherwise make
available to LESSEE such rights as LESSOR may have, if any, under any warranty,
express or implied, with respect to the Aircraft made by the Manufacturer,
Engine Manufacturer, any subcontractor or supplier thereof, to the extent that
the same may be assigned or otherwise made available to LESSEE and, to the
extent that the same may not be assigned or otherwise made available to LESSEE,
LESSOR agrees to exert its reasonable efforts, at LESSEE's sole cost and
expense, to enforce such rights as LESSOR may have with respect thereto for the
benefit of LESSEE; provided, however, that upon an Event of Default all such
rights shall, without further action or notice, immediately revert to
17
LESSOR, including all claims thereunder, whether or not perfected.
(C) LESSEE'S REPRESENTATIONS AND WARRANTIES. LESSEE represents and
warrants, as of the Effective Date, and all such representations and warranties
being continuing, that:
(1) LESSEE is a corporation duly organized and existing in good standing
under the Laws of Hawaii and has the corporate power and authority to carry on
its business as presently conducted and to perform its obligations under this
Lease and the other Lease Documents;
(2) LESSEE is not a Governmental Entity or government owned or
controlled and neither LESSEE or its properties is immune from the jurisdiction
of any court or from any legal process (whether through service or notice,
attachment prior to judgment, attachment in aid of execution, execution or
otherwise) nor does it have the defense of sovereign immunity or similar defense
available to it in any legal action or proceeding;
(3) LESSEE is a citizen of the United States (as defined in 40102 of
Title 49 of the United States Code) holding an air carrier operating certificate
issued by the Secretary of Transportation of the United States pursuant to
chapter 447 of Title 49 of the United States Code for aircraft capable of
carrying 10 or more individuals or 6,000 pounds or more of cargo;
(4) At the time of delivery of the Aircraft to LESSEE, the Aircraft will
be eligible for U.S. registration (assuming LESSOR meets the citizenship
requirements for registration of an Aircraft as set forth in the FAR's) and may
be operated by LESSEE in accordance with all applicable Federal Aviation rules
and regulations notwithstanding the fact, among other things, that the Aircraft
will now be operated in the United States (not having previously been operated
in the United States), will be added to the U.S. aircraft registry and the
Aircraft will not meet the Stage III noise regulations set forth in FAR Part 36;
(5) In the event LESSEE files a petition for relief under Chapter 11 of
the United States Bankruptcy Code, as amended, or has such a petition filed
against it, LESSOR will be entitled to the rights provided to a "lessor" under
the provisions of 11 U.S.C. Section 1110(a)(1) and LESSEE will not oppose and
will consent to any motion made by LESSOR under said Section 1110 to take
possession of the Aircraft pursuant to the provisions thereof;
(6) This Lease and all other Lease Documents to which LESSEE is a party
have been duly authorized by all necessary corporate action on the part of
LESSEE, does not require any approval of the stockholders of LESSEE (or if such
approval is required, such approval has been obtained), and neither the
execution and delivery hereof nor the consummation of the transactions
contemplated hereby nor compliance by LESSEE with any of the terms and
provisions hereof will contravene any Law applicable to LESSEE or result in any
breach of, or constitute any default under, or result in the creation of, any
lien, charge or
18
encumbrance upon any property of LESSEE under any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, bank loan or credit
agreement, corporate charter or bylaw, or other agreement or instrument to which
LESSEE is a party or by which LESSEE or its properties or assets may be bound or
affected;
(7) LESSEE has received or has complied with every necessary consent,
approval, order, or authorization of, or registration with, or the giving of
prior notice to, any Governmental Entity having jurisdiction with respect to the
use and operation of the Aircraft and the execution and delivery of this Lease
and all other Lease Documents to which LESSEE is a party or the validity and
enforceability hereof and thereof;
(8) This Lease and all other Lease Documents to which LESSEE is a party
have been duly entered into and delivered by LESSEE and constitutes a valid,
legal and binding obligation of LESSEE, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, reorganization,
moratorium or other similar Laws and by general principles of equity, whether
considered in a proceeding at Law or in equity;
(9) There are no suits or proceedings pending, or to the knowledge of
LESSEE, threatened against or affecting LESSEE or its properties, which may have
a material adverse effect on the financial condition or business of LESSEE or
upon LESSEE's ability to perform its obligations hereunder;
(10) LESSEE has filed or caused to be filed all material tax returns
which are required to be filed by LESSEE and has paid or caused to be paid all
Taxes shown to be due or payable on said returns or on any assessment received
by LESSEE, except those the validity of which is contested by LESSEE in good
faith by appropriate proceedings duly instituted and diligently prosecuted;
(11) It is not necessary or advisable under any applicable Law in order
to ensure the validity, effectiveness and enforceability of this Lease and
Lender's security interest in this Lease and the Aircraft that this Lease or any
other instrument relating thereto be filed, registered or notarized or that any
other action be taken, other than the filing and registration of this Lease and
Lender's security agreement with LESSOR with the FAA and filing of UCC-1
financing statements with the Office of the Secretary of State of Hawaii;
(12) Except for the registrations and filings described in (11) above,
no other filing or registration of any instrument or document is necessary under
any applicable Law in order to protect LESSOR'S title to and ownership of the
Aircraft and Lender's security interest in the Aircraft and this Lease;
(13) Neither the payment of Rent nor the payment of any other amount
required under this Agreement is subject to deduction or withholding under any
applicable Law;
(14) No Default or Event of Default has occurred and
19
is continuing;
(15) The obligations of LESSEE to make payments hereunder will rank at
least PARI PASSU in right of payment with all other unsecured, unsubordinated
obligations of LESSEE;
(16) LESSEE has furnished to LESSOR and Lender copies of AirGroup's
audited consolidated financial statements as of December 31, 1995, as certified
by AirGroup's independent certified public accountants, and uncertified
quarterly consolidated financial statements of AirGroup for the quarter ending
March 31, 1996, and in each instance prepared in accordance with generally
accepted accounting principles, consistently applied. Such financial statements
present a true and accurate view of the financial condition of LESSEE and
AirGroup, respectively, as of the date of such financial statements. Since the
date of such financial statements, no material adverse change has occurred in
LESSEE's or AirGroup's financial condition or their results of operations, and
nothing has occurred that can reasonably be expected to have a material adverse
effect on the ability of LESSEE and AirGroup to carry on their respective
businesses and for LESSEE to perform its obligations under this Lease;
(17) Neither the financial statements of AirGroup nor any other material
document furnished by or on behalf of LESSEE or AirGroup to LESSOR or Lender in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in this Lease not misleading. LESSEE knows of no fact
that materially adversely affects or, so far as LESSEE can now reasonably
foresee, will materially adversely affect the business, financial condition,
operations or properties of LESSEE or the ability of LESSEE to perform its
obligations under the Lease Documents; and
(18) AirGroup owns one hundred percent (100%) of the issued and
outstanding stock of LESSEE.
(D) NOTIFICATION. During the Term of this Lease, at the end of each
calendar quarter, LESSEE shall send an officer's certificate to LESSOR and
Lender notifying them of any condition that materially changes the content of
any of the representations and warranties made as of the Effective Date under
Section 6(C) hereof or certifying that there has been no such change.
SECTION 7
POSSESSION, USE, MAINTENANCE, TITLE AND REGISTRATION
(A) POSSESSION. Except as expressly provided in Subsection 8(B) and
Section 22, LESSEE shall not transfer possession of the Aircraft or any Engine
or part thereof to any Person without the prior written consent of LESSOR, which
consent shall not be unreasonably withheld, provided that, so long as no Default
or Event of Default or event which would constitute an
20
Event of Default with the giving of notice or lapse of time, or both, shall
have occurred and be continuing and so long as LESSEE shall comply with the
provisions of Section 13 hereof, LESSEE may, so long as the action to be
taken shall not deprive LESSOR of its title to and interest in the Aircraft,
the Airframe or any Engine and shall not adversely affect the registration of
the Aircraft under the Laws of the United States, without the prior written
consent of LESSOR, deliver possession of the Aircraft, the Airframe or any
Engine or other Part thereof to the Manufacturer, the Engine Manufacturer or
Authorized Maintenance Performer, as appropriate, for testing, service,
repair, maintenance or overhaul work on the Aircraft, the Airframe, any
Engine or Part, or for alterations, modifications, or additions thereto, to
the extent required or permitted by the terms of Subsection 7(D) hereof.
(B) USE. LESSEE shall use the Aircraft solely in commercial passenger
carrying operations in accordance with all Laws applicable to it and shall not
use or permit the Aircraft to be used for any purpose for which the Aircraft is
not designed or reasonably suited. LESSEE shall not use or permit the use of
the Aircraft for the carriage of (i) whole animals, living or dead, except in
cargo compartments according to International Air Transport Association
("I.A.T.A.") regulations and except domestic pet animals carried in suitable
containers to prevent the escape of any fluids and to ensure the welfare of the
animal, (ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes or any other nuclear assemblies except as
permitted for passenger aircraft under the "Restriction of Goods" schedule
issued by I.A.T.A. from time to time, or (iii) any other goods, materials or
items of cargo that would not be adequately covered by the insurance required or
obtained pursuant to this Lease.
(C) LAWFUL INSURED OPERATIONS. LESSEE shall not permit the Aircraft to
be maintained, used, or operated in violation of any Law of any Governmental
Entity having jurisdiction, or contrary to the Manufacturer's or Engine
Manufacturer's operating manuals and instructions, or in violation of any
airworthiness certificate, license, or registration relating to the Aircraft
issued by the FAA or any other Governmental Entity having jurisdiction, unless
the validity thereof is being contested in good faith and by appropriate
proceedings duly instituted and diligently prosecuted, but only so long as such
proceedings will not result in the sale, forfeiture, loss of valid insurance
coverage upon, or loss of, the Aircraft, the Airframe, any Engine or any Part.
LESSEE shall comply with the foregoing, at its sole cost and expense, and shall
maintain the Aircraft in proper condition for operation under such Laws. LESSEE
agrees not to operate the Aircraft, or to permit or suffer the Aircraft to be
operated, within or into any geographic area:
(1) unless the Aircraft is at all such times covered by insurance
as required by the provisions of Section 13 hereof;
(2) contrary to the terms of such insurance as
21
required by the provisions of Section 13 hereof; and
(3) in violation of any Law, rule, order or regulation of any
Governmental Entity.
LESSEE shall deliver to LESSOR such documents and assurances as LESSOR
may request under the provisions of Section 16 hereof to evidence compliance
with the foregoing.
(D) MAINTENANCE.
(i) LESSEE, at its own cost and expense, shall:
(a) service, repair, maintain, overhaul, test, or cause the
same to be done to the Aircraft so as to keep the Aircraft in as good
operating condition as when delivered to LESSEE hereunder, ordinary wear
and tear excepted, and such operating condition as required by the
Maintenance Program and as may be necessary to enable the airworthiness
certification of the Aircraft to be maintained in good standing at all
times under the applicable rules and regulations of the FAA;
(b) perform all routine and non-routine services, checks and
corrosion control and inspections, including any structural inspections
requirements (SSID's) and "A", "B", "C" or "D" checks (or the equivalent
thereof) required by the Maintenance Program, the Manufacturer or the
Air Authority;
(c) maintain, in accordance with FAR Part 121, all records,
logs and other materials required by applicable Laws of any Governmental
Entity and the Air Authority to be maintained in respect of the
Aircraft, including but not limited to serviceable component tags
required by the Air Authority;
(d) throughout the Base Term of this Lease, at the end of each
calendar quarter, provide LESSOR with a written projection of the next
scheduled commencement date of each "C" or "D" check to be performed on
the Aircraft and each scheduled engine overhaul and the location where
such checks and overhauls are scheduled to be performed;
(e) designate representatives to coordinate with LESSOR or
LESSOR's representatives on maintenance and warranty matters;
(ii) All maintenance of the Aircraft and Engines shall be performed
by the Authorized Maintenance Performer.
(iii) (A) "Covered Maintenance" means, at any time, the D check for
the Airframe, the scheduled heavy maintenance check or hot section inspection
for the engine, the scheduled overhaul for the landing gear and the scheduled
heavy maintenance check or hot section inspection for the APU, respectively,
pursuant to the
22
Maintenance Program. Excluded from Covered Maintenance shall be overhaul or
repairs caused by F.O.D, operational mishandling or by events that can be
insured against. The cost of Covered Maintenance shall be limited to the actual
cost of replacement parts plus the cost of the associated labor at LESSEE's
in-house labor rates if the work is performed by LESSEE, or at third-party costs
charged to LESSEE if the work is performed by third parties, and shall in no
event include, late charges, interest, ▇▇▇▇-ups or premium charges by LESSEE or
other similar amounts.
(B) Unless an Event of Default shall have occurred and be
continuing, to the extent that LESSEE has paid Reserves pursuant to the terms of
this Lease and such Reserves have not previously been disbursed by LESSOR in
accordance with the terms hereof, the LESSOR shall pay to the LESSEE, within
five (5) Business Days after receipt of:
(a) an Officer's Certificate stating:
(1) that Covered Maintenance has been performed on
the Airframe, Engines, APU or landing gear, respectively, and the
cost thereof, or
(2) that advance payments are required by a
third-party Authorized Maintenance Performer under a contract
covering any such work, and the amount of such payments; and
(b) appropriate documentation with respect to such
work or payments,
an amount equal to the actual cost of such work or such advance payment, as the
case may be, up to the amount of Airframe Reserves for such Covered Maintenance
on the Airframe, up to the amount of Engine Reserves for such Covered
Maintenance on the Engines, up to the amount of APU Reserves for such Covered
Maintenance on the APU and up to the amount of the Landing Gear Reserves for
such Covered Maintenance on the landing gear; PROVIDED, HOWEVER, that (i) at no
time shall the amount of any Reserve to be made available by LESSOR for Covered
Maintenance exceed the aggregate amount remaining in such Reserve as of the date
the Covered Maintenance was completed, and (ii) all Reserves (including but not
limited to the Reserves for each Engine) shall be kept segregated and, except as
expressly provided below, LESSEE may only draw upon the Reserves specifically
allocated to the item on which Covered Maintenance was performed. Upon the
termination of this Lease for any reason whatsoever (including, without
limitation, the occurrence of an Event of Default), any amounts paid to LESSOR
as Reserves and not used to reimburse LESSEE for Covered Maintenance shall be
retained by LESSOR free and clear of any claim by LESSEE. Notwithstanding the
foregoing, in the event that LESSEE performs Covered Maintenance on the
Airframe, either Engine, the APU or the landing gear, as the case may be, in
order to meet, on the Expiration Date, the return conditions set forth herein,
and the allocated Reserve amount for such item is insufficient to pay in full
the cost of the Covered Maintenance for such item, then in such event, and only
in such
23
event, LESSEE shall be entitled to draw upon and receive from the other Reserves
then held by LESSOR, that amount equal to the difference between the cost of the
Covered Maintenance and the amount that was allocated in the Reserves for such
item. Further, in the case of a return of the Aircraft on the Expiration Date
where a financial adjustment is due to LESSOR with respect to an item where
Reserves have been paid, LESSEE may draw upon the Reserves then held by LESSOR
and use same toward satisfaction of such financial adjustment obligation.
(f) LESSEE agrees that it will not discriminate against the
Aircraft (as compared to other aircraft of the same type owned or
operated by LESSEE) in the operation, use and performance of
maintenance, including, but not limited to, in contemplation of the
expiration or termination of this Lease with respect to the maintenance
of the Aircraft (including, but not limited to, the substitution or
replacements of Parts other than where the failure to replace Parts
would result in LESSEE failing to meet the return conditions for the
Aircraft set forth herein). The foregoing shall not be deemed to be a
prohibition on LESSEE's withdrawing the Aircraft from revenue service in
order to prepare the Aircraft for return to LESSOR upon the expiration
or termination of this Lease nor shall the foregoing be deemed to expand
LESSEE's obligations beyond those set forth in any specific return
provision set forth herein.
(E) AIRWORTHINESS DIRECTIVES; SERVICE BULLETINS.
(i) If the FAA, the Air Authority, the Manufacturer or the
Engine Manufacturer, or the manufacturer of any Parts, publishes an
airworthiness directive, mandatory service bulletin or mandatory modification
after the commencement date of this Lease or already has published such
airworthiness directive, mandatory service bulletin or a mandatory
modification which modification is required to be completed or terminated
during the Base Term or at any time during the ninety (90) day period
following the end of the Base Term or the termination of this Lease, LESSEE
shall take all such action as is necessary to comply with such airworthiness
directive, mandatory service bulletin or mandatory modification prior to the
return of the Aircraft by LESSEE to LESSOR and shall, except as hereinafter
stated, bear the entire expense thereof. As an exception to the foregoing,
LESSOR agrees that it will reimburse LESSEE fifty percent (50%) of the cost
(labor and material at the cost actually incurred by LESSEE without premium,
▇▇▇▇-up, surcharge or interest expense) in excess of One Hundred Thousand
Dollars (US$100,000) for each airworthiness directive accomplished during the
last twenty four (24) months of the Base Term, and one hundred percent (100%)
of the costs for each airworthiness directive and service bulletin which are
accomplished by LESSEE and fall due within ninety (90) days after the
Expiration Date; provided, however, that LESSOR shall have no obligation to
reimburse LESSEE for airworthiness directives and service bulletins
accomplished by LESSEE and which fall due within ninety (90) days after the
Expiration Date unless LESSEE had prior to accomplishing
24
such airworthiness directive or service bulletin received written authorization
from LESSOR to accomplish same. LESSOR shall pay to LESSEE its share, if any, of
the cost of complying with airworthiness directives performed by LESSEE, within
ten (10) Business Days of receipt from LESSEE of evidence reasonably
satisfactory to LESSOR that the airworthiness directive has been fully and
satisfactorily complied with.
(ii) LESSEE shall comply with all applicable mandatory service,
maintenance, repair and overhaul regulations, directives and instructions of the
FAA, the Air Authority, the Manufacturer, the Engine Manufacturer and the
manufacturer of all Parts and shall bear the entire expense thereof except as
provided in (ii) above.
(F) TITLE, REGISTRATION, PERFECTION AND INSIGNIA. LESSEE acknowledges
and agrees that title to the Aircraft shall remain vested in LESSOR
during the Base Term in accordance with the terms of this Lease. The Aircraft
shall, at all times during the Base Term, be registered in the United States in
the name of LESSOR or such Person as LESSOR may designate, in accordance with
the Laws of United States. The interest of LESSOR's Lender in the Aircraft and
this Lease shall at all times during the Base Term be fully protected and
perfected. LESSEE agrees that it shall take no action which shall cause the
Aircraft to cease to be so registered in the name of LESSOR or cause the
interest of Lender to not be fully protected and perfected under the applicable
Laws of United States. Unless otherwise requested, within fifteen (15) days of
the Effective Date, LESSEE shall fasten or cause to be fastened in the cockpit,
in a location reasonably adjacent to and not less prominent than the
airworthiness certificate for such Aircraft and on each Engine, an insignia
plate supplied by LESSEE and in the form set forth in Exhibit "G" hereto or in
any other form subsequently designated by LESSOR to LESSEE.
LESSEE will not allow the name of any Person to be placed on the
Aircraft or any Engine as a designation that might be interpreted as a claim of
ownership; provided, however, that LESSEE may cause the Aircraft to be lettered
in an appropriate manner for convenience of identification of the interest of
LESSEE therein, including but not limited to, the customary livery of LESSEE.
(G) MAINTENANCE REPORTS AND RECORDS. During the Term, LESSEE shall:
(a) provide maintenance information and reporting requirements
to LESSOR and any other party so designated by LESSOR including but not
limited to: (i) written notification at the end of each calendar quarter
with respect to the issuance during such calendar quarter of any
airworthiness directive or service bulletin, and written notification,
as promptly as possible, of any legal requirement materially affecting
the use, operation or maintenance of the Aircraft, Airframe, Engines or
Parts; (ii) quarterly written projections of scheduled Airframe, Engine,
landing gear and APU heavy
25
maintenance; (iii) prompt written notification of damage to the
Aircraft, Airframe, Engines or Parts where the estimated cost of
repair is in excess of $500,000; (iv) promptly upon the request of
LESSOR, written notification of Engine removals, exchanges or foreign
object damage (said report to include details of circumstances and plan
of action to repair); (v) reports of Flight Hours and Cycles on a
monthly basis; (vi) promptly upon the request of LESSOR, a report of all
service bulletins completed; and (vii) promptly upon the request of
LESSOR, copies of all material reports sent to the Air Authority or any
other Governmental Entity concerning the Aircraft.
(b) LESSEE will, during the Base Term, maintain all records,
logs and other materials required to be maintained with respect to the
Aircraft by Persons in operational control of the Aircraft under any
applicable rules, Laws or regulations and shall supply all such records,
logs and other materials to LESSOR or third parties, as reasonably
requested, as shall be necessary in order to implement the Maintenance
Program and any and all warranties and guarantees that apply to the
Aircraft. LESSEE will provide LESSOR with copies of all records of
maintenance performed during the Base Term as requested by LESSOR. All
such records shall be kept as required under the rules and regulations
of the Air Authority and shall be maintained in English.
SECTION 8
REPLACEMENT OF PARTS: ALTERATIONS,
MODIFICATIONS AND ADDITIONS
(A) REPLACEMENT OF PARTS. Except as otherwise provided herein, LESSEE,
at its own cost and expense, shall promptly replace all Parts which may, from
time to time, be incorporated or installed in, or attached to, the Aircraft, the
Airframe or any Engine and be an accession thereto, and which may, from time to
time, become lost, stolen, seized, confiscated or unserviceable. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing, LESSEE
may remove any Parts, provided that LESSEE shall replace such Parts as promptly
as may be practicable. All replacement Parts shall be free and clear of all
Liens, except Permitted Liens, shall meet all requirements of the Air Authority,
and shall be in as good operating condition as, and have a value and utility at
least equal to, the Parts replaced, assuming such replaced Parts were maintained
in the condition required pursuant to the requirements of this Lease.
All Parts owned by LESSOR at any time removed from the Aircraft 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, such Aircraft and which meet the requirements for replacement
Parts
49
26
specified above. Immediately upon any replacement Parts becoming incorporated or
installed in or attached to the Aircraft as above provided, and without further
act:
(1) title to the removed Part shall vest in LESSEE, free and
clear of all rights of LESSOR and LESSOR Liens;
(2) title to the replacement Parts shall vest in LESSOR, free
and clear of all rights of third parties, including, but not limited to,
LESSEE; and
(3) such replacement Parts shall become subject to this Lease
and shall be deemed part of the Aircraft into which such Parts were
incorporated or with respect to which such Parts were required, for all
purposes hereof to the same extent as the Parts originally incorporated
or installed in, or attached or related to such Aircraft.
(B) POOLING; ETC.
(i) LESSEE may subject the Aircraft or any Engine to normal
interchange agreements customary among major Air Carriers entered into by the
LESSEE in the ordinary course of its business, and may subject any Engine to
pooling arrangements customary among major Air Carriers and entered into by the
LESSEE in the ordinary course of its business.
(ii) LESSEE may install an Engine on an airframe owned by the LESSEE
provided such airframe is free and clear of all liens and encumbrances, except
(a) Permitted Liens; and
(b) the rights of Air Carriers under normal interchange
arrangements which are customary among major Air Carriers and
which do not contemplate, permit or require the transfer of title
to the Airframe or Engines installed thereon.
(iii) LESSEE may install an Engine on an airframe leased to, or
purchased by the LESSEE, subject to a lease, conditional sale, trust indenture
or other security agreement, but only if
(a) such airframe is clear of all liens and encumbrances,
except Permitted Liens and the rights of the parties to the lease,
conditional sale, trust indenture or other security agreement covering
such airframe; and
(b) LESSOR and Lender shall have received from the lessor,
conditional seller, indenture trustee, or secured party of such
airframe, a written agreement (which may be the lease, conditional sale,
trust indenture or other security agreement covering such airframe),
whereby such lessor, conditional seller, indenture trustee or secured
party expressly agrees that neither it nor its
27
successors or assigns will acquire or claim any right, title or interest
in any Engine by reason of such Engine being incorporated in such
airframe at any time while such Engine is subject to this Lease; and
(c) LESSOR and Lender, upon request, shall have received from
counsel to the LESSEE an opinion, in form and substance satisfactory to
LESSOR and Lender, to the effect that no creditors of, or bona fide
purchasers from, the lessor, conditional seller, indenture trustee or
secured party of such airframe will acquire any right, title or interest
in such Engine by reason of such Engine being installed on such airframe
at any time while such Engine is subject to this Lease. In the event
that LESSOR and Lender require an opinion, the cost of such opinion
shall be shared equally by LESSOR and LESSEE.
(iv) No permitted interchange or pooling agreement, transfer or
other relinquishment of possession permitted hereunder shall affect the title
to, or registration of or effect any transfer of the Aircraft, Airframe or
Engines or shall constitute consent to any action not permitted to the LESSEE in
this Lease.
(v) LESSOR agrees, for the benefit of any lessor, indenture trustee
or other secured party to LESSEE, that it will not acquire or claim any right,
title or interest in any engine by reason of such engine being incorporated in
the Airframe at any time while such engine is subject to a lease, conditional
sale, trust indenture, or other security agreement covering such engine.
(C) EQUIPMENT CHANGES. LESSEE, at its own expense, shall make such
alterations and modifications in and additions to the Aircraft ("Equipment
Changes") as may be required from time to time to meet the standards of the Air
Authority and of the Governmental Entity in the jurisdiction of which LESSEE
elects to fly the Aircraft and whose approval or consent is required to permit
LESSEE to fly over and/or into any geographical area with respect to which the
Governmental Entity exercises authority. In addition, the term "Equipment
Changes" shall mean modifications to or additions to the Aircraft that LESSEE,
at its own expense, may from time to time deem desirable in the proper conduct
of its business, provided that no such Equipment Change diminishes the value,
utility, condition or airworthiness of the Aircraft below the value, utility,
condition and airworthiness thereof immediately prior to such Equipment Change,
assuming the Aircraft was then in the condition required to be maintained by the
terms of this Lease, and provided further that LESSEE shall not change the
configuration (other than the seating configuration) of the Aircraft during the
Term hereof unless such configuration is approved by the Manufacturer, LESSOR
and the Air Authority. Any Equipment Change with an estimated cost in excess of
Two Hundred Fifty Thousand (US$250,000) Dollars must be approved in advance by
LESSOR, which approval will not be unreasonably withheld.
Title to all Parts incorporated, installed in,
28
attached or added to the Aircraft as the result of any such Equipment Change
shall, without further act, vest in LESSOR; provided, however, that during
the Base Term LESSEE may remove any such Part if: (1) such Part is in
addition to any Part originally incorporated or installed in or attached to
such Aircraft at the time of delivery thereof hereunder; and (2) such Part is
not required by the Air Authority or the Governmental Entity having
jurisdiction to be incorporated, installed in, attached or added to the
Aircraft; and (3) such Part can be removed from the Aircraft or can be
replaced with a part of equal value to the Part installed upon delivery
without diminishing or impairing the value, utility or airworthiness which
the Aircraft would have had at such time, had such Equipment Change not
occurred. Upon the removal by LESSEE of any Part as above provided, title
thereto shall, without further act, vest in LESSEE and such Part shall no
longer be deemed part of the Aircraft from which it was removed. Any Part not
removed from the Aircraft by LESSEE as provided above prior to a Return
Occasion shall remain the property of LESSOR. Notwithstanding the foregoing
provisions of Section 8(C), LESSOR agrees that LESSEE may install replacement
seats and galleys on the Aircraft. If the replacement seats and galleys are
(i) owned by any third party and leased to LESSEE, (ii) sold to LESSEE
subject to or other security interest, or (iii) lease to LESSEE pursuant to a
lease which is subject to a security interest in favor of any third party,
then LESSOR will not acquire or claim, as against such lessor, conditional
vendor or secured party, any right, title or interest in such seats and
galleys as the result of such seats and galleys being installed in the
Aircraft; provided, however (a) that LESSOR's inability to so acquire or
claim is subject to the express condition that such lessor, conditional
vendor or secured party shall not acquire or claim, as against LESSOR, any
right, title or interest in the Aircraft, or any Part other than its interest
in such seats or galleys by reason of such seats or galleys being installed
thereon, and (b) that all of LESSEE's right, title and interest in and to any
seats or galleys (but none of its obligations with respect thereto) not
removed by LESSEE within thirty (30) days after an Event of Default shall, at
such time, automatically become the property of LESSOR and subject to this
Lease.
Notwithstanding anything set forth herein to the contrary, in connection
with a return of the Aircraft by LESSEE to LESSOR on the Expiration Date, LESSEE
shall be entitled to remove and retain (with title vesting in LESSEE) the
avionics black boxes installed by LESSEE with respect to the TCAS and windshear
detection systems. All wiring installed by LESSEE in connection with the
installation of the TCAS and windshear detection systems shall remain in the
Aircraft and shall be deemed the property of LESSOR.
In the event the FAA requires LESSEE to comply with the Stage III noise
regulations set forth in FAR Part 36 and LESSEE cannot obtain an exemption or
deferment for complying, LESSOR will, upon the request of LESSEE, provide
financing to LESSEE for the acquisition of a shipset of Stage III hushkits
suitable for installation on the Aircraft or, at LESSOR's election, provide such
hushkits to LESSEE. Should LESSOR provide financing or the hushkits to LESSEE as
contemplated in the preceding sentence, the
29
Basic Rent will be adjusted upward so as to fully amortize the financing or
the cost of the hushkits over the remaining term of the Lease based on the
amount of the financing or the cost of the hushkits, as the case may be, and
the prevailing interest rates applicable to an entity with the credit of
LESSEE at such time. In the event LESSEE is required to install hushkits
during the last twelve (12) months of the Base Term in order to meet Stage
III noise regulations, LESSEE shall have the option of either (i) retaining
the hushkits at the end of the Base Term (provided no Default or Event of
Default has occurred and is continuing, and further provided, that LESSEE
restores the Aircraft to the condition that it was in prior to the
installation of the hushkits), in which case LESSOR will transfer title to
the hushkits to LESSEE, or (ii) extending the term of the Lease on terms and
conditions mutually acceptable to LESSEE and LESSOR. In the event LESSEE
exercises the option set forth in (ii), LESSEE shall send a notice to LESSOR
not later than one hundred twenty (120) days prior to the end of the Base
Term and LESSOR and LESSEE shall have agreed on the terms and conditions of
such extension not later than sixty (60) days prior to the end of the Base
Term. In the event LESSEE has exercised option (ii), above, and LESSOR and
LESSEE fail to reach an agreement on the terms and conditions for the
extension of the Lease with the time period set forth above, then, in such
event, the Base Term will be deemed to be extended for a one (1) year period
of time from the Expiration Date and all other terms and conditions of this
Lease will remain unchanged, except (i) the amount of Basic Rent which shall
be equal to the greater of (x) the current fair market rental value for the
Aircraft as of the Expiration Date and (y) the amount of Basic Rent then in
effect immediately prior to the Expiration Date; and (ii) the Security
Deposit will be increased so that the amount of the Security Deposit will at
all time be equal to two month's Basic Rent.
LESSOR shall bear no liability in respect of, or cost for, any Equipment
Change, grounding of the Aircraft, suspension of certification thereof, or loss
of revenue therefrom.
(D) On the Effective Date, the Engines installed on the Aircraft shall
be ▇▇▇▇▇ & ▇▇▇▇▇▇▇ model JT8D-15 engines (the "-15's"). Within sixty (60) days
of the Effective Date, LESSOR shall deliver to LESSEE's maintenance base in
Honolulu, Hawaii, two ▇▇▇▇▇ & Whitney model JT8D-9A engines (the "-9A's").
LESSEE shall, at its cost and expense (i) remove the -15's and ship same (along
with all components removed in installing the -9A's and all records relating to
the -15's) to a location designated by LESSOR, and (ii) install the -9A's on the
Aircraft. LESSEE agrees that when installing the -9A's, the mixers from the
-15's will either be installed on the thrust reversers for the -9A's or returned
to LESSOR. Simultaneously with the installation of the -9A's, (i) LESSOR and
LESSEE shall execute a partial lease termination for the purpose of releasing
the -15's from the terms of this Lease, (ii) LESSOR and LESSEE shall execute a
Lease Supplement to this Lease for the purpose of subjecting the -9A's to the
terms of this Lease, (iii) LESSEE shall execute and deliver to LESSOR a Delivery
Receipt and Acceptance Certificate with respect to the -9A's, (iv) LESSEE and
LESSOR shall execute releases and/or amendments to all UCC financing statement
previously executed and filed to reflect the
30
release of the -15's and the inclusion of the -9A's, and (v) LESSEE shall
execute and deliver such additional documents as Lender may reasonably
request in order to perfect its security interest in the -9A's.
SECTION 9
INSPECTION; FINANCIAL INFORMATION
(A) During the Base Term, in addition to the information and reports
required to be provided by LESSEE to LESSOR pursuant to Section 7(G) of this
Lease, LESSEE shall furnish to LESSOR and Lender such additional information
concerning the location, condition, use and operation of the Aircraft as LESSOR
and/or Lender may reasonably request.
(B) The right of LESSOR, or its designated representatives, to
inspect the Aircraft during any "C" or "D" check or equivalent (as defined in
the Maintenance Program), performed by or on behalf of LESSEE during the Base
Term, shall be absolute. LESSEE shall also provide LESSOR with maintenance
schedules relating to the Aircraft upon the delivery of the Aircraft to
LESSEE, and from time to time as such maintenance schedules are adjusted or
updated. LESSEE further agrees to provide LESSOR with quarterly written
projections of the scheduled date for "C" and "D" checks, in order to enable
LESSOR to inspect the Aircraft at the time and place such checks occur.
During such checks, LESSEE agrees to allow LESSOR, or its authorized
representative, to inspect any area of the Aircraft which LESSOR requests to
inspect which would normally require inspection during such major checks.
LESSEE also shall permit any Person designated by LESSOR in writing to:
(1) visit and inspect the Aircraft, its condition, use and
operation, and the records maintained in connection therewith;
(2) visit and inspect the properties of LESSEE;
(3) discuss the finances and accounts of LESSEE with the
principal officers of LESSEE,
all at such times and frequencies as LESSOR, or the assignee of LESSOR,
may reasonably request. Notwithstanding the foregoing or any other right to
inspect granted to LESSOR under this Lease, neither LESSOR nor the assignee of
LESSOR shall have any duty to make any such inspection and neither LESSOR nor
the assignee of LESSOR shall incur any liability or obligation by reason of not
making any such inspection;
(4) obtain such other financial information as LESSOR or
Lender may reasonably request. In this regard, during the Base Term,
LESSEE shall deliver to LESSOR and Lender annual consolidated financial
statements of AirGroup prepared in accordance with generally accepted
31
accounting principles consistently applied and audited by
recognized, independent certified public accountants reasonably
satisfactory to LESSOR as soon as practicable and in any event within
120 days after the end of LESSEE's fiscal year, as well as quarterly
unaudited financial statements of LESSEE, certified as being true,
accurate and complete by the chief financial officer of LESSEE, within
60 days following the close of each of LESSEE's fiscal quarters; and
(5) inspect LESSEE's Maintenance Program for the Aircraft and
make copies and take extracts thereof.
LESSOR hereby agrees that if LESSOR exercises any of the rights listed
in clauses (1) through (5) above, it shall do so in such a manner so as not to
unreasonably interfere with the business and operations of LESSEE.
(C) LESSEE shall also furnish any other information or records on the
Aircraft that LESSOR and/or Lender may reasonably request.
(D) LESSOR agrees to keep confidential any information provided to it by
LESSEE under the terms of this Lease; provided, however, that LESSOR shall have
no obligation to keep such information confidential (i) if such information is
public information at the time received by LESSOR or becomes public at the time
same is disclosed by LESSOR, (ii) from LESSOR's attorneys, accountants, auditors
and aircraft technical experts, and (iii) if compelled by court order or the
provisions of any Law to disclose same.
SECTION 10
COVENANTS OF LESSEE
LESSEE represents, warrants, covenants and agrees, in addition to all
other representations, warranties and covenants set forth in this Lease, that:
(A) MAINTENANCE OF CORPORATE EXISTENCE. LESSEE shall preserve and
maintain its existence, valid legal status, and all of its rights, privileges,
and franchises necessary to remain duly incorporated and to operate as a
passenger airline under the Laws of the United States and the State of Hawaii.
(B) PAYMENT OF TAXES. LESSEE shall:
(1) Pay or cause to be paid all Taxes imposed, levied or
assessed upon LESSEE (or for which LESSEE has assumed the obligation
pursuant to this Lease) or its income or profits, or upon any property
or assets belonging to or used by it, prior to the date on which
penalties attach thereto;
32
(2) Pay or otherwise discharge all lawful claims, which, if
not paid, might become a Lien or charge upon the property of LESSEE
(provided, however, that LESSEE shall not be required to pay any such
Taxes or claims, the payment of which is being contested in good faith
and by appropriate proceedings and for which adequate reserves have been
provided, except that LESSEE will pay or cause to be paid all such Taxes
or claims forthwith in the event LESSEE is unable to stay or suspend
enforcement or execution of a warrant of restraint or foreclosure of any
Liens which attach as security therefor).
(C) SALE OF ASSETS, MERGER, ETC. Without the prior written consent of
LESSOR, which consent shall not be unreasonably or arbitrarily withheld, LESSEE
will not sell, lease, assign, transfer or otherwise dispose of substantially all
of its assets, whether now owned or hereafter acquired, except in the ordinary
course of its business as presently conducted and for a full and adequate
consideration, and will not merge or consolidate with or into, or acquire
substantially all of the assets and assume substantially all of the liabilities
of, any corporation or other entity unless the surviving entity is the LESSEE or
the surviving entity assumes this Lease and the financial condition of LESSEE or
the surviving entity after such sale of assets, merger, consolidation or
acquisition is equal to or better than that of LESSEE immediately prior thereto
as LESSOR in its reasonable judgment shall determine.
(D) AIR CARRIER. Throughout the Base Term, LESSEE shall, at all times,
be an Air Carrier in good standing.
(E) U.S. CITIZEN. Throughout the Base Term, LESSEE shall, at all times,
be a citizen of the United States as defined in 40102 of Title 49 of the United
States Code.
(F) COMMUNICATIONS. LESSEE shall deliver to LESSOR promptly any
communications received by LESSEE from the Air Authority or any Governmental
Entity which materially affects the Aircraft.
SECTION 11
TAXES
(A) GENERAL TAX INDEMNITY. LESSEE agrees to pay and to indemnify and
hold harmless the Indemnitees from all Taxes against or upon any of the
Indemnitees, LESSEE, the Aircraft, or any part thereof during the Base Term and
arising out of this Lease, or upon the leasing, selling, possession, use,
operation, repair, maintenance, overhaul, settlement of any insurance claim, or
return thereof, or upon any Rent, receipts or earnings arising from the
operation thereof, or upon or with respect to this Lease unless, and to the
extent only that, any such Tax is being contested by LESSEE in good faith and by
appropriate proceedings duly instituted and diligently prosecuted with adequate
reserves having been
33
provided on account thereof and only so long as such proceedings do not
involve and danger of the sale, forfeiture or loss of the Aircraft. In case
any report or return is required to be made with respect to any obligation of
LESSEE under or arising out of this Section 11, LESSEE shall either make such
report or return in such manner as will show the ownership of the Aircraft in
LESSOR and send a copy of such report or return to LESSOR, or shall notify
LESSOR of such requirement and make such report or return in such manner as
shall be satisfactory to LESSOR. If claim is made against any Indemnitee for
any Taxes arising during the term of this Lease, such Indemnitee shall
promptly notify LESSEE. Any such Indemnitee shall, at LESSEE's expense, take
such action as LESSEE may reasonably request in writing with respect to such
asserted liability, and if reasonably requested by LESSEE and upon the prior
payment to such Indemnitee by LESSEE of an amount equal to such Tax, any
payment by an Indemnitee of such Tax shall be made under protest. If payment
is made, the Indemnitee shall, at LESSEE's expense, take such action as
LESSEE may reasonably request to recover such payment and shall, if
requested, permit LESSEE in the Indemnitee's name to file a claim or
prosecute an action to recover such payment. All of the obligations of LESSEE
in this Section 11 with respect to Taxes imposed or accrued before the
expiration or other termination of this Lease shall continue in full force
and effect notwithstanding such expiration or other termination, and are
expressly made for the benefit of, and shall be enforceable by, each
Indemnitee. LESSEE further agrees that, with respect to any payment or
indemnity hereunder, such payment or indemnity shall include any amount
necessary to hold the recipient of the payment or indemnity harmless on an
after-tax basis from all Taxes required to be paid by such recipient with
respect to such payment or indemnity under the Laws of any Governmental
Entity. Excluded from the tax indemnification set forth above are any income
taxes assessed or due on an Indemnitee's net income or any state franchise or
similar corporate taxes payable by an Indemnitee.
In the event that during the Base Term a federal value added tax or
consumption tax is enacted and becomes effective which replaces the federal
income tax, LESSOR and LESSEE shall negotiate in good faith a restructuring of
the provisions of this Section 11(A), consistent with the principles for tax
indemnification reflected in this Section 11(A), so as to achieve substantially
the same degree of tax indemnification obligations of LESSEE as existed prior to
the enactment of such federal value added tax or consumption tax.
(B) SPECIAL TAX INDEMNITY. (i) TAX ASSUMPTIONS. In entering into the
Lease and the transactions contemplated hereby, LESSOR has made the following
tax assumptions for the Aircraft (the "Tax Assumptions"):
(1) LESSOR or Beneficiary is entitled to the benefit of depreciation
for Federal income tax purposes under the Accelerated Cost Recovery System
provided for in Section 168 of the Code and depreciation deductions for state
income tax purposes for the state where LESSOR's or Beneficiary's principal
place of business is located ("LESSOR's Home State") based upon one hundred
34
percent (100%) of the Acquisition Cost of the Aircraft, and on the basis that
the Aircraft shall have seven year recovery period and property
classification, and that LESSOR or Beneficiary shall be entitled to use the
method of depreciation and depreciation convention equal to 200% declining
balance method of depreciation, switching to the straight line method at the
point in time that maximizes the depreciation allowance for LESSOR or
Beneficiary (the "Recovery Deduction");
(2) with respect to the Aircraft, Lessor or Beneficiary will be
entitled to the benefit of deductions for Federal and LESSOR's Home State income
tax purposes for interest payable with respect to any indebtedness incurred by
LESSOR or Beneficiary in connection with any financing by LESSOR or Beneficiary
of any portion of the Acquisition Cost of the Aircraft (the "Interest
Deduction"); and
(3) for each year of the Base Term of the Lease, including any year
in which a Tax Loss (hereinafter defined) occurs, LESSOR or Beneficiary will be
subject to tax as follows:
(x) for such year up to and including the year in which such Tax
Loss occurs, at a composite Federal and state income tax rate that is equal to
the highest marginal rate (provided that, in computing such highest marginal
rate, there shall be excluded any surcharges to normal Federal and state income
tax rates which are applicable to brackets of income which are limited as to
their upper level, such as but not limited to those described in the last two
sentences of Section 11(a)(1) of the Code, and, it is understood that surcharges
which are applicable to brackets of income which are not limited as to their
upper level shall be included in computing such highest marginal rate) provided
for under the Code and the laws of the LESSOR's Home State (the "Highest
Composite Marginal Tax Rate") and that is actually in effect for each such year
and assuming that any state tax used in the calculation of such marginal rate
shall be taken as a deduction for purposes of computing Federal tax so that the
Composite Rate is a lower rate than that obtained by merely adding the state
rate to the Federal rate (assuming LESSOR has received a tax benefit from such
deduction), and
(y) for such year following the year in which such Tax Loss
occurs, at a composite Federal and state income tax rate that is equal to the
Highest Composite Marginal Tax Rate actually in effect in the year in which such
Tax Loss occurs and which, under the provisions of the Code and the laws of
LESSOR's Home State then in effect, is to be applicable to each such following
year.
(ii) LESSEE'S TAX REPRESENTATIONS AND WARRANTIES. LESSEE represents
and warrants to LESSOR and Beneficiary that:
(1) at all times during the Base Term, with respect to the
Aircraft, such Aircraft will not, due to any act or failure to act on the part
of LESSEE, constitute property "used predominantly outside the United States" or
"tax-exempt use
35
property" within the meaning of Sections 168(g)(1)(A), 168(g)(4)(a)
and 168(h)(1)(A), respectively, of the Code and Proposed Code Regulation Section
1.168-2(g)(5)(iii)(A).
(iii) INDEMNITY. If by reason of the breach or inaccuracy of any of
LESSEE's representations and warranties set forth in this Section, LESSOR or
Beneficiary shall lose the benefit of, or shall not have or shall lose the right
to claim, or shall suffer a disallowance or recapture of, or delay in claiming,
all or any portion of the Recovery Deduction or, if LESSOR or Beneficiary
finances any portion of its Acquisition Cost, the Interest Deduction, with
respect to the Aircraft (any such loss, failure to have or loss of the right to
claim, disallowance, recapture, delay in claiming, treatment, or inclusion
referred to in any of the foregoing clauses of this section being hereinafter
called a "Tax Loss"), then a Tax Loss shall be deemed to have occurred and
LESSEE shall on the Rent Date next following written notice by LESSOR or
Beneficiary to LESSEE that a Tax Loss has occurred pay to LESSOR or Beneficiary
an amount sufficient to indemnify LESSOR or Beneficiary for such Tax Loss and
penalties, if any thereon, on an after-tax basis.
(iv) IDENTIFICATION OF LESSOR. For purposes of this Section, the
term "LESSOR" shall include the Beneficiary, each member of the Beneficiary and
their respective successors, assigns, heirs and personal representatives.
(v) CONTESTS. If an Indemnitee should receive notice of any claim by
a taxing authority that may result in liability on the part of LESSEE under
Section 11 (B) (iii), such Indemnitee shall promptly notify LESSEE of such claim
and LESSEE and such Indemnitee shall have the same rights and privileges with
respect to such contest of such claim as are described above in Section 11(A).
(C) EXCLUSIONS. Notwithstanding the foregoing provisions of this
Section 11, the LESSEE shall not be required to indemnify for any liability
which occurs directly and primarily as a result of any of the following events:
(1) a failure by an Indemnitee to timely or properly claim a
deduction or other tax benefit, the gross negligence of an Indemnitee or the
failure of an Indemnitee to timely notify LESSEE of a claim against such
Indemnitee by a taxing authority, provided such failure to timely notify LESSEE
has a material adverse affect on LESSEE's rights under this Section 11;
(2) the treatment of the Aircraft in 1996 or the year in which the
Base Term (or any extension thereof) expires as used predominantly outside the
United States for purposes of Code Section 168(g)(1)(A), if such treatment would
not have occurred but for such use of the Aircraft outside of the United States
prior to or subsequent to the term of the Lease;
(3) an event which occurs after the end of the Base Term with
respect to the Aircraft and the return thereof in accordance with the Lease; or
36
(4)(a) a material change in the Code, the Income Tax Regulations
promulgated by the United States Treasury Department or a change in the
administrative or judicial interpretations thereof (collectively, a "Change in
Law"), which is enacted, adopted or promulgated and becomes effective after the
Effective Date and during the Base Term; provided, however, that with respect to
such Change in Law, (i) there is no pending contest, appeal or review process
with respect thereto, and (ii) the Internal Revenue Service has recognized and
is enforcing such Change in Law.
(b) should a Change in Law occur and become effective during the
Base Term, LESSEE shall have the right to send a notice to LESSOR (a "LESSEE's
Change Notice") advising LESSOR of the Change in Law and LESSEE's intention not
to indemnify LESSOR for those matters which are the subject of the Change in
Law. LESSOR shall have ninety (90) days from the date of the giving of LESSEE's
Change Notice to send LESSEE a notice (the "LESSOR's Response") advising LESSEE
that it either (i) acknowledges and agrees that it will not be indemnified by
LESSEE for those matters which are the subject of the Change in Law, or (ii)
that it has elected to terminate the Lease ninety (90) days from the date of the
giving of the LESSOR's Response. In the event that LESSOR in the LESSOR's
Response has elected option (ii), LESSEE shall have thirty (30) days from the
date of the giving of LESSOR's Response to send a written notice to LESSOR
modifying LESSEE's Change Notice (a "LESSEE Modification Notice") and agreeing
to indemnify LESSOR for those matters which are the subject of the Change in
Law. In the event LESSEE does not give a LESSEE Modification Notice within said
thirty (30) day period, LESSOR shall have ten (10) days from the end of such
thirty (30) day period to send to LESSEE a notice modifying the LESSOR's
Response (a "LESSOR Modification Notice") and agreeing to option (i) above. In
the event that LESSEE has declined to indemnify LESSOR for those matters which
are the subject of the Change in Law, LESSEE would have no obligation to
indemnify for those matters for the period of time following the giving of
LESSEE's Change Notice.
(D) TAX SAVINGS OR REFUND. (i) If an Indemnitee shall receive a
refund on account of any Tax for which such Indemnitee was indemnified or which
was advanced by LESSEE, then such Indemnitee shall, and LESSOR shall use its
reasonable efforts to cause such Indemnitee to, promptly pay the amount of such
refund to LESSEE (together with the amount of any interest and attorneys fees
received by such Indemnitee in relation to such refund).
(ii) If an Indemnitee, as a result of a loss or expense for which an
indemnity payment has been made pursuant to this Section 11 or as a result of
deferred depreciation deductions or increased basis (i.e., depreciation
deductions or basis in any tax year which are greater than they would have been
had the circumstances giving rise to LESSEE's liability for indemnity not
occurred), shall realize an aggregate net reduction in United States federal
income tax or state or local incomes taxes which such Indemnitee would not have
realized but for such loss, expense, deferred depreciation deductions or
increased basis, the Indemnitee
37
shall pay, and the LESSOR shall cause the Indemnitee to pay, the LESSEE an
amount equal to such aggregate net reduction in United States federal income tax
plus any other tax savings realized by such Indemnitee on account of the same.
Any payment due to the LESSEE from an Indemnitee pursuant to this Section 11
shall be paid promptly after the Indemnitee actually realizes any such aggregate
net reduction in United States federal income tax or state or local income
taxes. Notwithstanding anything set forth herein to the contrary, in no event
shall any Indemnitee be required to make any payment to LESSEE pursuant to the
terms of this subsection (ii) in excess of the amount of indemnification
payments made by LESSEE to such party pursuant to this Section 11.
SECTION 12
EVENT OF LOSS
(A) EVENT OF LOSS REGARDING THE AIRCRAFT. In the event that an Event
of Loss occurs with respect to the Aircraft, LESSEE shall forthwith (and, in any
event, not later than three (3) days after the occurrence of the Event of Loss)
give LESSOR written notice of such Event of Loss and, not later than the earlier
of: (a) the sixtieth day following the occurrence of such Event of Loss; or (b)
the day of receipt of insurance proceeds in respect of such Event of Loss; pay
to LESSOR or its assignees, in funds of the type specified in Subsection 5(B)
hereof, the sum of all unpaid Rent and all other amounts due hereunder with
respect to such Aircraft and which have accrued through and including the date
of payment of the Agreed Value, plus an amount equal to the Agreed Value. In the
event of payment in full of such Agreed Value, together with all such amounts
due or accrued hereunder on or prior to the date of such payment, the obligation
of LESSEE to pay Rent hereunder shall terminate. On the date of payment of the
Agreed Value, LESSOR shall credit or refund to LESSEE all pre-paid Basic Rent,
if any, the Security Deposit and all accrued Reserves.
Upon payment of all Rent due and the Agreed Value, LESSOR shall
transfer to LESSEE (subject to the rights of the insurers) all of LESSOR's
right, title, and interest in and to: (i) the Aircraft which sustained such
Event of Loss, as well as all of LESSOR's right, title, and interest in and to
any Engines constituting part of such Aircraft; and (ii) all claims for damages
to such Aircraft and/or Engines, if any, against third Persons arising from such
Event of Loss (unless any insurance carrier requires that such claims be
assigned to it), without any representation, warranty, or recourse of any kind
whatsoever, express or implied, except a warranty that such Aircraft is free and
clear of any Liens, mortgages and encumbrances, other than Liens which LESSEE is
required to discharge hereunder or defects in title resulting from acts by or
claims against LESSEE.
In the event of an Event of Loss involving the Aircraft wherein one
or more of the Engines are not attached to the Airframe, the Aircraft, for
purposes of this Section 12(A), shall be deemed to include all Engines on lease
hereunder and LESSOR
38
shall cooperate in transferring title to such non-attached Engines,
free and clear of all LESSOR Liens, to the owner of the engine attached to the
Airframe at the time of the Event of Loss.
In the event of an Event of Loss to an airframe involving an Engine
attached to an airframe owned by LESSEE or another party, such airframe shall be
deemed to include the Engine attached thereto and LESSEE shall promptly transfer
title to, or cause the party on whose airframe the Engine was attached to
promptly transfer title to, a Replacement Engine (as defined below) in
accordance with the terms and conditions set forth in Section 12(B).
(B) EVENT OF LOSS WITH RESPECT TO AN ENGINE. Upon any Event of Loss
with respect to an Engine not then installed on the Aircraft, or an Event of
Loss with respect to only an Engine installed on the Aircraft not involving an
Event of Loss to the Aircraft, LESSEE shall give LESSOR prompt written notice
thereof and LESSEE shall replace such Engine as soon as reasonably possible
after such Event of Loss by duly conveying to LESSOR, as a replacement for such
Engine, title to another engine owned by LESSEE (a "Replacement Engine"), which
Replacement Engine shall be free and clear of all Liens and shall have a value
and utility at least equal to, and be in as good operating condition as, the
Engine which sustained such Event of Loss (assuming the Engine which sustained
such Event of Loss was maintained in the condition in which LESSEE was required
to maintain such Engine pursuant to this Lease). Such Replacement Engine, after
approval and acceptance by LESSOR, shall be deemed an "Engine" as defined
herein. LESSEE agrees to take such action as LESSOR may reasonably request in
order that any such Replacement Engine shall be duly and properly leased
hereunder to the same extent as the Engine subject to the Event of Loss and
shall be titled in LESSOR and the interest of LESSOR's Lender therein shall be
fully protected and perfected. Upon request by LESSOR, LESSEE shall cause to be
delivered to LESSOR and Lender an opinion of FAA counsel (to be provided at
LESSEE's expense) as to the lien free status of such engine along with an
opinion of FAA counsel that such replacement engine has been made subject to
this Lease and that the security interest of Lender therein has been fully
perfected. LESSEE's obligation to pay Rent hereunder shall continue in full
force and effect regardless of the occurrence of an Event of Loss with respect
to an Engine, but LESSEE shall be entitled to be reimbursed by LESSOR the amount
of insurance or condemnation proceeds, if any, received by LESSOR with respect
to such Engine. Upon receipt of title by LESSOR to the Replacement Engine as
hereinabove provided, LESSOR shall convey to LESSEE, free and clear of all Liens
(except, subject to the rights of the insurers), title to the Engine which
sustained such Event of Loss.
(C) DAMAGE OR REQUISITION NOT CONSTITUTING AN EVENT OF LOSS. In the
event of material damage or requisition of the Aircraft or any Engine not
constituting an Event of Loss, LESSEE shall promptly notify LESSOR in writing of
such damage or requisition and shall remain obligated to make all payments of
Rent in respect of such Aircraft or Engine which may become due
39
hereunder in the same manner as if such damage or requisition had
not occurred and to perform all other obligations of LESSEE hereunder. All
payments at any time received by LESSEE, or by LESSOR from any Person other than
LESSEE in excess of $500,000 with respect to any such damage or requisition
shall be paid over to, or retained by, LESSOR, and shall be paid to LESSEE upon
repair of the Aircraft or Engine. To the extent that LESSEE has paid Rent and
LESSOR receives a requisition payment for the period of time for which LESSEE
had paid Rent, LESSOR agrees that it shall, as promptly as is reasonably
practicable, pay to LESSEE that amount of the requisition payment received by it
equal to the Rent for such period previously paid to LESSOR by LESSEE.
(D) RECEIPT AND APPLICATION OF COMPENSATION. Following an Event of
Loss or an occurrence not constituting an Event of Loss with respect to which
payments, including insurance proceeds, are made by or are due from any Person
(any such payments or proceeds being hereinafter referred to as "Compensation"),
LESSOR shall be entitled to receive, and shall receive, and LESSEE hereby
assigns to LESSOR any right or interest which LESSEE may have or may hereafter
acquire, in such Compensation, to be applied as follows:
(1) If such Compensation is received with respect to the
Aircraft, so much thereof as shall not exceed the Agreed Value and
other amounts due under Subsection 12(A) shall be retained by
LESSOR, in reduction of LESSEE's obligation to pay such Agreed Value
and other amounts due as was not theretofore paid by LESSEE, or, if
such Agreed Value and other amounts have already been paid to
LESSOR, such Compensation shall be applied to reimburse LESSEE for
its payment of such Agreed Value, and may be paid to LESSEE.
(2) If such Compensation is received with respect to an Engine
under the circumstances described in Subsection 12(B), such
Compensation shall be held in an account established for LESSOR with
a bank or trust company as depository, as designated by LESSOR, such
sums to be held, invested and distributed as provided below. All of
LESSEE's interest in all moneys and investments standing to the
credit of such account are hereby pledged to LESSOR (or, at the
election of LESSOR, to Lender), and LESSOR (or Lender) is hereby
granted a general lien upon and security interest in all of LESSEE's
interest, if any, in all such moneys and investments as security for
the performance in full of all of LESSEE's covenants contained in
this Lease. The bank or trust company holding such Compensation
shall be deemed to be LESSOR's (or Lender's) agent for the purpose
of perfecting LESSOR's (or Lender's) security interest in such sums
and shall be notified of, and accept such appointment as agent. If
LESSEE shall replace such Engine in accordance with the provisions
of Subsection 12(B), LESSOR shall, so long as no Default or Event of
Default or event which, with the giving of notice or the passage of
time, or both, would constitute a Default or an Event of Default
shall have occurred and be continuing,
40
return, or cause to be returned, all moneys and investments then
held in such account to LESSEE.
(E) PAYMENTS DURING EXISTENCE OF AN EVENT OF DEFAULT. Any payment
referred to in Subsection 12(A), (B), (C) or (D) hereof which is payable to
LESSEE hereunder shall not be paid to LESSEE, or, if previously paid directly
to LESSEE, shall not be retained by LESSEE, if at the time of such payment a
Default or an Event of Default or an event which with the giving of notice or
the passage of time, or both, would constitute a Default or an Event of
Default hereunder shall have occurred and be continuing, but shall be paid to
and retained by LESSOR as security for the obligations of LESSEE under this
Lease until such time as such Default or Event of Default or event which with
the giving of notice or the passage of time, or both, would constitute a
Default or Event of Default shall have been remedied, whereupon such payment
shall be made to LESSEE.
SECTION 13
INSURANCE
(A) PUBLIC LIABILITY AND PROPERTY DAMAGE LIABILITY INSURANCE.
LESSEE will carry and maintain in effect, at its own expense, with Approved
Insurers, public liability insurance (including, but not limited to,
contractual liability, and passenger legal liability), and property damage
liability insurance with respect to the Aircraft, in amounts per occurrence
of not less than the Minimum Liability Coverage, or such greater amounts as
LESSEE may carry from time to time on other similar aircraft in its fleet.
LESSEE shall not discriminate against the Aircraft in providing such
insurance coverage. Each and any policy of insurance carried in accordance
with this Subsection (A), and each and any policy obtained in substitution or
replacement for any of such policies, (i) shall designate LESSOR,
Beneficiary, Lender, Lufthansa and Amtec Jet, Inc. ("Amtec"), and their
respective officers, directors, shareholders, members, employees, agents and
assigns (collectively, the "Additional Insureds"), as additional insureds as
their interests may appear (but without imposing upon the Additional Insureds
any obligation imposed upon the insured, including, without limitation, the
liability to pay any premiums for any such policies, but LESSOR, Beneficiary,
Lender, Amtec and/or Lufthansa shall have the right to pay such premiums if
it shall so elect), and (ii) shall expressly provide that, in respect of the
interests of the Additional Insureds in such policies, the insurance will not
be invalidated by any action or inaction of the LESSEE, and shall insure the
Additional Insureds, regardless of any breach or violation by LESSEE of any
warranty, declaration or condition contained in such policies, (iii) shall
provide that if such insurance is canceled by insurers for any reason
whatsoever, or is adversely changed in any way by insurers with respect to
the interests of the Additional Insureds, or if such insurance is allowed to
lapse for nonpayment of premiums, such cancellation, change or lapse shall
not be effective as to the Additional Insureds for 30 days (seven (7) days or
such shorter period as may be customary in the case of any war risks and
allied perils
41
coverage), in each instance, after the issuance to LESSOR, Beneficiary,
Lender, Amtec and Lufthansa of written notice by such insurer or insurers
and/or brokers to LESSOR, Beneficiary, Lender and Lufthansa of such
prospective cancellation, change or lapse, (iv) shall provide coverage on a
worldwide basis, subject to such territorial exclusions as may be usual and
customary in the worldwide airline insurance industry for airlines similarly
situated with LESSEE, (v) shall provide that, as against the Additional
Insureds, the insurer shall waive any rights of set-off, counterclaim or any
other deduction, whether by attachment or otherwise, and waives any right of
subrogation it may have against the Additional Insureds but only to the same
extent that LESSEE has waived its right of recovery against the Additional
Insureds under the Lease Documents. Each liability policy shall be primary
without right of contribution from any other insurance which may be carried
by LESSOR, Beneficiary, Lender, Amtec, Lufthansa or their assigns, and shall
expressly provide that all of the provisions thereof shall operate in the
same manner as if there were a separate policy covering each insured,
provided that such provisions shall not operate to increase the insurer's
limit of liability. No liability policy shall permit any deductible or
self-insurance provision except for baggage and cargo as is customary in the
London or U.S. aviation insurance industry and such other deductibles only
with the consent of the LESSOR, which consent shall not be unreasonably
withheld or delayed, which from time to time LESSEE can demonstrate are
standard in comprehensive liability insurance and, in particular, public
liability risks (including, INTER ALIA, contractual liability and passenger
liability coverage) for major international passenger air carriers in the
then current London or U.S. aviation insurance market.
(B) HULL WAR RISKS INSURANCE. LESSEE will carry and maintain in
effect with Approved Insurers, at its own expense, hull war risks and allied
perils insurance on the Aircraft (which shall include, but not be limited to, a
disappearance clause and coverage for hijacking, declared or undeclared war and
insurrections, strikes, riots, commotion's or labor disturbances, malicious acts
or acts of sabotage and unlawful seizure or wrongful exercise of control of the
Aircraft in flight by a person on board such Aircraft acting without the consent
of LESSEE) in an amount not less than the Agreed Value or such greater amounts
as LESSOR may request from time to time (and for which LESSOR shall reimburse
LESSEE for its cost of increased premium, if any, for such greater amounts of
insurance) and covering those perils which, from time to time, are customarily
covered by similar insurance maintained by major international passenger air
carriers insuring in the London or U.S. Aviation insurance market.
(C) ALL RISKS HULL INSURANCE. LESSEE, at its own expense, will
maintain in effect with Approved Insurers all risks ground and flight aircraft
hull insurance covering such Aircraft, and fire, transit, spares and extended
all risks coverage insurance with respect to Engines and Parts while not
installed on such Aircraft or an aircraft, which in each case is of the type
maintained by major international passenger air carriers similarly situated to
LESSEE and operating similar aircraft and engines which
42
comprise LESSEE's fleet. At all times while the Aircraft is subject to this
Lease, such insurance shall be for an amount not less than the Agreed Value
or such greater amounts as LESSOR may request from time to time (and for
which LESSOR shall reimburse LESSEE, at its own cost of increased premium, if
any, for such greater amounts of insurance).
Notwithstanding anything above, each and every policy of
insurance obtained and maintained pursuant to Subsection (B) and this
Subsection (C), and each and every policy obtained in substitution or
replacement for any such policies, (i) shall designate LESSOR as owner of the
Aircraft covered thereby, and shall designate Lender (or LESSOR, if there is
no Lender), or its assigns, as loss payee, as their respective interests may
appear (but without imposing upon LESSOR, Lender, or their assigns, any
obligation imposed upon the insured, including, without limitation, the
liability to pay any premiums for any such policies, but LESSOR and/or Lender
and/or their assigns shall have the right to pay such premiums if they shall
so elect), (ii) shall expressly provide that, in respect of the interests of
LESSOR, Lender or their assigns in such policies, the insurance shall not be
invalidated by any action or inaction of LESSEE and shall insure LESSOR,
Lender or their assigns, regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by LESSEE,
(iii) shall provide that if such insurance is canceled for any reason
whatsoever, or is adversely changed in any way with respect to the interest
of the LESSOR, Lender or their assigns, or if such insurance is allowed to
lapse for nonpayment of premium, such cancellation change or lapse shall not
be effective as to LESSOR, Lender or their assigns, for thirty (30) days
(seven (7) days or such shorter period as may be customary in the case of any
war risks or allied perils coverage) after issuance to LESSOR and Lender of
written notice by such insurer or insurers to LESSOR and Lender, as the case
may be, of such prospective cancellation, change or lapse, (iv) shall provide
coverage on a worldwide basis, subject to such territorial exclusions as may
be usual and customary in the worldwide airline insurance industry for
airlines similarly situated with LESSEE, (v) shall provide that, as against
the LESSOR, Lender or their assigns, the insurer shall waive any rights of
set-off, counterclaim or any other deduction, whether by attachment or
otherwise, and waives any right of subrogation it may have against LESSOR,
Lender or their assigns but only to the extent that LESSEE has waived its
right of recovery against LESSOR, Lender or their assigns under the Lease
Documents, (vi) shall provide that in the event of any damage or loss which
is an Event of Loss hereunder and which results in a payment, such payment
shall be payable solely and directly to LESSOR or, if LESSOR shall at such
time have a lender that has provided financing secured in whole or in part by
the Aircraft and/or this Lease, then to the Lender, for the account of all
interests, (vii) shall provide that in the event of any damage or loss which
is not an Event of Loss hereunder and which results in a payment for any one
occurrence in excess of $500,000.00 such payment shall be payable directly to
LESSOR, (viii) shall provide that payments for any one occurrence not in
excess of $500,000.00 shall be payable direclty to LESSEE provided there
exists no Defaut or Event of Defautl by LESSEE, and (ix) shall provide for a
50/50 claims funding arrangement between
43
the all risks hull and war risks underwriters.
LESSEE shall have the right to carry insurance in excess of the
amounts required hereunder and the proceeds of such excess insurance shall be
payable to LESSEE. Similarly, LESSOR shall have the right to carry additional
and separate insurance for its own benefit at its own expense, without, however,
thereby limiting LESSEE's obligations under this Section 13.
LESSEE shall at all times maintain a deductible amount in its all
risks hull and war risks insurance policies which is no more than Five Hundred
Thousand (US$500,000.00) Dollars.
(D) APPLICATION OF INSURANCE PROCEEDS NOT IN EXCESS OF $500,000.00.
LESSEE shall be entitled to receive any insurance proceeds not in excess of Five
Hundred Thousand ($500,000.00) Dollars as soon as such funds are paid by the
insurance company and shall promptly receive such additional insurance proceeds,
if any, upon presentation to LESSOR of a vendor's or LESSEE's invoice, provided
that repair work is in progress, replacement parts are ordered, or such work is
complete. All insurance proceeds received by LESSEE pursuant to this Subsection
13(D) shall be used by the LESSEE exclusively for the repair of any damage to
the Aircraft or Engines on account of which the insurance proceeds were paid.
Any amount referred to in this Subsection 13(D) which is payable to LESSEE shall
not be paid to LESSEE if, at the time of such payment, any Default or Event of
Default shall have occurred and be continuing or if the amount of the insurance
proceeds payable is less than the estimated total cost of the repairs and LESSEE
does not deliver evidence to LESSOR that such additional amount needed to pay
the estimated total cost of repairs has been paid, but shall be held by LESSOR
as security for the obligations of LESSEE under this Lease and such amount shall
be paid to LESSEE at such time as there shall not be continuing any such Default
or Event of Default.
(E) APPLICATION IN DEFAULT. Any insurance proceeds referred to in
this Lease which are otherwise payable to LESSEE, or if it has been previously
paid to LESSEE and not yet applied by LESSEE as permitted or required hereunder,
shall be delivered from LESSEE to LESSOR if, at the time of such payment, a
Default or an Event of Default shall have occurred and be continuing. In such
case, all such amounts shall be paid to and held by LESSOR as security for the
obligations of LESSEE hereunder.
(F) CERTIFICATES. Not less than three (3) Business Days prior to the
Effective Date, and thereafter on each renewal by the LESSEE of the insurance
required hereby, LESSEE will furnish to LESSOR a certificate executed and
delivered by an Approved Insurer, appointed by LESSEE, describing in reasonable
detail, and in accordance with customary practice, insurance carried on the
Aircraft and certifying that the insurance then maintained on the Aircraft
complies with the terms of this Lease. LESSEE will cause such Approved
Insurer, identified to and reasonably acceptable to LESSOR, to agree to hold all
insurance contracts and slips for the benefit of LESSOR and to advise LESSOR in
writing at least thirty (30) days (seven (7) days in the case of any war risk
and allied
44
perils coverage) prior to the non-renewal, termination, or cancellation for any
reason (including, without limitation, failure to pay premiums therefor) of
any such insurance.
In the event LESSEE shall fail to maintain insurance as herein
provided, LESSOR may at its option provide such insurance and, in such event,
LESSEE shall, upon demand, reimburse LESSOR, as Supplemental Rent for the cost
thereof.
(G) CHANGES IN INDUSTRY PRACTICE. If there shall be a fundamental
change in the generally accepted industry-wide practice with respect to the
insurance of aircraft (whether relating to all or any of the types of insurance
required to be effected pursuant to the terms of this Section 13) and, as a
consequence thereof, LESSOR shall be of the reasonable opinion that the
insurance required pursuant to the provisions of this Section 13 shall be
insufficient to protect the interests of LESSOR, the insurance requirements set
forth in this Section 13 shall be varied as may be mutually agreed so as to
include such additional or varied requirements to be effected pursuant to the
terms of this Section 13, and as so varied, shall provide the same protection to
LESSOR as it would have done had such change in generally accepted industry-wide
practice not occurred. If any such change in generally accepted industry-wide
practice would enable LESSEE, but for the requirements in this Section 13, to
reduce its expenditures in relation to all or any of the types of insurance
required to be effected pursuant to the terms of this Section 13 without, in the
reasonable opinion of LESSOR and Lender, prejudicing the interest of LESSOR
and/or Lender, the insurance requirements in this Section 13 shall be amended to
take account of such change in generally accepted industry-wide practice to the
extent required to enable LESSEE to reduce such expenditures, provided, however,
that in no event shall such public liability insurance coverage set forth in
Section 14 be less than Three Hundred Fifty Million (US$350,000,000) Dollars.
SECTION 14
INDEMNIFICATION
(A) LESSEE agrees to indemnify, reimburse, and hold harmless the
Indemnitees from and against any and all claims, damages, losses, liabilities,
demands, suits, judgments, causes of action, legal proceedings, whether civil or
criminal, penalties, fines, other sanctions, and any costs and expenses in
connection herewith, including attorney's fees and expenses (any and all of
which are hereafter referred to as "Claims") which in any way may result from,
pertain to, or arise in any manner out of, or are in any manner related to the
Aircraft or this Lease, arising out of events occurring on or subsequent to the
Effective Date through and including the date this Lease terminates and all
obligations of LESSEE have been fully and satisfactorily performed, or the
breach of any representation, warranty or covenant made by LESSEE hereunder,
including, but not limited to, (i) the condition, ownership, manufacture,
delivery, non-delivery, lease, acceptance,
45
rejection, possession, return, disposition, use, or operation of the Aircraft
either in the air or on the ground; or (ii) any defect in the Aircraft arising
from the material or any articles used therein or from the design, testing, or
use thereof or from any maintenance, service, repair, overhaul, or testing of
such Aircraft, regardless of when such defect shall be discovered (including,
but not limited to, infringement of patent or other right or latent and other
defects whether or not discoverable by LESSEE or LESSOR), whether or not such
Aircraft is at the time in the possession of LESSEE, and regardless of where
such Aircraft may then be located; or (iii) this Lease or any other transaction,
approval, or document contemplated hereby or given or entered into in connection
herewith; provided, however, that LESSEE shall be subrogated to all rights and
remedies which LESSOR may have against the Manufacturer or Engine Manufacturer.
LESSEE hereby waives and releases any claim now or hereafter
existing against any Indemnitee, on account of any Claims for or on account of
or arising or in any way connected with injury to or death of personnel of
LESSEE or loss or damage to property of LESSEE or the loss of use of any
property which may result from or arise in any manner out of or in relation to
the leasing, condition, use, or operation of the Aircraft, either in the air or
on the ground during the Base Term hereof, or which may be caused during such
Base Term by any defect in such Aircraft from any material or any article used
therein or from the design or testing thereof, or use thereof or from any
maintenance, service, repair, overhaul, or testing of such Aircraft regardless
of when such defect may be discovered, whether or not such Aircraft is at the
time in the possession of LESSEE, and regardless of the location of such
Aircraft at any such time.
Without limitation upon LESSEE's liability under this Section 14,
LESSEE hereby agrees to indemnify, reimburse, and hold each Indemnitee harmless
from any Claims in any manner imposed upon or accruing against each Indemnitee
because of the manufacture of the Aircraft, any originally manufactured design
or design incorporated prior to the operation of the Aircraft by LESSEE, any
change or alteration of design by LESSEE, or material therein or relating
thereto, because of infringement of patent or any other right. With respect to
any claim for infringement of patent or any other right which is alleged to have
occurred prior to LESSEE leasing the Aircraft, LESSEE's indemnification
obligation with respect to such claims shall be limited to claims that are
asserted during the Base Term of this Lease or any extension thereof. The
foregoing limitation shall not apply to claims for infringement of patent or any
other right which is alleged to have occurred at any time during the Base Term
or any extension thereof regardless of when such claims are asserted.
LESSEE hereby agrees, and shall have the right, to assume and
conduct, promptly and diligently, at its sole cost and expense, the entire
defense of any Indemnitee against any such Claims, and any claim, suit, or
action for which any Indemnitee is required to assume liability.
LESSOR agrees to give LESSEE prompt notice of any
46
Claim hereunder following LESSOR's actual knowledge of such Claim. The failure
of LESSOR to give the notice required by this Section 14 of any Claim shall not
constitute a release by LESSOR or the Indemnitees of any obligations of LESSEE
to any Indemnitees in respect of any such Claim, unless LESSEE is materially
adversely affected solely by such failure of LESSOR to give such notice. No
settlement of any Claim by an Indemnitee may be made without the consent of
LESSEE, which consent or withholding of consent shall be promptly noticed to
LESSOR and the Indemnitee seeking indemnification. LESSEE may only withhold
consent to a proposed settlement of a Claim if LESSEE posts a bond issued by a
reputable bonding or insurance company reasonably satisfactory to LESSOR, in an
amount not less than the full amount of the Claim together with interest and
penalties, if any, thereon.
The indemnifications contained in this Section 14 shall continue in
full force and effect notwithstanding any expiration or other termination of
this Lease and are expressly made for the benefit of and shall be enforceable by
each Indemnitee and their respective successors and assigns.
(B) EXCEPTIONS. In no event shall the indemnity provided for in
Section 14(A) extend to any Claim or disbursement of any Indemnitee resulting
from, pertaining to or arising in any manner out of, or in any manner relating
to, the gross negligence or willful misconduct of any Indemnitee.
SECTION 15
LIENS
LESSEE shall not directly or indirectly create, incur, assume, or
suffer to exist any Lien on or with respect to the Aircraft, title thereto, any
interest therein, this Lease or any interest therein, except Permitted Liens.
LESSEE shall promptly, at its own expense, take such action as may be necessary
to duly discharge any Lien (except for Permitted Liens) directly or indirectly
created, incurred, assumed or suffered to exist by LESSEE if the same shall
arise at any time with respect to the Aircraft, title thereto, any interest
therein, this Lease or any interest therein.
SECTION 16
PERFECTION OF TITLE AND FURTHER ASSURANCES
(A) Except through the action or inaction of LESSOR or Lender after
due notice and request having been made upon them, if, at any time, any filing
or recording is reasonably necessary to protect the interest of LESSOR or
Lender, LESSEE shall, at its own cost and expense, cause this Lease, any
assignment of this Lease, any security agreement with respect to the Aircraft,
financing statements with respect thereto, and any and all additional
instruments which shall be executed pursuant to the terms hereof,
47
so far as permitted by applicable Law, to be kept, filed and recorded and to be
re-executed, re-filed and re-recorded at all times in the appropriate office
pursuant or in relation to any Laws of any Governmental Entity, as LESSOR and/or
Lender may request, to perfect, protect, and/or preserve the rights and
interests of LESSOR and Lender, respectively, hereunder and in the Aircraft, and
LESSEE shall furnish to LESSOR and Lender evidence satisfactory to LESSOR and
Lender of each such filing, re-filing, recordation and re-recordation.
(B) Without limiting the foregoing, LESSEE shall do or cause to be
done, at LESSEE's cost and expense, any and all acts and things which may be
required under the terms of the Convention on the International Recognition of
Rights in Aircraft ("Mortgage Convention") to perfect and preserve the title of
LESSOR to the Aircraft and the security interest of Lender in the Aircraft
(assuming, that with respect to the U.S. registration of the Aircraft, LESSOR
meets the citizenship requirements for such registration) within the
jurisdiction of any signatory which has ratified the Mortgage Convention, as
LESSOR and/or Lender may reasonably request. LESSEE shall also do or cause to be
done, at its own expense, any and all acts and things which may be required
under the terms of any other Law involving any jurisdictions in which LESSEE
will operate, or any and all acts and things which LESSOR and/or Lender may
reasonably request to perfect and preserve LESSOR's ownership rights and
Lender's security interest regarding the Aircraft within any such jurisdiction.
(C) LESSEE will not suffer any matter or thing whatsoever whereby
the LESSOR's title and the Lender's security interest in and to, the Aircraft
may be impaired.
SECTION 17
RETURN OF AIRCRAFT AND RECORDS
(A) RETURN. On the Expiration Date, or pursuant to Section 19 hereof
(such date or event being hereinafter referred to as a "Return Occasion"),
LESSEE, at its own expense, on or prior to the Return Occasion, shall return
such Aircraft to LESSOR at the Return Location or such other location as may be
mutually agreed upon by LESSOR and LESSEE, fully equipped as delivered or
modified as provided hereunder with all required Engines installed thereon.
(B) RECORDS. Upon a Return Occasion applicable to the Aircraft,
LESSEE, at its own expense, shall deliver to LESSOR all Aircraft Documents
listed in Exhibit "B", as updated, amended or supplemented along with such other
records and documents in such form as are necessary to qualify the Aircraft for
the issuance, at LESSOR's election, of an Export Certificate of Airworthiness
issued by the Air Authority or the issuance by the FAA of an FAA Standard
Airworthiness Certificate so as to permit operation of the Aircraft under the
Act and FAR Part 121. Such records and manuals shall be current and shall
constitute an accurate representation of the
48
condition of the Aircraft.
(C) CONDITION OF AIRCRAFT. Upon a Return Occasion applicable to the
Aircraft, LESSEE shall return the Aircraft to LESSOR in such condition so that
the Aircraft shall: (1) comply with each and every return condition requirement
set forth in Exhibit "H" hereto; (2) have accomplished all work necessary to
obtain a valid Certificate of Airworthiness for Export or Standard
Airworthiness Certificate (other than (i) having TCAS and windshear detection
systems installed, (ii) complying with Stage III noise requirements, subject to
the provisions of Section 8(C) of this Lease, and (iii) a fresh B check if the
Aircraft was not delivered to LESSEE with a fresh C check (or a fresh C check if
the Aircraft was delivered by LESSOR to LESSEE fresh from a C check), as LESSOR
shall elect, in each case issued by the FAA; and (3) shall be free and clear
of all Liens, except LESSOR's Liens and Liens which may have existed prior to
the Effective Date and were not created by or consented to by LESSEE.
(D) FINAL INSPECTION. Upon or next preceding a Return Occasion with
respect to the Aircraft hereunder, LESSEE shall make such Aircraft available to
LESSOR not less than ten (10) days prior to the date of the Return Occasion for
detailed inspection in order to verify that the condition of such Aircraft
complies with the requirements set forth above (such inspection being
hereinafter referred to as the "Final Inspection"). Such Final Inspection may be
scheduled at an appropriate maintenance facility of the Authorized Maintenance
Performer then performing maintenance of such Aircraft, pursuant to Subsection
7(D) hereof, and LESSEE shall give LESSOR not less than ten (10) days' prior
written notice of the location and commencement date of such Final Inspection.
The period allowed for the Final Inspection shall, if necessary, be extended so
as to have such duration as to permit the performance of all of the following,
each of which must occur during such period:
(1) a B check performed in accordance with LESSEE's Maintenance
Program;
(2) the opening, in order to verify any aspect of the condition
of any area of the Aircraft which would normally be accessible
during the maintenance check being performed, or at LESSOR's
request, the opening of any areas of the Aircraft if LESSOR
reasonably believes, based on prior inspections or other evidence,
that opening of such areas would reveal that the Aircraft does not
completely comply with the requirements of this Section 17 and
Exhibit "H"; and
(3) No less than three (3) of LESSOR's representatives shall be
permitted to attend each phase of activity required to be conducted
during the Final Inspection. A Final Inspection shall commence on or
before the date of a Return Occasion with respect to the Aircraft
and shall continue on consecutive days until all activity required
pursuant to the terms of Exhibit "H" and
49
the above provisions have been concluded. To the extent that any
portion of the Final Inspection extends beyond the date of a
Return Occasion, the Base Term with respect to the Aircraft
undergoing the Final Inspection shall be deemed to be
automatically extended (but LESSEE shall have no right to operate
the Aircraft during such time except in connection with any
required re-delivery test flights), and the LESSEE shall be
obligated to continue to insure the Aircraft, in accordance with
the provisions of this Lease, and to pay Rent hereunder on a
daily basis, calculated at a daily rate equal to 1/15 of the
Basic Rent, until the Final Inspection shall have been concluded
(provided, however, that LESSEE's shall have no obligation to pay
Basic Rent beyond the originally scheduled Expiration Date if
the Final Inspection is not completed on or before the
Expiration Date due to LESSOR's failure to timely appear for
such inspection unless such failure is caused by LESSEE denying
access to the Aircraft and/or Aircraft documents at a time when
same were to be made available to LESSOR or if LESSEE
unreasonably interferes with such Final Inspection by LESSOR).
All storage expenses attributable to any extension of the Base
Term pursuant to the preceding sentence shall be payable by
LESSEE.
(E) AIRCRAFT DOCUMENTATION. In order to enable LESSOR to prepare for
its Final Inspection of the Aircraft pursuant to Subsection 17(D) above, LESSEE
agrees to make available at LESSEE's maintenance base to LESSOR, not later than
ten (10) days prior to the commencement of such Final Inspection, the Aircraft
Documents listed in Exhibit "B" hereto, together with such other documentation
regarding the condition, use, maintenance, operation and history of the Aircraft
as LESSOR may reasonably request.
(F) LESSEE'S CORRECTION AND SUBSEQUENT CORRECTIONS. To the extent
that the Aircraft, any Engine or any of the Aircraft Documents fails upon a
Return Occasion to conform to any requirement imposed by Section 17 hereof and
Exhibit "H", LESSOR may, at its option:
(1) continue the Lease in effect in the manner provided for in
Subsection 17(D)(3) above with regard to automatic extension with
respect to such Aircraft until such time as the nonconforming items
are corrected; or
(2) request LESSEE to pay, and LESSEE shall pay to LESSOR, an
amount equal to the amount required (labor and materials) by the
then current Authorized Maintenance Performer or any other Person
designated by LESSOR, as the case may be, to correct such
nonconforming items. Any such amount payable by LESSEE to LESSOR for
such correction shall become Supplemental Rent, payable by LESSEE
within five (5) days following the submission of a written statement
by LESSOR to LESSEE identifying the items corrected or to be
corrected and setting forth the expense of such correction. LESSEE's
obligation to pay
50
such Supplemental Rent shall survive the passage of the early
termination of the Base Term or other termination of this Lease.
In addition to the foregoing, but subject to Sections A(ix) and
(xi) of Exhibit "H", and under the same payment terms, LESSEE,
with regard to any time-limited component installed on such
Aircraft which does not satisfy the return condition requirements
of this Section 17 and Exhibit "H" upon a Return Occasion, shall
pay LESSOR, at the time of a Return Occasion, an amount equal to
the amount which would be required to be paid to the Person
selected by LESSOR for putting such item in such condition.
(G) DISPUTE AS TO COMPLIANCE WITH RETURN CONDITIONS. Should there be
any dispute as to whether the Aircraft meets the return conditions, the matter
shall be resolved by an independent knowledgeable aviation maintenance expert
reasonably acceptable to LESSOR and LESSEE.
SECTION 18
EVENTS OF DEFAULT
Each of the following events shall constitute a Default and after
the applicable grace, notice or cure period, if any, an Event of Default:
(A) LESSEE shall fail to make any payment of Rent when due under
this Lease and such payment shall remain unpaid for a period of three (3) days
from the due date;
(B) LESSEE shall fail to carry and maintain insurance on or with
respect to the Aircraft in accordance with the provisions of Section 13 hereof
or shall operate the Aircraft or permit the Aircraft to be operated in violation
of any insurance policy required to be provided pursuant to Section 13 hereof;
(C) Except as otherwise expressly provided in this Section 18 and
Subsection 18(B) above, for which no notice is required, LESSEE shall fail to
perform or observe any covenant, condition or agreement to be performed or
observed by LESSEE under the Lease and such failure shall continue for a period
of thirty (30) days after written notice thereof from LESSOR to LESSEE;
(D) Any representation or warranty made by LESSEE herein, or in any
notice, certificate or other document furnished by or on behalf of LESSEE herein
to LESSOR or its assigns, shall prove to have been incorrect in any material
respect when made;
(E) LESSEE or AirGroup shall consent to the appointment of a
receiver, trustee or liquidator for itself or for a substantial part of its
property, or LESSEE or AirGroup shall admit in writing its inability to pay its
debts generally as they become due, or shall make a general assignment for the
benefit of creditors, or LESSEE or AirGroup shall file a voluntary petition in
51
bankruptcy or a voluntary petition or answer seeking reorganization in a
proceeding under any Laws dealing with bankruptcy, insolvency, moratorium or
creditors' rights generally (any or all of which are hereinafter referred to as
"Bankruptcy Laws"), or an answer admitting the material allegations of a
petition filed against LESSEE or AirGroup in any such proceeding, or LESSEE or
AirGroup shall by voluntary petition, answer or consent to or seek relief under
the provisions of any Bankruptcy Laws;
(F) An order, judgment or decree shall be entered by any court of
competent jurisdiction appointing, without the consent of LESSEE or AirGroup, as
the case may be, a receiver, trustee or liquidator for LESSEE or AirGroup or any
substantial part of its property, or any substantial part of the property of
LESSEE or AirGroup shall be sequestered, and any such order, judgment, decree or
appointment, or sequestration, shall remain in force undismissed, unstayed or
unvacated for a period of sixty (60) days after the date of entry thereof;
(G) A petition against LESSEE or AirGroup in a proceeding under the
Bankruptcy Laws of any Governmental Entity shall be filed and shall not be
withdrawn or dismissed within sixty (60) days thereafter, or if, under the
provisions of any Bankruptcy Laws which may apply to LESSEE or AirGroup, any
court of competent jurisdiction shall assume jurisdiction, custody or control of
LESSEE or AirGroup or of any substantial part of its property, and such
jurisdiction, custody or control shall remain in force unrelinquished, unstayed
or unterminated for a period of ninety (90) days;
(H) LESSEE or AirGroup shall be dissolved or liquidated, terminate
its existence or suspend its operations, shall lose any right, privilege or
franchise necessary to maintain its corporate existence, or shall dispose of all
or substantially all of its properties to any Person;
(I) LESSEE shall make or permit any assignment or transfer of this
Lease or of possession of the Aircraft other than as permitted hereunder;
(J) Any license, permit, certificate, authorization, consent,
approval, notification, registration or filing now or hereafter necessary to
enable LESSEE to perform or comply with its obligations under the Lease shall
fail to be timely issued, granted or made, or shall expire or lapse and shall
not be forthwith renewed or extended or shall be revoked, withdrawn, withheld or
adversely modified, or shall cease to be in full force and effect;
(K) All or a substantial part of the properties of LESSEE or
AirGroup shall be condemned, seized or otherwise appropriated for custody or
control, or such property shall be assumed by any Governmental Entity or any
court or other Person purporting to act under the authority of any Governmental
Entity, or LESSEE or AirGroup shall be prevented from exercising normal control
over all or a substantial part of its properties and the events as set forth in
this Subsection 18(K) are tot remedied within sixty (60) days after they occur;
52
(L) LESSEE shall fail to pay when due any obligation for the payment
of money in excess of Four Hundred Thousand (US$400,000) Dollars under any
agreement to which LESSEE is a party where such failure would constitute an
event of default thereunder or permit the party to whom such payment was owed
(hereinafter referred to as a "Creditor") to exercise remedies under such
agreement as a result of such non-payment; provided, however, that the foregoing
shall only constitute a Default and not an Event of Default hereunder for the
period of time that the Creditor states in a letter, addressed to and delivered
to LESSOR, that it irrevocably agrees for such period of time to forebear from
the exercise of remedies or the taking of other action against LESSEE (the
"Forbearance Period") as a result of such non-payment of money. Upon the
expiration of the Forbearance Period, unless such period has been extended by
the Creditor (but in no event may the Forbearance Period, in the aggregate, be
greater than sixty (60) days from the original due date for such payment),
unless LESSEE has delivered to LESSOR written confirmation from the Creditor
that it has been paid in full or has otherwise waived its claim against LESSEE
or has otherwise settled with LESSEE, the Default set forth in this subsection
(L) shall automatically and without any further action on the part of LESSOR be
deemed to constitute an Event of Default hereunder;
(M) LESSEE shall voluntarily suspend all or substantially all of its
commercial revenue passenger operations, or the franchises, concessions,
permits, licenses, rights or privileges required for the conduct of the
commercial revenue passenger operations of LESSEE shall be revoked, canceled or
otherwise terminated or the free and continued use and exercise thereof
curtailed or prevented, and as a result the principal business activity of
LESSEE shall cease to be that of commercial revenue passenger airline;
(N) If for any reason or at any time AirGroup owns less than seventy
percent (70%) of the outstanding voting stock of LESSEE; or
(O) An "Event of Default" shall occur and be continuing under any
other lease agreement entered into between LESSOR or Beneficiary (or any
affiliated or related entity to LESSOR or Beneficiary) and LESSEE.
SECTION 19
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 this Lease to be in default, and at any time thereafter, so long as
LESSEE shall not have remedied any outstanding Event of Default, LESSOR may
exercise one or more of the following remedies with respect to the Aircraft as
LESSOR, in its sole discretion, shall elect, to the extent available and
53
permitted by, and subject to compliance with, any mandatory requirements of
applicable Law then in effect; PROVIDED, HOWEVER, that upon the occurrence of
any Event of Default specified in paragraphs (E), (F), (G) or (H) of Section 18,
LESSOR shall be entitled automatically, as of the day prior to such occurrence,
to exercise any of the following remedies without declaring this Lease to be in
default or making demand or giving notice or the taking of any other action:
(A) Demand that LESSEE, and LESSEE shall, upon the written demand of
LESSOR, at LESSEE's expense, return the Aircraft and Aircraft Documents promptly
to LESSOR in the manner and condition required by, and otherwise in accordance
with all of the provisions of, Section 17 and Exhibit "H" hereof; or LESSOR, at
its option and to the extent permitted by applicable Law, may enter upon the
premises where all or any part of the Aircraft and Aircraft Documents are
located and take immediate possession of and remove the same, by summary
proceedings or otherwise, all without liability accruing to LESSOR for or by
reason of such entry or taking of possession, whether for the restoration of
damage to property caused by such taking or otherwise;
(B) Sell the Aircraft 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 and without any duty to account to LESSEE with
respect to such action or inaction, or for any proceeds with respect thereto;
(C) Demand (whether or not LESSOR, pursuant to Subsection 19(B)
hereof, may have sold the Aircraft) that LESSEE pay LESSOR, and LESSEE shall
upon such demand pay to LESSOR, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the Rent for such Aircraft due after such payment
occurs), any accrued and unpaid Rent for such Aircraft due up to the time LESSOR
demands such payment, plus the amount by which the fair market value of such
Aircraft (assuming the condition of the Aircraft and the Aircraft Documents
fully and satisfactorily meets all of the return conditions set forth herein and
on Exhibit "H") exceeds the net cash proceeds of any sale of such Aircraft,
together with interest at the Overdue Rate on such fair market value or portion
thereof and such unpaid Rent from the date of LESSOR's demand to the date such
payment is made;
(D) Proceed by appropriate court action or actions, either at Law or
in equity, to enforce performance by LESSEE of the applicable obligations and
covenants of LESSEE under this Lease and to recover damages for the breach
thereof, or to rescind this Lease as to the Aircraft;
(E) Terminate this Lease or any of LESSEE's rights hereunder by
written notice, and repossess the Aircraft and Aircraft Documents, provided such
termination shall not release LESSEE from its financial obligations hereunder or
any other obligations hereunder which can be satisfied by the payment of money
(including the payment of money for the performance of
54
services);
(F) Apply all or any part of the Security Deposit then held by
LESSOR hereunder toward satisfaction of any obligations of LESSEE hereunder; or
(G) Exercise any and all other rights and remedies provided for
under applicable law whether or not such rights and remedies are specifically
enumerated herein.
Further, should the LESSEE fail to return the Aircraft and Aircraft
Documents upon termination of the Lease for any reason whatsoever except due to
an Event of Loss and as set forth in Subsection 17(F), without prejudice to
LESSOR's rights hereunder to demand return of the Aircraft in the condition
required by this Section, LESSEE shall continue to pay Rent to LESSOR for each
day the Aircraft remains in LESSEE's possession at the rate of 1/15 of the
monthly Basic Rent then in effect.
In addition, LESSEE shall be liable for any and all unpaid Rent due
hereunder before or during the exercise of any of the foregoing remedies, and
for all attorneys' fees, legal expenses and other costs and expenses incurred by
LESSOR, Lender or their respective representatives or agents by reason of the
occurrence of any Event of Default or the exercise of LESSOR's remedies with
respect thereto, including all costs and expenses incurred in connection with
the return of the Aircraft, in accordance with the terms of Section 17 and
Exhibit "H" hereof, or with placing such Aircraft in such condition.
Except as otherwise expressly provided above, no remedy referred to
in this Section 19 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 under any applicable Law, and the exercise or commencement of exercising
by LESSOR of any one or more of such remedies shall not preclude the
simultaneous or later exercise by LESSOR of any or all such other remedies. No
express or implied waiver by LESSOR of any Default or Event of Default shall in
any way be, or be construed to be, a waiver of any future or subsequent Default
or Event of Default. LESSEE hereby agrees that, except as provided in this
Section 19, any financing profit or savings accruing to LESSOR by virtue of
LESSEE's default and LESSOR's subsequent sale, re-letting, or award shall in no
way reduce, offset or mitigate the damages for which LESSEE is liable hereunder.
To facilitate LESSOR in the termination of this Lease and the
exercise of its remedies upon the occurrence and continuation of an Event of
Default, LESSEE hereby appoints LESSOR as LESSEE's irrevocable agent and
attorney-in-fact, pursuant to the Power of Attorney attached hereto as Exhibit
"E", to execute all documents deemed necessary to release, terminate and void
LESSEE's interest in the Aircraft leased hereunder and to otherwise enable
and/or assist LESSOR in the exercise of its remedies hereunder, and to file said
documents for recordation with the FAA and any other appropriate Governmental
Entity following the occurrence of an Event of Default, where LESSOR, at its
sole
55
discretion, may deem use of such Power of Attorney necessary to effect any
remedy which LESSOR chooses to exercise.
SECTION 20
ALIENATION
(A) There shall be no restriction upon LESSOR's right to assign,
sell, transfer, pledge, hypothecate or encumber any interest of LESSOR
(hereinafter referred to generally as "Alienation") to any other Person in the
Aircraft, this Lease and/or the proceeds thereof and hereof, subject to rights
of the LESSEE under the provisions of this Lease and provided that any such
assignment, sale, transfer, pledge, hypothecation or encumbrance does not have a
material adverse affect on LESSEE's obligations hereunder or adversely affect
the registration of the Aircraft or the quiet enjoyment of the LESSEE therein
pursuant to this Lease. To effect or facilitate any such assignment, sale,
transfer, pledge, hypothecation or encumbrance, LESSEE agrees to provide LESSOR
or LESSOR's designee or assignee with such agreements, consents, conveyances or
documents as may be reasonably requested by LESSOR. The agreements,
representations, warranties, covenants, obligations and liabilities contained
herein, including, but not limited to, all obligations to pay Rent and indemnify
LESSOR, are made for the benefit of LESSOR, any security assignee of LESSOR and
their respective successors and assigns, notwithstanding the possibility that
any such Person was not originally a party to this Lease or may, at the time
such enforcement is sought, not be a party to this Lease.
(B) In the case of any Alienation or assignment by LESSOR pursuant
to the provisions of Section 20, LESSEE shall execute and deliver to LESSOR
promptly upon request of LESSOR, any consents or agreements required for the
perfection of such assignment provided that such consent or other documents does
not affect LESSEE's rights under Subsection 21(G) below.
SECTION 21
MISCELLANEOUS
(A) SEVERABILITY, AMENDMENT AND CONSTRUCTION. 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 expressed to be a supplement to
this Lease, signed by an officer of the party against which the enforcement of
the change, waiver, discharge or termination is sought. This Lease shall
constitute an agreement of lease for the Base Term of the Lease, and nothing
herein shall be
56
construed as conveying to LESSEE any right, title or interest in the
Aircraft, the Airframe, any Engine or Part except as a LESSEE only, for such
Base Term. The headings in this Lease are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof. Unless
the context otherwise requires, all references in this Lease to designated
Sections or other subdivisions hereof are to such designated Sections or
subdivisions; and the words "herein", "hereof", "hereto", "hereunder", and
other words of similar import refer to this instrument as a whole and not to
any particular Section or subdivision. In construing any provision of this
Lease, no account shall be taken as to the party who drafted same and no
presumption shall arise or result therefrom.
(B) GOVERNING LAW. This Lease shall in all respects be governed by,
and construed in accordance with, the Laws of the State of New York with respect
to contracts made and to be entirely performed in such State by residents
thereof.
(C) WAIVER OF JURY TRIAL. LESSEE AND LESSOR HEREBY WAIVE, TO THE
FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, SUIT OR PROCEEDING BROUGHT BY EITHER PARTY HERETO WITH RESPECT TO
THE CONSTRUCTION OR ENFORCEMENT OF THIS LEASE OF ANY PROVISION HEREOF.
(D) NOTICE. Except as otherwise specified herein, all notices,
requests, demands, consents or other communications to, upon or by the
respective parties hereto shall be in the English language and in writing, sent
by international recognized express courier or telefax, and shall be deemed to
have been duly given or made when received by the party if sent by telefax or
when received by the party, if sent by express courier, addressed to the party
to which such notice, request, demand or other communication is required or
permitted to be given or made hereunder, at the LESSEE'S Address or LESSOR'S
Address (with a copy to Beneficiary at Beneficiary's Address), as the case may
be, or at such other address of which such Person shall have notified in writing
the party giving such notice.
(E) LESSOR'S RIGHT TO PERFORM FOR LESSEE. If LESSEE fails to make
any payment of Supplemental Rent or fails to perform or comply with any
covenant, agreement or obligation contained herein, LESSOR shall have the right,
but not the obligation, to make such payment or perform or comply with such
agreement, covenant or obligation, and the amount of such payment and the amount
of the reasonable expenses of LESSOR incurred in connection with such payment or
the performance thereof or compliance therewith, together with interest thereon
at the Overdue Rate, shall be deemed Supplemental Rent, payable by LESSEE upon
demand. The taking of any such action by LESSOR pursuant to this Subsection
21(E) shall not constitute a waiver or release of any obligation of LESSEE under
the Lease, nor a waiver of any Default or Event of Default which may arise out
of LESSEE's nonperformance of such obligation, nor an election or waiver by
LESSOR of any remedy or right available to LESSOR under or in relation to this
Lease.
57
(F) COUNTERPARTS. This Lease may be executed simultaneously in one
or more counterparts, all of which together shall constitute one and the same
Lease. To the extent that this Lease constitutes chattel paper in any
jurisdiction, no security interest herein may be created through the transfer of
possession of any counterpart other than the counterpart marked "Original."
Other than the counterpart of this Lease marked "Original," all other original
executed counterparts of this Lease shall be marked "Duplicate Original."
(G) QUIET ENJOYMENT. LESSOR covenants that if, and as long as, no
Event of Default hereunder has occurred and is continuing, LESSEE shall quietly
enjoy the Aircraft without interference by LESSOR or by any Person claiming by,
through or under LESSOR, or by any assignee of LESSOR, and neither LESSOR nor
any Person claiming by, through or under LESSOR, or any assignee of LESSOR will,
as long as no Event of Default hereunder has occurred and is continuing, take
any action which adversely affects the registration of the Aircraft.
(H) BROKERS. LESSOR and LESSEE each agree that there has been no
third party as broker or finder involved in the introduction of LESSOR and
LESSEE with respect to this Lease or the subject matter or negotiation hereof
and each party hereby indemnifies and agrees to hold harmless the other party
from liability for fees, commissions or other claims made upon such other party
due to such claims arising through it.
(I) JURISDICTION, SERVICE OF PROCESS. The parties hereto hereby
expressly submit to the non-exclusive jurisdiction of the United States District
Court for the Southern District of New York sitting in New York County, New
York, with respect to any action arising out of or relating to this Lease. In
connection with the foregoing, LESSEE hereby appoints CT Corporation System
whose address is currently at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, as its
lawful agent and attorney ("LESSEE's Process Agent") upon whom all service of
summonses and other legal processes may be made with respect to any action. The
LESSEE's Process Agent is hereby authorized and directed to accept by and on
behalf of LESSEE summonses and other legal processes against LESSEE. This
appointment of LESSEE's Process Agent is irrevocable by LESSEE and coupled with
an interest, and if LESSEE's Process Agent revokes such relationship LESSEE
shall, prior to the effective date of such revocation, appoint a successor,
which successor shall be approved by LESSOR and Lender. LESSEE shall, prior to
any change of the address of LESSEE's Process Agent, notify LESSOR and Lender in
writing of such new address.
LESSOR hereby appoints Feltman, Karesh, Major & ▇▇▇▇▇▇▇, whose
address is currently at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, as its
lawful agent and attorney ("LESSOR's Process Agent") upon whom all service of
summonses and other legal processes may be made with respect to any action. The
LESSOR's Process Agent is hereby authorized and directed to accept by and on
behalf of LESSOR summonses and other legal processes against LESSOR. This
appointment of LESSOR's Process Agent is irrevocable
58
by LESSOR and coupled with an interest, and if LESSOR's Process Agent revokes
such relationship LESSOR shall, prior to the effective date of such
revocation, appoint a successor, which successor shall be approved by LESSEE.
LESSOR shall, prior to any change of the address of LESSOR's Process Agent,
notify LESSEE in writing of such new address.
The parties hereto, to the fullest extent available under applicable
Law, waive any claim that venue or jurisdiction is improper in such court or
that such court constitutes an inconvenient forum. Service of summons, complaint
and other legal process on LESSOR or LESSEE with respect to any action arising
out of or relating to this Lease may be made by mailing (registered mail, return
receipt requested) a copy of any summons or other legal process to said Party at
the LESSEE's Address or LESSOR's Address, as the case may be, or by any other
procedure permitted under the Laws of the United States of America.
The mailing, as herein provided, of such summons or other legal
process shall be deemed personal service and accepted by LESSEE or LESSOR as
such, and shall be legal, effective and binding upon LESSEE or LESSOR for all
the purposes of the suit.
Nothing in this Subsection 21(I) shall in any way be deemed to limit
the ability of LESSOR or LESSEE to serve any such summons or legal process in
any other manner permitted by applicable Law or to obtain jurisdiction over the
other party in such other jurisdictions, and in such manner, as may be permitted
by applicable Law.
(J) STORAGE OF AIRCRAFT. Upon the expiration or termination of this
Lease, provided that the final maintenance check prior to return is accomplished
at LESSEE's Honolulu maintenance base or the return location is Honolulu, LESSEE
shall provide storage facilities for the Aircraft at a location where LESSEE has
storage facilities for a period not to exceed sixty (60) days (the "Storage
Period"). During the Storage Period, LESSOR shall bear the risk of loss of the
Aircraft and shall pay maintenance, insurance and other costs (except for the
cost of the storage facilities provided by LESSEE) with respect to the Aircraft.
Upon the expiration of the Storage Period, LESSEE shall cooperate with LESSOR by
flying the Aircraft to the Return Location.
(K) EXPENSES. Unless otherwise specifically provided for to the
contrary, LESSOR and LESSEE shall each bear their own expenses in connection
with this transaction, including, but not limited to the fees and expenses of
counsel. Notwithstanding the foregoing, LESSOR and LESSEE shall each be
responsible for one-half of the fees and expenses of FAA counsel.
SECTION 22
SUBLEASE; ASSIGNMENT
59
(A) LESSEE may sublease the Aircraft to any Air Carrier provided
that (i) such Air Carrier at the time of such subleasing is solvent and is not
in receivership or subject to the jurisdiction of any bankruptcy court, (ii)
that LESSOR and Lender have consented to such subleasing, such consent not to be
unreasonably withheld, and (iii) that LESSOR's title in and to the Aircraft and
the security interest of Lender in and to the Aircraft and this Lease remain
fully perfected and protected and LESSOR and its Lender receive satisfactory
legal opinions with respect thereto. LESSEE shall be responsible for all
reasonable costs and expenses incurred by LESSOR and Lender in connection with
any subleasing of the Aircraft, including, but not limited to, the reasonable
fees and expenses of counsel to LESSOR.
(B) Any sublease consented to by LESSOR shall contain, among other
things, the following terms and conditions:
(1) That such sublease is subject to and subordinate to this
Lease;
(2) The sublease shall not relieve the LESSEE of its obligations
under this Lease and the LESSEE shall continue to be primarily liable hereunder;
(3) The terms of such sublease shall be no less favorable to the
lessor thereunder than the terms of this Lease; and
(4) The rights of the lessor in any Sublease (including, but not
limited to security deposits and maintenance reserves payable thereunder) shall
be assigned to LESSOR and/or its Lender.
(C) All of LESSEE's obligations hereunder may be performed by any
approved sublessee, provided however that the LESSEE shall not be released from
its obligations hereunder.
(D) Nothing set forth in this Section 22 shall constitute, or be
deemed to constitute, a consent by LESSOR to the assignment by LESSEE, in whole
or in part, of this Lease or the rights and obligations of LESSEE thereunder.
Any assignment or purported assignment, in whole or in part of this Lease or the
rights and obligations of LESSEE hereunder shall be null and void and of no
force and effect unless the prior written consent of LESSOR and Lender to such
assignment had been obtained.
SECTION 23
EXCUSABLE DELAY
LESSOR or LESSEE shall not be responsible for, nor be deemed to be
in default under this Lease on account of any delay in delivery of the Aircraft
or commencement of this Lease due to any of the following causes:
60
(a) acts of God; war, war-like operations, insurrections or
riots; fires, floods, explosions, earthquakes or serious accidents; epidemics or
quarantine restrictions; any act of government, governmental priorities,
allocation regulations or orders affecting materials, facilities or completed
aircraft; strikes or labor troubles causing cessation, slowdown or interruption
of work; or inability after due and timely diligence to procure materials,
accessories or equipment prior to delivery (including, without limitation, the
Aircraft);
(b) damage to the Aircraft which can reasonably be repaired,
provided Lufthansa or its agent will promptly perform such repair work;
(c) Lufthansa's delay in delivery of the Aircraft to LESSOR for
whatever reason, including, but not limited to, delay caused by an aircraft
manufacturer's failure to deliver a replacement aircraft on time; or
(d) correction of discrepancies evidenced during the Delivery
Check, ground inspection or demonstration flight of the Aircraft, provided
Lufthansa is promptly and diligently correcting same.
Should an excusable delay continue beyond August 15, 1996, LESSOR
and LESSEE shall each have the right to terminate this Lease, without liability
or further obligation to the other (other than the return of the Security
Deposit by LESSOR to LESSEE); provided, however, that any time after the
sixtieth day if a rescheduled Delivery Date has been established and the Lease
has not theretofore been terminated, neither LESSOR nor LESSEE shall have any
right to terminate the Lease during the fifteen (15) day period preceding the
rescheduled Delivery Date.
SECTION 24
ENTIRE AGREEMENT
This Lease (including all Exhibits hereto) embodies the entire
agreement and understanding between LESSOR and LESSEE relating to the subject
matter hereof and supersedes all prior agreements and understandings relating
hereto and neither of the parties hereto shall be bound by or charged with any
oral or written agreements, representations, warranties, statements, promises or
understandings not specifically set forth herein. This Lease may not be changed
and no right granted or obligation imposed hereunder may be waived orally, but
only by an instrument in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
IN WITNESS WHEREOF, LESSOR and LESSEE, each pursuant to due
corporate authority, have caused this Lease to be executed by their duly
authorized officers as of the day and year first above written.
LESSOR: LESSEE:
FIRST SECURITY BANK, N.A., ALOHA AIRLINES, INC.
A NATIONAL BANKING ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS OWNER TRUSTEE
By: [Illegible] By:
---------------------------- ----------------------------
Title: Vice President Title:
------------------------- --------------------------
By:
----------------------------
Title:
--------------------------
61
IN WITNESS WHEREOF, LESSOR and LESSEE, each pursuant to due
corporate authority, have caused this Lease to be executed by their duly
authorized officers as of the day and year first above written.
LESSOR: LESSEE:
FIRST SECURITY BANK, N.A., ALOHA AIRLINES, INC.
A NATIONAL BANKING ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS OWNER TRUSTEE
By: By: [Illegible]
---------------------------- ----------------------------
Title: SR. VICE PRESIDENT FINANCE
------------------------- PLANNING AND CFO
Title: --------------------------
By: [Illegible]
----------------------------
Title: [Illegible]
--------------------------
62
(Page 1 of 2)
EXHIBIT "A"
AIRCRAFT SPECIFICATIONS
Model: Boeing 737-230ADV Max. Taxi Wt. 120,000 lbs.
Serial No. 22138 Max. Gross T.O. Wt. 119,500 lbs
Line No. 790 Max. Landing Wt. 103,000 lbs.
Reg. No. N820AL Max. Zero Fuel Wt. 95,000 lbs.
Date of Mfgr. July, 1981
Optrs. Empty Wt. 68,000 lbs.
Payload 27,000 lbs.
AIRFRAME STATUS
Time as of Maintenance Program
Total Hours
Total Cycles
Time Since Overhaul
Time Since Last C Ck "D" Check -
Time to Next Overhaul "C" check -
ENGINE ▇▇▇▇▇▇
▇▇▇▇▇ # ▇▇▇▇▇▇ # ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
#▇. ▇▇▇▇▇ & ▇▇▇▇▇▇▇ 708332 12,976 hrs/ 4,348 cyc ▇-▇▇
▇▇▇▇-▇▇
#▇. ▇▇▇▇▇ & ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 14,331 hrs/ 4,995 cyc C-6
JT8D-15
APU
LANDING GEAR - TIME REMAINING
R/H MLG hrs Nose Gear hrs
L/H MLG hrs L/G TBO hrs
GENERAL DATA AND COMMENTS
Fuel Capacity/lbs 34,469 lbs FAR Part ▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇
Interior Configuration 103YC
4 Galleys
3 Lavs
1 Closet
(Page 2 of 2)
EXHIBIT "A"
AVIONICS INVENTORY
INTENTIONALLY OMITTED AS THE PARTIES DEEM INFORMATION TO BE
CONFIDENTIAL.
64
(Page 1 of 2)
EXHIBIT "B"
AIRCRAFT DOCUMENTATION
On the Effective Date, LESSOR shall deliver to LESSEE the Aircraft Documentation
listed below. All reports and computer documentation produced by Lufthansa shall
be certified by Lufthansa or Lufthansa Technik.
A. The following manuals shall be delivered with the Aircraft. Each manual
shall be current and include all temporary revisions. Each manual shall be in
the English language.
1. FAA-Approved Airplane Flight Manual.
2. Weight and Balance Control and Cargo Loading Manual and Supplements
(load and trim sheet). Include last weigh paperwork and delivery equipment list
with previous operator running W & B computation sheets.
3. Operations Manual and Quick Reference Handbook. Including Cabin
Safety/F/A Manual (PAX A/C).
4. Structural Repair Manual.
5. Aircraft/Engine/APU Maintenance Manual.
6. Boeing Component Overhaul Manuals, including Galley Manuals
(CMM,IPC,OHM).
7. Aircraft/Engine/APU Illustrated Parts Catalog (I.P.C.) (Operator
Customized)
8. Wiring Diagram Manual including the following:
a. Equipment List.
b. Standard Practices (Chapter 20).
c. Charts and Graphs (Chapter 91).
d. Hook Up Charts.
e. Splice List.
f. Ground List.
g. Terminal List.
9. Engine and APU Overhaul Manuals.
10. Current and revised Lufthansa Maintenance Schedule and (COSL)
component, operating and storage limits manual.
65
B. Airworthiness Directives Documentation: The following data will be
provided on the Effective Date. LESSOR shall provide to LESSEE all records
associated with A.D. compliance.
1. A single, complete and current A.D. status list of the airframe,
appliances, Engine and APU Airworthiness Directive applicable to the Aircraft,
appliances, Engine and APU. This list shall be consistent with the preliminary
AD status reports received during the initial inspection. The list shall be
typed, certified and signed by authorized quality assurance representative of
Lufthansa.
2. LESSOR will provide legible copies of the completion documentation
that accomplish each AD. If the AD is a repetitive inspection documentation, the
last accomplishment is sufficient. If the original completion documents are not
available, LESSOR shall provide at a minimum a copy of the job card or
engineering order that accomplished the AD plus a certification letter signed by
Lufthansa's airworthiness department stating that the AD in question was
accomplished at a certain time and cycles, date and reference all pertinent
support documentation (ie. engineering order, alternate means of compliance,
etc.).
However, any AD that was complied with by an alternate means of
compliance must have all original documentation and necessary air authority
approvals.
3. Exemptions or deviations granted by the FAA (or equivalent) to
Lufthansa on A.D. compliance, including copy of exemption request.
C. Engineering Documentation
1. LESSOR shall provide a single, current list, in the English language
(except for the ADA list referenced in b. below) of engineering documentation
covering the aircraft as listed below:
a. Service Bulletin status based on the Boeing provided summary of
all Boeing service bulletins to the aircraft and consistent with the "reference
only" status report provided during the initial inspection.
b. List of all Lufthansa initiated on-aircraft modifications
consistent with the ADA list covering all Spec 100 ATA chapters. A current copy
of all engineering orders listed on the ADA list shall be provided with
appropriate certification stamp on the ADA list.
c. Major repairs list.
d. Supplemental Type Certificate list.
2. Data package covering all non-manufacturer/non-FAA approved repairs
or alterations, including the submittal to the LBA for an approval, if
applicable.
66
D. Additional Documentation
1. Master Minimum Equipment List and Configuration Deviation
List.
2. Set of cockpit drawings (full scale preferably).
3. Quarterly Reliability Reports for one (1) year.
4. Location map of emergency equipment, with description.
5. Interior configuration drawings.
6. LBA Export Certificate of Airworthiness.
7. Evidence of de-registration.
8. Passenger/Cargo Equipment List (seats, galleys, lavs,
entertainment, etc.).
9. Complete paperwork for last "D" check overhaul and last "A", "B",
and/or "C" check inspections.
10. Compass card and F.D.R. calibration documentation.
11. Copies of Aircraft registration and Certificate of
Airworthiness.
12. All Life records (Lufthansa - Lebenslaufkarte) for the
assemblies and rotable parts installed during the last overhaul for each nose,
left hand and right hand main landing gears.
E. Individual Aircraft and Engine Records:
1. Letter of Declaration for each major aircraft/engine accident or
major incident which shall include complete documentation reports, if any.
2. Major structural damage reports, if any.
3. Engine trend monitoring data (1 year minimum provided the engine
was operated with Lufthansa) for each engine installed on the aircraft.
4. Copies of logbook entries for the last twelve (12) months of
operation (at delivery).
5. List of open items, watch items, deferred items.
6. Serviceable/Overhaul tags for all life limited parts, hard time
components listed in the rotable components list. The LESSOR and LESSEE agree
that all serviceable overhaul tags for OC (on condition)/CM (condition
monitored) parts listed in the rotable components list for the last 12 months as
at delivery shall
67
be provided to LESSEE by LESSOR on a case by case basis (up to a maximum of
one (1) year after aircraft delivery).
7. Listing of Aircraft, Engine and APU components status by PIN -
SIN - Description Position TBO - TSI - TSO - TSN, Total Time, next Due Time,
including interpretation keys. (Rotable Component List).
8. Engine and APU Logbooks or equivalent reports or documentation.
9. Aircraft and Engine time status at delivery with Serial No.
total time/total cycles - and times of the last letter check inspection.
10. Engine time report and engine on log which shall include ASB
6038 status for each engine.
11. All Engine and APU records, for the last heavy maintenance shop
visit including back to birth history for each engine life limited part.
Exceptions will be acceptable for parts introduced to Lufthansa before 1993 when
back to birth history records was not mandatory; however, LESSOR shall use its
reasonable efforts to assist LESSEE in obtaining full traceability on these
parts, if any.
12. Manufacturer's delivery documents for Engines.
13. Boeing Electrical Load Analysis documents and data.
14. Last power plant test cell run documents for Engines
15. Documents for boroscope inspection prior to delivery for current
installation for engines (as stated in the Agreement).
16. Letter certifying that at the time of delivery of the aircraft
the aircraft is a non-SSID candidate aircraft.
17. Operator's Corrosion Control Program. (see Maintenance Schedule)
18. Aircraft Readiness Log (manufacturer's).
19. Copies of all applicable Master Changes (M.C.) performed on each
aircraft.
20. LBA approvals, Lufthansa certification reports for major
modifications, alterations and repairs which are not covered by manufacturers
service bulletins. For minor modifications not covered by manufacturers service
bulletins, Lufthansa shall provide the requested substantiation work. (i.e.
certification reports to the extent required by the LBA).
21. Fire blocking status for all seats, interior fabrics/materials,
including burn test documentation and
68
certification. In accordance with the LBA for all items introduced by Lufthansa.
22. Current Aging Aircraft and CPCP Status Report.
23. Current list outlining all waiver items/components not
approvable by the FAA.
24. Any historical records applicable to the aircraft, engines or
APU that may be available at reasonable effort and within reasonable time.
25. List detailing Lufthansa component shop history for all
components on the rotable components list on a case by case basis (up to a
maximum of one (1) year after aircraft delivery).
69
(Page 1 of 2)
EXHIBIT "C"
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered on and as of the date
set forth below by Aloha Airlines, Inc. (hereinafter referred to as "LESSEE") to
FIRST SECURITY BANK, N.A., a national banking association, not in its individual
capacity but solely as owner trustee,(hereinafter referred to as "LESSOR")
pursuant to that Aircraft Lease Agreement dated as of August , 1996 between
LESSOR and LESSEE (hereinafter referred to as the "Agreement"):
A. DETAILS OF ACCEPTANCE
LESSEE hereby indicates and confirms to LESSOR, its successors and
assigns, that the LESSEE has at o'clock .M., on this day of ,
1996, at , accepted the following in accordance with the provisions of
the Agreement:
1. (a) Boeing Model: 737-230ADV
(b) Manufacturer's Serial No.: 22138
(c) U.S. Registration Number: N820AL
MANUFACTURER AND MANUFACTURER'S HOURS CYCLES
ENGINE NO. MODEL NUMBER
(1) ▇▇▇▇▇ & ▇▇▇▇▇▇▇
JT8D-15
(2) ▇▇▇▇▇ & Whitney
JT8D-15
Each of the above-described Engines having 750 or more rated takeoff
horsepower or the equivalent thereof.
AIRFRAME
Total Time: hrs.
Total Cycles: Cycles
Time Remaining to "C" Check: hrs.
Time Remaining to "D" Check: hrs.
70
(Page 2 of 2)
EXHIBIT "C"
B. CONFIRMATION OF UNDERTAKINGS
LESSEE confirms that the above described Aircraft and Engines have
been examined by its duly appointed and authorized representative(s), that such
Aircraft and Engines conform to the information set forth above, that there have
been fixed to the Aircraft the markings required by the Agreement (or that such
markings shall be affixed to the Aircraft within fifteen (15) days of the date
hereof). LESSEE confirms and acknowledges that the date set forth above
constitutes the Effective Date, as such term is defined in the Agreement, and
that LESSEE's execution and delivery of this Certificate represents LESSEE's
acceptance of the above described Aircraft and Engines for all purposes of the
Agreement.
IN WITNESS WHEREOF, LESSEE has caused this Certificate of Acceptance
to be executed in its name, by its duly authorized officer(s) or
representative(s), pursuant to due corporate authority, all as of the date
written in Section A above.
LESSEE: ALOHA AIRLINES, INC.
By:
-----------------------------------
Title:
---------------------------------
Date:
----------------------------------
71
EXHIBIT "D"
LEASE SUPPLEMENT NO.
LEASE SUPPLEMENT NO. , dated , 1996, between
ALOHA AIRLINES, INC., a Hawaiian corporation ("LESSEE") and FIRST SECURITY
BANK, N.A., a national banking association, not in its individual capacity
but solely as owner trustee ("LESSOR").
LESSOR and LESSEE have heretofore entered into that certain
Aircraft Lease Agreement dated as of August , 1996 (herein called the
"Lease Agreement" and the defined terms therein being hereinafter used with
the same meaning). The Lease Agreement provides for the execution and
delivery from time to time of Lease Supplements, each substantially in the
form hereof, for the purpose of leasing the Aircraft under the Lease
Agreement as and when delivered to the LESSEE in accordance with the terms
thereof.
*The Lease Agreement relates to the aircraft and engines described
below, and a counterpart of the Lease Agreement 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 FAA as one document.
**The Lease Agreement relates to the aircraft and engines
described below, and a counterpart of the Lease Agreement, attached to and
made a part of Lease Supplement No. 1 dated to the Lease
Agreement, has been recorded by the FAA on , 199 as one
document and assigned Conveyance No. .
NOW THEREFORE, in consideration of the premises and other good,
valuable and sufficient consideration, LESSOR and LESSEE hereby agree as
follows:
-------------
* This language for Lease Supplement No. 1
** This language for other Lease Supplements.
72
1. LESSOR hereby delivers and leases to LESSEE under the Lease Agreement, and
LESSEE hereby accepts and leases from LESSOR under the Lease Agreement, the
following described Boeing Model 737- 230ADV aircraft (the "Delivered
Aircraft"), which Delivered Aircraft as of the date hereof consists of the
following:
(i) One Boeing Model 737-230ADV Airframe, bearing U.S. registration
number N ; Manufacturer's serial no. ; and
(ii) Two ▇▇▇▇▇ & ▇▇▇▇▇▇▇ Model JT8D-9A engines, bearing
manufacturer's serial nos. and , respectively, (each of which
engines has 750 or more rated takeoff horsepower or the equivalent thereof).
2. The Effective Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Base Term for the Delivered Aircraft shall commence on the Effective Date
and shall end on , 2003.
4. LESSEE hereby agrees to pay LESSOR Rent for the Delivered aircraft throughout
the Base Term (and any extension thereof as provided in the Lease Agreement) in
accordance with the terms of theLease Agreement.
5. LESSEE hereby confirms to LESSOR that the Delivered Aircraft and each Engine
installed thereon have been accepted by LESSEE for all purposes hereof and of
the Lease Agreement, as being in the condition that such Delivered Aircraft and
Engines are required to be in pursuant to the terms of the Lease Agreement.
6. All of the terms and provisions of the Lease Agreement are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
73
IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease
Supplement to be duly executed as of the day and year first above written.
LESSOR
FIRST SECURITY BANK, N.A., A
NATIONAL BANKING ASSOCIATION, NOT IN
ITS INDIVIDUAL CAPACITY BUT SOLELY
AS OWNER TRUSTEE
By:
---------------------------------
Title:
------------------------------
LESSEE
ALOHA AIRLINES, INC.
By:
---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
74
EXHIBIT "E"
APPOINTMENT AS ATTORNEY-IN-FACT
Pursuant to the terms of Subsection 19 of the Lease (as hereinafter
defined), ALOHA AIRLINES, INC. ("LESSEE") hereby irrevocably appoints FIRST
SECURITY BANK, N.A., A NATIONAL BANKING ASSOCIATION, NOT IN ITS INDIVIDUAL
CAPACITY BUT SOLELY AS OWNER TRUSTEE ("LESSOR") as its true and lawful
attorney-in-fact, to act in all respects, do such acts and take such actions as
LESSEE could do or authorize itself under the Lease with respect to the use,
operation, maintenance, possession, registration, de-registration and lease
termination of the Boeing 737-230ADV Aircraft, Serial Number __________, U.S.
Registration No. N__________ (the "Aircraft"), which LESSOR has leased to LESSEE
by Aircraft Lease Agreement dated as of June __ , 1996 (the "Lease"). The
appointment is made as part of and in consideration of the leasing of the
Aircraft to LESSEE by LESSOR and shall remain in full force and effect until
the earlier to occur of (i) the date on which all obligations of LESSEE under
the Lease shall be fully discharged or satisfied, or (ii) _______________, 2006.
Executed this ___ day of August, 1996.
ALOHA AIRLINES, INC.
By:
-----------------------------
Title:
--------------------------
By:
-----------------------------
Title:
--------------------------
Attested by:
--------------------------------
(PLACE CORPORATE Secretary
SEAL HERE)
75
STATE OF )
) ss.:
COUNTY OF )
On the _____ day of _________________, 199___, before me personally
came _________________________, to me known, who, being by me duly sworn, did
depose and say that he resides at __________________; that he is the __________
of __________________, the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that he signed his
name thereto by like order.
---------------------------------
Notary Public
[Seal]
76
EXHIBIT "F"
On the Effective Date for the Aircraft, LESSOR shall deliver and LESSEE
shall accept the Aircraft in an "as is, where is and with all faults" condition
other than the following conditions to which the Aircraft shall conform:
(i) be clean to the standards of Lufthansa;
(ii) be in a condition permitting commercial revenue service under the
applicable operating regulations of the German Airworthiness Authority ("LBA");
(iii) comply with all airworthiness directives issued by the LBA and FAA
prior to the Effective Date of the Aircraft which requires compliance on or
before the Effective Date;
(iv) have a valid airworthiness certificate for export, certifying
compliance with the airworthiness requirements of the Federal Republic of
Germany, issued by the LBA prior to the delivery of the Aircraft;
(v) be in a normal operating condition with all the Aircraft equipment,
components and systems functioning in accordance with their intended use;
(vi) be in a configuration as normally flown by Lufthansa in scheduled
airline revenue service with regard to the fixed installed equipment;
(vii) except for minor items such as emergency equipment, loose
equipment, electrical and electronic equipment, LESSOR will use its reasonable
efforts to deliver the Aircraft equipment without Lufthansa's special markings;
(viii) have accomplished all maintenance items except items permitted to
be deferred in accordance with Lufthansa's procedure for deferred items until
the next IL2 or D2 check;
(ix) neutral livery with all of Lufthansa's special exterior markings
removed or painted over;
(x) have installed two ▇▇▇▇▇ & Whitney JT8D-15 engines. LESSOR shall use
its reasonable efforts to deliver each engine with not less than 1,500 engine
cycles of remaining life until the next scheduled engine removal, but in no
event shall any engine be delivered with less than 1,500 cycles remaining. Each
Engine to be delivered hereunder shall be subject to LESSEE's reasonable
approval;
(xi) have undergone a borescope inspection on the engines (at LESSEE's
sole cost and expense). In the event the borescope inspection indicates a
discrepancy that is outside the
77
limits set under the manufacturer's maintenance manual for the engine, same
shall be corrected at LESSOR's cost and expense or LESSOR may provide a
substitute engine which shall meet the delivery conditions for an engine set
forth herein;
(xii) have undergone a power assurance run with LESSEE's representatives
present to ensure performance of the engines based on the ▇▇▇▇▇ & ▇▇▇▇▇▇▇
maintenance manual;
(xiii) have performed a demonstration flight of the airframe in
accordance with Lufthansa's procedures with up to two representatives of LESSEE
on board the Aircraft during such flight. Any discrepancies in the airframe
found during such demonstration flight which are outside the limits set forth in
Lufthansa's maintenance program found during such demonstration flight shall be
corrected accordingly;
(xiv) be certified for a maximum taxi gross weight of 120,000 lbs.
(xv) have reconfigured the cockpit switches into the Boeing standard;
(xvi) have installed an APU in serviceable condition;
(xvii) have all gauges converted from the metric
system to the imperial system; and
(xviii) except with respect to the engines, landing gear and APU, have
installed hard time components with an average of fifty percent (50%) minimum
time of remaining life as defined under Lufthansa's LBA approved maintenance
program with no single component having less than three months of remaining life
as defined under such program.
78
EXHIBIT "G"
LEASE IDENTIFICATION
OWNER: FIRST SECURITY BANK, N.A., A NATIONAL BANKING
ASSOCIATION, NOT IN ITS INDIVIDUAL CAPACITY BUT
SOLELY AS OWNER TRUSTEE
LESSEE: ALOHA AIRLINES, INC.
MORTGAGEE: FINOVA CAPITAL CORPORATION
79
EXHIBIT "H"
RETURN CONDITIONS
A. The Aircraft will be redelivered in accordance with Section 17 of
the Lease and shall be in the following condition:
(i) be clean to the standards of major international airlines;
(ii) be in a condition permitting commercial revenue service under
the applicable operating regulations of the Federal Aviation Administration
("FAA");
(iii) comply with all airworthiness directives issued by the FAA
prior to the Return Occasion of the Aircraft which requires compliance on or
before the originally scheduled Return Occasion;
(iv) have a valid U.S. Standard Airworthiness Certificate or a valid
Airworthiness Certificate for Export, as LESSOR shall elect, certifying
compliance with the airworthiness requirements of the United States, issued by
the FAA prior to the return of the Aircraft;
(v) be in a normal operating condition with all the Aircraft
equipment, components and systems functioning in accordance with their intended
use;
(vi) be in the same configuration as at delivery with regard to the
fixed installed equipment;
(vii) except for minor items such as emergency equipment, loose
equipment, electrical and electronic equipment, LESSEE will use its reasonable
efforts to deliver the Aircraft equipment without LESSEE's special markings;
(viii) have accomplished all maintenance items (including, but not
limited to having fully accomlished all required corrossion prevention controls,
treatments, repairs and inspections in accordance with LESSEE's FAA approved
CPCP program) except items permitted to be deferred in accordance with LESSEE's
procedure for deferred items until the next D check;
(ix) The Airframe shall be returned fresh from a B check performed
in accordance with LESSEE's Maintenance Program. Further, the Airframe shall
have an equal or greater amount of time remaining as when delivered to the next
scheduled D check, but with respect to the D check shall in all events have not
less than 3,000 flight hours remaining (as determined under LESSEE's maintenance
program) to the next scheduled D check. In the event that the Aircraft has more
or less time remaining to the next D check than it had remaining on the
Effective Date, D Check Compensation shall be paid in accordance with the
following formula and paid by the
80
relevant party in relation to any difference. If the D Check Compensation, as
calculated below, is a positive number, then, so long as no Default or Event of
Default has occurred and is continuing, LESSOR will pay to LESSEE such D Check
Compensation. If the D Check Compensation, as calculated below is a negative
number, then LESSEE will pay to LESSOR such D Check Compensation.
(a) D CHECK COMPENSATION. The "D Check Compensation" shall be
calculated as follows:
[A1-A2/B] x C
"A1" is the total number of Flight Hours/Cycles (whichever is
applicable and the more limiting factor) remaining on the Aircraft until the
next scheduled D check in accordance with LESSEE's FAA approved maintenance
program as of the Return Occasion.
"A2" is the total number of Flight Hours/Cycles (whichever is
applicable and the more limiting factor) remaining on the Aircraft until the
next scheduled D check in accordance with LESSEE's FAA approved maintenance
program as of the Effective Date.
"B" is the total number of Flight Hours/Cycles (whichever is
applicable and the more limiting factor) between scheduled D checks in
accordance with LESSEE's FAA approved maintenance program.
"C" is the cost for the next D check of the Aircraft in
accordance with LESSEE's FAA approved maintenance program as mutually agreed to
by LESSOR and LESSEE (in the event that after a reasonable period of time LESSOR
and LESSEE cannot reach a mutual agreement on the cost for the next D check,
such cost will be established by taking the average of the price quotes
submitted by two (2) reputable FAA approved Airframe overhaul facilities, one
selected by LESSEE and the other selected by LESSOR).
Notwithstanding the foregoing, for the purposes of the calculation of D Check
compensation, "Al" shall not exceed 15,000 Flight Hours.
(x) neutral livery with all of LESSEE's special exterior markings
removed or painted over;
(xi) have installed two ▇▇▇▇▇ & ▇▇▇▇▇▇▇ JT8D-9A engines. LESSEE
shall use its reasonable efforts to deliver each engine with not less than 7,688
engine cycles of remaining life until the next scheduled engine removal, but in
no event shall any engine be delivered with less than 3,000 cycles remaining. In
the event that any Engine has more or less time remaining to the next scheduled
overhaul or hot section inspection (as determined in accordance with LESSEE's
FAA approved maintenance program) than it had remaining on the, Effective Date,
Engine Adjustment Compensation for each such Engine shall be paid in accordance
with the following formula and paid by the relevant party in relation to any
81
difference. If any Engine is returned with a greater number of cycles to the
next scheduled overhaul or hot section inspection than it had remaining on
the Effective Date, then LESSOR shall pay Engine Adjustment Compensation to
LESSEE on account of such Engine. If any Engine is returned with fewer Cycles
to the next scheduled overhaul or hot section inspection than it had
remaining on the Effective Date, then LESSEE shall pay Engine Adjustment
Compensation to LESSOR on account of such Engine.
[A/B] x C
"A" is the average cost for an engine overhaul or hot section
inspection, as mutually agreed to by LESSOR and LESSEE (in the event that after
a reasonable period of time LESSOR and LESSEE cannot reach a mutual agreement on
the cost for the engine overhaul or hot section inspection, such cost will be
established by taking the average of the price quotes submitted by two (2)
reputable FAA approved engine overhaul facilities, one selected by LESSEE and
the other selected by LESSOR).
"B" is 7,000
"C" is the difference between the number of Cycles remaining
to the next overhaul or hot section inspection (whichever is the most limiting
factor) on the Engine as of the Effective Date as determined under the Engine
Manufacturer's maintenance manual and the number of Cycles remaining to the next
overhaul or hot section inspection (whichever is most limiting factor) on the
Engine as of the Return Occasion as determined under LESSEE's FAA approved
maintenance program.
Notwithstanding the foregoing, LESSOR shall have no obligation to
compensate LESSEE for any time to the next scheduled engine overhaul or hot
section inspection in excess of 7,000 Cycles.
(xii) have undergone a borescope inspection on the engines (at
LESSOR's sole cost and expense). In the event the borescope inspection
indicates a discrepancy that is outside the limits set under the manufacturer's
maintenance manual for the engine, same shall be corrected at LESSEE's cost and
expense or LESSEE may provide a substitute engine which shall meet the return
conditions for an engine set forth herein;
(xiii) have undergone a power assurance run with LESSOR's
representatives present to ensure performance of the engines based on the ▇▇▇▇▇
& Whitney maintenance manual;
(xiv) have performed a demonstration flight of the Aircraft in
accordance with LESSEE's procedures with up to two representatives of LESSOR on
board the Aircraft during such flight. Any discrepancies in the Aircraft found
during such demonstration flight which are outside the limits set forth in
LESSEE's maintenance program found during such demonstration flight shall be
corrected accordingly;
(xv) be certified for a maximum taxi gross weight of 120,000 lbs.;
82
(xvi) have installed an APU in serviceable condition;
(xvii) have all gauges converted from the imperial system to the
metric system upon LESSOR's request;
(xviii) except with respect to the engines, landing gear and APU,
have installed hard time components with an average of fifty percent (50%)
minimum time of remaining life as defined under LESSEE's FAA approved
maintenance program with no single component having less than three months of
remaining life as defined under such program; and
(xix) in the event that during the Base Term the Aircraft was
hushkitted to meet Stage III noise regulations, LESSEE shall return the Aircraft
with such hushkits so installed so as to be compliance with such regulations
(except in the case where the hushkitting of the Aircraft was accomplished in
the last twelve months of the Base Term and LESSEE has elected not to extend the
term of the Lease but has instead elected to retain title to the hushkits).
DUPLICATE ORIGINAL
LEASE SUPPLEMENT NO. 1
LEASE SUPPLEMENT NO. 1, dated August 13, 1996, between ALOHA AIRLINES,
INC., a Hawaiian corporation ("LESSEE") and FIRST SECURITY BANK, N.A., a
national banking association, not in its individual capacity but solely as owner
trustee ("LESSOR").
LESSOR and LESSEE have heretofore entered into that certain Aircraft
Lease Agreement dated as of August 13, 1996 (herein called the "Lease Agreement"
and the defined terms therein being hereinafter used with the same meaning). The
Lease Agreement provides for the execution and delivery from time to time of
Lease Supplements, each substantially in the form hereof, for the purpose of
leasing the Aircraft under the Lease Agreement as and when delivered to the
LESSEE in accordance with the terms thereof.
The I-ease Agreement relates to the aircraft and engines described
below, and a counterpart of the Lease Agreement 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 FAA as one document.
NOW THEREFORE, in consideration of the premises and other good, valuable
and sufficient consideration, LESSOR and LESSEE hereby agree as follows:
1. LESSOR hereby delivers and leases to LESSEE under the Lease Agreement, and
LESSEE hereby accepts and leases from LESSOR under the Lease Agreement, the
following described Boeing Model 737-230ADV aircraft (the "Delivered Aircraft"),
which Delivered Aircraft as of the date hereof consists of the following:
(i) One Boeing Model 737-230ADV Airframe, bearing U.S. registration
number N820AL; Manufacturer's serial no. 22138; and
(ii) Two ▇▇▇▇▇ & ▇▇▇▇▇▇▇ Model JT8D-15 engines, bearing manufacturer's
serial nos. 708332 and 702984, respectively, (each of which engines has 750 or
more rated takeoff horsepower or the equivalent thereof).
2. The Effective Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Base Term for the Delivered Aircraft shall commence on the Effective Date
and shall end on August 12, 2003.
4. LESSEE hereby agrees to pay LESSOR Rent for the Delivered aircraft throughout
the Base Term (and any extension thereof as provided in the Lease Agreement) in
accordance with the terms of the Lease Agreement.
5. LESSEE hereby confirms to LESSOR that the Delivered Aircraft and each Engine
installed thereon have been accepted by LESSEE for all purposes hereof and of
the Lease Agreement, as being in the condition that such Delivered Aircraft and
Engines are required to be in pursuant to the terms of the Lease Agreement.
6. All of the terms and provisions of the Lease Agreement are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
(balance of page intentionally left blank)
73
IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease
Supplement to be duly executed as of the day and year first above written.
LESSOR
FIRST SECURITY BANK, N.A., A
NATIONAL BANKING ASSOCIATION, NOT IN
ITS INDIVIDUAL CAPACITY BUT SOLELY
AS OWNER TRUSTEE
By: [Illegible]
-----------------------------
Title: Vice President
--------------------------
LESSEE
ALOHA AIRLINES, INC.
By:
-----------------------------
Title:
--------------------------
By:
-----------------------------
Title:
--------------------------
IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease
Supplement to be duly executed as of the day and year first above written.
LESSOR
FIRST SECURITY BANK, N.A., A
NATIONAL BANKING ASSOCIATION, NOT IN
ITS INDIVIDUAL CAPACITY BUT SOLELY
AS OWNER TRUSTEE
By:
--------------------------------
Title:
-----------------------------
LESSEE
ALOHA AIRLINES, INC.
By: [Illegible]
--------------------------------
SR. VICE PRESIDENT FINANCE &
PLANNING AND CFO
Title:-----------------------------
By: [Illegible]
--------------------------------
Title: [Illegible]
-----------------------------
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered on and as of the date set forth
below by Aloha Airlines, Inc. (hereinafter referred to as "LESSEE") to FIRST
SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely
as owner trustee, (hereinafter referred to as "LESSOR") pursuant to that
Aircraft Lease Agreement dated as of August 13, 1996 between LESSOR and LESSEE
(hereinafter referred to as the "Agreement"):
A. Details of Acceptance
LESSEE hereby indicates and confirms to LESSOR, its successors and
assigns, that the LESSEE has at 2:40 o'clock p.m. EDT, on this 13th day
August, 1996 at Berlin, accepted the following in accordance with the
provisions of the Agreement:
1. (a) Boeing Model 737-230ADV Aircraft
(b) Manufacturer's Serial No. 22138
(c) U.S. Registration No. N820AL
2. Engines:
ENG. MANUFACTURER HOURS CYCLES
NO. AND MODEL NO. MSN REMAINING REMAINING
(1) ▇▇▇▇▇ & Whitney
JT8D-15 708332 5803 4347
--------- ---------
(2) ▇▇▇▇▇ & ▇▇▇▇▇▇▇
JT8D-15 702984 5541 4177
--------- ---------
Each of the above-described Engines having 750 or more rated take-off
horsepower or the equivalent thereof.
3. Airframe:
(a) Total Time: 32501 hrs.
(b) Total Cycles: 33450 Cycles
(c) Time Remaining to "C" Check: June 1997
(d) Time Remaining to "D" Check: Aug 2000
B. CONFIRMATION OF UNDERTAKINGS
LESSEE confirms that the above described Aircraft and Engines have been
examined by its duly appointed and authorized representative(s), that
such Aircraft and Engines conform to the information set forth above,
that there have been fixed to the Aircraft the markings required by the
Agreement (or that such markings shall be affixed to the Aircraft within
fifteen (15) days of the date hereof). LESSEE confirms and acknowledges
that the date set forth above constitutes the Effective Date, as such
term is defined in the Agreement, and that LESSEE's execution and
delivery of this Certificate represents LESSEE's acceptance of the above
described Aircraft and Engines for all purposes of the Agreement.
IN WITNESS WHEREOF, LESSEE has caused this Certificate of Acceptance to be
executed in its name, by its duly authorized officer(s), or representative(s),
pursuant to due corporate authority, all as of the date written in Section A
above.
LESSEE: ALOHA AIRLINES, INC.
By /s/ [ILLEGIBLE]
-----------------------------------------
Its SR. VICE PRESIDENT MARKETING
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
Its VICE PRESIDENT PLANNING & DEVELOPMENT
2
FIRST PRIORITY PURCHASE MONEY AIRCRAFT CHATTEL
MORTGAGE AND SECURITY AGREEMENT
(N820AL)
THIS FIRST PRIORITY PURCHASE MONEY AIRCRAFT CHATTEL MORTGAGE AND SECURITY
AGREEMENT ("Agreement'), dated as of August 13. 1996, by and between FIRST
SECURITY BANK, NATIONAL ASSOCIATOIN not in its individual capacity but solely as
Owner Trustee ("Borrower'), as mortgagor, and FINOVA CAPITAL CORPORATION, a
Delaware corporation ("Lender"), as mortgagee,
WITNESSETH:
WHEREAS, Borrower and Diamond Head Associates LLC, a Delaware limited
liability company ("Diamond Head') have entered into a Secured Loan Agreement
dated as of even date herewith (hereinafter the "Loan Agreement") with Lender,
which provides for the making of the "Loan" (as defined in the Loan Agreement)
by Lender on behalf of Borrower and Diamond Head; and
WHEREAS, it is a condition to the effectiveness of the Loan Agreement that
Borrower execute and deliver this Agreement for the purposes, among other
things, of securing payment and performance of the "Obligations" (as defined in
the Loan Agreement), and for the purpose of subjecting the properties and assets
hereinafter described to the lien of this Agreement;
NOW, THEREFORE, in consideration of Lender's execution and delivery of the
Loan Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, Borrower and Lender hereby agree as follows:
I . DEFINITIONS.
1.1 GENERAL DEFINITIONS. Capitalized terms defined in the text of this
Agreement shall have the meanings so ascribed to them, and the following terms
shall have the following meanings, unless the context otherwise requires:
"AGREEMENT" shall mean this agreement as from time to time amended and
supplemented in accordance with the terms hereof including, without limitation,
all Supplemental Agreements executed by Borrower in accordance with the terms
hereof
"AIRCRAFT" shall mean, collectively, the Airframe and Engines.
"ASSIGNMENT OF LEASE" shall mean the Assignment of Lease of even date
herewith by and between Borrower and Lender.
"AIRFRAME" shall have the meaning ascribed to such term in Section 2.1
hereof.
"BANKING DAY" shall mean a day on which national banks in Phoenix,
Arizona are open for the transaction of business.
"CLOSING DATE" shall mean August 13, 1996.
"DEFAULT" shall mean an event which, with the passage of time, or
giving of notice, or both, would constitute an Event of Default.
"ENGINES" shall have the meaning ascribed to such term in Section
2.1 hereof.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in
Section 4.1 hereof
"EVENT OF LOSS" shall mean, with respect to any item of the Mortgaged
Property or any part thereof (a) the actual, constructive, compromised, arranged
or agreed total loss thereof; (b) the destruction or damage beyond repair of
such Mortgaged Property or part thereof, or such Mortgaged Property or part
thereof being rendered or becoming permanently unfit for normal use for any
reason whatever; (c) the requisition for title, confiscation, restraint
detention, forfeiture or any compulsory acquisition or seizure or requisition
for hire of such Mortgaged Property or part thereof (other than a requisition
for hire for a temporary period not exceeding one hundred and eighty (180) days)
by or under the order of any Government (whether civil, military or DE FACTO) or
public or local authority; or (d) the high-jacking, theft or disappearance,
resulting in loss of possession by Borrower for a period of thirty (30)
consecutive days or longer, of such Mortgaged Property or part thereof
Notwithstanding the foregoing, so long as the Lease shall be in effect, an
"Event of Loss" under this Agreement shall be deemed to have occurred with
respect to the Mortgaged Property, or any portion thereof if an "Event of Loss"
as defined in the Lease (as in effect on the Closing Date or as amended,
provided such amendment is consented to by Lender) has occurred with respect to
such Mortgaged Property or portion thereof.
"EXCLUDED AMOUNTS" shall mean (a) proceeds of public liability
insurance in respect of the Mortgaged Property payable as a result of insurance
claims made, or losses suffered, by Borrower, any affiliate of Borrower or any
director, officer, employee, representative or agent of Borrower or any such
affiliate to the
-2-
extent that such insurance claims made, or losses suffered, do not
apply to Lender, as assignee of Borrower, or to the Mortgaged Property, (b)
proceeds of insurance which is maintained with respect to the Mortgaged Property
by Borrower or any such affiliate and which insurance is not required under the
Loan Documents, (c) any interest paid or payable on any amounts described in
clauses (a) or (b) of this definition, (d) the proceeds from the enforcement of
the payment of any amount described in clauses (a) through (c) of this
definition, and (e) any amount payable by Lessee to Borrower pursuant to the
indemnity provisions of the Lease (except to the extent that such payment
relates to claims or damages suffered by or asserted against Lender or the
Mortgaged Property).
"FEDERAL AVIATION ACT" shall mean the Federal Aviation Act of 1958, as
amended and recodified, and the rules and regulations promulgated thereunder, as
codified in Title 49, United States Code, as in effect on the date of this
Agreement, and as modified or amended hereafter or any successor or substituted
legislation at the time in effect and applicable.
"FAA" shall mean the Federal Aviation Administration provided for in
the Department of Transportation Act of 1966, as in effect on the date of this
Agreement and as modified or amended hereafter, or any successor or substituted
governmental authority at the time having jurisdiction over the Mortgaged
Property.
"GOVERNMENT" shall mean any governmental body, or a political
subdivision thereof
"LEASE" shall mean the Aircraft Lease Agreement of even date herewith
by and between Borrower, as lessor, and Aloha Airlines, Inc., a Hawaii
corporation, as lessee.
"LENDER" shall mean, collectively, Lender and each subsequent holder of
any interest in the Note(s), or either of them, and each of their respective
successors and assigns.
"LIEN" shall mean any mortgage, pledge, lien, charge, encumbrance
option, security interest or lease (including any conditional sale agreement,
equipment trust agreement, or other title retention agreement) or right or claim
of any person, whether voluntary or involuntary in nature.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Loan
Agreement, the Note, the Other Note, if any, and all other documents executed in
connection with any of the foregoing agreements or contemplated thereby or the
transactions related hereto or thereto.
-3-
"MORTGAGED PROPERTY" shall have the meaning ascribed to such term in
Section 2.1 hereof
"NOTE" shall mean the Promissory Note dated as of even date herewith,
executed and delivered by Borrower, as maker, in favor of Lender, as holder, in
accordance with the terms of the Loan Agreement, in the original principal
amount of $6,800,000.00, which Note is referred to as the "N820 Note" under the
Loan Agreement and which Note evidenced the"N820 Advance" (as defined in the
Loan Agreement).
"OBLIGATIONS" shall mean all of the obligations of Borrower and Diamond
Head of payment and performance under this Agreement, the Loan Agreement, the
Note, the Other Note (if any) and the other Loan Documents, and the payment of
any sum advanced or subsequently advanced or obligation incurred pursuant to any
provision of this Agreement, the Loan Agreement, the Note, the other Note, if
any, and the other Loan Documents, which term shall include, without limitation,
all of the "Obligations" as defined in the Loan Agreement.
"OTHER NOTE" shall mean the Promissory Note which may be executed and
delivered by Borrower, as maker, to the order of Lender, as holder, in
accordance with the terms of the Loan Agreement, which Note is referred to as
the "Nxxx Note" under the Loan Agreement and which Note, if and when so executed
and delivered, will evidence the "Nxxx Advance" (as defined in the Loan
Agreement).
"OFFICER'S CERTIFICATE" shall mean a certificate signed by an
authorized officer of Borrower and delivered to Lender.
"PERMITTED LIENS" shall mean:
(a) The Lien of the Lease which is applicable to such Aircraft, and
the interest of Lessee in such Aircraft arising pursuant to such Lease;
(b) Liens for Taxes either not yet due or being contested in good
faith by appropriate proceedings, so long as adequate reserves are
maintained with respect to such Liens from and after the date the
Taxes, as to which such Liens relate, became due and so long as the
Aircraft is not in material danger of being lost, sold, confiscated,
forfeited or seized as a result of such Liens;
(c) materialmen's, mechanics', workmen's, repairmen's, employees'
or other like Liens arising in the ordinary course of business of
Borrower and not delinquent for more than sixty (60) days or being
contested in good faith so long as adequate reserves are maintained
with respect to such Liens from and after the date the amounts as to
which such Liens relate became due and
-4-
so long as the Aircraft is not in material danger of being lost, sold,
confiscated, forfeited of seized as a result of such Lien;
(d) Liens arising out of any judgment or award unless the judgment
secured shall not, within sixty (60) days of the entry thereof, have
been discharged or vacated or execution thereof stayed pending appeal
or bonded in a manner satisfactory to Lender, so long as adequate
reserves are maintained with respect to such Liens from and after the
date such judgment or award is entered or made, and so long as the
Aircraft is not in material danger of being lost, sold, confiscated,
forfeited or seized as a result of such Lien; and
(e) the Lien of the Security Documents and of each other Loan
Document granting a Lien in favor of Lender as security for the payment
and performance of the Obligations.
"SELLER" shall mean Jetz Ventures Inc.
"SUPPLEMENTAL AGREEMENT" shall mean a Supplemental Agreement, in
substantially the form attached hereto as EXHIBIT A, executed by Borrower and
delivered to Lender and referring to the Supplemental Collateral described
therein.
"SUPPLEMENTAL COLLATERAL" shall have the meaning ascribed to such term
in Section 2.1 hereof
"TAXES" shall mean all present and future taxes whatever, and
value-added levies, imposts, duties or charges of any nature wherever
imposed, including, without limitation, value added taxes or similar taxes
and any franchise, transfer, sales, use, business, occupation, excise,
personal property, real property, stamp or other tax imposed by any national
or local taxing or fiscal authority or agency, together with any penalties,
additions to tax, fines or interest thereon (excluding, however, taxes
imposed upon the income of Lender and taxes in the nature of franchise taxes
which are payable by tender).
1.2 TERMS DEFINED IN UNIFORM, COMMERCIAL CODE. All terms used herein which
are defined in the Arizona Uniform Commercial Code (the "Code") shall have the
meanings ascribed to such terms in the Code unless the context in which such
terms are used herein indicates otherwise.
1.3 TERMS DEFINED IN ASSIGNMENT OF LEASE. All capitalized terms used in
this Agreement which are defined in the Assignment of Lease shall, unless
otherwise defined herein, have the respective meanings ascribed to such terms in
the Assignment of Lease, the applicable provisions of which Assignment of Lease
are incorporated herein.
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1.4 TERMS DEFINED IN FEDERAL AVIATION ACT. The terms "AIRCRAFT ENGINES,"
"APPLIANCES" and "SPARE PARTS" shall have the respective meanings ascribed to
such terms in the Federal Aviation Act as in effect on the date of this
Agreement.
2. GRANT OF SECURITY INTEREST.
2.1 GRANT OF SERCURITY INTEREST. To secure the prompt payment to Lender
of, and discharge and performance of the Obligations, Borrower hereby grants
to Lender a continuing first priority security interest in all of the
following items and types of property and interests in property (except to
the extent that such property or interests in property constitute Excluded
Amounts), whether now owned or existing, hereafter acquired or arising, or in
which Borrower now or hereafter has any rights, and wheresoever located
(collectively, the "Mortgaged Property"):
(a) One (1) airframe, identified as follows,
MANUFACTURER: The Boeing company
MANUFACTURER'S
MODEL NUMBER: 737-230ADV
FAA REGISTRATION
NUMBER: N820AL
MANUFACTURER'S
SERIAL NUMBER: 22138
together with all appliances, parts, equipment and accessories thereto
belonging, by whomsoever manufactured, now owned by Borrower or hereafter
acquired by Borrower and installed in or appurtenant to said airframe
(collectively, the "Airframe");
(b) Two (2) ▇▇▇▇▇ & ▇▇▇▇▇▇▇ model number JT8D-15 jet aircraft engines
bearing manufacturer's serial numbers 708332 and 702984, each of the two
engines having 750 or more rated take-off horsepower or the equivalent
thereof together with all appliances, parts, equipment and accessories
thereto belonging, by whomsoever manufactured, now owned by Borrower or
hereafter acquired by Borrower and installed in or appurtenant to said
engines (any one of the foregoing, an "Engine" and, all of the foregoing,
collectively, the "Engines");
(c) One shipset of Nordam heavyweight Stage III hushkits suitable for
Installation in the Engines, as more specifically described in Exhibit "B"
to this Agreement.
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(d) any interest of Borrower in any property (collectively, the
"Supplemental Collateral") consisting of: (i) any airframe, appliance,
equipment, instrument or accessory (including, without limitation, radio
and radar) which is installed in or appurtenant to the Airframe, or (ii)
any engine, having 750 or more rated take-off horsepower or the equivalent
thereof installed in or appurtenant to the Airframe, or any appliance,
equipment or accessory installed in or appurtenant to any Engine or
installed in or appurtenant to the Airframe, and (iii) any replacement or
substitution for any of the foregoing:
(e) all warranties, service contracts and product agreements of any
manufacturer of or of any maintenance or overhaul agency with respect to,
the Mortgaged Property, or any subcontractor or supplier or vendor thereof,
and any and all rights of Borrower to compel performance of the terms of
such warranties, service contracts and product agreements in respect of any
of the Mortgaged Property;
(f) all right, title and interest of Borrower in, to and under the
Warranty ▇▇▇▇ of Sale of even date herewith between Seller and Borrower
(the "Warranty ▇▇▇▇ of Sale"), wherein, among other things, Seller has
granted, bargained, sold, conveyed, transferred, and set over and unto
Borrower (and made certain warranties in connection therewith) all of the
Seller's right, title and interest in and to, among other things.
(i) the Aircraft; and
(ii) all rights of Seller with respect to (and only with respect
to) the Aircraft (and specifically excluding, among other things, any
and all rights of Seller in and to any other aircraft or other
equipment), arising under that certain Sales Agreement for B737-200
Advanced Aircraft, dated October 31, 1995 (the "Sales Agreement"),
between Deutsche Lufthansa Aktiengesellschaft ("Lufthansa") and Jetz,
Inc. ("Jetz"), as assigned by Jetz to Seller pursuant to that certain
Assignment, Assumption and Consent Agreement dated as of November 6,
1996 among Jetz, Seller and Lufthansa, as amended by that certain
Amendment No. 1 dated as of August 1, 1996 between Lufthansa and
Seller;
(g) all of Borrower's right, title and interest in, to and under any
lease with respect to all or any portion of the Mortgaged Property, as may
be amended, supplemented or restated (including, without limitation, the
Lease), such right, title and interest including, without limitation, (i)
the right of Borrower to collect all rental payments, income, proceeds
(including, but not
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limited to, insurance proceeds), awards, revenues and other sums
payable to Borrower pursuant to any such lease, (ii) all of Borrower's
rights under Section 1110 of the Bankruptcy Code of the United States or
any subsequently enacted statutes of similar import with respect to or in
connection with such lease, (iii) all right, title and interest of Borrower
to collect, hold and apply all security deposits, maintenance reserves and
similar amounts, as provided pursuant to the Terms of any such lease, and
(iv) all rights of Borrower to enforce Borrower's rights and remedies under
any such lease,
(h) all substitutions, replacements, products, proceeds (including, but
not limited to, insurance proceeds) and renewals of, and all accessions to,
the foregoing, and all property which shall hereafter become physically
attached to or incorporated in any of the foregoing, in each case whether
the same are now owned by Borrower or shall hereafter be acquired by it;
(i) all monies deposited from time to time with Lender pursuant to this
Agreement or any of the other Loan Documents, including, without
limitation, pursuant to Section 2.3 hereof; and
(j) all records, logs, manuals and documents or other materials of any
kind relating to the condition, use, location, maintenance of or repairs or
overhauls to all or any part of the Mortgaged Property.
2.2 SUPPLEMENTAL COLLATERAL; SUPPLEMENTAL SECURITY AGREEMENT. In the
event that Borrower acquires any interest in any Supplemental Collateral,
Borrower shall execute and deliver to Lender a Supplemental Agreement with
respect to such Supplemental Collateral, which Supplemental Collateral shall
be therein designated as an Airframe or an Engine, as appropriate. Upon the
execution and delivery by Borrower of such Supplemental Agreement, (a) the
Airframe and Engines referred to therein shall be subject to the Lien of this
Agreement, and the terms "Airframe" and "Engines" under this Agreement will
be deemed to refer to the Airframe and Engines referred to in each such
Supplemental Agreement, together with the Airframe and the Engines referred
to herein and (b) references herein to "this Agreement" shall be deemed
references to this Agreement as supplemented by all such Supplemental
Agreements then in effect. Without diminishing the obligation of Borrower to
deliver a Supplemental Agreement with respect to Supplemental Collateral,
Borrower and Lender agree that, as between Lender and Borrower (and, to the
extent permitted by applicable law, as between Lender any other party
claiming an interest in Supplemental Collateral), the Lien of Lender shall
extend to and continue in, shall remain perfected with respect to, all
Supplemental Collateral whether or not any Supplemental Agreement is executed
by Borrower with respect to such Supplemental Collateral.
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2.3 CASH COLLATERAL. All proceeds of insurance payable with respect to any
Part of the Mortgaged Property shall be paid directly to Lender, except (a) to
the extent that Lessee is entitled to receive such proceeds pursuant to the
express terms of the Lease or (b) for proceeds of insurance which proceeds
constitute Excluded Amounts. All such proceeds of insurance payable to Lender,
and all money elsewhere herein provided to be held and applied under this
Section, and all money, if any, required to be paid to Lender hereunder, the
disposition of which money is not elsewhere herein otherwise specifically
provided for (all such money being hereinafter referred to as "Cash
Collateral'), shall be held by Lender and applied by Lender from time to time as
provided herein and in the Loan Agreement.
2.4 PROCEEDS OF INSURANCE USED FOR REPAIR. To the extent that any Cash
Collateral is the proceeds of insurance relating to the Mortgaged Property which
is payable to Lender pursuant to Section 2.3, which proceeds of insurance are
payable for reasons other than an Event of Loss, then upon Borrower's written
request to Lender, such proceeds shall be disbursed by tender for the following
purposes: (a) to reimburse Borrower for, and up to an amount not exceeding,
costs incurred by Borrower for repair and/or restoration, as required hereunder,
of the property damaged, but only following receipt by Lender of an Officer's
Certificate, dated not more than five days prior to Borrower's request for such
disbursement, stating that such costs have been incurred by Borrower in a
specified amount for one or more of the purposes aforesaid, which shall be
briefly described, and also stating that no part of such costs have been or are
then being used in any other previous or then pending application, as the basis
for the withdrawal of any Cash Collateral from Lender hereunder; or (b) directly
to the vendor or contractor who has provided parts and/or labor to repair or
restore the Mortgaged Property as to which the proceeds of insurance comprising
the Cash Collateral were payable; PROVIDED, however, that, subject to the terms
of the Lease, including, but not limited to, Lessee's right to the use,
possession and enjoyment of the Mortgaged Property Lender shall have no
obligation to make such disbursement of Cash Collateral if, at the time such
disbursement is to be made, a Default or Event of Default hereunder and under
the Lease has occurred and is continuing (except that, in the case of Defaults
(but not Events of Default), Lender shall make such disbursement if such Default
would be cured by the making of such payment); and further PROVIDED, that
disbursements from Cash Collateral pursuant to this Section shall be subject to
reasonable verification by Lender of the costs for which such disbursement
represents payment or reimbursement.
2.5 CASH COLLATERAL FOLLOWING DEFAULT OR EVENT OF DEFAULT. Following the
occurrence of an Event of Default hereunder and under the Lease, and during the
continuance thereof, Lender may, in its sole discretion (subject to the terms of
the Lease, including, but not limited to, Lessee's right to the use, possession
and enjoyment of the Mortgaged Property): (a) disburse Cash Collateral in
payment for
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repairs or restoration of Mortgaged Property, following Borrower's request
for such disbursement; or (b) apply Cash Collateral to repayment of the Loan.
2.6 SECURUITY FOR OBLIGATIONS. Without limiting the generality of any other
provision of this Agreement, Borrower acknowledges and agrees that the security
interest in the Mortgaged Property pursuant to this Agreement shall secure
payment and performance of the Note and the Other Note, if any, whether such
note is held by Lender or any successor or assign thereof.
3. PARTICULAR COVENANTS OF BORROWER.
Borrower covenants and agrees with Lender, and represents and warrants to
Lender, as follows:
3.1 WARRANTY AND COVENANT OF TIDE. At the time of the execution and
delivery of this instrument, Borrower owns the Mortgaged Property subject to no
lien, charge, encumbrance, option, tide retention agreement or security
interest, except Permitted Liens, and has full power and authority to grant,
bargain, sell, transfer, convey and mortgage, and give a security interest in,
the Mortgaged Property in the manner and form as set forth in this Agreement.
Borrower is and shall remain the legal owner, free and clear of all mortgages,
security interests, liens, charges, encumbrances, title retention agreements,
and options (except for Permitted Liens) of the Mortgaged Property.
3.2 ADVERS CLAIMS. Borrower hereby does and will forever warrant and defend
the title to and possession of the Mortgaged Property against the claims and
demands of all persons whomsoever (except claims and demands under the Permitted
Liens) and at all times keep the Lien and security interest granted herein with
respect to the Mortgaged Property, at Borrower's expense, a duly perfected first
priority security interest in and Lien upon the Mortgaged Property as
constituted from time to time, superior to the rights of all third parties
(except for Permitted Liens) to the fullest extent permitted by applicable law,
and shall take all actions (including obtaining any authorization, approval,
license, or consent of any competent governmental or judicial authority) and
make all filings (including, without limitation, filings with the Aircraft
Registry maintained by the FAA), which Lender may deem necessary or appropriate
in order to obtain the full benefits of this Agreement and all rights and powers
granted or to be granted herein, or in order to preserve, protect and perfect
the Lien of Lender in the Mortgaged Property.
3.3 RECORDING. Borrower will bear the expense of and be responsible for
recording and re-recording, registering and re-registering and filing and
re-filing this Agreement and each and every Supplemental Agreement, and such
other financing statements or other instruments from time to time as may be
requested by
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Lender in all such jurisdictions and offices as Lender shall from time to time
require in order that (a) the Lien hereof remains at all times a first priority
lien on the Mortgaged Property, subject only to Permitted Liens, as security for
the Obligations, and (b) the rights and remedies of Lender with respect to the
Mortgaged Property and the Loan Documents maybe established, confirmed,
maintained and protected. Borrower will furnish to Lender evidence satisfactory
to Lender of every such recording, registering and filing which is not filed,
recorded or registered by Lender. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact (said agency being coupled with an interest and
therefore irrevocable) to take all such action and execute all such documents in
Lender's own name or in the name of Borrower that is necessary to carry out the
purposes of this Section. Borrower agrees that it shall confirm to Lender, in
writing, not less frequently than every ninety days, the location of the
Mortgaged Property.
3.4 MAINTENANCE OF AUTHORIZATIONS; PAYMENT OF TAXES. The Lien of Lender
upon the Mortgaged Property will at all times remain a first priority purchase
money security interest upon the Mortgaged Property as from time to time
constituted and Borrower will obtain and maintain, or cause to be obtained or
maintained, in full force and effect, any authorization, approval, license, or
consent of any governmental or judicial authority, which may be or become
necessary in order to permit the operation and use of the Mortgaged Property or
in order to obtain the full benefits of this Agreement and all rights and
remedies granted or to be granted herein, and will not create or suffer to exist
any Lien upon the Mortgaged Property or any part thereof or upon the income
therefrom other than Permitted Liens. Borrower will from time to time pay or
cause to be paid as they become due and payable all taxes, assessments and
governmental charges lawfully levied or assessed or imposed upon the Lien of
Lender on the Mortgaged Property so that the Lien of this Agreement shall at all
times be wholly preserved at the cost of Borrower and without expense to Lender;
and Borrower will not suffer any other matter or thing whatsoever whereby the
Lien of or security interest created by this Agreement might be impaired (except
for Permitted Liens).
3.5 INDEMNIFICATION. Borrower shall assume liability for and indemnify
protect, save, and keep harmless Lender, its officers, directors, agents, and
employees for, from and against any and all liabilities, losses, damages, taxes,
claims, actions, suits, reasonable costs and expenses of whatsoever kind,
including, without limitation, reasonable legal fees and disbursements and
reasonable expert witness fees, imposed on, incurred by, or asserted against
Lender, its officers, directors, agents and employees in any way relating to or
arising out of the purchase, ownership, delivery, possession, use, operation,
condition, performance, quality suitability airworthiness, maintenance,
registration, loss, confiscation, seizure, requisition, lease, sale, or other
disposition of the Mortgaged Property or any part thereof or this Agreement or
any other Loan Document or any of the instruments or
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agreements to be entered into by the parties pursuant hereto or thereto;
provided, that the indemnity obligation of Borrower hereunder shall not apply to
(a) taxes which are assessed against Lender based on the gross income of Lender
or (b) taxes which are payable by Lender in the nature of franchise taxes.
3.6 MAINTENANCE OF MORTGAGED PROPERTY. Borrower shall at all times
maintain, preserve and keep, or cause to be maintained, preserved and kept, at
no cost or expense to Lender, all of the Mortgaged Property as from time to time
constituted and every part thereof in good order and repair (ordinary wear and
tear excepted), in accordance with FAR Part 121 airline standards in conformity
with FAA regulations, and shall comply with all mandatory manufacturer's service
bulletins, notices and directives with respect to the Mortgaged Property or will
cause such Mortgaged Property to be so maintained, preserved and kept, without
cost or expense under this Agreement to Lender. Borrower will from time to time
make, or cause to be made, all needed and proper repairs to the Mortgaged
Property in order to comply with such standards at a Maintenance Repair Station
approved by the FAA, and obtain and maintain in full force and effect and in
good order all licenses, permits, certificates, registrations or other documents
required by any insurance policy or any governmental authority having
jurisdiction regarding the Mortgaged Property. Borrower will replace or will
cause to be replaced, without expense to Lender, all or any part of the
Mortgaged Property (including, without limitation, any Engine, but excluding the
entire Aircraft under circumstances constituting an Event of Loss with respect
to the Aircraft) that may be retired (whether by sale, expropriation, wearing
out, loss or destruction or other cause), or may be in any way rendered unfit
for use, with replacement property of comparable grade, quality and utility;
which replacement property shall be in the same or better serviceable condition
by standards of the FAA as the unit so retired or rendered unfit for use
assuming such replaced property was maintained in accordance with the provisions
hereof and will, with respect to replacement engines, execute and deliver to
Lender a Supplemental Agreement and such other documents as may be necessary to
accord Lender a first priority Lien under this Agreement with respect thereto
(subject to Permitted Liens) and to subject such replacement property to the
Lien of this Agreement as Mortgaged Property. Borrower shall, at any time and
from time to time, at Lender's request, promptly furnish to Lender information
as to the maintenance status of the Aircraft in such detail as Lender shall
reasonably require. Notwithstanding the foregoing, Lender agrees that compliance
by the Lessee with the maintenance provisions of the Lease as in effect on the
Closing Date (or as amended, provided such amendment is consented to by Lender)
shall constitute compliance by Borrower with the provisions of this Section 3.6
and any other provision of This Agreement with respect to the maintenance of the
Mortgaged Property.
3.7 COMPLIANCE WITH LAWS AND THE LIKE. Borrower will at all times comply or
cause compliance with all lawful laws, orders, rules and regulations of
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governmental authorities having jurisdiction with respect to any part of
the Mortgaged Property the noncompliance with which would have a materially
adverse effect on the condition of any Mortgaged Property, the business of
Borrower or the perfection. or priority of this Agreement, the Lien of Lender on
the Mortgaged Property or any of Lender's rights or remedies under any Loan
Document. Borrower will forthwith advise Lender of the receipt by Borrower of
any notice from the FAA. as to any violation of or failure to comply with or any
order, rule or regulation thereof.
3.8 MAINTENANCE OF INSURANCE. Borrower shall at all times procure and
maintain, or cause to be procured and maintained, on the Mortgaged Property,
without liability and at no cost to Lender, policies of insurance in such form,
of such type and with insurers satisfactory to Lender. All proceeds of insurance
paid to Lender shall be held and paid over or applied by Lender as provided
herein. Notwithstanding the foregoing, Lender agrees that compliance by the
Lessee with the insurance provisions of the Lease as in effect on the Closing
Date (or as amended, provided such amendment is consented to by Lender) shall
constitute compliance by Borrower with the provisions of this Section 3.6 and
any other provision of this Agreement with respect to the insurance of the
Mortgaged Property.
3.9 INSPECTION BY LENDER; INFORMATION. Borrower will at all times
maintain or cause to be maintained records adequate to identify the Mortgaged
Property and to disclose its use, maintenance, condition and the income
generated to Borrower through the use thereof Borrower shall, at any time and
from time to time, provide Lender with all information available to Borrower
regarding the location of the Mortgaged Property. Borrower shall permit
Lender or any representative designated by Lender: (a) to inspect the books
of account, records, reports and other papers of Borrower related to the
Mortgaged Property and to take copies and extracts therefrom, and Borrower
will afford and procure the opportunity to make any such inspection and will
furnish Lender with any and all such other information and copies of
documents and print-outs of data related to the Mortgaged Property stored on
any electronic or data processing medium under the control of Borrower as
Lender may request, with respect to any Mortgaged Property and the financial
records of Borrower related to the Mortgaged Property, and Borrower will
permit Lender to discuss any of the foregoing with any officer or accountant
of Borrower, or either of them, all at such times and as often as may be
requested by Lender; and (b) to inspect the Mortgaged Property, upon Lender's
request, once every 12 months during the period during which the Loan remains
outstanding and unpaid, and to inspect and appraise the Mortgaged Property,
upon Lender's request, at any time and from time to time, after the
occurrence of an Event of Default, or whenever there has been, in Lender's
reasonable judgment, a material, adverse change in the condition of the
Mortgaged Property or in the financial condition of Borrower. All such
inspections and appraisals as are permitted in clauses
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(a) and (b) of the previous sentence shall be at the reasonable cost and
expense of Lender and shall be conducted by an employee or other appointed
representative or agent of Lender; PROVIDED, that from and during the
continuation of an Event of Default, such inspections and appraisals shall be
at the reasonable cost and expense of Borrower. Lender may in its discretion
require, permit, the Mortgaged Property to be inspected and appraised by an
appraiser selected by Lender at any time, at Lender's sole cost and expense.
Notwithstanding the foregoing, Lender agrees that compliance by the Lessee
with the records-keeping provisions of the Lease as in effect on the Closing
Date (or as amended, provided such amendment is consented to by Lender) shall
constitute compliance by Borrower with the provisions of this Section 3.9 and
any other provisions of this Agreement with respect to the maintaining of
records concerning the Mortgaged Property.
3.10 CITIZENSHIP. Borrower is as of the date hereof and will at all times
until the Loan is repaid remain a "citizen of the United States" as defined in
49 U.S.C. Section 40102(a)(15).
3.11 INSIGNIA. Forthwith following the request of Lender therefor, Borrower
will plainly, distinctly and conspicuously place and maintain in the cockpit of
the Aircraft and on each Engine, a plate, insignia or other identification
bearing the following words in letters of a size reasonable under the
circumstances and acceptable to Lender as follows:
THIS AIRCRAFT IS OWNED BY FIRST SECURITY BANK,
NATIONAL ASSOCIATION, AS OWNER TRUSTEE FOR THE BENEFIT OF
DIAMOND HEAD ASSOCIATES LLC, A DELAWARE LIMITED LIABILITY COMPANY,
AND IS SUBJECT TO A FIRST PRIORITY SECURITY INTEREST IN FAVOR OF
FINOVA CAPITAL CORPORATION, A DELAWARE CORPORATION
3.12 OPERATION AND LOCATION OF MORTAGAGED PROPERTY. Borrower shall not
operate the Aircraft or suffer the Aircraft to be operated in violation of any
provision of any insurance policy in effect with respect to the Aircraft or in
any jurisdiction where all of the insurance required hereunder shall not remain
in full force and effect or in violation of any law, treaty, statute, rule,
airworthiness directive, regulation or order of any government or governmental
authority (domestic or foreign) having or asserting jurisdiction over Lender or
the Mortgaged Property or in violation of any applicable airworthiness
certificate, license or registration relating to the Mortgaged Property issued
by any such government or governmental authority Notwithstanding the foregoing,
Lender agrees that compliance by the lessee with the provisions of the Lease as
in effect on the Closing Date (or as amended, provided such amendment is
consented to by Lender) concerning the use and operation of the Mortgaged
Property shall constitute compliance by Borrower with the provisions of
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this Section 3.12 and any other provision of this Agreement concerning
the use and operation of the Mortgaged Property.
3.13 NO SALE; ALTERATION OR MODIFICATION. (a) Borrower shall not make or
cause to be made or cause or permit another to make any change or alteration in
any registration, filing, or recordation of any of the Mortgaged Property from
the registration, filing, or recordation required by this Agreement, or consent
to the Mortgaged Property being operated by pilots other than those currently
certified by the appropriate governmental authorities.
(b) Except to the extent expressly provided in this Section 3.13, Borrower
shall not sell, lease, convey, transfer or encumber (other than Permitted Liens)
or otherwise dispose of all or any part of the Mortgaged Property or cause or
permit another to do any of the foregoing with respect to any of the Mortgaged
Property, and shall not (except to the extent required pursuant to Section 3.6
hereof) modify or cause or permit any modification to any of the Mortgaged
Property.
(c) Notwithstanding anything to the contrary in this Agreement, so long as
no Event of Default shall have occurred and be continuing, Borrower may;
(i) deliver possession of any of the Mortgaged Property to the
manufacturer thereof or another maintenance facility for testing, service,
repair, maintenance or overhaul work thereon or on any part thereof, or for
alterations and modifications in or additions thereto to the extent
required or permitted by this Agreement;
(ii) enter into and carry out any charter, wet-lease or other agreement
with respect to the Mortgaged Property on terms whereby the Mortgaged
Property will at all times be operated by an air crew employed by and
subject to the operational control of Borrower; PROVIDED, that any such
charter, wet-lease or other agreement shall be subordinate in all respects
to this Agreement; and
(iii) subject any Engine to normal interchange or pooling agreements or
arrangements customary in the airline industry applicable to similar
engines operated by Borrower and entered into by Borrower in the ordinary
course of its business; provided, that no such agreement or arrangement
contemplates or requires the transfer of title to such Engine and if
Lender's interest in any such 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 Borrower shall replace such Engine
as soon as reasonably possible by duly executing a Supplemental Agreement
with respect to a replacement engine thereby causing same to become subject
to this
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Agreement as a replacement for such Engine, which replacement engine
shall be free and clear of all Liens other than Permitted Liens, and shall
be the same model as the Engines and shall have a value and utility at
least equal to, and be in at least as good operating condition as the
Engine which is being replaced, assuming the Engine being replaced was in
the condition and repair required by the terms hereof. Such replacement
Engine shall be deemed an "Engine" hereunder upon the filing with the FAA
of the Supplemental Agreement with respect thereto, whereupon Lender shall
release its security interest pursuant to this Agreement in the replaced
engine.
4. EVENTS OF DEFAULT; REMEDIES.
4.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Failure of Borrower to pay when due and payable any principal of or
interest on or other sum with respect to the Loan, the Note, the Other Note, if
any, or other sums which may become due hereunder or under any Loan Document,
whether by reason of stated maturity or due date, notice of prepayment,
cancellation, acceleration or otherwise, and such sum is not fully paid within
five (5) Banking Days after the due date thereof;
(b) (i) Any failure by Borrower to perform or cause to be performed its
obligations as set forth in this Agreement concerning (x) the preparation or
recordation of any document or instrument required by Lender for the maintenance
or perfection of any lien on the Mortgaged Property, or (y) maintenance of any
part of the Mortgaged Property, within five (5) Banking Days after notice
thereof from Lender, (ii) any lapse of, of failure to maintain, insurance
coverage on the Mortgaged Property required to be maintained under this
Agreement, or (iii) any failure by Borrower to fulfill any other covenant or to
perform any other obligation on its part to be performed under any Loan Document
to which it is a party and such failure is not cured within thirty (30) days
after the earlier of actual knowledge thereof on the part of Borrower or receipt
of notice thereof by Borrower; PROVIDED, however, that if such failure is
capable of being cured and cannot with diligence be cured within thirty (30)
days, then such failure shall not constitute an Event of Default so long as
Borrower is in good faith taking all steps necessary, in the reasonable opinion
of Lender, to diligently cure such failure and such failure is cured within
sixty (60) days of such failure;
(c) If any representation or warranty made by Borrower in this
Agreement or any other Loan Document or any financial statement shall prove to
have been untrue, inaccurate or incomplete in any material respect at the time
when made or when effective and Borrower fails to do that which shall be
necessary in
-16-
order that said representation or warranty shall be true accurate or
complete within thirty (30) days after the earlier of actual knowledge thereof
on the part of Borrower or of receipt of notice thereof by Borrower; or
(d) Any Event of Default under, and as defined in, any one or more of
the Loan Documents shall occur.
4.2 REMEDIES. Upon the occurrence and continuance of any Event of Default,
Lender may, in its sole discretion, do one, several, or all of the following:
(a) exercise all the rights and remedies granted to secured parties by
the provisions of the Arizona Uniform Commercial Code (whether or not the
Uniform Commercial Code is in effect in the same form in the jurisdiction where
Lender's rights and remedies are asserted) or under the provisions of any
applicable law;
(b) accelerate the entire principal balance then due and owing under
the Loan Agreement, the Note and the other Note (or either of them), this
Agreement and the other Loan Documents, whereupon all such amounts, accrued
interest thereon, and all other amounts comprising the Obligations shall
become immediately due and payable;
(c) enforce the rights of Borrower with respect to the Mortgaged
Property, and institute legal proceedings to foreclose upon and against the
sercurity interest granted in and by this Agreement and to recover judgment for
all amounts then due and comprising the Obligations;
(d) institute legal proceedings for the specific performance of any
covenant or agreement herein contained or in the Loan Agreement or in aid of
the execution of any power herein granted and Lender shall be entitled as of
right to the appointment of a receiver of all or any part of the Mortgaged
Property;
(e) institute legal proceedings for the sale or otherwise for the court
of competent jurisdiction, enforcement of any right, under the judgment of any
of or concerning any of the Mortgaged Property;
(f) personally, or by agents or attorneys, take possession of all or
any part of the Mortgaged Property and demand, ▇▇▇ for, collect or receive any
money or property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect to, any
of the Mortgaged Property or any sum Payable in connection therewith; and
-17-
(g) to the extent permitted by law, enter any place where the Mortgaged
Property may be found or where Lender reasonably believes some or all thereof
may be kept and personally, or by agents or attorneys, take possession of any
part or all of the Mortgaged Property without being responsible for loss or
damage caused thereby, and sell or dispose of all or any part of the same, free
from any and all claims of Borrower or of any other party claiming by, through,
or under Borrower, at law or in equity; at one or more public or private sales
on such terms as Lender may fix, with or without any previous demand upon
Borrower or advertisement of any such sale or other disposal.
Except as otherwise expressly herein provided to the contrary, any
notice or demand and right of equity of redemption otherwise required by or
available to Borrower under applicable law is hereby waived by Borrower to the
fullest extent permitted by applicable law
4.3 WAIVER OF BONDS. If Lender seeks to take possession of any or all of
the Mortgaged Property or avail itself of any provisional remedy by court
process, Borrower hereby irrevocably waives any bonds and any surety or security
required by any statute, court rule or otherwise as an incident to such
possession or remedy, and waives any demand for possession of Mortgaged Property
prior to the commencement of any suit or action to recover same.
4.4 MULTIPLE SALES. The power of sale hereunder shall not be exhausted by
one or more sales and Lender may from time to time adjourn any sale to be made
pursuant hereto. The Mortgaged Property need not be present at the time and
place of sale.
4.5 DELIVERY OF MORTGAGED PROPERTY. If Lender shall demand possession of
the Mortgaged Property or any part thereof pursuant to this Agreement, or any
records, including print-outs of data stored on any electronic or data
processing medium, relating to the Mortgaged Property, Borrower shall, at its
own expense, forthwith cause such Mortgaged Property of any part thereof or any
such records designated by Lender to be assembled and made available and/or
delivered to Lender at any place reasonably designated by Lender; provided, that
such assembly or delivery by Borrower is not in breach of its obligations under
the Lease, including, but not limited to, its obligation to grant Lessee quiet
enjoyment of the Mortgaged Property to the extent expressly provided in the
Lease as in effect on the Closing Date (or as amended, provided such amendment
is consented to by Lender).
4.6 NOTICE. In addition to any other notices required by law, Lender shall
give to Borrower at least twenty (20) days prior written notice of each public
sale or any date after which a private sale or other intended disposition of any
Mortgaged Property hereunder shall occur, and Borrower hereby covenants and
agrees that a
-18-
notice, which shall be sent in accordance with the provisions of Section 6.1
hereof, at least twenty (20) days before the date of any such act shall be
deemed to be commercially reasonable notice for such act within the meaning
of Section 9-504 of the Uniform Commercial Code and, specifically, reasonable
notification of the time and place of any public sale hereunder and
reasonable notification of the time after which any private sale or other
intended disposition to be made hereunder is to be made.
4.7 LENDER'S RIGHT TO REPAIR AND MANAGE MORTGAGED PROPERTY. In the event
that Lender shall take or come into possession of any of the Mortgaged
Property, Lender may, but shall have no obligation to, from time to time, at
the expense of Borrower, make all such repairs, replacements, alterations,
additions and improvements to and of the Mortgaged Property as Lender may
reasonably deem proper to protect its interests hereunder. In each such case,
Lender shall have the right to manage and control the Mortgaged Property and
to carry on the business and to exercise all rights and powers of Borrower in
respect thereof as Lender shall deem appropriate, including the right to
enter into any and all such agreements with respect to the leasing and/or
operation of the Mortgaged Property or any part thereof as Lender may see
refit; and Lender shall be entitled to collect and receive all rents, issues,
profits, revenues and other income of the same and every part thereof. Such
rents, issues, profits, revenues and other income shall be applied to pay the
expenses of holding and operating the Mortgaged Property and of conducting
the business thereof, and of all maintenance, repairs, replacements,
alterations, additions and improvements, and to make all payments which
Lender may be required or may elect to make, if any, for taxes, assessments,
insurance and other proper charges upon the Mortgaged Property or any part
thereof, and all other payments which Lender may be required or authorized to
make under any provision of this Agreement. The remainder of such rents,
issues, profits, revenues and other income shall be applied only in
accordance with Section 4.9 hereof.
4.8 DELIVERY TO PURCHASER. Upon the completion of any sale of any of the
Mortgaged Property under this Article, Borrower shall deliver all of the
property so sold to the purchaser or purchasers at such sale on the date of
sale, or within a reasonable time thereafter if it shall be impractical to make
immediate delivery, but in any event full title and right of possession to such
property shall pass to such purchaser or purchasers forthwith upon the
completion of such sale. Nevertheless, if so requested by Lender or by any
purchaser, Borrower shall confirm any such sale or transfer by executing and
delivering to such purchaser all proper instruments of conveyance and transfer
and releases as may be designated in any such request. Subject to the rights of
Lessee, to the extent that they exist, every such sale of Mortgaged Property
shall operate to divest all right, title, interest, claim and demand whatsoever
of Borrower and any person claiming such interest by, through or under Borrower,
in and to the property so sold, and shall be a perpetual bar, both at law
-19-
and in equity, against Borrower and all such persons and their respective
successors or assigns.
4.9 APPLICATION OF PROCEEDS. The proceeds of any sale, rental or other use
of the Mortgaged Property, or any part thereof, under this Article, together
with any other sums then held by Lender, as part of the Mortgaged Property,
shall be applied as follows:
(a) First, to the payment of the costs and expenses of such sale,
including reasonable brokers' fees or sales commissions, a reasonable
compensation to Lender's agents, attorneys and counsel, and all other reasonable
charges, expenses, liabilities and advances incurred or made by Lender in
connection therewith, and to the payment of all taxes, assessments or Liens for
which Borrower is liable to indemnify Lender, if any, prior to the Lien of this
Agreement, except any taxes, assessments or Liens subject to which such sale
shall have been made;
(b) Second, to the payment of amounts due under the Loan Agreement and
the balance of the Obligations; and
(c) Third, the surplus, if any, shall be paid to Borrower or such other
person as may be legally entitled thereto.
4.10 LENDER MAY PURCHASE. At any public sale under this Article, Lender or
its nominee may, to the extent permitted by applicable law, bid for and purchase
the Mortgaged Property offered for sale, and, upon compliance with the terms of
sale, may hold, retain and dispose of such Mortgaged Property without further
accountability therefor. Lender need not be present at such sale in order to
make such bid. For the purpose of making payment for the Mortgaged Property or
any part thereof so purchased, claim for payment of the Obligations, or any part
thereof, may be used by Lender as a credit against the purchase price therefor.
4.11 RIGHT TO POSSESSION. Borrower hereby waives, to the fullest extent
permitted by applicable law, the benefit of any law or procedure under the
federal Bankruptcy Code (or any comparable or succeeding law) which might
limit or impair the right of Lender to take possession of and sell or operate
and manage the Mortgaged Property in compliance with the provisions of this
Agreement.
4.12 REMEDIES CUMULATIVE. Each right, power, and remedy specifically
given to Lender herein, or otherwise existing shall be cumulative and shall
be in addition to every other right, power, and remedy specifically given
herein, or in the Loan Agreement or any of the other Loan Documents or now or
hereafter existing at law, in equity, or otherwise; and each right, power and
remedy, whether specifically given under the Loan Agreement or otherwise
existing may be exercised from time
-20-
to time and as often and in such order as may be deemed expedient by
Lender; and the exercise of any right, power or remedy shall not be construed to
be a waiver of the right to exercise at the same time or thereafter any other
right, power or remedy. No delay or omission by Lender in the exercise of any
right or power, or in the pursuance of any remedy, shall impair any such right,
power, or remedy or be construed to be a waiver of any Default or Event of
Default or to be an acquiescence therein. No waiver by Lender of any breach or
Default or Event of Default by Borrower under this Agreement shall be deemed a
waiver of any other previous breach or default or any thereafter occurring. The
invalidity of any remedy in any jurisdiction shall not invalidate such remedy in
any other jurisdiction. The invalidity or unenforceability of any of the
remedies herein provided in any jurisdiction shall not in any way affect the
right to the enforcement in such jurisdiction or elsewhere of any of the other
remedies herein provided.
4.13 CERTAIN WAIVERS. Borrower agrees, to the full extent that it may
lawfully so agree, that neither it nor anyone claiming through or under it will
set up, claim or seek to take advantage of any appraisement, valuation, stay,
extension or redemption law now or hereafter in force in any locality where any
Mortgaged Property may be situated in order to prevent, hinder or delay the
enforcement or foreclosure of this Agreement, or the absolute sale of the
Mortgaged Property or any part thereof; or the final and absolute putting into
possession thereof, immediately after such sale, of the purchasers thereof, and
Borrower, for itself and all who may at any time claim through or under it,
hereby waives, to the full extent that it may be lawful so to do, the benefit of
all such laws, and any and all right to have any of the properties or assets
comprising the Mortgaged Property marshaled upon any such sale, and agrees that
Lender or any court having jurisdiction to foreclose the Lien hereof may sell
the Mortgaged Property as an entirety or in such parcels as Lender may
determine.
4.14 LENDER'S RIGHT TO PERFORM; EXPENSES. At any time and from time to time
after an Event of Default has occurred, if Borrower fails to perform or fulfill
any of its undertakings or obligations contained herein, including, without
limitation, the obligation to maintain insurance with respect to the Mortgaged
Property as herein provided, Lender shall have the right, but shall not be
obligated: (a) to effect such performance or compliance and (b) to incur such
expenses relative thereto or to the enforcement of Lender's rights as against,
or the preservation, protection, reconditioning, storage or sale of, the
Mortgaged Property including, but without limitation, such sums as are referred
to in Sections 4.7 and 4.9(a) hereof. The amount of any such expenses and other
reasonable costs of Lender incurred as hereinabove provided shall become payable
by Borrower to Lender as of the date on which Lender shall pay the same,
together with interest thereon from said date of payment at the Default Rate,
until the same shall be repaid.
-21-
4.15 ADVANCES ARE SECURED. All costs and expenses referred to in Section
4.14 shall become part of the Obligations and shall become part of the
indebtedness secured under this Agreement. Subject to the rights of Lessee, if
any, to the use, possession and enjoyment of the Aircraft, Lender shall have the
right (but shall not be obligated) to use and apply any Cash Collateral at any
time held by it for the repayment of all such advances, costs or expenses.
However, no such use of any Cash Collateral, nor the making by Lender of any
advance in payment of any such expense, shall relieve Borrower from any Default
or Event of Default hereunder.
4.16 AGENCY. Borrower hereby appoints Lender, such appointment being
immediately and without further notice or action effective upon the occurrence
of an Event of Default, as Borrower's irrevocable attorney-in-fact and agent
(such appointment being coupled with an interest) either in Lender's own name or
in the name of Borrower, to (a) incur and to pay the costs and expenses
aforesaid; (b) make claim for, collect, compromise and bring suit in respect of
all claims relating to the Mortgaged Property; (c) execute and endorse all
documents, checks or drafts received in payment of any and all such expenses or
any losses or damages under any insurance policies maintained with respect to
any Mortgaged Property; (d) execute financing statements in Borrower's name as
debtor; and (e) take any action which Borrower could take as owner of the
Mortgaged Property in order to facilitate the realization by Lender of any of
its rights and remedies herein provided.
5. RELEASE UPON SATISFACTION OF OBLIGATIONS.
Following payment in full and satisfaction of the Obligations, this
Agreement and the Lien, rights and interests hereby granted shall cease,
terminate and become null and void, and, upon Borrower's written request
therefor, Lender shall execute and deliver to Borrower such instruments of
satisfaction and discharge of this Agreement, and the Lien hereof, as may be
reasonably requested by Borrower, and pay and deliver all monies and other
personal property then held as collateral security (but excluding any monies
received by Lender in payment of the Obligations) by Lender hereunder. All such
instruments and documents of release or discharge shall be prepared and filed at
the sole cost and expense of Borrower and shall be reasonably satisfactory in
form and substance to Lender.
6. MISCELLANEOUS.
6.1 NOTICES. Except as otherwise specifically provided to the contrary
herein:
(a) Every notice or demand under this Agreement shall be in writing and may
be given or made by registered mail, return receipt requested or by
internationally recognized overnight courier service.
-22-
(b) Every notice or demand shall be sent, in the case of overnight courier
or registered mail, to Lender or to Borrower, at the following addresses, or to
such other address as Borrower or Lender may designate for itself by notice to
the other conforming to the requirements for notice set forth in this Section:
If to Borrower: First Security Bank, National Association
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: Corporate Trust Department
and
Diamond Head Associates LLC
c/o NSJ Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Manager
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
If to Lender: FINOVA Capital Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Vice President-Law
and
FINOVA Capital Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Vice President-Operations
Management/Transportation
Finance
(c) Every notice or demand shall, except so far as otherwise expressly
provided by this Agreement, be deemed to have been received in the case of an
internationally recognized overnight courier service or registered mail upon
-23-
acknowledgment of receipt or as of the date on which receipt of such notice
delivered by overnight courier or registered mail is refused or such courier or
the U.S. Postal Service advises that such letter is not deliverable at the
address set out in paragraph (b) of this Section 6.
(d) A copy of all notices sent to Lender shall be sent to ▇▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., telefax number 602/222-9725.
6.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same Agreement.
6.3 APPLICABLE LAW. THE OBLIGATIONS OF BORROWER HEREUNDER ARE TO BE
PERFORMED IN, AND THIS AGREEMENT IS EXECUTED, DELIVERED AND ACCEPTED IN, AND
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY, THE LAWS
AND DECISIONS OF THE STATE OF ARIZONA, AND BY EXECUTION HEREOF BORROWER AND
LENDER EACH AGREES THAT SUCH LAWS AND DECISIONS OF THE STATE OF ARIZONA SHALL
GOVERN THIS AGREEMENT NOTWITHSTANDING THE FACT THAT THERE MAY BE OTHER
JURISDICTIONS WHICH MAY BEAR A REASONABLE RELATIONSHIP TO THE TRANSACTIONS
CONTEMPLATED HEREBY.
6.4 JURISDICTION AND VENUE. BORROWER AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR
COURT OF ARIZONA, MARICOPA COUNTY DIVISION, OR THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF ARIZONA OR, IF LENDER INITIATES SUCH ACTION, IN
ADDITION TO THE FOREGOING COURTS, ANY COURT IN WHICH LENDER SHALL INITIATE
SUCH ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION. BORROWER HEREBY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION
OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY AGREES
THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER, AT THE ADDRESS TO
WHICH NOTICES ARE TO BE SENT PURSUANT HERETO. BORROWER WAIVES ANY CLAIM THAT
PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD BORROWER, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS
SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING
THEREOF, THEN BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR
JUDGMENT MAY BE ENTERED BY LENDER AGAINST BORROWER AS DEMANDED OR PRAYED FOR
IN SUCH SUMMONS, COM-
-24-
PLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET
FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY
LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF
ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND
BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR
ACTION.
6.5 CONSTRUCTION; CAPTIONS AND PARAGRAPH HEADINGS. If any provision of
this Agreement or of any other agreement between the parties hereto shall be
held invalid or inapplicable to any circumstance or in any jurisdiction, such
invalidity or inapplicability shall not affect any other provision hereof or of
any other agreement between the parties hereto which can be given effect without
regard to the invalid provision, nor to the same provision to the extent valid
or enforceable in any other applicable jurisdiction, nor shall any such
inapplicability to any circumstance affect the applicability of such terms to
any other or different or subsequent circumstance, all of such terms, conditions
or provisions are deemed severable. Captions and paragraph headings used herein
are for convenience only and are not part of this Agreement and shall not be
used in construing it.
6.6 WAIVER OF RIGHT TO JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE AND
AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED HEREBY WOULD BE BASED UPON DIFFICULT AND
COMPLEX ISSUES AND, THEREFORE, BORROWER AND LENDER AGREE THAT ANY LAWSUIT
ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
6.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of Borrower and shall inure to the benefit of the
successors, assigns and participants of Lender.
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IN WITNESS WHEREOF, Borrower and Lender have caused this instrument to be
duly executed as of the day and year first above written.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
BY: [ILLEGIBLE]
---------------------------------------
ITS: VICE PRESIDENT
---------------------------------------
BORROWER:
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee for the benefit of DIAMOND HEAD
ASSOCIATES LLC, a Delaware limited liability
company
BY:
---------------------------------------
ITS:
---------------------------------------
IN WITNESS WHEREOF, Borrower and Lender have caused this instrument to be
duly executed as of the day and year first above written.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
BY:
---------------------------------------
ITS:
---------------------------------------
BORROWER:
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee for the benefit of DIAMOND HEAD
ASSOCIATES LLC, a Delaware limited liability
company
BY: [ILLEGIBLE]
---------------------------------------
ITS: VICE PRESIDENT
---------------------------------------
EXHIBIT A
to
FIRST PRIORITY PURCHASE MONEY AIRCRAFT CHATTEL
MORTGAGE AND SECURITY AGREEMENT
-------------------------------------------------------------------------------
FORM OF SUPPLEMENTAL AGREEMENT
-------------------------------------------------------------------------------
THIS SUPPLEMENTAL AGREEMENT ("Agreement"), dated as of 19 ,
by and between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its
individual capacity but solely as Owner Trustee ("Borrower"), as mortgagor,
and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), as
mortgagee,
WITNESSETH:
WHEREAS, Borrower has heretofore executed and delivered to Lender a First
Priority Purchase Money Aircraft Chattel Mortgage and Security Agreement dated
as of August , 1996 (hereinafter, as at any time supplemented or amended,
called the "Original Mortgage", terms defined therein, unless otherwise defined
herein, being used herein as therein defined), covering certain Mortgaged
Property of Borrower, to secure the Obligations, as defined in the Original
Mortgage; and
WHEREAS, the Original Mortgage was recorded by the Federal A Aviation
Administration on , 1996 and assigned Conveyance Number ;
; and
WHEREAS, Borrower is the legal and beneficial owner, free and clear of all
mortgages, security interests, Liens, charges and encumbrances, other than the
Lien of the Original Mortgage and Liens permitted by the Original Mortgage, of
the flight equipment hereinbelow described, and desires to execute and deliver
this Supplemental Agreement,
NOW, THEREFORE, to secure the payment of all of the "Obligations" (as such
term is defined in the Original Mortgage, as at any time amended or
supplemented), and under any other Loan Document, and the performance of the
covenants in the Original Mortgage contained and for the purpose of specifically
subjecting such
A-1
property to, and of confirming, the Lien of the Original Mortgage, Borrower
does hereby grant, bargain, sell, transfer, convey and mortgage unto Lender, its
successors and assigns, and grants to Lender a security interest in, the
following described property, to wit:
(a) [number of airframes] airframe[s], identified as follows:
MANUFACTURER: ----------------
FAA REGISTRATION
NUMBER: ----------------
MANUFACTURER'S
MODEL NUMBER: ----------------
MANUFACTURER'S
SERIAL NUMBER: ----------------
together with all appliances, equipment and accessories thereto
belonging, by whomsoever manufactured, now owned by Borrower or hereafter
acquired by Borrower and installed in or appurtenant to said airframe (the
"Airframe");
(b) [number of engines] [manufacturer] [model number] engines, each
such engine having 750 or more rated take-off horsepower or the equivalent
thereof, identified by the following manufacturer's serial numbers..
-------------
-------------
together with all appliances, equipment and accessories thereto
belonging, by whomsoever manufactured, now owned by Borrower or hereafter
acquired by Borrower and installed in or appurtenant to said engines (any
one of the foregoing, an "Engine" and, all of the foregoing, collectively,
the "Engines");
(c) all warranties, service contracts and product agreements of any
manufacturer of, or of any maintenance or overhaul agency with respect to,
the Mortgaged Property, or any subcontractor or supplier or vendor thereof,
and any and all rights of Borrower to compel performance of the terms of
such warranties, service contracts and product agreements in respect of any
of the Mortgaged Property;
(d) all substitutions, replacements, products, proceeds (including, but
not limited to, insurance proceeds) and renewals of, and all accessions to,
all property subjected or required to be subjected to the Lien hereof and
all Property which shall hereafter become Physically attached to or
incorporated in all property subjected or required to be subjected to the
Lien hereof in
A-2
each case whether the same are now owned by Borrower or shall hereafter
be acquired by it;
(e) all records, logs, manuals and documents or other materials of any
kind relating to the condition, use, location, maintenance of or repairs or
overhauls to all or any part of the Mortgaged Property; and
(f) all right, title and interest of Borrower in, to and under any
purchase agreement whereby Borrower acquired any of the foregoing,
including, without limitation, Borrower's right, tide and interest in and
to all warranties thereunder, all monies due and to become due Borrower
thereunder (however, Lender assumes none of Borrower's obligations
thereunder) and Borrower's right to compel performance of the seller's
obligations thereunder.
TO HAVE AND TO HOLD all and singular the property aforesaid unto Lender,
its successors and assigns, as security as aforesaid and for the uses and
purposes and subject to the covenants, agreements, provisions and conditions set
forth in the Original Mortgage.
This Agreement shall be construed as supplemental to the Original Mortgage
and shall form a part thereof, and the Original Mortgage and each Supplemental
Agreement heretofore executed and delivered, which are hereby, by reference,
incorporated herein, are hereby ratified, approved and confirmed.
This Agreement may be simultaneously executed in several counterparts, each
of which shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same Supplemental Agreement.
This Agreement is intended to be and shall be deemed to be delivered by
Borrower to Lender and accepted by Lender in Phoenix, Arizona, and shall be
subject to and construed in accordance with the laws of the State of Arizona.
This Agreement shall be effective on the date hereof.
A-3
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
duly executed as of the date first above written.
LENDER:
FINOVA CAPITAL CORPORATION, a Delaware
corporation
BY:
-----------------------------------
ITS:
-----------------------------------
BORROWER:
FIRST SECURITY BANK NATIONAL ASSOCIATION, not
in its individual capacity but solely as Owner
Trustee for the benefit of DIAMOND HEAD
ASSOCIATES LLC, a Delaware limited liability
company
BY:
-----------------------------------
ITS:
-----------------------------------
A-4
EXHIBIT B
NORIDAM HUSH KIT P/N 65ND-10001-1
QTY P/N DESCRIPTION
--- --- -----------
2 ea 810530 ▇▇▇▇▇ & ▇▇▇▇▇▇▇ R1GV-Kit
1 ea 65ND-78000-1 & 2 Ejector Supressor
1 ea 65ND-78400-1 & 2 Thrust Reverser Instl.
less 65ND-78450-1 & 2
deflector door assy
1 ea 65ND-71200-1 & 3 Cowl Mod. Kit
1 ea 65ND-78300-1 & 2 Cowl Door Instl. Eng. 1 & 2
1 ea 65ND54100-1 & 2 Flap Track Fairing
1 ea 65ND54240-1 & 2 Vibr. Isolator Instl.
1 ea 65ND26100-1 Tube Assy
1 ea 65ND71220-1 Exteriror Markings Instl.
1 ea 65ND78111-7 Splitter Assy Fairing
1 ea 65ND78111-8 Splitter Assy Fairing
1 ea 65ND78111-9 Splitter Assy Fairing
1 ea 65ND78111-10 Splitter Assy Fairing
1 ea 65ND78112-9 Fairing Assy
1 ea ▇▇▇▇▇▇▇▇▇-19 Skin Assy
1 ea ▇▇▇▇▇▇▇▇▇-20 Skin Assy
1 ea ▇▇▇▇▇▇▇▇▇-21 Skin Assy
1 ea ▇▇▇▇▇▇▇▇▇-22 Skin Assy
QTY P/N DESCRIPTION
--- --- -----------
1 ea ▇▇▇▇▇▇▇▇▇-23 Skin Assy
1 ea ▇▇▇▇▇▇▇▇▇-25 Skin Assy
1 ea 65ND30100-23 Wire Harness Kit
1 ea 65ND-78101-1-4 Firewall Kit
1 ea 65ND-71100-1 EPR Tube Kit
1 ea 65ND-27100-1 & 2 Flap Kit
1 ea 65ND-54200-3 & 4 Power Plant Kit
1 ea 65ND-54300-1-2 Inlet Mod Kit
1 ea 65ND-57000-1-2 Wing Box Mod.
1 ea 65ND-57000-3-4 Wing Box Mod.
1 ea 65ND-57000-5-6 Wing Box Mod.
1 ea 65ND-57000-7-10 Wing Box Mod.
84 ea NAS6705U10 Bolts
84 ea VN4158054 Nuts
84 ea MS14183CS Washers
84 ea MS14183-5 Washers
28 ea MS21076-3 Nutplates
56 ea NAS1199-3-4 Rivets
40 ea NAS1581C3T2 Bolts
106 ea NAS1S81C4T2 Bolts
76 ea NAS1581C4T3 Bolts
LEASE SUPPLEMENT NO. 2
LEASE SUPPLEMENT NO. 2, dated September 27, 1996, between ALOHA
AIRLINES, INC., a Hawaii corporation ("LESSEE") and FIRST SECURITY BANK, N.A.,
a national banking association, not in its individual capacity but solely as
owner trustee ("LESSOR").
LESSOR and LESSEE have heretofore entered into that certain Aircraft
Lease Agreement dated as of August 13, 1996 (herein called the "Lease
Agreement" and the defined terms therein being hereinafter used with the same
meaning). The Lease Agreement provides for the execution and delivery from time
to time of Lease Supplements.
The Lease Agreement relates to the aircraft and engines described
therein, and a counterpart of the Lease Agreement, attached to and made a part
of Lease Supplement No. 1 dated August 13, 1996 to the Lease Agreement, has
been recorded by the FAA on August 26, 1996 as one document and assigned
Conveyance No. TTOO7843.
NOW THEREFORE, in consideration of the premises and other good,
valuable and sufficient consideration, LESSOR and LESSEE hereby agree as
follows:
1. LESSOR hereby delivers and leases to LESSEE under the Lease Agreement, and
LESSEE hereby accepts and leases from LESSOR under the Lease Agreement, as of
the date hereof, the following described engines (the "Replacement Engines"),
which consist of the following:
Two ▇▇▇▇▇ & Whitney Model JT8D-9A engines, bearing manufacturer's
serial nos. 667102 and 667197, respectively, (each of which engine has 750 or
more rated takeoff horsepower or the equivalent thereof).
2. LESSEE hereby confirms to LESSOR that the Replacement Engines have been
accepted by LESSEE for all purposes hereof and of the Lease Agreement, as being
in the condition that such Replacement Engines are required to be in pursuant
to the terms of the Lease Agreement. Each of the Replacement Engines shall for
all purposes hereof and of the Lease Agreement be deemed to be an "Engine" as
defined in the Lease Agreement.
3. All of the terms and provisions of the Lease Agreement are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
4. This Lease Supplement No. 2 shall be effective as of the date hereof.
RECORDED
Federal Aviation Administration
Date 11-6-96 Time 10:47 AM
--------- --------
Conveyance Number UU016278
------------
By /s/ [Illegible]
--------------------
1
IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease
Supplement No. 2 to be duly executed as of the day and year first above
written.
LESSOR
FIRST SECURITY BANK, N.A.
NATIONAL BANKING ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS OWNER TRUSTEE
By: [Illegible]
---------------------------------
Title: Vice President
LESSEE
ALOHA AIRLINES, INC.
By: _________________________________
Title: ______________________________
By: _________________________________
Title: ______________________________
2
IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease
Supplement No. 2 to be duly executed as of the day and year first above
written.
LESSOR
FIRST SECURITY BANK, N.A.
NATIONAL BANKING ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS OWNER TRUSTEE
By: _________________________________
Title: ______________________________
LESSEE
ALOHA AIRLINES, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------
Title: VICE PRESIDENT PLANNING &
DEVELOPMENT
By: [Illegible]
---------------------------------
Title: STAFF VICE PRESIDENT - FINANCE
& CONTROLLER
2
LEASE TERMINATION
The undersigned hereby certify that the Aircraft Lease Agreement
described in the attached Appendix has terminated with respect to the ▇▇▇▇▇ &
Whitney model JT8D-15 aircraft engines with manufacturer's serial numbers
708332 and 702984 and further certify that said aircraft engines are no
longer subject to the terms thereof.
Dated this 27th day of September, 1996.
LESSOR: LESSEE:
First Security Bank, National Association, Aloha Airlines, Inc.
as Owner Trustee
By: [Illegible] By:
-------------------------------- ---------------------------
Title: Vice President Title:
----------------------------- ------------------------
By:
---------------------------
Title:
------------------------
RECORDED
Federal Aviation Administration
Date 11-6-97 Time 10:34 AM
--------- --------
Conveyance Number UU016276
------------
By /s/ [Illegible]
--------------------
LEASE TERMINATION
The undersigned hereby certify that the Aircraft Lease Agreement
described in the attached Appendix has terminated with respect to the ▇▇▇▇▇ &
▇▇▇▇▇▇▇ model JT8D-15 aircraft engines with manufacturer's serial numbers
708332 and 702984 and further certify that said aircraft engines are no
longer subject to the terms thereof.
Dated this 27th day of September, 1996.
LESSOR: LESSEE:
First Security Bank, National Association, Aloha Airlines, Inc.
as Owner Trustee
By: By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------- ----------------------------
Title: Title: VICE PRESIDENT PLANNING &
----------------------------- DEVELOPMENT
-------------------------
By: [Illegible]
----------------------------
Title: STAFF VICE PRESIDENT -
& CONTROLLER
-------------------------
APPENDIX
Aircraft Lease Agreement dated as of August 13, 1996, by and
between First Security Bank, National Association, as Owner Trustee, lessor,
and Aloha Airlines, Inc. as lessee, as supplemented by Lease Supplement No. 1
dated August 13, 1996, recorded by the Federal Aviation Administration on
August 26, 1996, as Conveyance No. TT007843.
LEASE TERMINATION
The undersigned hereby certify that the Aircraft Lease Agreement
described in the attached Appendix has terminated with respect to the ▇▇▇▇▇ &
▇▇▇▇▇▇▇ model JT8D-15 aircraft engines with manufacturer's serial numbers
708332 and 702984 and further certify that said aircraft engines are no
longer subject to the terms thereof.
Dated this 27th day of September, 1996.
LESSOR: LESSEE:
First Security Bank, National Association, Aloha Airlines, Inc.
as Owner Trustee
By: /s/ [ILLEGIBLE] By:
----------------------------------- --------------------------------------
Title: Vice President Title:
----------------------------------- --------------------------------------
By:
----------------------------------- --------------------------------------
Title:
----------------------------------- --------------------------------------
RECORDED
Federal Aviation Administration
Date 11-6-97 Time 10:34 AM
--------- --------
Conveyance Number UU016276
------------
By /s/ [Illegible]
--------------------
RECORDED
Federal Aviation Administration
Date 4-16-97 Time 2:02
--------- ------
Conveyance Number XX007830
------------
By /s/ [Illegible]
--------------------
LEASE SUPPLEMENT ▇▇. ▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇. ▇, dated March 11th, 1997 between ALOHA AIRLINES,
INC., a Hawaii corporation ("LESSEE") FIRST SECURITY BANK, N.A., a national
banking association, not in its individual capacity but solely as owner trustee
("LESSOR").
LESSOR AND LESSEE have heretofore ENTERED INTO THAT CERTAIN Aircraft
Lease Agreement dated as of August 13, 1996 (herein called the "Lease
Agreement") and the defined terms therein being hereinafter used with the same
meaning). The Lease Agreement provides for the execution and delivery from time
to time of Lease Supplements.
The Lease Agreement relates to the aircraft and engines described
therein, and a counterpart of the Lease Agreement, attached to and made a part
of Lease Supplement No. 1 dated August 13, 1996 to the Lease Agreement, has been
recorded by the FAA on August 26, 1996 as one document and assigned Conveyance
No. TTOO7843 and as further supplemented by Lease Supplement No. 2 dated
September 27, 1996 recorded by the FAA on November 6, 1996 as Conveyance No.
UU016278.
NOW, THEREFORE, in consideration of the premises and other good,
valuable and sufficient consideration, LESSOR and LESSEE hereby agree as
follows:
1. LESSOR hereby delivers and leases to LESSEE under the Lease Agreement, and
LESSEE hereby accepts and leases from LESSOR under the Lease Agreement, as
of the date hereof, the following described engines (the "Replacement
Engines"), which consist of the following:
Two ▇▇▇▇▇ & Whitney Model JT8D-9A engines, bearing
manufacturer's serial nos. P707389B and P707392B,
respectively, (each of which engine has 750 or more rated
takeoff horsepower or the equivalent thereof).
2. LESSEE hereby confirms to LESSOR that the Replacement Engines have been
accepted by LESSEE for all purposes hereof and of the Lease Agreement, as
being in the condition that such Replacement Engines are required to be in
pursuant to the terms of the Lease Agreement. Each of the Replacement
Engines shall for all purposes hereof and of the Lease Agreement be deemed
to be an "Engine" as defined in the Lease Agreement.
3. All of the terms and provisions of the Lease Agreement are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
4. This Lease Supplement No. 3 shall be effective as of the date hereof.
IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease
Supplement No. 3 to be duly executed as of the day and year first above
written.
LESSOR
FIRST SECURITY BANK, N.A.
NATIONAL BANKING ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS OWNER TRUSTEE
By: [ILLEGIBLE]
---------------------------------
Title: Assistant Vice President
LESSEE
ALOHA AIRLINES, INC.
By: /s/ Authorized Signatory
---------------------------------
Title: ______________________________
By: /s/ Authorized Signatory
---------------------------------
Title: ______________________________
2
RECORDED
Federal Aviation Administration
Date 4-16-97 Time 1:31 PM
--------- --------
Conveyance Number XX007828
------------
By /s/ [Illegible]
--------------------
PARTIAL LEASE TERMINATION
The undersigned hereby certify that the Aircraft Lease Agreement
described in the attached Appendix has terminated with respect to the ▇▇▇▇▇ &
▇▇▇▇▇▇▇ model JT8D-9A aircraft engines with manufacturer's serial numbers
667102 and 667197 and further certify that said aircraft engines are no
longer subject to the terms thereof.
Dated this 11th day of March, 1997.
LESSOR: LESSEE:
First Security Bank, National Association, Aloha Airlines, Inc.
as Owner Trustee
By: [Illegible] By:
-------------------------------- ---------------------------
Title: Assistant Vice President Title:
----------------------------- ------------------------
By:
---------------------------
Title:
------------------------
PARTIAL LEASE TERMINATION
The undersigned hereby certify that the Aircraft Lease Agreement
described in the attached Appendix has terminated with respect to the ▇▇▇▇▇ &
Whitney model JT8D-9A aircraft engines with manufacturer's serial numbers
667102 and 667197 and further certify that said aircraft engines are no
longer subject to the terms thereof.
Dated this 11th day of March, 1997.
LESSOR: LESSEE:
First Security Bank, National Association, Aloha Airlines, Inc.
as Owner Trustee
By: By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------- -----------------------------
Title: Title: SR. VICE PRESIDENT FINANCE
----------------------------- & PLANNING AND CFO
--------------------------
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------
Title: VICE PRESIDENT PLANNING
& DEVELOPMENT
--------------------------
APPENDIX
Aircraft Lease Agreement dated as of August 13, 1996, by and
between First Security Bank, National Association, as Owner Trustee, lessor,
and Aloha Airlines, Inc. as lessee, as supplemented by Lease Supplement No. 1
dated August 13, 1996, recorded by the Federal Aviation Administration on
August 26, 1996, as Conveyance No. TT007843, as supplemented by Lease
Supplement No. 2 dated September 27, 1996, recorded on November 6, 1996, as
Conveyance No. UU016278.
[ ALOHA AIRLINES LOGO ]
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
November 28, 2001
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Unicapital Air Group
VIA FACSIMILE
(▇▇▇) ▇▇▇-▇▇▇▇
Re: Aircraft N818AL, man 22117 and N820AL, man 22138
Dear ▇▇. ▇▇▇▇▇▇▇:
This letter agreement sets forth our agreement to amend that certain Aircraft
Lease Agreement dated as of August 13, 1996 between ▇▇▇▇▇ Fargo Bank Northwest,
N.A. fka First Security Bank, National Association, not in its individual
capacity but solely as owner trustee, as lessor ("Lessor"), and Aloha Airlines,
Inc. as lessee ("Lessee"), with respect to one (1) Boeing Model 737-730ADV
Aircraft bearing manufacturer's serial no. 22138 and U.S. registration no.
N820AL, as amended (the "N820AL Lease") and that certain Aircraft Lease
Agreement dated as of October 9, 1996 between Lessor and Lessee, with respect to
one (1) Boeing Model 737-730 Aircraft bearing manufacturer's serial no. 22117
and U.S. registration no. N818AL, as amended (the "N818AL Lease") (collectively
the "Lease Agreements"), and the agreement of Unicapital Air Group to cause the
Lessor to so amend the Lease Agreements as soon as practicable.
1) With respect to the N820AL Lease:
[This provision has been omitted as confidential information and filed
separately with the Commission]
All capitalized terms not defined in this paragraph no. 1 shall be as set
forth in the N820AL Lease.
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇
November 28, 2001
Page 2
2) With respect to the N818AL Lease:
[This provision has been omitted as confidential information and filed
separately with the Commission]
All capitalized terms not defined in this paragraph no. 2 shall be as set
forth in the N818AL Lease.
AGREED AND ACCEPTED:
ALOHA AIRLINES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------
Its: Exec. Vice President & CFO
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
Its: Sr. Vice President
Planning & Business Development
UNICAPITAL AIR GROUP
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Its: Vice President