EXHIBIT 10.6.3
EXECUTION COPY
--------------------------------------------------------------------------------
AMENDED AND RESTATED
LEASE AGREEMENT
(N505MC)
DATED AS OF JULY 27, 2004
BETWEEN
ATLAS FREIGHTER LEASING III, INC.,
Lessor
and
ATLAS AIR, INC.,
Lessee
--------------------------------
One Boeing B747-2D3B Aircraft
U.S. Registration No. N505MC
Manufacturer's Serial No. 21251
--------------------------------
--------------------------------------------------------------------------------
THE LESSOR HAS ASSIGNED TO THE AGENT CERTAIN OF ITS RIGHT, TITLE AND INTEREST IN
AND TO THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL
PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN
ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL
EXECUTED COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE AGENT ON
THE SIGNATURE PAGE HEREOF.
TABLE OF CONTENTS
PAGE
SECTION 1. Definitions ..................................................................................2
SECTION 2. Acceptance and Lease ........................................................................23
SECTION 3. Term and Rent ...............................................................................23
(a) Term and Basic Rent ............................................................................23
(b) Adjustments to Basic Rent ......................................................................23
(c) Supplemental Rent ..............................................................................24
(d) Payments in General ............................................................................24
(e) Minimum Rent ...................................................................................25
(f) Prepayment of Rent Payments: ....................................................................25
SECTION 4. Certain Representations and Warranties ......................................................26
SECTION 5. Representations and Warranties ..............................................................26
SECTION 6. Affirmative Covenants .......................................................................32
SECTION 7. Negative Covenants ..........................................................................40
SECTION 8. Return of the Aircraft ......................................................................51
(a) Condition Upon Return ..........................................................................51
(b) Overhaul and Repair ............................................................................51
(c) Repairs ........................................................................................51
(d) Modifications ..................................................................................51
(e) Airworthiness Directives .......................................................................51
(f) Return of the Engines ...........................................................................51
(g) Deferred Maintenance ...........................................................................52
(h) Corrosion Treatment ............................................................................52
(i) Manuals .........................................................................................52
(j) Storage Upon Return .............................................................................52
(k) Severable Parts ................................................................................52
(l) Survival ........................................................................................53
(m) Deregistration and Export .......................................................................53
SECTION 9. Liens .......................................................................................53
SECTION 10. Registration, Maintenance and Operation; Possession and Subleases;
Insignia .................................................................................53
(a) Maintenance and Operation ......................................................................53
(b) Possession .....................................................................................55
(c) Insignia .......................................................................................58
-i-
PAGE
(d) Holding Out .....................................................................................58
(e) No Pledging of Credit ...........................................................................58
(f) Title ...........................................................................................58
(g) Information and Records .........................................................................59
SECTION 11. Replacement and Pooling of Parts; Alterations, Modifications and
Additions .............................................................................62
SECTION 12. Indemnities .............................................................................63
SECTION 13. Event of Loss ...........................................................................65
SECTION 14. Insurance ...............................................................................66
SECTION 15. Assignment ..............................................................................69
SECTION 16. Events of Default .......................................................................69
SECTION 17. Remedies ................................................................................73
SECTION 18. Lessee's Cooperation Concerning Certain Matters .........................................75
SECTION 19. Notices .................................................................................75
SECTION 20. Net Lease, True Lease, etc ..............................................................76
SECTION 21. Purchase Option .........................................................................77
(a) Purchase Option .................................................................................77
(b) Notice of Purchase ..............................................................................77
SECTION 22. Lessor's Right to Perform for Lessee ....................................................77
SECTION 23. Miscellaneous ...........................................................................78
SECTION 24. Security for Lessor's Obligations .......................................................79
-ii-
AMENDED AND RESTATED LEASE AGREEMENT
AMENDED AND RESTATED LEASE AGREEMENT dated as of July 27 2004,
between ATLAS FREIGHTER LEASING III, INC., a Delaware corporation (the
"LESSOR"), and ATLAS AIR, INC., a Delaware corporation (the "LESSEE").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Existing Lease Agreement, the Lessor
leased the Aircraft to the Lessee;
WHEREAS, the Lessor incurred certain Loans under the Existing
Credit Agreement in connection with the Aircraft leased pursuant to the terms of
the Existing Lease Agreement and leased other similar aircraft and spare engines
pursuant to the other Leases
WHEREAS, the Lessor, Holdings, the Lessee, the Agent and the
Lenders under the Existing Credit Agreement entered into the Forbearance
Agreement pursuant to which certain of the lenders agreed to (i) forbear from
exercising their rights and remedies under the Existing Credit Agreement while
Holdings implemented a comprehensive debt restructuring program with respect to
Holdings and certain of its affiliates in accordance with the Restructuring
Proposal Summary distributed to the Lenders on March 27, 2003 (as amended and
restated on November 24, 2003 with the consent of the Agent, but without giving
effect to any further modifications without the consent of the Agent) and (ii)
waive the application of the default interest provision under the Existing
Credit Agreement;
WHEREAS, on January 30, 2004, Holdings, the Lessee and certain
Affiliates thereof filed voluntary petitions for relief under the Bankruptcy
Code;
WHEREAS, prior to filing for relief under the Bankruptcy Code,
the Lessor, Holdings, the Lessee and certain of the Lenders renegotiated certain
of the terms of the Existing Credit Agreement and the other Existing Loan
Documents in accordance with the Forbearance Agreement and the Letter Agreement
and Term Sheet annexed thereto, dated February 2, 2004 among the Lessor, the
Lessee, Holdings, and the lenders party thereto (collectively, as amended,
modified or supplemented from time to time, the "TERM SHEET"), which
contemplated, among other things, an amendment and restatement of the Existing
Lease Agreement on terms satisfactory to the Lenders;
WHEREAS, the parties hereto desire to amend and restate the
Existing Lease Agreement in order to implement the agreements set forth in the
Plan of Reorganization, the Forbearance Agreement and the Term Sheet and to make
certain other amendments contained herein;
WHEREAS, it is the intention of the Lessor, the Agent and each
of the Lenders that such amendment and restatement of the Existing Credit
Agreement and Existing Lease Agreement shall not constitute a refinancing of the
Loans outstanding on the Restatement Effective Date and that, with respect to
the Loans outstanding prior to the Restatement Effective
Date, the Aircraft Chattel Mortgages shall continue to constitute purchase-money
security interests subject to Section 1110 of the Bankruptcy Code;
WHEREAS, the Lessor and the Lessee desire this be a net lease;
WHEREAS, the Lessor and the Lessee desire that this Lease be,
and be treated as, a lease for federal income tax purposes; and
NOW THEREFORE, in consideration of the premises and
agreements, provisions and covenants herein contained, the Lessor, the Lessee,
Holdings, the Lenders and the Agent hereby agree that the Existing Lease
Agreement shall be amended and restated in its entirety as follows:
SECTION 1. DEFINITIONS. All capitalized terms used herein
shall have the respective meanings set forth in this section.
"ACCEPTABLE ALTERNATE AIRFRAME" means a Boeing 747-200 that is in a
cargo configuration capable of immediate operation in the business of the Lessee
and has a maximum gross takeoff weight of at least 800,000 pounds and is of the
equivalent or greater residual value, condition, utility, airworthiness, and
remaining useful life and that shall have been maintained, serviced, repaired
and overhauled in substantially the same manner as required under this Lease
without in any way discriminating against such airframe.
"ACCEPTABLE ALTERNATE ENGINE" means a General Electric CF6-50E2 engine
or an engine of the same or another manufacturer of equivalent or greater
residual value, condition, utility, airworthiness, and remaining useful life and
suitable for installation and use on the Airframe; provided, that such engine
shall be of the same make, model and manufacturer as the other engines installed
on the Airframe, shall be an engine of a type then being utilized by the Lessee
on other Boeing 747-200 aircraft operated by the Lessee, and shall have been
maintained, serviced, repaired and overhauled in substantially the same manner
as required under this Lease without in any way discriminating against such
engine.
"ACMI CONTRACT" means (i) any contract entered into by the Lessee
pursuant to which the Lessee furnishes the aircraft, crew, maintenance and
insurance and customers bear all other operating expenses and (ii) any similar
contract in which the customer provides the flight crew, all substantially in
accordance with the Lessee's historical practices.
"ACMI CONTRACTED AIRCRAFT" means an aircraft acquired by the Lessee or
its Subsidiaries and intended to be used in connection with an ACMI Contract
entered into at the time of the acquisition of such aircraft (which ACMI
Contract shall not represent a renewal or replacement of a prior ACMI Contract
unless the aircraft used pursuant to such prior ACMI Contract was operated under
an operating lease and returned to the lessor) which is in effect on the date of
calculation and has a remaining term of one year or more on the date such
aircraft was intended to be used in connection with such ACMI Contract (subject
to cancellation terms, which may include the right to cancel on six months
notice). When making any calculation on a Pro Forma Basis, effect shall be given
to the acquisition of an ACMI Contracted Aircraft by
-2-
adding to the appropriate components of Consolidated Adjusted EBITDA (i) the net
projected annualized revenues from the operation of the ACMI Contracted Aircraft
under such ACMI Contract for that portion of the period for which Consolidated
Adjusted EBITDA is being calculated prior to the acquisition of such aircraft,
assuming operation for the minimum guaranteed number of block hours (less any
block hours subject to cancellation) at the minimum guaranteed rate under such
ACMI Contract less (ii) the projected annualized cash operating expenses from
such operation for the same period for which the related projected revenues are
determined in clause (i) above; provided, that such projected cash operating
expenses shall not be less on a per block hour basis than the average historical
per block hour operating expenses of the Lessee for the four full fiscal
quarters immediately preceding the date of calculation; and provided further,
that if such aircraft is of a model other than a Boeing 747 freighter, such
projected cash operating expenses shall include maintenance costs which shall
not be less than the average for such aircraft type disclosed on the most
recently available DOT Forms 41 with respect to such aircraft type or any
summary of such data as reported in a nationally recognized industry
publication. For purposes of this definition, "ACMI CONTRACT" shall include
contracts pursuant to which the Lessee does not pay any crew costs, in which
event pro forma effect shall be given as described above but excluding from the
projected annualized cash operating expenses all crew costs. Cash operating
expenses means for purposes of this definition consolidated operating expenses,
less consolidated depreciation and amortization and Consolidated Rental
Payments, to the extent included in computing consolidated operating expenses.
"ACT" means part A of subtitle VII of title 49, United State Code
"AFFILIATE" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"AFL III AIRCRAFT" means all "AFL III Aircraft" as defined in the
Credit Agreement.
"AGENT" shall mean the Administrative Agent under the Credit Agreement.
"AIRCRAFT" means the Airframe together with the four Engines, whether
or not such Engines are installed on the Airframe or any other airframe.
"AIRCRAFT CHATTEL MORTGAGES" means, in the aggregate, each security
agreement and aircraft chattel mortgage entered into in connection with the
Credit Agreement.
"AIRFRAME" means (i) the Boeing aircraft Model 747-200 (excluding
Engines or engines from time to time installed thereon) specified by the United
States Registration Number and manufacturer's serial number in the Lease
Supplement and (ii) any and all Parts that are from time to time incorporated or
installed in or attached thereto or that have been removed therefrom, but where
title to which remains vested in the Lessor in accordance with this Lease.
-3-
"AMENDED AIRCRAFT CREDIT FACILITY" means the Fifth Amended and Restated
Credit Agreement dated as of July 27, 2004, among the Lessee, as borrower, the
lenders listed therein, and Deutsche Bank Trust Company Americas, as
administrative agent, as such agreement may be amended, modified, supplemented,
refinanced and/or replaced from time to time in accordance with the terms
thereof.
"APPROVED APPRAISER" means any of the following: AvSolutions, Inc., BK
Associates, ▇▇▇▇ ▇. ▇▇▇▇ Associates, ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇, Inc., Airclaims,
Ltd., Aircraft Information Services, Inc., Simat, Helleisen & ▇▇▇▇▇▇▇, Inc.,
AVITAS, Inc. or any other independent appraiser reasonably satisfactory to the
Agent.
"APPROVED LEASE" means with respect to any AFL III Aircraft, any lease
designated as an Approved Lease by the Agent; provided that the term of any such
lease shall not exceed 36 months.
"ASSET SALE" means the sale (including any sale-leaseback transaction
other than sale-leaseback transactions permitted by subsections 7(i) and 7(j) by
Holdings or any of its Subsidiaries to any other Person of (i) any of the stock
of any of Holdings' Subsidiaries, (ii) substantially all of the assets of any
division or line of business of Holdings or any of its Subsidiaries, or (iii)
any other assets (whether tangible or intangible) of Holdings or any of its
Subsidiaries outside of the ordinary course of business excluding:
(A) any such other assets to the extent that the
aggregate value of such assets sold in any single transaction or
related series of transactions is equal to $2,500,000 or less;
(B) transactions related to aircraft engines, components,
parts or spare parts pursuant to customary pooling, exchange or similar
arrangements;
(C) asset swaps involving aircraft engines, components,
parts or spare parts (other than any engines encumbered pursuant to an
Aircraft Chattel Mortgage); provided that the assets received by
Holdings or any Subsidiary have a fair market value at least equal to
the assets transferred (provided that with respect to any asset swap or
series of related asset swaps involving assets of Holdings or any
Subsidiary with a fair market value exceeding $10,000,000, such
determination shall be made by the Board of Directors of the Lessee));
(D) asset sales involving obsolete, worn-out, excess or
redundant equipment as long as the proceeds therefrom are used to
replace or to upgrade the aircraft or the equipment installed thereon;
and
(E) transactions permitted by subsection 9.21 of the
Credit Agreement.
"AVAILABILITY" means at any time, the maximum additional amount
available to be borrowed by Holdings and its Subsidiaries as direct advances
under the any Indebtedness at such time taking into account any applicable
borrowing base or similar requirements and limitations at such time, provided
that all of the conditions to borrowing (other than the delivery of a notice of
borrowing) required pursuant to such Indebtedness are satisfied at such time.
-4-
"BACK-TO-BIRTH TRACEABILITY ISSUE" has the meaning assigned that term
in subsection 10(h)(ii).
"BANKRUPTCY CODE" means Title 11 of the United States Code, entitled
"Bankruptcy," as now and hereafter in effect, or any successor statute.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
Southern District of Florida.
"BASIC RENT" means, for the Term, the rent payable for the Aircraft
pursuant to subsection 3(a) of this Lease adjusted as provided in subsection
3(b) of this Lease.
"BASIC RENT PAYMENT DATE" means each date set forth on Exhibit B.
"BOEING" means The Boeing Company or any of its affiliates.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
that is a legal holiday under the laws of the State of New York or is a day on
which banking institutions located in either such state are authorized or
required by law or other governmental action to close.
"CAPITAL LEASE," as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"CASH" means money, currency or a credit balance in a Deposit Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within two years
after the date of purchase; (ii) marketable direct obligations (fixed and/or
floating rate) issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof,
in each case maturing within two years after the date of purchase and having, at
the time of the acquisition thereof and at all times thereafter, the highest
rating obtainable from at least two of S&P, ▇▇▇▇▇'▇, and Fitch; (iii)
Dollar-denominated marketable direct obligations (fixed and/or floating rate)
issued by any corporation or commercial bank, including medium term notes and
bonds, deposit notes and eurodollar/yankee notes and bonds, in each case
maturing within two years after the date of purchase and, at the time of
acquisition thereof and at all times thereafter, both (A) having a rating from
at least two of S&P, ▇▇▇▇▇'▇, and Fitch and (B) not having a rating of less than
A from S&P, A2 from ▇▇▇▇▇'▇, or A from Fitch; (iv) Dollar-denominated commercial
paper maturing no more than two years from the date of purchase and issued by a
corporation or commercial bank that, at the time of the acquisition of the
commercial paper and at all times thereafter, both (A) has a short-term credit
rating from at least two of S&P, ▇▇▇▇▇'▇, and Fitch and (B) does not have a
short-term credit rating of less than A-1 (or the equivalent thereof) from S&P,
P-1 (or the equivalent thereof) from ▇▇▇▇▇'▇, or F1 (or the equivalent thereof)
from Fitch; (v) Dollar-denominated certificates of deposit, bankers' acceptances
and/or time deposits maturing within two years after the date of purchase
-5-
and issued or accepted by (a) any Lender or (b) any commercial bank that, at the
time of acquisition of such security and at all times thereafter, both (A) has a
short-term credit rating from at least two of S&P, ▇▇▇▇▇'▇, and Fitch and (B)
does not have a short-term credit rating of less than A-1 (or the equivalent
thereof) from S&P, P-1 (or the equivalent thereof) from ▇▇▇▇▇'▇, or F1 (or the
equivalent thereof) from Fitch; (vi) shares of any money market mutual fund that
(a) has at least 95% of its assets invested continuously in the types of
investments referred to in clauses (i) and (ii) above, (b) has net assets of not
less than $500,000,000, and (c) has the highest rating obtainable from either of
S&P, ▇▇▇▇▇'▇, or Fitch; (vii) Dollar-denominated asset-backed securities
(excluding any mortgage products) with a stated bullet maturity of no more than
two years from the date of purchase and, at the time of acquisition thereof and
at all times thereafter, both (A) having a rating from at least two of S&P,
▇▇▇▇▇'▇, and Fitch and (B) not having a rating of less than A from S&P, A2 from
▇▇▇▇▇'▇, or A from Fitch; (viii) repurchase agreements entered into with
financial institutions satisfying the criteria set forth in clause (v) above
with terms of not more than thirty days for securities described in clauses (i)
and (ii) above and having a fair market value of at least 102% of the amount of
the repurchase obligations; and (ix) auction rate securities (auction rate debt
and money market preferreds) with terms of not more than ninety days and, at the
time of acquisition thereof and at all times thereafter, both (A) having a
rating from at least two of S&P, ▇▇▇▇▇'▇, and Fitch and (B) not having a rating
of less than A from S&P, A2 from ▇▇▇▇▇'▇, or A from Fitch.
"C-CHECK" has the meaning assigned to that term in the Lessee's FAA
approved maintenance program.
"CERTIFICATED AIR CARRIER" means a United States "air carrier" within
the meaning of the Federal Aviation Act, operating pursuant to a certificate
issued under Section 401 of such Act, or a carrier of comparable status under
any successor law or provision.
"COLLATERAL" means all of the properties and assets in which Liens are
purported to be granted by the Aircraft Chattel Mortgage.
"COMPLIANCE CERTIFICATE" means a certificate, substantially in the form
of Exhibit D annexed hereto, delivered to the Lessor, the Agent and the Lenders
by the Lessee pursuant to subsection 6(a)(4) hereunder.
"CONSOLIDATED ADJUSTED EBITDA" means, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) provisions for taxes based on income, (iv) total
depreciation expense, (v) total amortization expense, (vi) other non-cash items
reducing Consolidated Net Income less other non-cash items increasing
Consolidated Net Income, all of the foregoing as determined on a consolidated
basis for Holdings and its Subsidiaries in conformity with GAAP and (vii) for
all periods through the first anniversary of the Restatement Effective Date,
expenses incurred in connection with the Plan of Reorganization, including
professional fees and expenses, severance, key employee retention plans,
executory contract and lease rejection claims, asset write downs and any other
such costs determined by Holdings' independent accountants to be reported as
"Reorganization Costs".
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the sum of
(i) the aggregate of all expenditures (whether paid in cash or other
consideration or accrued as a liability and including that portion of Capital
Leases which is capitalized on the consolidated balance sheet of
-6-
Holdings and its Subsidiaries) by Holdings and its Subsidiaries during that
period that, in conformity with GAAP, are included in "additions to property,
plant or equipment" or comparable items reflected in the consolidated statement
of cash flows of Holdings and its Subsidiaries plus (ii) to the extent not
covered by clause (i) of this definition, the aggregate of all expenditures by
Holdings and its Subsidiaries during that period to acquire (by purchase or
otherwise) the business, property or fixed assets of any Person, or the stock or
other evidence of beneficial ownership of any Person that, as a result of such
acquisition, becomes a Subsidiary of Holdings.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum of the
amounts for such period (without duplication) of (i) Consolidated Interest
Expense for such period paid in cash, (ii) Consolidated Rental Payments for such
period paid in cash, (iii) Consolidated Capital Expenditures paid in cash for
such period (other than Consolidated Capital Expenditures funded with the
proceeds of Asset Sales pursuant to subsection 6(vii)(z) of the Amended Aircraft
Credit Facility, (iv) any Restricted Junior Payments actually made during such
period and (v) the scheduled principal amount of all amortization payments with
respect to any Indebtedness that Holdings or any of its Subsidiaries are
required to make during such period under the Amended Aircraft Facility (as
determined on the first day of such period) (assuming for this purpose that the
maximum amount of principal deferral permitted pursuant to subsection 2.4A(ii)
of the Credit Agreement shall have occurred (whether or not the conditions
thereto shall have been satisfied)).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total net
interest expense (to be computed by reducing interest expense by the amount of
interest income) (including that portion attributable to Capital Leases in
accordance with GAAP and capitalized interest) of Holdings and its Subsidiaries
on a consolidated basis with respect to all outstanding Indebtedness of Holdings
and its Subsidiaries, including, without limitation, all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements and Currency
Agreements.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or
loss) of Holdings and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with GAAP;
provided, that there shall be excluded (i) the income (or loss) of any Person
(other than a Subsidiary of Holdings) in which any other Person (other than
Holdings or any of its Subsidiaries) has a joint interest, except to the extent
of the amount of dividends or other distributions actually paid to Holdings or
any of its Subsidiaries by such Person during such period, (ii) the income (or
loss) of any Person accrued prior to the date it becomes a Subsidiary of
Holdings or is merged into or consolidated with Holdings or any of its
Subsidiaries or that Person's assets are acquired by Holdings or any of its
Subsidiaries, (iii) the income of any Subsidiary of Holdings to the extent that
the declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Subsidiary, (iv) any
after-tax gains or losses attributable to Asset Sales or returned surplus assets
of any pension plan, and (v) (to the extent not included in clauses (i) through
(iv) above) any net extraordinary gains or net non-cash extraordinary losses.
"CONSOLIDATED RENTAL PAYMENTS" means, for any period, the aggregate
amount of all rents with respect to aircraft and engines paid or payable by
Holdings and its Subsidiaries on a
-7-
consolidated basis during that period under all Operating Leases to which
Holdings or any of its Subsidiaries is a party as lessee (net of sublease income
other than income from ACMI Contracts). For the avoidance of doubt, (x) all
rental payments to the Lessor shall not be included in Consolidated Rental
Payments and (y) payments in respect of Capital Leases shall not be included in
Consolidated Rental Payments.
"CONTINGENT OBLIGATION" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof, (ii)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings, or (iii)
under Interest Rate Agreements and Currency Agreements. Contingent Obligations
shall include, without limitation, (a) the direct or indirect guaranty,
endorsement (otherwise than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (b) the obligation to make take-or-pay or
similar payments if required regardless of non-performance by any other party or
parties to an agreement, and (c) any liability of such Person for the obligation
of another through any agreement (contingent or otherwise) (X) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise) or
(Y) to maintain the solvency or any balance sheet item, level of income or
financial condition of another if, in the case of any agreement described under
subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is
as described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
"CONTINUING DIRECTORS" shall mean the directors of a Person on the
Restatement Effective Date and each other director, if such other director's
nomination for election to the Board of Directors of such Person is recommended
by a majority of the then Continuing Directors.
"CONTRACTUAL OBLIGATION," as applied to any Person, means any provision
of any Security issued by that Person or of any material indenture, mortgage,
deed of trust, deed to secure debt, contract, undertaking, agreement or other
instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject.
"CREDIT AGREEMENT" shall mean the Amended and Restated Credit
Agreement, dated as of July 27, 2004, by and among the Lessor, as borrower, the
Lenders listed therein from time to time and Deutsche Bank Trust Company
Americas, as Administrative Agent, as amended, modified, and/or supplemented
from time to time.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or
-8-
arrangement designed to protect Holdings or any of its Subsidiaries against
fluctuations in currency values.
"D-CHECK" has the meaning assigned to that term in the Lessee's FAA
approved maintenance program.
"DEFAULT" means any event that, with the giving of notice or the lapse
of time or both, would become a Lease Event of Default.
"DESIGNATED INDEBTEDNESS" means Indebtedness incurred pursuant to the
Pass Through Trust Documents, the Amended Aircraft Credit Facility, any Other
Permitted Indebtedness and any Permitted Extension Indebtedness in respect of
the foregoing.
"DISCLOSURE STATEMENT" means the Second Amended Disclosure Statement
under 11 U.S.C. ss. 1125 In Support of the Debtors' Second Amended Joint Chapter
11 Plan, dated June 8, 2004 pursuant to Section 1125 of the Bankruptcy Code
relating to the Plan of Reorganization, as approved by the Bankruptcy Court, and
as the same may be amended, modified or supplemented from accordance with the
terms hereof and thereof.
"DOMESTIC AIR CARRIER" means any United States "domestic air carrier",
as defined in Part 121 of the Federal Aviation Regulations, that is operating in
accordance with the operating certificate and appropriate operations
specifications issued under Part 121 or any successor regulation.
"DRY LEASE" has the meaning assigned to that term in subsection
7(g)(9).
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA that is, or was at any time, maintained or contributed to
by the Lessee or any of its ERISA Affiliates.
"ENGINE" means: (i) each of the four General Electric CF6-50E2 aircraft
engines listed in the initial Lease Supplement, whether or not from time to time
installed on the Airframe or any other airframe; (ii) any Acceptable Alternate
Engine that may from time to time be substituted for any of such four engines
pursuant to the terms of the Lease; and (iii) in any case, any and all Parts
that are from time to time incorporated or installed in or attached to any such
engine and any and all parts removed therefrom so long as title thereto remains
vested in the Lessor in accordance herewith. The term "Engines" means, as of any
date of determination, all Engines then leased under this Lease.
"ENVIRONMENTAL CLAIM" means any investigation, notice, claim, suit or
order, by any governmental authority or any Person, arising in connection with
any alleged or actual violation of Environmental Laws or with any Hazardous
Material, or any actual or alleged damage or harm to health, safety or the
environment.
"ENVIRONMENTAL LAWS" means any and all current or future statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
governmental authorizations, or any other requirement of governmental
authorities relating to environmental matters, including, without limitation,
those relating to any Hazardous Materials Activity.
-9-
"EQUIPMENT" means (i) thirteen Boeing 747-200 aircraft (including the
engines attached thereto) with registration numbers N505MC, N509MC, N512MC,
N517MC, N522MC, N523MC, N524MC, N526MC, N527MC, N528MC, N534MC, N808MC and
N809MC, (ii) nine General Electric CF6-50E2 engines and (iii) three General
Electric CF6-80C2 engines.
"EQUITY PROCEEDS" means the cash proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith) from
the issuance of any equity Securities of Holdings including, without limitation,
additional issuances of Holdings Common Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation
that is, or was at any time, a member of a controlled group of corporations
within the meaning of Section 414(b) of the Internal Revenue Code of which that
Person is, or was at any time, a member; (ii) any trade or business (whether or
not incorporated) that is, or was at any time, a member of a group of trades or
businesses under common control within the meaning of Section 414(c) of the
Internal Revenue Code of which that Person is, or was at any time, a member; and
(iii) any member of an affiliated service group within the meaning of Section
414(m) or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is, or was at any time, a member.
"EVENT OF DEFAULT" means an Event of Default under and as defined in
the Credit Agreement.
"EVENT OF LOSS" shall mean any of the following events with respect to
any AFL III Aircraft (whether the Airframe or an Engine of such AFL III Aircraft
or Spare Engine or both):
(A) loss of such AFL III Aircraft or Spare Engine or the
use thereof due to theft or disappearance of such AFL III Aircraft or
Spare Engine which shall result in the loss of possession thereof for a
period of 120 days (or for a shorter period ending on the date on which
there is an insurance settlement for a total loss on the basis of the
theft or disappearance of such AFL III Aircraft or Spare Engine);
(B) the destruction, damage beyond repair or rendition of
such AFL III Aircraft or Spare Engine permanently unfit for normal use
for any reason whatsoever;
(C) the condemnation, confiscation or seizure of, or
requisition of title to, or use or possession (other than use by the
United States Government if the Lessee obtains adequate compensation
from the United States Government) of such AFL III Aircraft or Spare
Engine;
(D) as a result of any rule, regulation, order or other
action by the FAA or other governmental body having jurisdiction, the
use of such AFL III Aircraft or Spare Engine in the normal course of
interstate air transportation of persons or cargo shall have been
prohibited for a period of more than nine consecutive months unless the
Lessee, prior to the expiration of such nine month period, shall have
undertaken and shall be
-10-
diligently carrying forward all steps which are necessary or desirable
to permit the normal use of such property by the Lessee or, in any
event, if such use shall have been prohibited for a period of twelve
(12) consecutive months;
(E) the operation or location of such AFL III Aircraft or
Spare Engine, while under requisition for use by the United States or
any instrumentality or agency thereof, in any area excluded from
coverage by any insurance policy in effect with respect to such AFL III
Aircraft or Spare Engine, if the Lessee shall be unable to obtain
indemnity in lieu thereof from the United States;
(F) any damage which results in an insurance settlement
with respect to such AFL III Aircraft or Spare Engine on the basis of
an actual or constructive total loss; or
(G) a divestiture of such Airframe or Spare Engine as
described in subsection 4(d)(iii), subsection 4(d)(vi), subsection
4(d)(vii) or subsection 4(d)(viii)(B) of any Aircraft Chattel Mortgage.
An Event of Loss with respect to any AFL III Aircraft shall be deemed
to have occurred if an Event of Loss occurs with respect to the
Airframe of such AFL III Aircraft.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXISTING CREDIT AGREEMENT" shall mean the Credit Agreement dated as of
April 25, 2000, by and among the Lessor, as borrower, the Lenders from time to
time party thereto and Deutsche Bank Trust Company Americas, as Administrative
Agent, as the same has been amended, modified and/or supplemented to, but not
including, the Restatement Effective Date.
"EXISTING INDEBTEDNESS" has the meaning assigned to that term in
subsection 7(a)(3).
"EXISTING LEASE AGREEMENT" that certain Lease Agreement dated as of
April 25, 2000, between the Lessor and the Lessee, supplemented by Lease
Supplement No. 1 dated as of April 25, 2000, recorded by the Federal Aviation
Administration (the "FAA") on May 24, 2000, as Conveyance No. DD018944, further
supplemented by Lease Supplement No. 2 dated as of November 13, 2000, recorded
on December 20, 2000, as Conveyance No. SS016139, amended by Amendment No. 1 to
Lease Agreement dated as of October 15, 2001, recorded January 11, 2002, as
Conveyance No. SS018007, amended by Amendment No. 2 to Lease Agreement dated as
of October 30, 2001, recorded January 9, 2002, as Conveyance No. SS018001,
amended by Amendment No. 3 to Lease Agreement dated as of December 14, 2001,
recorded March 20, 2002, as Conveyance No. TT016420, amended by Amendment No. 4
to Lease Agreement dated as of June 14, 2002, recorded August 21, 2002, as
Conveyance No. YY034495, amended by Amendment No. 5 to Lease Agreement dated as
of August 14, 2002, recorded March 4, 2003, as Conveyance No. GG029430, and
amended by Amendment No. 6 to Lease Agreement dated as of December 31, 2002,
recorded March 4, 2003, as Conveyance No. GG029431.
"EXISTING LOAN DOCUMENTS" has the meaning assigned to the term "Loan
Documents" in the Existing Credit Agreement.
-11-
"EXIT FACILITY" means the credit agreement to be entered into among
Holdings and the lenders party thereto providing financing for working capital
and other general corporate purposes, as same may be amended, modified,
supplemented, refinanced or replaced from time to time.
"FACILITIES" means any and all real property now, hereafter or
heretofore owned, leased, operated or used by the Lessee or any of its
predecessors.
"FAIR MARKET SALES VALUE" of the Airframe or any Engine or Spare Engine
shall mean the value that would be obtained in an arm's-length transaction
between an informed and willing lessee-user or buyer-user (other than a lessee
currently in possession or a used equipment dealer) under no compulsion to lease
or buy, as the case may be, and an informed and willing lessor or seller, as the
case may be, under no compulsion to lease or sell, as the same shall be
specified by agreement between the Lessor and the Lessee or, if not agreed to by
the Lessor and the Lessee within a period of 15 days after either party requests
a determination, then as specified in an appraisal prepared and delivered in New
York City by a recognized independent aircraft appraiser, mutually agreed to by
the Agent and the Lessee, or, if such appraiser cannot be agreed to within 20
days, then either party may apply to the American Arbitration Association (or
any successor organization thereto) in New York City for the appointment of an
appraiser, whose determinations shall be final and binding upon the parties
hereto. In determining Fair Market Sales Value by appraisal or otherwise, it
will be assumed that the Aircraft, Airframe or Engine is in the condition,
location and overhaul status in which it is required to be returned to the
Lessor pursuant to Section 8 of this Lease, that all modifications and
improvements shall be taken into account, that the Lessee has removed all Parts
that it is entitled to remove pursuant to Section 11 of this Lease and that the
Aircraft is not encumbered by this Lease. Except as otherwise expressly provided
in the Lease, all appraisal costs will be shared equally by the Lessor and the
Lessee.
"FEDERAL AVIATION ACT" means the Federal Aviation Act of 1958, as
amended and as recodified in ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, or any similar
legislation of the United States enacted to supersede, amend or supplement such
Act and the rules and regulations promulgated thereunder.
"FEDERAL AVIATION ADMINISTRATION" or "FAA" means the United States
Federal Aviation Administration or any successor thereto administering the
functions of the Federal Aviation Administration under the Federal Aviation Act.
"FINAL MATURITY DATE" means December 31, 2009.
"FINANCED AIRCRAFT" means all "Financed Aircraft" as defined in the
Amended Aircraft Credit Facility.
"FINANCING STATEMENTS" means, collectively, UCC-1 (and, where
appropriate, UCC-3) financing statements (a) covering the Collateral, by AFL
III, as debtor, showing the Agent as secured party, for filing in Delaware and
each other jurisdiction that, in the opinion of the Agent, is necessary to
perfect its Lien on the Collateral and (b) covering the Lease and the AFL III
Aircraft, as precautionary matter, by Lessee, as lessee, showing AFL III as
lessor and the Agent
-12-
as assignee of AFL III, for filing in Delaware and each other jurisdiction that,
in the opinion of AFL III and the Agent, is reasonably desirable to do so.
"FISCAL YEAR" means the fiscal year of the Lessee.
"FITCH" means Fitch, Inc.
"FIXED CHARGE COVERAGE RATIO" means as of any date, the ratio of (i)
the sum of (x) Consolidated Adjusted EBITDA for the period of twelve consecutive
months ending on such date (a "TEST PERIOD") and (y) Consolidated Rental
Payments for such Test Period to (ii) Consolidated Fixed Charges for such Test
Period.
"FORBEARANCE AGREEMENT" means that certain Forbearance Agreement,
Limited Waiver and Conditional Agreement to Amend the Loan Documents dated as of
July 3, 2003 among the Lessor, the Lessee, Holdings, the lenders party thereto
and the Agent (as amended, modified and/or supplemented prior to the Restatement
Effective Date).
"FOREIGN LEASED AIRCRAFT" means a leased Aircraft that is registered in
a country other than the United States during the term of the applicable
Approved Lease.
"FUNDING AND PAYMENT OFFICE" means the office of the Agent located at
▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇.
"GAAP" means, subject to the limitations on the application thereof set
forth in Section 1 hereunder, generally accepted accounting principles set forth
in opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession. Financial statements and other information required
to be delivered by Holdings or the Lessee to the Lessor, the Agent and the
Lenders pursuant to clauses (1), (2), and (3) of subsection 6(a) hereunder shall
be prepared in accordance with GAAP as in effect as of the date of such
preparation. Calculations in connection with the definitions, covenants and
other provisions of this Lease shall utilize accounting principles and policies
in effect for the preparation of financial statements of Holdings and its
subsidiaries as of December 31, 2002.
"GEAE" has the meaning assigned that term in section 10(h)(i).
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"GSS" means Global Supply Systems, Limited, an English company.
"HAZARDOUS MATERIALS" means any chemical or other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated under any law.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed, or
threatened use, storage, release, generation, treatment, remediation or
transportation of any Hazardous Material
-13-
(i) from, under, in, into or on the Facilities or surrounding property; and (ii)
caused by, or undertaken by or on behalf of, the Lessee.
"HOLDINGS" means Atlas Air Worldwide Holdings, Inc., a Delaware
corporation.
"HOLDINGS COMMON STOCK" means the common stock of Holdings.
"HOLDINGS GUARANTY" means "Holdings Guaranty" as defined in the Credit
Agreement.
"INDEBTEDNESS" means, as applied to any Person, (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the obligation in respect thereof or (b) evidenced by a note or similar
written instrument, and (v) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person. For the purposes of this Lease, Obligations under
Interest Rate Agreements and Currency Agreements constitute Contingent
Obligations and not Indebtedness.
"INDEMNIFIED LIABILITIES" has the meaning assigned to that term in
subsection 12(b) hereunder.
"INDEMNITEE" has the meaning assigned to that term in subsection 12(b)
hereunder.
"INITIAL BORROWING DATE" means the date on which the Lessor effected
its borrowing of Loans pursuant to the Credit Agreement.
"INTERCOMPANY LOANS" has the meaning assigned to that term in
subsection 7(c)(5).
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect Holdings or any of its Subsidiaries
against fluctuations in interest rates.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Holdings or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person, (ii) any direct or indirect
redemption, retirement, purchase or other acquisition for value, by any
Subsidiary of Holdings from any Person other than Holdings or any of its
Subsidiaries, of any equity Securities of such Subsidiary, or (iii) any direct
or indirect loan, advance (other than advances to employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business) or capital contribution by Holdings or any of
its Subsidiaries to any other Person (other than a wholly-owned Subsidiary of
Holdings), including all indebtedness and accounts receivable from that other
Person that are not current
-14-
assets or did not arise from sales to that other Person in the ordinary course
of business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, writedowns or write-offs with
respect to such Investment.
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided,
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"LEASE EVENT OF DEFAULT" has the meaning specified in Section 16 of
this Lease.
"LEASE SUPPLEMENT" means a Lease Supplement, substantially in the form
of Exhibit A to this Lease, to be entered into between the Lessor and the Lessee
for the purpose of leasing the Aircraft under and pursuant to the terms of the
Lease, and any subsequent Lease Supplement entered into in accordance with the
terms of the Lease.
"LEASED AIRCRAFT" means an AFL III Aircraft subject to an Approved
Lease.
"LEASES" means the Amended and Restated Lease Agreements, dated as of
April 25, 2000, between the Lessor and the Lessee, in each case as so amended
and restated, and as the same may be further amended, modified or supplemented
from time to time (including this Lease). The term "Lease" shall include any
Lease Supplement entered into pursuant to the respective Lease.
"LENDER" or "LENDERS" means the persons identified as "Lenders" and
listed on the signature pages of the Credit Agreement, together with their
successors and permitted assigns.
"LESSEE" means Atlas Air, Inc., as lessee under the Lease, and its
permitted successors and assigns.
"LESSEE 401K PLAN" has the meaning provided in subsection 5(k).
"LESSOR" means Atlas Freighter Leasing III, Inc., as Lessor under the
Lease, and its permitted successors and assigns.
"LESSOR'S LIEN" means any Lien over the Aircraft (i) arising as a
result of any act or omission of the Lessor that constitutes a breach of any of
the terms of this Lease, (ii) arising as a result of any indebtedness, liability
or other obligation arising by through or under the Lessor, including, without
limitation, any Tax, that is not indemnified against by the Lessee or (iii)
resulting from the Credit Agreement or any other Lien from time to time created
by or through the Lessor in connection with the financing of the Aircraft.
"LESSOR TAX" means (where the Lessor is the indemnitee) any Tax that
is:
(a) imposed solely as the result of activities of the Lessor in
the jurisdiction imposing the Tax that is unrelated to the
Lessor's dealings with the Lessee or the transactions
contemplated by this Lease or the operation of the Aircraft by
the Lessee; or
-15-
(b) imposed on the net income, profits or gains of the Lessor by
the United States of America or the state or political
subdivision thereof, but excluding any Tax imposed by any such
government or taxing authority of any jurisdiction if and to
the extent that such Tax results from (i) the use, operation,
presence or registration of the Aircraft, the Airframe, any
Engine or any Part in the jurisdiction imposing the Tax, or
(ii) the situs of organization, any place of business or any
activity of the Lessee or any other Person having use,
possession or custody of the Aircraft, the Airframe, any
Engine or any Part in the jurisdiction imposing the Tax; or
(c) imposed solely as the result of an event that occurs after the
expiration or other termination of this Lease and that is
unrelated to the Lessor's dealings with the Lessee or to the
transactions contemplated by this Lease.
"LIEN" means any lien, mortgage, pledge, assignment, security interest,
charge, hypothecation, preference, priority, privilege, lease or encumbrance of
any kind (including any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any security interest)
and any option, trust or other preferential arrangement having the practical
effect of any of the foregoing.
"LOAN" or "LOANS" means the term loans made under the Credit Agreement.
"LOAN DOCUMENTS" means the Credit Agreement, the promissory notes
thereunder, the Leases, the Holdings Guaranty, the Subsidiaries Guaranty, the
Aircraft Chattel Mortgages and any other security agreement entered into in
connection with the Credit Agreement.
"LOAN PARTIES" means the Lessee, Holdings and each subsidiary of
Holdings which becomes party to a Subsidiaries Guaranty.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System as in effect from time to
time.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole or (ii) the
impairment of the ability of any Loan Party to perform the Obligations, or the
impairment, as a result of actions or inaction by Holdings or the Lessee, of the
ability of Agent or Lenders to enforce the Obligations.
"MATERIAL AGREEMENT" means any or all of the Pass Through Trust
Documents, the Amended Aircraft Credit Facility, each Lease relating to 747-200s
in effect on the Restatement Effective Date, and agreements in respect of
Permitted Extension Indebtedness in respect of any of the foregoing.
"MATERIAL SUBSIDIARY" means any domestic Subsidiary of Holdings that at
any time has a consolidated net worth as of the end of its most recent fiscal
year for which financial statements are available or consolidated gross revenues
for its most recent fiscal year for which financial statements are available
which are greater than $250,000, in each case as determined in accordance with
GAAP.
-16-
"MAXIMUM CAPITAL EXPENDITURE AMOUNT" means for any period, the amount
set fourth opposite such period below:
Fiscal Year Amount
----------- ------
2004 $20,000,000
2005 $20,000,000
2006 $21,300,000
2007 $21,500,000
Each Fiscal Year $22,000,000
thereafter
"MOODY'S" means ▇▇▇▇▇'▇ Investors Service, Inc.
"MTU" means MTU Maintenance Hanover GmbH.
"1998 PASS THROUGH TRUST DOCUMENTS" means that certain Pass Through
Trust Agreement dated as of February 9, 1998 between Atlas Air, Inc. and
Wilmington Trust Company, as Trustee (the "1998 PASS THROUGH TRUST Agreement")
and any trust indenture and security agreements including any related trust
indenture and security agreement supplements which related to the equipment
notes to be held in trust pursuant to the 1998 Pass Through Trust Agreement and
all related agreements, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"1999 PASS THROUGH TRUST DOCUMENTS" means that certain Pass Through
Trust Agreement dated as of April 13, 1999 between Atlas Air, Inc. and
Wilmington Trust Company, as Trustee (the "1999 PASS THROUGH TRUST Agreement")
and any trust indenture and security agreements including any related trust
indenture and security agreement supplements which related to the equipment
notes to be held in trust pursuant to the 1999 Pass Through Trust Agreement and
all related agreements, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"OBLIGATIONS" means all obligations of the Lessor to pay all amounts
due from time to time under the Credit Agreement and the other Loan Documents to
the Agent, the Lenders or any of them, whether for principal, interest, fees,
expenses, indemnification or otherwise.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the board
(if an officer) or its president or one of its vice presidents and by its chief
financial officer or its treasurer.
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"OTHER PERMITTED INDEBTEDNESS" means Indebtedness incurred for the
purpose of financing the acquisition of aircraft or aircraft engines so long as
(i) any such Indebtedness bears interest at a rate which does not exceed 15% per
annum, (ii) such Indebtedness has a final stated
-17-
maturity later than the Final Maturity Date and (iii) the amortization and the
other terms, provisions, conditions, covenants and events of default thereof
taken as a whole shall be no more onerous or restrictive from the perspective of
Holdings and its Subsidiaries or any less favorable, from the perspective of
Lenders, than any other Designated Indebtedness.
"PART" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature other than
complete Engines, Spare Engines or engines, that are from time to time
incorporated or installed in or attached to the Airframe or any Engine, and all
such items that are subsequently removed therefrom so long as title thereto
shall vest in the Lessor in accordance with this Lease.
"PASS THROUGH TRUST DOCUMENTS" means the 1998 Pass Through Trust
Agreement, the 1999 Pass Through Trust Agreement and the 2000 Pass Through Trust
Agreement (the "PASS THROUGH TRUST AGREEMENTS") and any trust indenture and
security agreements including any related trust indenture and security agreement
supplements which related to the equipment notes to be held in trust pursuant to
the Pass Through Trust Agreements and all related agreements, as the same may be
amended, restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof and hereof.
"PAST DUE RATE" shall mean the default rate of interest as determined
from time to time in accordance with subsection 2.2E of the Credit Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, in any successor thereto.
"PERMITTED ENCUMBRANCES" means the following types of Liens (other than
any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA):
(i) Liens for taxes, assessments or governmental charges
or claims the payment of which is not, at the time, required by
subsection 6(c) hereunder;
(ii) statutory Liens of mechanics and materialmen imposed
by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith by appropriate proceedings
that do not involve any danger of the sale, forfeiture or loss of any
Collateral, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, trade contracts, performance
and return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(iv) easements, rights-of-way, restrictions, minor
defects, encroachments or irregularities in title and other similar
charges or encumbrances not interfering in any
-18-
material respect with the ordinary conduct of the business of the
Lessee or any of its Subsidiaries;
(v) any (a) interest or title of a lessor or sublessor
under any lease permitted by subsection 7(i), (b) restriction or
encumbrances that the interest or title of such lessor or sublessor may
be subject to, or (c) subordination of the interest of the lessee or
sublessee under such lease to any restriction or encumbrance referred
to in the preceding clause (b);
(vi) Liens arising from filing UCC financing statements
relating solely to leases permitted by this Lease;
(vii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(viii) the rights of others under agreements or arrangements
to the extent expressly permitted by the terms of: (I) subsections 4(d)
and 4(e) of the Aircraft Chattel Mortgages and (II) subsections 4(d)
and 4(e) of the aircraft chattel mortgages entered into in connection
with the Amended Aircraft Credit Facility;
(ix) Liens described in SCHEDULE 7(b) annexed hereto;
(x) Liens granted pursuant to the Loan Documents;
(xi) Liens arising pursuant to the Amended Aircraft Credit
Facility;
(xii) any attachment or judgment Lien not constituting a
Lease Event of Default under subsection 16(l) hereof or Section 7.8 of
the Credit Agreement;
(xiii) extensions, modifications, replacements and
refinancings of any of the foregoing, except in the case of the
foregoing clause (ix) as may be limited as set forth in Schedule 7(b);
and
(xiv) Liens (other than Liens on the Collateral) securing
the Exit Facility to the extent that the aggregate principal amount of
the Indebtedness and Contingent Obligations secured thereby does not
exceed the amount permitted under subsection 7(a)(8).
"PERMITTED EXTENSION INDEBTEDNESS" means renewals, extensions,
substitutions, refinancings or replacements (each an "EXTENSION") by Holdings or
any of its Subsidiaries of any Indebtedness (other than the Exit Facility) of
Holdings or such Subsidiary, including any such successive transactions thereby,
so long as (i) any such Indebtedness bears interest at a rate which does not
exceed 15% per annum, (ii) any such Permitted Extension Indebtedness shall be in
a principal amount that does not exceed the principal amount immediately prior
to such extension, PLUS the amount of any premium required to be paid in
connection with such extension pursuant to the terms of such Indebtedness, PLUS
the amount of expenses of Holdings or such Subsidiary reasonably incurred in
connection with such extension, (iii) in the case of any extension of
subordinated Indebtedness, such Permitted Extension Indebtedness is made
-19-
subordinate to the Obligations at least to the same extent as the Indebtedness
immediately prior to such extension, (iv) such Permitted Extension Indebtedness
has a final stated maturity later than the Final Maturity Date and (v) the
amortization and the other terms, provisions, conditions, covenants and events
of default thereof taken as a whole shall be no more onerous or restrictive from
the perspective of Holdings and its Subsidiaries or any less favorable, from the
perspective of Lenders than those contained in the Indebtedness immediately
prior to such extension.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability partnerships, limited
liability companies, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"PLAN OF REORGANIZATION" means the Joint Second Amended Plan of
Reorganization of the Debtors' relating to the Lessee, Holdings and certain of
its Subsidiaries, dated June 8, 2004, including the exhibits and schedules
thereto, as the same may be amended, modified or supplemented from time to time
in accordance with the provisions of the Bankruptcy Code and the terms thereof
and hereof.
"POLAR AIR" means Polar Air Cargo, Inc., a California corporation.
"POST EFFECTIVE DATE LEASE" has the meaning assigned to that term in
subsection 7(i).
"PROCEEDINGS" has the meaning assigned to that term in subsection
6(a)(9).
"PRO FORMA BASIS" means, with respect to compliance with any covenant
hereunder, compliance with such covenant after giving effect to any proposed
incurrence of Indebtedness (including Capital Leases) or the entering into an
Operating Lease by Holdings or any of its Subsidiaries and the application of
the proceeds thereof, the acquisition (whether by purchase, merger or otherwise)
or disposition (whether by sale, merger or otherwise) of any company, entity or
business or any asset (including any ACMI Contracted Aircraft) by Holdings or
any of its Subsidiaries or any other related action which requires compliance on
a Pro Forma Basis. In making any determination of compliance on a Pro Forma
Basis, such determination shall be performed after good faith consultation with
the Agent using the consolidated financial statements of Holdings and its
Subsidiaries which shall be reformulated as if any such incurrence of
Indebtedness or entry into such Operating Lease, as the case may be, and the
application of proceeds, acquisition, disposition or other related action had
been consummated at the beginning of the period specified in the covenant with
respect to which Pro Forma Basis compliance is required.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any facility, including the movement of any
Hazardous Material through the air, soil, surface water, groundwater or
property.
"RENT" means Basic Rent and Supplemental Rent, collectively.
-20-
"REQUISITE LENDERS" means each "Requisite Lender" as defined in the
Credit Agreement.
"RESTATEMENT EFFECTIVE DATE" means the date on which the conditions to
effectiveness set forth in subsection 3.1 of the Credit Agreement are satisfied.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Holdings now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the holders of that class, (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of stock of Holdings now
or hereafter outstanding, (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Holdings now or hereafter outstanding, and (iv)
any payment or prepayment of principal of, premium, if any, or interest on, or
redemption, purchase, retirement, defeasance (including in-substance or legal
defeasance), sinking fund or similar payment with respect to, any Designated
Indebtedness.
"RESTRUCTURING DOCUMENTS" means the Restructuring Agreements, dated
July 27, 2004, among Lessee, Wilmington Trust Company, in its capacity as
Trustee to each of the Pass Through Trust Documents and the other parties party
thereto and any other documents incorporated therein or in connection therewith.
"RETURNS" has the meaning assigned to that term in subsection 5(g).
"SEC" means the Securities and Exchange Commission.
"S-P" has the meaning assigned to that term in subsection 10(h)(ii).
"S&P" means Standard & Poor's, a division of the ▇▇▇▇▇▇-▇▇▇▇ Companies,
Inc.
"SECURITIES" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SOLVENT" means, with respect to any Person, that, as of the date of
determination, both (A) (i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person, (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction, and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due, and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers
-21-
and conveyances. For purposes of this definition, the amount of any contingent
liability at any time shall be computed as the amount that, in light of all of
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.
"SPARE ENGINES" means each "Spare Engine" as defined in the Credit
Agreement.
"SPECIFIED LEASE" has the meaning assigned to that term in subsection
7(l) hereunder.
"STIPULATED LOSS DETERMINATION DATE" means each date referenced on the
schedule of Stipulated Loss Values set forth in EXHIBIT C to this Lease.
"STIPULATED LOSS VALUE" with respect to the Aircraft shall mean, as of
any date, the amount set forth on Exhibit C opposite the Stipulated Loss
Determination Date immediately prior to such date, as such amount may be reduced
in accordance with subsection 3(f), plus all accrued and unpaid interest on the
Loans relating to the Aircraft on the date of determination.
"SUBSIDIARIES GUARANTY" has the meaning assigned to that term in the
Credit Agreement.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, association, joint venture or other business entity of which more
than 50% of the total voting power of shares of stock or other ownership
interests entitled (without regard to the occurrence of any contingency) to vote
in the election of the Person or Persons (whether directors, managers, trustees
or other Persons performing similar functions) having the power to direct or
cause the direction of the management and policies thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof. For all purposes of
this Lease other than the financial covenants set forth in subsection 7(f) and
the definitions related thereto, the Lessor shall not be considered a Subsidiary
of Holdings.
"SUBSIDIARY GUARANTOR" has the meaning assigned to that term in the
Credit Agreement.
"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations
(other than Basic Rent) that the Lessee assumes or agrees to pay to the Lessor
or others under any of the Transaction Documents, including payments of
Stipulated Loss Value and other amounts referred to in subsection 3(c) of this
Lease.
"TAX" or "TAXES" shall have the meaning assigned to that term in
subsection 12(a) hereunder.
"TECHNICAL RECORDS" shall have the meaning assigned to that term in
subsection 8(i).
"TERM" means the term for which the Aircraft is leased hereunder
pursuant to subsection 3(a) of this Lease, beginning on the Initial Borrowing
Date and ending on the Final Maturity Date, or such earlier date as this Lease
may be terminated in accordance with the terms hereof.
"TERM SHEET" shall have the meaning as assigned to that term in the
Recitals hereto.
-22-
"TRANSACTION" means, collectively, (i) the consummation of the Plan of
Reorganization, (ii) the occurrence of the Restatement Effective Date and (iii)
the payment of fees and expenses in connection with the forgoing.
"TRANSACTION DOCUMENTS" means the Amended Aircraft Credit Facility, and
bills of sale or certificates of transfer for each Aircraft and each Spare
Engine leased pursuant to the Leases (including bills of sale on AC Form
8050-2), the Leases and other Loan Documents.
"2000 PASS THROUGH TRUST DOCUMENTS" means that certain Pass Through
Trust Agreement dated as of January 28, 2000 between Atlas Air, Inc. and
Wilmington Trust Company, as Trustee (the "2000 PASS THROUGH TRUST Agreement")
and any trust indenture and security agreements including any related trust
indenture and security agreement supplements which related to the equipment
notes to be held in trust pursuant to the 2000 Pass Through Trust Agreement and
all related agreements, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the relevant jurisdiction.
"UNITED STATES CITIZEN" means a "citizen of the United States" within
the meaning of the Federal Aviation Act.
"UNRESTRICTED CASH AND CASH EQUIVALENTS" means Cash and Cash
Equivalents that are not subject to any restriction or limitation on Holding's
or any of its Subsidiaries' ability to withdraw (in the case of Cash) or sell
(in the case of Cash Equivalents).
SECTION 2. ACCEPTANCE AND LEASE. Subject to the satisfaction
or waiver of the conditions precedent contained in the Credit Agreement and the
occurrence of the Restatement Effective Date, the Lessor hereby agrees to
continue to lease to the Lessee hereunder, and the Lessee hereby agrees to
continue to accept from and after the Restatement Effective Date from the Lessor
hereunder, the Aircraft as evidenced by the execution by the Lessor and the
Lessee of a Lease Supplement leasing the Aircraft hereunder.
SECTION 3. TERM AND RENT.
(a) TERM AND BASIC RENT. The Term, which commenced on the
Initial Borrowing Date, shall end on the Final Maturity Date or such earlier
date as this Lease may be terminated in accordance with the provisions hereof.
Basic Rent shall accrue during the Term in accordance with Exhibit B hereto. The
Lessee shall pay to the Lessor on each Basic Rent Payment Date an amount of
Basic Rent specified opposite each Basic Rent Payment Date on Exhibit B hereto
as such amounts may be adjusted pursuant to Section 3 plus accrued interest on
Basic Rent previously accrued but unpaid as specified on EXHIBIT B.
(b) ADJUSTMENTS TO BASIC RENT. Basic Rent shall be
adjusted (i) upwards on each Basic Rent Payment Date by an amount, determined by
the Agent and notified to the Lessor and the Lessee prior to the Basic Rent
Payment Date, that represents the amount of interest due and payable on the
Loans relating to the Aircraft on such Basic Rent Payment Date and determined in
accordance with the Credit Agreement, and (ii) downwards on each Basic Rent
-23-
Payment Date by an amount equal to the amount of principal payments deferred
pursuant to Section 2.4(A)(ii) of the Credit Agreement (such downward adjustment
to be applied pro rata among the Leases).
(c) SUPPLEMENTAL RENT. The Lessee shall pay (or cause to
be paid) to the Lessor, or to whomsoever shall be entitled thereto, any and all
Supplemental Rent constituting Stipulated Loss Value as the same shall become
due and owing and all other amounts of Supplemental Rent within 10 days after
demand, and in the event of any failure on the part of the Lessee to pay any
Supplemental Rent when due, the Lessor shall have all rights, powers and
remedies provided for herein or by law or equity or otherwise in the case of
nonpayment of Basic Rent. The Lessee also will pay to the Lessor, or to
whomsoever shall be entitled thereto, as assignee of the Lessor, on demand, as
Supplemental Rent, (i) all amounts of interest payable by the Lessor pursuant to
subsection 2.2(C) of the Credit Agreement that (I) are payable on the Loans
relating to the Aircraft and (II) fall due on any day which is not a Basic Rent
Payment Date, (ii) interest at the Past Due Rate with respect to any part of any
installment of Basic Rent not paid when due for any period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due for
the period and, to the extent permitted by law, on interest accrued on Basic
Rent which itself was accrued and not paid to the extent that such accrued
interest was not paid when due until the same shall be paid and on any other
amounts payable hereunder that are not paid when due and (iii) all amounts
payable by the Lessor pursuant to subsections 2.6D, 2.7, 9.2 and 9.3 of the
Credit Agreement; PROVIDED, HOWEVER, that, to the extent that any Supplemental
Rent required to be paid pursuant to clause (iii) of this subsection 2(c) has
been paid by the Lessee pursuant to the terms of another Lease, then the
Lessee's obligations hereunder shall be deemed to be satisfied by the payments
made pursuant to such other Lease.
(d) PAYMENTS IN GENERAL. All payments of Rent shall be
made directly by the Lessee prior to 12:00 p.m. (New York time), to the Lessor
at its office at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
Treasurer (or such other office of the Lessor in the continental United States
or such other account as the Lessor shall direct in a notice to the Lessee at
least 10 Business Days prior to the date when such payment of Rent is due);
PROVIDED, that so long as any Obligations remain outstanding (x) all Rent in the
amount of principal and interest then owing on the Loans relating to the
Aircraft and other unpaid Obligations shall be paid directly to the Agent at the
Funding and Payment Office and (y) upon reasonable notice by the Agent to the
Lessee, all Rent shall be paid directly to the Agent at the Funding and Payment
Office and to the extent the amount of Rent paid directly to the Agent is in
excess of the amount of principal and interest on the Loans relating to the
Aircraft and other unpaid Obligations (other than principal and interest on
other Loans relating to other aircraft or other engines leased pursuant to the
other Leases and after taking into account all other payments of rent pursuant
to the other Leases on such date), then such excess amounts shall be paid by the
Agent to the Lessor at its above-referenced office within 5 Business Days.
Notwithstanding anything to the contrary contained herein, if
any date on which a payment of Rent becomes due and payable is not a Business
Day, then such payment shall be made on the next succeeding Business Day;
PROVIDED, HOWEVER, that if any date on which a payment of Rent becomes due is
not a Business Day and is a day of the month after which no further Business Day
occurs in such month, then the payment of Rent shall be made on the next
preced-
-24-
ing Business Day. No interest shall accrue on the amount of any payment made on
the Business Day next succeeding the regularly scheduled Basic Rent Payment
Date, if such payment is made on such next succeeding Business Day because the
original date of payment was not a Business Day (it being understood that the
amount of Basic Rent includes Rent for such day).
(e) MINIMUM RENT. Anything herein to the contrary
notwithstanding,
(i) each installment of Basic Rent, whether or not such
installment has been adjusted pursuant to subsection 3(b), together
with all prior Basic Rent due and payable on such date and all accrued
interest thereon shall be, when added to the amount of basic rent
required to be paid under the other Leases, under all circumstances and
in any event, in an amount at least sufficient for the Lessor to pay in
full principal and interest on the Loans relating to the Aircraft
required to be paid by the Lessor on or within five Business Days of
the due date of such installment of Basic Rent; and
(ii) payments of Stipulated Loss Value shall be, under any
circumstances and in any event, in an amount that (when taken together
with any other Basic Rent due and payable in connection therewith) is
at least equal to, as of the date of payment, the sum of the aggregate
unpaid principal of and accrued interest on the Loans relating to the
Aircraft and all other unpaid Obligations of the Lessor (other than
principal and interest on Loans relating to other aircraft or spare
engines and after taking into account all other payments of Stipulated
Loss Value pursuant to the other Leases on such date).
(f) PREPAYMENT OF RENT PAYMENTS:
(i) In the event that the Lessor is at any time required
to repay Loans relating to the Aircraft pursuant to subsection 2.4B(ii)
of the Credit Agreement, the Lessor shall notify the Lessee of such
required prepayment and the Lessee shall immediately prepay an amount
of Basic Rent equal to the amount of such required prepayment less any
required payments of the Loans relating to the Aircraft actually made
by the Lessor from Insurance Proceeds or Condemnation Proceeds (as each
such term is defined in the Credit Agreement) received directly by the
Lessor.
(ii) The Lessee shall also be permitted to prepay Basic
Rent voluntarily at any time and from time to time, without premium or
penalty, upon not less than three Business Days' prior written or
telephonic notice to the Lessor and the Agent.
(iii) In the event of any prepayment pursuant to this
subsection 3(f), the schedules of Basic Rent and Stipulated Loss Value
shall be adjusted so as to preserve the after tax yield and after tax
cash flows of the Lessor and, to the extent consistent therewith, to
minimize the net present value of Basic Rent payments. All such
computations shall be made on the basis of the same assumptions and the
method of computations employed in the original calculations of Basic
Rent and Stipulated Loss Values (except to the extent that such
assumptions have been changed as a result of such prepayment or any
prior such adjustment). At the Lessee's written request, independent
public accountants mutually selected by the Lessor and the Lessee shall
confirm the required adjustments. The final determination of any
adjustment hereunder shall be set forth in amendments to this Lease,
executed and delivered by the Lessor, the Lessee and
-25-
consented to by the Agent. The reasonable fees, costs and expenses of
the verifying accounting firm shall be paid by the Lessee.
Anything contained in the foregoing to the contrary
notwithstanding, after giving effect to the foregoing adjustments, the
revised Basic Rent and Stipulated Loss Values shall permit the Lessee
to comply with subsection 3(e) hereof.
SECTION 4. CERTAIN REPRESENTATIONS AND WARRANTIES. THE LESSEE
ACKNOWLEDGES AND AGREES THAT, AS BETWEEN THE LESSOR AND THE LESSEE (A) THE
AIRFRAME AND EACH ENGINE ARE OF A SIZE, DESIGN, CAPACITY AND MANUFACTURE
SELECTED BY AND ACCEPTABLE TO THE LESSEE AND THE LESSEE TAKES THE SAME "AS IS,"
(B) THE LESSEE IS SATISFIED THAT THE AIRFRAME AND EACH ENGINE ARE SUITABLE FOR
ITS PURPOSES, (C) THE LESSOR IS NOT A MANUFACTURER OR A DEALER IN PROPERTY OF
SUCH KIND, AND (D) NEITHER THE LESSOR NOR THE AGENT NOR ANY LENDER MAKES, HAS
MADE OR SHALL BE DEEMED TO HAVE MADE, AND EACH WILL BE DEEMED TO HAVE EXPRESSLY
DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE,
AIRWORTHINESS, VALUE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS
FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE
ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE
ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER
PROPRIETARY RIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN
TORT, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED,
WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that the Lessor
covenants that it will not, through its own actions or inactions, in such
capacity, interfere in the Lessee's quiet enjoyment of the Aircraft unless this
Lease shall have been declared or deemed to have been declared in default
pursuant to Section 17 hereof. None of the provisions of this Section 4 or any
other provision of this Lease shall be deemed to amend, modify or otherwise
affect the representations, warranties or other obligations (express or implied)
of any manufacturer, any affiliate thereof, any subcontractor or supplier of any
manufacturer or any affiliate thereof, with respect to the Airframe, Engines or
any Parts, or to release the manufacturer, any affiliate thereof, or any such
subcontractor or supplier from any such representation, warranty or obligation.
Unless a Default or Lease Event of Default shall have occurred and be
continuing, the Lessor agrees to make available to the Lessee such rights as the
Lessor may have under any warranty with respect to the Aircraft made by the
manufacturer or any affiliate thereof or any of its subcontractors or suppliers
and any other claims against the manufacturer or any affiliate thereof, or any
such subcontractor or supplier with respect to the Aircraft, all pursuant to and
in accordance with the terms of any applicable purchase agreements or warranty
agreements.
SECTION 5. REPRESENTATIONS AND WARRANTIES. In order to induce
the Lessor to enter into this Lease, and the Agent and the Lenders to continue
Loans under the Credit Agreement, Holdings and the Lessee each represent and
warrant as to itself and to its Subsidiaries to the Lessor, the Agent and each
Lender, on the Restatement Effective Date, that the following statements are
true, correct and complete:
-26-
(a) ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.
(i) ORGANIZATION AND POWERS. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and each Loan Party has all requisite corporate power and authority to
own and operate its respective properties, to carry on its business as now
conducted and as proposed to be conducted, to enter into this Lease and the Loan
Documents, and to carry out the transactions contemplated hereby and thereby.
(ii) QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified
to do business and in good standing in every jurisdiction where its assets are
located and wherever necessary to carry out its business and operations, except
in jurisdictions where the failure to be so qualified or in good standing has
not had and will not have a Material Adverse Effect. The Lessee is a "citizen of
the United States" within the meaning of the Federal Aviation Act (a "UNITED
STATES CITIZEN") and holds an air carrier operating certificate under the
Federal Aviation Act for aircraft capable of carrying 10 or more individuals or
6,000 pounds or more of cargo.
(iii) SUBSIDIARIES. All of the Subsidiaries of Holdings as of the
Restatement Effective Date are identified in Schedule 5(a)(iii) annexed hereto.
The capital stock of each of the Subsidiaries of Holdings identified in Schedule
5(a)(iii) annexed hereto (as so supplemented) is duly authorized, validly
issued, fully paid and non-assessable and none of such capital stock constitutes
Margin Stock. Each of the Subsidiaries of Holdings identified in Schedule
5(a)(iii) annexed hereto (as so supplemented) is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation set forth therein, has all requisite corporate
power and authority to own and operate its properties and to carry on its
business as now conducted and as proposed to be conducted, and is qualified to
do business and in good standing in every jurisdiction where its assets are
located and wherever necessary to carry out its business and operations, in each
case except where failure to be so qualified or in good standing or a lack of
such corporate power and authority has not had and will not have a Material
Adverse Effect. SCHEDULE 5(a)(iii) annexed hereto (as so supplemented) correctly
sets forth the ownership interest of Holdings and each of its Subsidiaries in
each of the Subsidiaries of Holdings identified therein.
(iv) COLLATERAL DOCUMENTS. The security interests created in favor
of Agent under the Aircraft Chattel Mortgage have at all times from and after
the Initial Borrowing Date constituted and will continue to constitute, as
security for the obligations purported to be secured thereby, a legal, valid and
enforceable security interest in and Lien on all of the Collateral referred to
therein in favor of Agent for the benefit of the Lenders, perfected and prior to
the rights of all third persons in accordance with the requirements of the
applicable Aircraft Chattel Mortgage including, without limitation, all Liens
and security interests in the Cash proceeds (or in the indubitable equivalent
thereof) of the administrative priority claim in the amount, if any, required to
cure a monetary default (as described in Bankruptcy Code Section 1110(a)(2)(B)),
provided under the Stipulation Providing for Section 1110(b) Extension Regarding
Intercompany Sublease N505MC approved by order of the Bankruptcy Court dated
April 22, 2004. Each Loan Party has good and marketable title to its respective
Collateral, and all such Collateral is free and clear of all Liens except for
Liens permitted by subsection 7(b). No consents, filings or recordings are
required in order to perfect (or maintain the perfection or priority of) the
security interests purported to be created by any of the Collateral Documents,
other than such as have been
-27-
obtained and which remain in full force and effect and UCC financing statements
to be filed, or delivered to Agent for filing, on the Restatement Effective Date
and periodic UCC continuation filings or as is specifically otherwise permitted
by the terms of any applicable Collateral Document.
(b) AUTHORIZATION, ETC.
(i) AUTHORIZATION. The execution, delivery and performance of this
Lease and the Loan Documents have been duly authorized by all necessary
corporate action on the part of each Loan Party.
(ii) NO CONFLICT. The execution, delivery and performance by the
Loan Parties that are party to this Lease and the Loan Documents and the
consummation of the transactions contemplated by the Loan Documents do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to Holdings or any of its Subsidiaries, the Certificate or
Articles of Incorporation or Bylaws of Holdings or any of its Subsidiaries or
any order, judgment or decree of any court or other agency of government binding
on Holdings or any of its Subsidiaries, (ii) conflict with in any material
respect, result in a material breach of or constitute (with due notice or lapse
of time or both) a material default under any Contractual Obligation of Holdings
or any of its Subsidiaries, (iii) result in or require the creation or
imposition of any Lien upon any of the properties or assets of Holdings or any
of its Subsidiaries (other than any Liens created under this Lease or any of the
Loan Documents in favor of Agent on behalf of Lenders), or (iv) require any
approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of Holdings or any of its Subsidiaries, except for such
approvals or consents which will be obtained on or before the Restatement
Effective Date and disclosed in writing to Lenders.
(iii) GOVERNMENTAL CONSENTS. The execution, delivery and performance
by the Loan Parties of this Lease and the other Loan Documents and the
consummation of the transactions contemplated by this Lease and the other Loan
Documents do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body which has not been obtained or made on
or prior to the date required to be obtained or made.
(iv) BINDING OBLIGATION. Each of this Lease and the other Loan
Documents has been duly executed and delivered by each of the Loan Parties party
thereto and is the legally valid and binding obligation of each such Loan Party,
enforceable against such Loan Party in accordance with its respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
(c) FINANCIAL CONDITION.
Holdings has heretofore delivered to the Lenders, at the Lenders'
request, the following financial statements and information: (i) the audited
consolidated balance sheet of Holdings and its Subsidiaries as at December 31,
2002, and the related consolidated statements of income, stockholders' equity
and cash flows of Holdings and its Subsidiaries for the Fiscal Year then ended
and (ii) the unaudited consolidated balance sheets of Holdings and its
Subsidiaries as at
-28-
March 31, 2004, and the related consolidated statements of income, stockholders'
equity and cash flows of Holdings and its Subsidiaries for the fiscal quarter
then ended. All such statements were prepared in conformity with GAAP and fairly
present the financial position (on a consolidated basis) of the entities
described in such financial statements as at the respective dates thereof and
the results of operations and cash flows (on a consolidated basis) of the
entities described therein for each of the periods then ended, subject, in the
case of any such unaudited financial statements, to changes resulting from audit
year-end adjustments. Neither Holdings nor any of its Subsidiaries has (and,
will not following the Restatement Effective Date, have) any Contingent
Obligation, contingent liability or liability for taxes, long-term lease or
unusual forward or long-term commitment that is not reflected in the foregoing
financial statements or the notes thereto and which in any such case is material
in relation to the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Holdings, the Lessee or of Holdings and
its Subsidiaries taken as a whole.
(d) NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.
Except as otherwise disclosed in the Disclosure Statement or Holdings'
filings with the SEC delivered prior to the execution and delivery of the Credit
Agreement, since December 31, 2003, (i) no event or change has occurred that has
caused or evidences, either in any case or in the aggregate, a Material Adverse
Effect and (ii) neither Holdings nor any of its Subsidiaries has directly or
indirectly declared, ordered, paid or made, or set apart any sum or property
for, any Restricted Junior Payment or agreed to do so except as permitted by
subsection 7(e).
(e) TITLE TO PROPERTIES, LIENS.
(i) Holdings and its Subsidiaries have (i) good, sufficient and
legal title to (in the case of fee interests in real property), (ii) valid
leasehold interests in (in the case of leasehold interests in real or personal
property), or (iii) good title to (in the case of all other personal property),
all of the properties and assets reflected in the financial statements referred
to in subsection 5(c), in each case except for assets disposed of since the date
of such financial statements in the ordinary course of business or as otherwise
permitted under subsection 7(g). Except as permitted by this Lease, all such
properties and assets are free and clear of Liens.
(ii) Each AFL III Aircraft operated in the United States has a
current and valid airworthiness certificate issued by the FAA pursuant to the
Federal Aviation Act in effect and is in such condition as may be necessary to
enable the airworthiness certificate to be maintained in good standing. Each
Engine has a rated takeoff horsepower greater than 750 horsepower, or the
equivalent of such horsepower. Each AFL III Aircraft operated in the United
States is registered with the FAA in the name of the Lessee, and the Lessee has
authority to operate such AFL III Aircraft. The Lessee has good title to such
AFL III Aircraft, free and clear of all Liens other than Liens permitted by
subsection 7(b) hereunder.
(f) LITIGATION, ADVERSE FACTS.
Except as otherwise disclosed in the Disclosure Statement or Holdings'
filings with the SEC delivered prior to the execution and delivery of the Credit
Agreement by the Lenders, there are no actions, suits, proceedings, arbitrations
or governmental investigations (whether or not purportedly on behalf of Holdings
or any of its Subsidiaries) at law or in equity or before or by
-▇▇-
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, pending or, to
the knowledge of Holdings, threatened against or affecting Holdings or any of
its Subsidiaries or any property of Holdings or any of its Subsidiaries that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. Neither Holdings nor any of its Subsidiaries is (i) in
violation of any applicable laws that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect or (ii) subject to
or in default with respect to any final judgments, writs, injunctions, decrees,
rules or regulations of any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.
(g) PAYMENT OF TAXES.
Except to the extent permitted by subsection 6(c), all returns,
statements, forms and reports for taxes (the "RETURNS") of Holdings and its
Subsidiaries required to be filed by any of them have been timely filed with the
appropriate taxing authority, and all taxes, assessments, fees and other
governmental charges upon Holdings and its Subsidiaries and upon their
respective properties, assets, income, businesses and franchises which are due
and payable have been paid when due and payable. Holdings does not know of any
proposed tax assessment against Holdings or any of its Subsidiaries which is not
being actively contested by Holdings or such Subsidiary in good faith and by
appropriate proceedings; provided that such reserves or other appropriate
provisions, if any, for liabilities for taxes as shall be required in conformity
with GAAP shall have been made or provided in the financial statements of
Holdings. Except to extend statute of limitations in various jurisdictions for
audit purposes, there are no agreements with respect to taxes between Holdings
and any tax agency or authority. Except as set forth in Schedule 5(g), there is
no action, suit, proceeding, investigation, audit, or claim now pending or, to
the best knowledge of Holdings or any of its Subsidiaries, threatened by any
authority regarding any Taxes relating to Holdings or any of its Subsidiaries.
(h) PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.
(i) Neither Holdings nor any of its Subsidiaries is in default in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not have a Material Adverse Effect.
(ii) Neither Holdings nor any of its Subsidiaries is a party to or
is otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect.
(i) GOVERNMENTAL REGULATION.
Neither Holdings nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation
-30-
which may limit its ability to incur Indebtedness or which may otherwise render
all or any portion of the Obligations unenforceable.
(j) SECURITIES ACTIVITIES.
Neither Holdings nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock.
(k) EMPLOYEE BENEFIT PLANS.
The Lessee maintains a qualified retirement plan under Section 401(k)
of the Internal Revenue Code (the "LESSEE 401(K) PLAN"). The Lessee's 401(k)
Plan has no unfunded liabilities in excess of $10,000,000, and the Lessee is in
compliance in all material respects with all applicable provisions and
requirements of ERISA and the regulations and published interpretations
thereunder with respect to each Employee Benefit Plan and has performed all its
obligations under such Employee Benefit Plan in all material respects. The
Lessee has no Employee Benefit Plans, other than Lessee's 401(k) Plan and the
plan described in subsection 7(b)(iv). The Lessee has no ERISA Affiliates that
sponsor, maintain, contribute to or are liable with respect to any Employee
Benefit Plans.
(l) CERTAIN FEES.
No broker's or finder's fee or commission will be payable with respect
to this Lease or any of the transactions contemplated hereby, and Holdings and
the Lessee hereby indemnify the Lenders against, and agrees that it will hold
the Lenders harmless from, any claim, demand or liability for any such broker's
or finder's fees alleged to have been incurred in connection herewith or
therewith and any expenses (including reasonable fees, expenses and
disbursements of counsel) arising in connection with any such claim, demand or
liability.
(m) ENVIRONMENTAL PROTECTION.
(i) All Facilities and operations of Holdings and its Subsidiaries are,
and have been to the best of Holdings' and Lessee's knowledge, in compliance in
all material respects with all Environmental Laws.
(ii) Except as otherwise disclosed in the Disclosure Statement or
Holdings' filings with the SEC made prior to the execution and delivery of the
Credit Agreement by the Lenders, there are no, and have been no, conditions,
occurrences, or Hazardous Materials Activity (a) arising at any Facilities or at
any other location or (b) arising in connection with the operations of Holdings
and its Subsidiaries (including the transportation of Hazardous Materials in
accordance with applicable regulations), which conditions, occurrences or
Hazardous Materials Activity could reasonably be expected to form the basis of
an Environmental Claim against Holdings or any of its Subsidiaries and which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(iii) To the best of Holdings' knowledge, there are no pending or
threatened Environmental Claims against Holdings or any of its Subsidiaries, and
neither Holdings or any of
-31-
its Subsidiaries has received any notices, inquiries, or requests for
information with respect to any Environmental Claims which, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
(n) EMPLOYEE MATTERS.
There is no strike or work stoppage in existence or threatened
involving Holdings or any of its Subsidiaries that could reasonably be expected
to have a Material Adverse Effect.
(o) SOLVENCY.
Holdings and each Loan Party is Solvent.
(p) DISCLOSURE.
No representation or warranty of Holdings or any of its Subsidiaries
contained in this Lease or any Loan Document or in any other document,
certificate or written statement furnished to Lenders by or on behalf of
Holdings or any of its Subsidiaries for use in connection with the transactions
contemplated by this Lease contains any untrue statement of a material fact or
omits to state a material fact (known to Holdings or such Subsidiary, in the
case of any document not furnished by Holdings or such Subsidiary) necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances in which the same were made. Any projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by Holdings to be reasonable at the time
made, it being recognized by Lenders that such projections as to future events
are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ from the projected results.
There are no facts known (or which should upon the reasonable exercise of
diligence be known) to Holdings (other than matters of a general economic
nature) that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect and that have not been disclosed herein or
in such other documents, certificates and statements furnished to Lenders for
use in connection with the transactions contemplated hereby.
(q) REGISTRATION AND FILING; CHIEF EXECUTIVE OFFICE.
Except for (a) the registration of the AFL III Aircraft with the FAA
pursuant to the Act in the name of AFL III, (b) the filing for recordation (and
recordation) of the Lease, Lease Supplements and the Aircraft Chattel Mortgages,
(c) the filing of the Financing Statements (and continuation statements relating
thereto at periodic intervals), (d) the taking of possession and retention by
Agent of the original counterparts of the Leases, Lease Supplements and Aircraft
Chattel Mortgages and (e) the affixation of the plates, disks or other markings
referred to in Section 10(c) hereof, no further action, including any filing or
recording of any document (including any financing statement in respect thereof
under Article 9 of the UCC) is necessary in order to establish and perfect the
right, title or interest of AFL III, and the Agent's security interest, in the
AFL III Aircraft and the Lease, as against Lessee and any other Person, in each
case, in any applicable jurisdictions.
SECTION 6. AFFIRMATIVE COVENANTS. Holdings and Lessee each covenant and
agree that, so long as any amounts under this Lease remain unpaid, Holdings and
Lessee shall
-32-
perform, and shall cause each of their respective Subsidiaries to perform, all
covenants in this Section 6.
(a) FINANCIAL STATEMENTS AND OTHER REPORTS.
Holdings will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Holdings will deliver to Agent:
(1) MONTHLY FINANCIAL REPORTS: as soon as available and in any
event within 30 days after the end of each calendar month, monthly
financial reports that contain revenue, block hours, debt, cash
(including a thirteen week rolling cash flow report) and investments as
at the end of such calendar month, and setting forth in each case
(except with respect to the rolling cash flow report and for monthly
reports delivered prior to the delivery of audited financial statements
for the Fiscal Year ending December 31, 2003) in comparative form the
corresponding figures for the corresponding periods of the previous
Fiscal Year, if applicable, in reasonable detail, together with a
certificate signed by the chief financial officer or treasurer of
Holdings that, to the best of such officer's knowledge as of the date
of delivery of such certificate, the reports contain true and correct
information for the period indicated;
(2) QUARTERLY FINANCIALS: as soon as available and in any
event within 45 days after the end of each of the first three fiscal
quarters of each Fiscal Year, (a) the consolidated balance sheet of
Holdings and its Subsidiaries as at the end of such fiscal quarter and
the related consolidated statement of income, stockholders' equity and
cash flows of Holdings and its Subsidiaries for such fiscal quarter and
for the period from the beginning of the then current Fiscal Year to
the end of such fiscal quarter, setting forth in each case for the
fiscal quarters subsequent to the completion of the audited financial
statements for the Fiscal Year ending December 31, 2003 in comparative
form the corresponding figures for the corresponding periods of the
previous Fiscal Year, all in reasonable detail and certified by the
chief financial officer of Holdings that they fairly present the
financial condition of Holdings and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for
the periods indicated, subject to changes resulting from audit and
year-end adjustments, and (b) after the filing of Holdings' first 10-Q
following the Restatement Effective Date, a narrative report describing
the operations of Holdings and its Subsidiaries in the form prepared
for presentation to senior management for such fiscal quarter and for
the period from the beginning of the then current Fiscal Year to the
end of such fiscal quarter, provided that delivery of Holdings' 10-Q
for such fiscal quarter shall be deemed to satisfy the requirements of
this subsection 6(a)(2);
(3) YEAR-END FINANCIALS: as soon as available and in any event
within 90 days (or in the case of Fiscal Year ending December 31, 2004,
120 days) after the end of each Fiscal Year, (a) the consolidated
balance sheet of Holdings and its Subsidiaries as at the end of such
Fiscal Year and the related consolidated statement of income,
stockholders' equity and cash flows of Holdings and its Subsidiaries
for such Fiscal Year, setting forth in each case in comparative form
the corresponding figures for the previous Fiscal Year, all in
reasonable detail and certified by the chief financial officer of
-33-
Holdings that they fairly present the financial condition of Holdings
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, (b) a
narrative report describing the operations of Holdings and its
Subsidiaries in the form prepared for presentation to senior management
for such Fiscal Year, and (c) in the case of such consolidated
financial statements, a report thereon of Ernst & Young LLP or other
independent certified public accountants of recognized national
standing selected by Holdings and satisfactory to Agent, which report
(x) for Fiscal Year 2005 and each subsequent Fiscal Year thereafter
shall express no doubts about the ability of Holdings and its
Subsidiaries to continue as a going concern, (y) in all cases shall be
unqualified as to scope of audit, and (z) shall state that such
consolidated financial statements fairly present the consolidated
financial position of Holdings and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for
the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in such
financial statements) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards, provided that
delivery of Holdings' Form 8-K or 10-K for such Fiscal Year shall be
deemed to satisfy the requirements of this subsection 6(a)(3);
(4) OFFICERS' AND COMPLIANCE CERTIFICATES: together with each
delivery of financial statements of Holdings and its Subsidiaries
pursuant to subdivisions (2) and (3) above after the Restatement
Effective Date, (a) an Officers' Certificate of Holdings stating that
the signers have reviewed the terms of this Lease and have made, or
caused to be made under their supervision, a review in reasonable
detail of the transactions and condition of Holdings and its
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during
or at the end of such accounting period, and that the signers do not
have knowledge of the existence as at the date of such Officers'
Certificate, of any condition or event that constitutes a Default or
Lease Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what
action Holdings has taken, is taking and proposes to take with respect
thereto; and (b) a Compliance Certificate demonstrating in reasonable
detail compliance during and at the end of the applicable quarterly and
annual accounting periods with the restrictions contained in Section 7;
(5) RECONCILIATION STATEMENTS: if, as a result of any change
in accounting principles and policies from those used in the
preparation of the audited financial statements referred to in
subsection 5(c), the consolidated financial statements of Holdings and
its Subsidiaries delivered pursuant to subdivisions (2) or (3) of this
subsection 6(a) will differ in any material respect from the
consolidated financial statements that would have been delivered
pursuant to such subdivisions had no such change in accounting
principles and policies been made, then (a) together with the first
delivery of financial statements pursuant to subdivision (2) or (3) of
this subsection 6(a) following such change, consolidated financial
statements of Holdings and its Subsidiaries for (y) the current Fiscal
Year to the effective date of such change and (z) the two full Fiscal
Years immediately preceding the Fiscal Year in which such change is
made, in each case prepared on a pro forma basis as if such change had
been in effect during such
-34-
periods, and (b) together with each delivery of financial statements
pursuant to subdivision (2) or (3) of this subsection 6(a) following
such change, a written statement of the chief accounting officer or
chief financial officer of Holdings setting forth the differences which
would have resulted if such financial statements had been prepared
without giving effect to such change;
(6) ACCOUNTANTS' REPORTS: promptly upon receipt thereof copies
of any comment letter submitted by such accountants to management in
connection with their annual audit or a special audit;
(7) SEC FILINGS AND PRESS RELEASES: promptly upon their
becoming available, copies of (a) all financial statements, reports,
notices and proxy statements sent or made available generally by
Holdings to its security holders, (b) all regular and periodic reports
and all registration statements (other than on Form S-8 or a similar
form) and prospectuses, if any, filed by Holdings or any of its
Subsidiaries with any securities exchange or with the SEC or any
governmental or private regulatory authority, and (c) all press
releases made available generally by Holdings or any of its
Subsidiaries to the public concerning material developments in the
business of Holdings or any of its Subsidiaries, it being understood
and agreed that the Lessee shall be deemed to have delivered to the
Agent the documents required by this subsection 6(a)(9) by posting such
documents on the Lessee's website;
(8) LEASE EVENTS OF DEFAULT, ETC.: promptly upon any officer
of Holdings or the Lessee obtaining knowledge (a) of any condition or
event that constitutes a Default or Lease Event of Default, or becoming
aware that any Lender has given notice (other than to the Agent) or
taken affirmative action with respect to a claimed Event of Default,
(b) that any Person has given any notice to Holdings or any of its
Subsidiaries or taken any other action with respect to a claimed
default or event or condition of the type referred to in subsection
16(1), (c) of any condition or event that would be required to be
disclosed in a current report filed by Holdings with the SEC on Form
8-K (Items 2.01, and 5.01 of such Form as in effect on the date
hereof), or (d) of the occurrence of any event or change that has
caused or evidences, either in any case or in the aggregate, a Material
Adverse Effect, an Officers' Certificate specifying the nature and
period of existence of such condition, event or change, or specifying
the notice given or action taken by any such Person and the nature of
such claimed Lease Event of Default, Default, default, event or
condition, and what action Holdings has taken, is taking and proposes
to take with respect thereto;
(9) LITIGATION OR OTHER PROCEEDINGS: promptly upon any officer
of Holdings obtaining knowledge of (X) the institution of, or
non-frivolous threat of, any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration against or affecting Holdings or any of its Subsidiaries or
any property of Holdings or any of its Subsidiaries (collectively,
"PROCEEDINGS") not previously disclosed in writing by Holdings to the
Lenders or (Y) any material development in any Proceeding that, in any
case:
(x) if adversely determined, has a reasonable
possibility of giving rise to a Material Adverse Effect; or
-35-
(y) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as
a result of, the transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to Holdings to enable Lenders and their counsel to
evaluate such matters;
(10) 401K PLAN NOTICES: promptly upon becoming aware of the
occurrence of or forthcoming occurrence of any material and adverse
event with respect to the Lessee's 401(k) Plan (as defined in
subsection 5(k)), a written notice specifying the nature thereof, what
action Holdings has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the
Internal Revenue Service, the Department of Labor or the PBGC with
respect thereto;
(11) INSURANCE: as soon as practicable and in any event within
30 days following the first day of each Fiscal Year, a report in form
and substance satisfactory to Agent outlining all material insurance
coverage maintained as of the date of such report by Holdings and its
Subsidiaries and all material insurance coverage planned to be
maintained by Holdings and its Subsidiaries in such Fiscal Year;
(12) ENVIRONMENTAL AUDITS AND REPORTS: as soon as practicable
following receipt thereof, copies of all environmental audits and
reports, whether prepared by personnel of Holdings or any of its
Subsidiaries or by independent consultants, with respect to significant
environmental matters at any Facility or which relate to an
Environmental Claim which could result in a Material Adverse Effect;
and
(13) OTHER INFORMATION: with reasonable promptness, such other
information and data with respect to Holdings or any of its
Subsidiaries as from time to time may be reasonably requested by the
Lessor or the Agent or any Lender.
(b) CORPORATE EXISTENCE.
Except as permitted under subsection 7(g) hereunder, Holdings will, and
will cause each of its Subsidiaries to, at all times preserve and keep in full
force and effect its corporate existence and all rights and franchises material
to its business; provided, however, that the corporate existence of any such
Subsidiary may be terminated if such termination is in the best interests of
Holdings and its Subsidiaries and is not materially disadvantageous to any
Lender. Holdings will, and will cause each of the Lessee, Polar Air and the
Lessor to, at all times maintain its corporate existence as a United States
Citizen.
(c) PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
(i) Holdings will, and will cause its Subsidiaries to, pay all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its income, businesses or
franchises before any penalty, fine or interest accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums that have become due and payable and that by law have or may
become a Lien upon any of its properties or assets, prior to the time when any
penalty fine or interest shall be incurred with
-36-
respect thereto; provided that no such charge or claim need be paid if being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and if such reserve or other appropriate provision, if any,
with respect to any liability for taxes, as shall be required in conformity with
GAAP shall have been made therefore in the financial statements of Holdings.
(ii) Holdings will not, and will not permit any of its Subsidiaries to,
file or consent to the filing of any consolidated income tax return with any
Person (other than any Subsidiary of Holdings).
(d) MAINTENANCE OF PROPERTIES; INSURANCE.
Holdings will, and will cause its Subsidiaries to, maintain or cause to
be maintained in good repair, working order and condition, ordinary wear and
tear excepted, all material properties used or useful in the business of
Holdings and its Subsidiaries and from time to time will make or cause to be
made all appropriate repairs, renewals and replacements thereof. Holdings will
maintain or cause to be maintained, with insurers of recognized responsibility
and reputation, insurance with respect to its properties and business and the
properties and businesses of its Subsidiaries against loss or damage (including,
without limitation, flood insurance, if necessary or advisable) of the kinds
customarily carried or maintained under similar circumstances by corporations
engaged in similar businesses and the Lessee will, with respect to each AFL III
Aircraft or Spare Engine, maintain the insurance specified in the Aircraft
Chattel Mortgage with respect to such AFL III Aircraft or Spare Engine, as the
case may be.
Holdings and its Subsidiaries may self-insure, by way of deductible or
equivalent structures or provisions in insurance policies, the risks required to
be insured against pursuant to this subsection 6(d) in such reasonable amounts
as are then applicable to other similar aircraft or spare engines in Holdings'
fleet, and as are not substantially greater than amounts self-insured by
corporations engaged in the same or similar business and similarly situated with
Holdings; provided, however, that the Lessee may not self-insure in an amount in
excess of $1,000,000 per AFL III Aircraft without the prior written consent of
the Agent.
(e) INSPECTION; LENDER MEETING.
Holdings will, and will cause its Subsidiaries to, permit any
authorized representatives designated by any Lender to visit and inspect any of
the properties of Holdings or any of its Subsidiaries, including its and their
financial and accounting records, and, with the permission of the Lessee, which
shall not be unreasonably withheld, to make copies and take extracts therefrom,
and to discuss its and their affairs, finances and accounts with its and their
officers and independent public accountants (provided, that the Lessee may, if
it so chooses, be present at or participate in any such discussion), all upon
reasonable notice and at such reasonable times during normal business hours and
as often as may be reasonably requested, provided, so long as no Lease Event of
Default shall have occurred and be continuing, such inspection shall not be
disruptive to Holdings' business, as reasonably determined by Holdings. Within
150 days after the end of the 2004 Fiscal Year and within 120 days after the end
of each Fiscal Year thereafter, senior management of Holdings shall participate
in a meeting of Lenders during which senior management will review, among other
matters, the financial results of Holdings and its Subsidiaries for such Fiscal
Year and outline the prospects for Holdings for the current Fiscal
-37-
Year and report on any major changes in the business strategy of Holdings
anticipated to occur during the term of this Agreement.
(f) COMPLIANCE WITH LAWS, ETC.
Holdings will, and will cause its Subsidiaries to, comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority (including, without limitation, Environmental Laws),
noncompliance with which could reasonably be expected to cause a Material
Adverse Effect or prevent the Lessee from performing its obligations hereunder.
(g) ENVIRONMENTAL INDEMNITY.
Holdings agrees to indemnify, defend, and hold harmless the Agent and
Lenders, and the officers, directors, employees, agents and affiliates of the
Agent and Lenders from and against any and all losses, claims, liability or
expenses arising in connection with Environmental Claims against such Loan Party
or with any Hazardous Materials Activity.
(h) HOLDINGS' REMEDIAL ACTION REGARDING HAZARDOUS MATERIALS.
Holdings and the Lessee will promptly take, and will cause each of
their Subsidiaries promptly to take, any and all necessary remedial action in
connection with the presence, storage, use, disposal, transportation or Release
of any Hazardous Materials on, under or about any Facility in order to comply
with all applicable Environmental Laws and Governmental Authorizations to the
extent that any failure take such action could reasonably be expected to have a
Material Adverse Effect. In the event Holdings or any of its Subsidiaries is
required to undertake any remedial action with respect to any Hazardous
Materials on, under or about any Facility, Holdings or such Subsidiary will
conduct and complete such remedial action in compliance with all applicable
Environmental Laws, and in accordance with the policies, orders and directives
of all federal, state and local governmental authorities except when, and only
to the extent that, Holdings' or such Subsidiary's liability for such presence,
storage, use, disposal, transportation or discharge of any Hazardous Materials
is being contested in good faith by Holdings or such Subsidiary.
(i) FURTHER ASSURANCES; NEW SUBSIDIARIES.
(i) At any time or from time to time upon the request of the Agent,
Holdings, the Lessee or any Subsidiary Guarantor will, at its expense, promptly
execute, acknowledge and deliver such further documents and do such other acts
and things as Agent may reasonably request in order to effect fully the purposes
of the Loan Documents and to provide for payment of the Obligations in
accordance with the terms of this Lease and the other Loan Documents.
(ii) In furtherance and not in limitation of the foregoing, Holdings
will cause each Material Subsidiary of Holdings (other than the Lessor), to take
such actions as Agent may reasonably request from time to time to ensure that
the Obligations of the Lessee under this Lease and the other Leases are
guarantied by any such Subsidiary. Notwithstanding the foregoing, so long as the
Amended Aircraft Credit Facility remains outstanding nothing herein shall cause
or give rise to an obligation on the part of the Lessee or the Lessor to require
a guaranty or grant of security interest in the assets of the Lessee. The
Lenders acknowledge that
-38-
the security interests and Liens created by the Aircraft Chattel Mortgage do not
extend to the assets of the Lessee now existing or hereafter acquired.
(j) APPRAISALS.
At the request of the Agent or Requisite Lenders (but no more than once
each calendar year), the Lessee will obtain desktop appraisals of each of the
AFL III Aircraft and the Spare Engines from an Approved Appraiser, in form
satisfactory to Agent; provided that upon the occurrence and during the
continuance of an Event of Default, the Lessee will obtain such additional
appraisals with respect to the AFL III Aircraft and/or Spare Engines as the
Agent or Requisite Lenders may request.
(k) MAINTENANCE CONTRACTS.
Subject to subsection 10(h), the Lessee shall maintain contracts with
respect to the maintenance of each AFL III Aircraft sufficient to insure
compliance with the Federal Aviation Act.
(l) EMPLOYEE BENEFIT PLANS.
Holdings and its Subsidiaries will not establish or permit to be
established any Employee Benefit Plans for Holdings, any of its Subsidiaries or
any of their employees and will not permit any ERISA Affiliate to establish any
Employee Benefit Plan which, in either case, could result in a liability for
Holdings or any Subsidiary, under ERISA, in excess of $10,000,000 in the
aggregate.
(m) REGISTRATION OF FOREIGN LEASED AIRCRAFT WITH FAA.
Upon termination of an Approved Lease to which a Foreign Leased
Aircraft is subject, the Lessee shall cause such Foreign Leased Aircraft to be
deregistered in such country and registered under the Federal Aviation Act and
file for recordation with the FAA following such deregistration an Aircraft
Chattel Mortgage with respect to such Foreign Leased Aircraft and shall cause
FAA counsel to deliver an opinion to the Agent and the Lenders in form and
substance satisfactory to Agent.
(n) CIVIL RESERVE AIR FLEET PROGRAM.
To the extent any of the AFL III Aircraft or any component thereof are
leased or under contract to the United States or any agency or instrumentality
thereof pursuant to the Civil Reserve Air Fleet Program established pursuant to
10 U.S.C. 9511-13 (as administered pursuant to Executive Order 1268, or any
substitute regulation or order), or a similar program, the Lessee shall use its
reasonable best efforts to take such actions as the Agent may reasonably request
to ensure that the Agent, for the benefit of the Lenders, (i) is a loss payee
under any insurance policy or indemnity granted to the Lessee or any of its
affiliates by the United States or any agency or instrumentality thereof and/or
(ii) has a perfected security interest in the proceeds of any payments made by
the United States or any agency or instrumentality thereof pursuant to any such
insurance policy or indemnity.
-39-
(o) MAINTAIN AIRCRAFT AIRWORTHINESS.
Without limiting the provisions of Section 10, the Lessee will keep all
AFL III Aircraft airworthy and perform, C-Checks, D-Checks and any other
required maintenance on the AFL III Aircraft including, without limitation, (i)
having initiated a D-Check for six (6) AFL III Aircraft listed on Schedule 6(o)
attached hereto by no later than January 31, 2005 with such D-Checks having been
completed and such AFL III Aircraft airworthy by no later than May 31, 2005 and
(ii) and having initiated a D-Check for the seventh AFL III Aircraft listed on
Schedule 6(o) by no later than April 1, 2005 with such D-Check fully completed
and such AFL III Aircraft airworthy by no later than May 31, 2005.
SECTION 7. NEGATIVE COVENANTS. Holdings covenants and agrees
that, so long as any amounts remain owing under this Lease, Holdings shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 7.
(a) INDEBTEDNESS.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness,
except:
(1) the Lessee may become and remain liable with respect to
the Leases;
(2) Holdings and its Subsidiaries may become and remain liable
with respect to Contingent Obligations permitted by subsection 7(d)
and, upon any matured obligations actually arising pursuant thereto,
the Indebtedness corresponding to the Contingent Obligations so
extinguished;
(3) Holdings and its Subsidiaries, as applicable, may remain
liable with respect to Indebtedness described in Schedule 7(a)(3)
annexed hereto (the "EXISTING INDEBTEDNESS");
(4) Holdings and its Subsidiaries may become and remain liable
with respect to Permitted Extension Indebtedness;
(5) so long as no Event of Default or Lease Event of Default
shall have occurred and be continuing or would result therefrom and the
Lessee delivers an Officers' Certificate to the Agent and the Lenders,
in form and substance reasonably satisfactory to the Agent, confirming
that, on a Pro Forma Basis after giving effect to such incurrence of
Indebtedness, the Fixed Charge Coverage Ratio determined as of the last
day of the last fiscal quarter for which financial statements are then
available is greater than 1.25 to 1.00 Holdings and its Subsidiaries
may incur Indebtedness (including pursuant to Capital Leases), provided
that (x) the aggregate principal amount of Indebtedness incurred
pursuant to this clause (5) does not exceed $50,000,000 at any one time
outstanding;
-40-
(6) the Lessor may become and remain liable with respect to
all of the Obligations and the Lessee may become and remain liable with
respect to the obligations under the Amended Aircraft Credit Facility;
(7) the Lessee may become and remain liable with respect to
the Pass Through Trust Agreements and with the leases related thereto;
(8) the Lessee may become and remain liable with respect to
the Exit Facility, provided that the aggregate principal amount thereof
(including any letters of credit issued thereunder) shall not exceed
$60,000,000 at any one time outstanding;
(9) Holdings and its Subsidiaries may become and remain liable
in respect of Indebtedness constituting Intercompany Loans; and
(10) Holdings and its Subsidiaries may become and remain
liable with respect to other Indebtedness in an aggregate principal
amount not to exceed $10,000,000 at any one time outstanding;
provided that, notwithstanding the foregoing, neither Holdings nor any of its
Subsidiaries may become or remain liable, directly or indirectly, for any
Indebtedness of any Subsidiary of Holdings, which is not a Subsidiary Guarantor.
(b) LIENS AND RELATED MATTERS.
A. PROHIBITION ON LIENS. Holdings shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Holdings or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any state or under any similar
recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens in respect of (x) Permitted Extension Indebtedness
(but only to the extent permitted by the definition thereof) and (y)
Other Permitted Indebtedness; provided that such Liens encumber only
assets subject to purchase money Liens securing such Indebtedness;
(iii) other Liens on assets other than Collateral securing
Indebtedness and Contingent Obligations in an aggregate amount not to
exceed $5,000,000 at any time outstanding;
(iv) Liens to secure obligations in respect of letters of
credit incurred in the ordinary course of business in an aggregate
amount not to exceed $5,000,000 at any time outstanding; and
-41-
(v) as part of an Employee Benefit Plan providing deferred
compensation to the Lessee's employees and approved by its board of
directors, the Lessee may create a trust, pursuant to documentation in
form and substance reasonably satisfactory to the Agent, for the
benefit of its employees and make payments thereto not to exceed
$10,000,000 in the aggregate.
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Holdings or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7(b)(A), it shall make or cause to be made
effective provision whereby the Obligations will be secured by such Lien equally
and ratably with any and all other Indebtedness secured thereby as long as any
such Indebtedness shall be so secured; provided that, notwithstanding the
foregoing, this covenant shall not be construed as a consent by Requisite
Lenders to the creation or assumption of any such Lien not permitted by the
provisions of subsection 7(b)(A).
C. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO HOLDINGS OR OTHER
SUBSIDIARIES. Except (i) as provided herein, as (ii) described on Schedule 7(b)
annexed hereto, and (iii) pursuant to the Credit Agreement, Holdings will not,
and will not permit any of its Subsidiaries to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any such Subsidiary to (i) pay dividends or make any
other distributions on any of such Subsidiary's capital stock owned by Holdings
or any other Subsidiary of Holdings, (ii) repay or prepay any Indebtedness owed
by such Subsidiary to Holdings or any other Subsidiary of Holdings, (iii) make
loans or advances to Holdings or any other Subsidiary of Holdings, or (iv)
transfer any of its property or assets to Holdings or any other Subsidiary of
Holdings.
(c) INVESTMENTS; JOINT VENTURES.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
Joint Venture, except:
(1) Holdings and its Subsidiaries may make and own Investments
in Cash Equivalents; provided that, (x) the weighted average maturity
of all Investments in Cash Equivalents shall not exceed twelve months,
(y) no more than 10% of Holdings' and its Subsidiaries' Investments in
Cash Equivalents shall be in a single security or issuer (other than
U.S. treasuries, U.S. government agency obligations and money market
funds), and (z) no more than 50% of Holdings' and its Subsidiaries'
Investments in Cash Equivalents shall be in a single U.S. treasury or
U.S. government agency security;
(2) Holdings and its Subsidiaries may continue to own the
Investments owned by them as of the Restatement Effective Date in any
Subsidiaries of Holdings;
(3) Holdings and its Subsidiaries may continue to own the
Investments owned by them on the Restatement Effective Date and
described in Schedule 7(c)(3) annexed hereto, without giving effect to
any additions thereto or replacements thereof, it being understood that
any additional Investments made with respect to such existing
Investments shall be permitted only if independently justified under
the other provisions of this subsection 7(c);
-42-
(4) so long as Default or Lease Event of Default has occurred
and is continuing or would result therefrom, and so long as, on a Pro
Forma Basis, Holdings and its Subsidiaries will be in compliance with
the covenant set forth in subsection 7(f)(ii), the Lessee may make
Investments in an aggregate amount not to exceed $10,000,000; and
(5) any Loan Party may make intercompany loans and advances to
any other Loan Party (collectively, the "INTERCOMPANY LOANS").
(d) CONTINGENT OBLIGATIONS.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(1) Holdings and any Subsidiary may become and remain liable
with respect to Contingent Obligations arising under their guaranties
of the Obligations;
(2) the Lessee may become and remain liable with respect to
Contingent Obligations under Interest Rate Agreements and Currency
Agreements with a Lender;
(3) Holdings and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of customary
indemnification and purchase price adjustment obligations incurred in
connection with Asset Sales or other sales of assets or securities;
(4) Holdings and its Subsidiaries may become and remain liable
with respect to letters of credit issued under the Exit Facility;
(5) Holdings and its Subsidiaries may become and remain liable
with respect to letters of credit issued in the ordinary course of
business of Holdings and its Subsidiaries in an amount not to exceed
$5,000,000 in the aggregate at any time;
(6) Holdings and its Subsidiaries, as applicable, may remain
liable with respect to Contingent Obligations described in Schedule
7(d)(6) annexed hereto (other than in respect of letters of credit);
(7) Holdings and its Subsidiaries may become and remain liable
with respect to Contingent Obligations to the extent such Contingent
Obligations are permitted pursuant to subsections 7(i) and 7(k); and
(8) Holdings and its Subsidiaries may become and remain liable
with respect to other Contingent Obligations; provided that the maximum
aggregate liability, contingent or otherwise, of the Lessee and its
Subsidiaries in respect of all such Contingent Obligations shall at no
time exceed $10,000,000.
(e) RESTRICTED JUNIOR PAYMENTS.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for any
Restricted Junior Payment; provided that
-43-
Holdings and its Subsidiaries may make scheduled payments of principal and
interest or mandatory prepayments of principal (including through the exercise
of remedies) from time to time on Designated Indebtedness; and provided further
that, so long as no Default or Lease Event of Default has occurred and is
continuing, or would result therefrom, and so long as on a Pro Forma Basis,
Holdings will be in compliance with the covenant set forth in subsection
7(f)(2):
(1) Holdings and its Subsidiaries may prepay Designated
Indebtedness from the proceeds of Permitted Extension Indebtedness or
cash Equity Proceeds received after the Restatement Effective Date; and
(2) Holdings may repurchase Holdings Common Stock in an amount
not to exceed in any Fiscal Year $1,000,000 for purposes of
establishing or contributing to an employee compensation plan; provided
that any such repurchased Holdings Common Stock resold to employees of
Holdings shall, to the extent of the price paid for such Holdings
Common Stock by such employee, be excluded from the calculation of the
$1,000,000 limit set forth above.
(f) FINANCIAL COVENANTS.
(1) MINIMUM FIXED CHARGE COVERAGE RATIO. Holdings shall not
permit the Fixed Charge Coverage Ratio as of the last day of any fiscal
quarter of Holdings set forth below to be less than the correlative
ratio indicated:
(2) MINIMUM LIQUIDITY. Holdings shall not permit its reserve
of Unrestricted Cash and Cash Equivalents and Availability at any time
during any period set forth below to be less than the amount set forth
opposite such period below: (G) RESTRICTION ON FUNDAMENTAL CHANGES AND
ASSET SALES.
--------------------------------------------------------------------------
MINIMUM
FISCAL QUARTER ENDING FIXED CHARGE
COVERAGE RATIO
--------------------------------------------------------------------------
September 30, 2004 No Test
--------------------------------------------------------------------------
December 31, 2004 0.75:1.00
--------------------------------------------------------------------------
March 31, 2005 0.85:1.00
--------------------------------------------------------------------------
June 30, 2005 0.95:1:00
--------------------------------------------------------------------------
September 30, 2005 1.00:1.00
--------------------------------------------------------------------------
December 31, 2005 0.95:1.00
--------------------------------------------------------------------------
March 31, 2006 1.00:1.00
--------------------------------------------------------------------------
June 30, 2006 1.075:1.00
--------------------------------------------------------------------------
Thereafter 1.10:1.00
--------------------------------------------------- ----------------------
(2) MINIMUM LIQUIDITY. Holdings shall not permit its reserve
of Unrestricted Cash and Cash Equivalents and Availability at any time
during any period set forth below to be less than the amount set forth
opposite such period below:
-44-
--------------------------------------------------------------------------
FOR THE PERIOD MINIMUM LIQUIDITY
--------------------------------------------------------------------------
September 1, 2004 to October 7, 2004 $55,000,000
--------------------------------------------------------------------------
October 8, 2004 to November 7, 2004 $60,000,000
--------------------------------------------------------------------------
November 8, 2004 to December 7, 2004 $65,000,000
--------------------------------------------------------------------------
December 8, 2004 to January 7, 2005 $70,000,000
--------------------------------------------------------------------------
January 8, 2005 to April 7, 2005 $75,000,000
--------------------------------------------------------------------------
April 8, 2005 to September 30, 2005 $85,000,000
--------------------------------------------------------------------------
October 1, 2005 to December 31, 2005 $95,000,000
--------------------------------------------------------------------------
January 1, 2006 to December 31, 2006 $110,000,000
--------------------------------------------------------------------------
January 1, 2007 and Thereafter $125,000,000
--------------------------------------------------- ----------------------
(g) Restriction on Fundamental Changes and Asset Sales.
Holdings shall not, and shall not permit any of its Subsidiaries to,
enter into any transaction of merger or consolidation, or liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, sub-lease, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any part of its business, property or fixed
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or any portion of the business, property or fixed assets of, or
stock or other evidence of beneficial ownership of, any Person or any division
or line of business of any Person, except:
(1) any Subsidiary of Holdings may be merged with or into the
Lessee or any Subsidiary Guarantor, or be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may
be conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to the Lessee or any
Subsidiary Guarantor; provided that, in the case of such a merger, the
Lessee or such Subsidiary Guarantor shall be the continuing or
surviving corporation;
(2) Holdings and its Subsidiaries may sell or otherwise
dispose of assets in transactions that do not constitute Asset Sales;
provided that the consideration received for such assets shall be in an
amount at least equal to the fair market value thereof;
(3) subject to subsection 7(m), Holdings and its Subsidiaries
may make Asset Sales of assets other than AFL III Aircraft having a
fair market value not in excess of $70,000,000 in the aggregate;
provided that (x) the consideration received for such assets shall be
in an amount at least equal to the fair market value thereof; (y) the
consideration received shall be at least 75% cash; and (z) the proceeds
of such Asset Sales shall be applied as required by subsection
2.4B(ii)(a) of the Amended Aircraft Credit Facility;
(4) Holdings and its Subsidiaries may make Asset Sales of up
to (1) one Financed Aircraft; provided that (t) no Lease Event of
Default exists at the time of such
-45-
Asset Sale or results therefrom; (u) such Asset Sale is to a Person
that is not an Affiliate of either Holdings or any of its Subsidiaries;
(v) at the time of such Asset Sale there is no agreement of any kind
between or among the Persons party to such Asset Sale that the Financed
Aircraft subject to such Asset Sale is part of any sale leaseback or
similar transaction to which Holdings or any of its Affiliates are
party to; (w) the Financed Aircraft subject to such Asset Sale shall
not be part of any sale leaseback transaction to which Holdings or any
of its Affiliates are party to for at least six months after the
consummation of such Asset Sale; (x) the consideration received for
such Financed Aircraft shall be in an amount at least equal to the fair
market value thereof; (y) the consideration received from such Financed
Aircraft shall be at least 75% Cash with the remaining consideration
other than Cash to be evidenced by a note or similar financial
instrument; and (z) on or prior to the consummation of such Asset Sale
the Loans shall be repaid by at least the amount required by subsection
2.4B of the Credit Agreement;
(5) Holdings and its Subsidiaries may sell or otherwise
dispose of up to (3) three aircraft subject to the Pass Through Trust
Documents; provided that (x) the consideration received for such assets
shall be in an amount at least equal to the fair market value thereof;
(y) the consideration received shall be at least 75% cash; and (z) the
Net Cash Proceeds of such Asset Sales shall be applied as required by
subsection 2.4B(ii)(a) of the Amended Aircraft Credit Facility in
accordance with the terms hereof;
(6) the Lessee may lease or transfer any AFL III Aircraft to
the extent expressly permitted by subsection 4(d) of the Aircraft
Chattel Mortgage with respect to such AFL III Aircraft;
(7) Holdings and its Subsidiaries may make (x) Consolidated
Capital Expenditures not in excess of the Maximum Capital Expenditure
Amount during any Fiscal Year, (y) Consolidated Capital Expenditures
required to retrofit airplanes in order to conform to FAA regulations
in an amount not to exceed $7,000,000 in the aggregate and (z)
Consolidated Capital Expenditures constituting the reinvestment of
proceeds of Asset Sales not required to repay the Loans pursuant to
subsection 2.4B(ii)(a) of the Amended Aircraft Credit Facility;
provided that up to 50% of any amount of such Consolidated Capital
Expenditures permitted pursuant to clause (x) of this subsection (vii),
but not made, in any Fiscal Year may be carried forward to and made
during the immediately succeeding Fiscal Year (but no amount once
carried forward to the next Fiscal Year may be carried forward to any
Fiscal Year thereafter);
(8) the Lessee and Polar Air may lease aircraft pursuant to
ACMI Contracts;
(9) the Lessee and Polar Air may lease aircraft other than
pursuant to ACMI Contracts (each such lease, a "DRY LEASE"); provided
that in the case of a AFL III Aircraft (a) such Dry Lease (i) shall be
expressly subject and subordinate to the lien and security interest of
the Lenders under the Aircraft Chattel Mortgage, (ii) except in the
case of a Dry Lease between the Lessee and Polar Air, shall not have a
term (including, without limitation, any option to renew or extend) in
excess of sixty (60) months, (iii) except in the case of a Dry Lease
between the Lessee and Polar Air, shall require rental payments to be
made at least monthly and (iv) except in the case of a Dry Lease
-46-
between the Lessee and Polar Air, shall otherwise be in form and
substance reasonably satisfactory to the Agent (including, without
limitation, with regard to the identity of the lessee), (b) the Lessee
shall grant a first priority security interest in such Dry Lease to the
Agent, for the benefit of the Lenders, and their respective successors
and assigns, shall take all necessary action to ensure that such
security interest is fully perfected, and shall deliver an opinion
addressed to the Agent to the effect that Agent holds a fully perfected
first priority security interest in such Dry Lease, which opinion shall
be in form and substance reasonably satisfactory to the Agent, from
counsel reasonably satisfactory to the Agent, (c) either (1)(x) the
lessee under such Dry Lease, at the time such Dry Lease in entered
into, shall hold an air carrier operating certificate issued pursuant
to Chapter 447 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, (y) the Lessee and the lessee under such Dry Lease have
expressed in writing (either in such Dry Lease or in a substantially
contemporaneous writing) that such Dry Lease is intended to be treated
as a lease for U.S. federal tax purposes, and (z) the Lessee has
obtained an opinion, addressed to the Lessee, the Agent, and the
Lenders, in form and substance reasonably satisfactory to the Agent,
stating that the Lessee is entitled to the benefits of Section 1110 of
the Bankruptcy Code with respect to the relevant Airframe and the
relevant Engines or engines installed thereon or (2) the Lessee shall
obtain the prior written consent of the Agent, which consent may be
withheld by the Agent in its sole discretion, and which consent (x) may
be conditioned on receipt of opinions in form and substance
satisfactory to the Agent in its sole discretion from counsel of the
same domicile as the lessee under such Dry Lease, which counsel must be
satisfactory to Agent in its sole discretion and (y) may be conditioned
on such other conditions as the Agent may, in its sole discretion,
determine, (d) except in the case of Dry Leases between the Lessee and
Polar Air, the Lessee shall not enter into any waiver, amendment or
other modification with respect to the related Dry Lease that could
reasonably be expected to be materially adverse in any respect to the
Lessee or Polar Air, as the case may be, or Lenders without the prior
written consent of the Agent, which consent shall be granted or denied
by Agent in its sole discretion within ten (10) Business Days of
receipt by Agent of the proposed amendment and any related documents
reasonably requested by Agent and (e) the Lessee shall provide Agent
with a copy of any amendment, consent, waiver, supplement, or other
modification with respect to any such Dry Lease within fifteen Business
Days after the execution thereof; and
(10) any Subsidiary of Holdings may convey, lease, license,
sell or otherwise transfer all or part of its business, properties or
assets (other than any AFL III Aircraft or any Part thereof) to the
Lessee or to any Subsidiary Guarantor, so long as any security
interests granted to the Agent pursuant to the Aircraft Chattel
Mortgage in the assets so transferred shall remain in full force and
effect and perfected (to at least the same extent as in effect
immediately prior to such transfer) and all actions required to
maintain said perfected status have been taken.
(h) AMENDMENTS OF MATERIAL AGREEMENTS.
Holdings shall not permit (i) the certificate or articles of
incorporation or bylaws of any Loan Party to be amended or otherwise modified in
any manner which could reasonably be
-47-
expected to have a Material Adverse Effect or (ii) any Material Agreement to be
amended or otherwise modified (including by way of a waiver of any provision
thereof) (x) at any time in any manner with respect to any provision providing
material representations and warranties to Holdings or any of its Subsidiaries,
indemnification rights to Holdings or any of its Subsidiaries, or limiting
Holdings' or any of its Subsidiaries, remedies or rights upon the other party to
such agreements failure to perform or which could otherwise reasonably be
expected to have Material Adverse Effect on the value of any AFL III Aircraft ,
(y) in the case of any Material Agreement at any time during the period ending
on the first anniversary of the Restatement Effective Date, to provide (I)
additional or increased rent, debt payments, maintenance reserves or any other
form of additional compensation (including any amendment, modification or
waiver, requiring any mandatory repayment of the principal amount of any
Indebtedness or the prepayment of any rent with respect to any lease), (II) new
fees or other compensation, (III) an increase in interest rate, (IV) additional
collateral or credit support, (V) improved maintenance provisions or return
condition provisions, (VI) additional financial, affirmative or negative
covenants or (VII) any other form of material enhancements or (z) in the case of
any Material Agreement at any time unless the Board of Directors of Holdings has
determined that an amendment or modification of the type described in clause (I)
through (VII) of clause (y) above is in the best interests of Holdings and its
Subsidiaries and that Holdings and its Subsidiaries have received fair value in
return for such amendment or modification.
In addition, Holdings and its Subsidiaries shall not amend or modify
any Permitted Extension Indebtedness or Other Permitted Indebtedness if such
amendment or modification would have resulted in such Indebtedness not
constituting Permitted Extension Indebtedness or Other Permitted Indebtedness
when incurred had such amendment or modification been effective at such time.
(i) RESTRICTION ON LEASES.
Other than such Operating Leases or Capital Leases as are in
effect on the Restatement Effective Date, Holdings shall not, and shall
not permit any of its Subsidiaries to, become liable in any way,
whether directly or by assignment or as a guarantor or other surety,
for the obligations of the lessee under any lease, whether an Operating
Lease or a Capital Lease (other than intercompany leases between
Holdings and any Subsidiary Guarantor) except that, other than as set
forth in clause (B) of this subsection 7(i), so long as no Default or
Lease Event of Default shall have occurred and be continuing or would
result therefrom and the Lessee delivers an Officers' Certificate to
Agent and Lenders, in form and substance reasonably satisfactory to
Agent, certifying (i) the cash schedule rental payments required to be
made during each Fiscal Year of the Lessee under all Operating Leases
and Capital Leases (including, without limitation, the lease proposed
to be entered into) entered into after the Restatement Effective Date
(each a "POST EFFECTIVE DATE LEASE") and (ii) in the event that the
cash scheduled rental payments required to be made under all Post
Effective Date Leases (including, without limitation, the leases
proposed to be entered into) exceed $15,000,000 during any Fiscal Year
of Holdings that on a Pro Forma Basis after giving effect to such
Operating Lease or Capital Lease, the Fixed Charge Coverage Ratio
determined as of the last day of the last fiscal quarter for which
financial statement are then available is greater than 1.25 to 1.00,
Holdings and its Subsidiaries may enter into Operating leases and
Capital Leases;
-48-
provided that the aggregate principal amount of Capital Leases entered
into pursuant to this subsection 7(i) does not exceed the amount
permitted by subsection 7(a)(5). For purposes of this subsection 7(i),
Operating Leases and Capital Leases entered into after the Restatement
Effective Date which are replacements of Operating Leases or Capital
Leases in effect on the Restatement Effective Date (and related to the
same property), shall be deemed to be Post Effective Date Leases only
to the extent that the scheduled cash rental payments required to be
made thereunder during any Fiscal Year of the Lessee exceed the
scheduled cash rental payments required to be made during any Fiscal
Year of the Lessee under the replaced leases as in effect on the
Restatement Effective Date.
(j) SALE OR DISCOUNT OF RECEIVABLES.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, sell with recourse, or discount or otherwise sell for
less than the face value thereof, any of its notes or accounts receivable.
(k) SALES AND LEASE-BACKS.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired, (i) which Holdings or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than Holdings
or any of its Subsidiaries) or (ii) which Holdings or any of its Subsidiaries
intends to use for substantially the same purpose as any other property which
has been or is to be sold or transferred by Holdings or any of its Subsidiaries
to any Person (other than Holdings or any of its Subsidiaries) in connection
with such lease; provided that Holdings and its Subsidiaries may become and
remain liable as lessee, guarantor or other surety with respect to any such
lease if and to the extent that Holdings or any of its Subsidiaries would be
permitted to enter into, and remain liable under, such lease under subsection
7(i). Notwithstanding the foregoing provisions of this subsection 7(j), this
subsection 7(j) shall not restrict or prohibit in any manner the Leases.
(l) TRANSACTIONS WITH SHAREHOLDERS, AFFILIATES AND GSS.
In the event that Holdings or any of its Subsidiaries enters into, or
agrees to amend or modify, any lease of aircraft to or from GSS or any holder of
10% or more of any class of equity Securities of Holdings or its Subsidiaries or
with any Affiliate of Holdings (other than a Loan Party) or of any such holder
or of GSS (any such lease, a "SPECIFIED LEASE"), Holdings or such Subsidiary
shall deliver an originally executed officer's certificate, in form and
substance satisfactory to the Agent, stating that such Specified Lease is on
terms no less favorable to Holdings or such Subsidiary than those that could
have been obtained in an arm's-length transaction with unrelated third parties.
-49-
(m) DISPOSAL OF SUBSIDIARY STOCK.
Holdings shall not:
(1) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or other equity
Securities of any of its Subsidiaries, except to qualify directors if
required by applicable law or to a Subsidiary Guarantor; or
(2) permit any of its Subsidiaries directly or indirectly to
sell, assign, pledge or otherwise encumber or dispose of any shares of
capital stock or other equity Securities of any of its Subsidiaries
(including such Subsidiary), except to Holdings, another Subsidiary
Guarantor, or to qualify directors if required by applicable law.
(n) CONDUCT OF BUSINESS.
From and after the Restatement Effective Date, Holdings shall not, and
shall not permit any of its Subsidiaries to, engage in any business other than
(i) the businesses engaged in by Holdings and its Subsidiaries on the
Restatement Effective Date and similar or related businesses and (ii) such other
lines of business as may be consented to by Requisite Lenders.
(o) CHANGE TO LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS,
JURISDICTION OR TYPE OF ORGANIZATION.
No Loan Party shall change, or permit any change to, its legal name,
jurisdiction of organization and/or type of organization until (i) it shall have
given to the Agent not less than 30 days prior written notice of its intention
so to do, clearly describing such new name and providing other information in
connection therewith as the Agent may reasonably request and (ii) it shall have
taken all action reasonably requested by the Agent to maintain the security
interests of the Agent in the Collateral at all times fully perfected and in
full force and effect. In addition, to the extent that any Loan Party does not
have an organizational identification number on the date hereof and later
obtains one, or if there is any change in the organizational identification
number of any Loan Party, Holdings shall promptly notify the Agent of such new
or changed organizational identification number and shall take all actions
reasonably satisfactory to the Agent to the extent necessary to maintain the
security interests of the Agent in the Collateral fully perfected and in full
force and effect.
(p) SUBORDINATED INDEBTEDNESS.
In addition to and not in limitation of, any other term, covenant or
condition set forth in this Lease (x) any Indebtedness of Holdings and its
Subsidiaries which shall be subordinated in right of payment to any other
Indebtedness of Holdings and its Subsidiaries shall also be expressly
subordinated in right of payment on the same basis to the Obligations, the Pass
Through Trust Documents and related leases thereto and the Amended Aircraft
Credit Facility and (y) no repayments of any such subordinated Indebtedness
(except scheduled payments of principal and interest or mandatory prepayments of
principal) shall be made unless, on a Pro Forma Basis after giving effect to
such repayment, Holdings and its Subsidiaries shall be able to incur an
additional $1.00 of Indebtedness under subsection 7(a)(5).
-50-
SECTION 8. Return of the Aircraft.
(a) CONDITION UPON RETURN. Unless the Aircraft has been sold pursuant
to Section 21, if at any time the Lessee shall return the Aircraft to the Lessor
hereunder, the Lessee, at its own expense, will return the Aircraft to the
Lessor at a location specified by the Lessor to the Lessee in writing. At the
time of such return, (i) the Lessee will cause the Aircraft to be in compliance
with the maintenance covenants contained in this Lease and (ii) the Airframe
will be fully equipped with the Engines installed thereon.
At the time of such return, such Airframe and Engines (A) shall have an
airworthiness certificate from the Federal Aviation Administration and shall be
in full compliance with the provisions of Federal Aviation Regulations, Part 121
(or successor regulation), and shall be in material compliance with all
applicable FAA noise, corrosion, environmental and aging aircraft requirements,
(B) shall be free and clear of all Liens and (C) in the case of the Aircraft,
shall be in a full freighter configuration and in as good condition as when
originally delivered to the Lessee, ordinary wear and tear excepted, and
otherwise in the condition required to be maintained under the Lessee's
FAA-approved maintenance plan; and in all such cases the Aircraft shall not have
been discriminated against as compared to other aircraft owned or leased by the
Lessee whether by reason of its leased status or otherwise in maintenance, use,
operation or in any other manner whatsoever.
(b) OVERHAUL AND REPAIR. The Airframe, Engines and all Parts shall have
been, and shall be properly documented to have been, repaired or overhauled by
certified repair stations acceptable to the FAA.
(c) REPAIRS. The Lessee shall ensure that all repairs performed since
the Initial Borrowing Date on the Aircraft are eligible to receive approval by
the FAA (or its designee), if so required. All such repairs shall be accompanied
by all data and documentation necessary to substantiate their certification,
approval and methods of compliance, as required.
(d) MODIFICATIONS. All modifications performed since the Initial
Borrowing Date that deviate from the certified configuration and that are still
in existence on the Aircraft shall have approval or certification by the FAA (or
its designee) or certification if required. All such modifications shall be
accompanied by complete data and documentation necessary to substantiate their
certification and approval and methods of compliance.
(e) AIRWORTHINESS DIRECTIVES. All FAA Airworthiness Directives and
amendments or changes to the Federal Aviation Regulations applicable to the
Airframe, Engines (or Acceptable Alternate Engines) or Parts, as well as all
mandatory service bulletins applicable to any of the foregoing, shall have been
accomplished by terminating action in compliance with the issuing agency's or
the manufacturer's specific instructions, as the case may be, taking into
account, any waiver, deferral or deviation from such directives, regulations or
bulletins.
(f) RETURN OF THE ENGINES. In the event that an Acceptable Alternate
Engine shall be delivered with the returned Airframe, the Lessee, concurrently
with such delivery, will, at no cost to the Lessor, furnish, or cause to be
furnished, to the Lessor a full warranty (as to title) ▇▇▇▇ of sale with respect
to each such Acceptable Alternate Engine, in form and substance reasonably
satisfactory to the Lessor (together with an opinion of counsel to the effect
that such
-51-
full warranty ▇▇▇▇ of sale has been duly authorized and delivered and is
enforceable in accordance with its terms and that such Acceptable Alternate
Engines are free and clear of all Liens) against receipt from the Lessor of a
▇▇▇▇ of sale evidencing the transfer, without recourse or warranty by the Lessor
to the Lessee or its designee of all of the Lessor's right, title and interest
in and to any Engine not installed on the Airframe at the time of the return of
the Airframe.
(g) DEFERRED MAINTENANCE. There shall be no open, outstanding or
deferred maintenance items, scheduled or unscheduled, against the Aircraft
including those identified in pre-delivery inspections or test flights.
(h) CORROSION TREATMENT. At the time of return, the Aircraft shall have
been maintained by cleaning and treating all mild and moderate corrosion and
correcting of all severe or exfoliate corrosion in accordance with the Lessee's
approved maintenance program or manu-facturer's structural repair manual.
(i) MANUALS. Upon the return of the Aircraft upon any termination of
this Lease, the Lessee shall deliver or cause to be delivered to the Lessor all
logs, manuals and data and maintenance, inspection, modification and overhaul
records and similar records required to be maintained with respect to the
Aircraft and Parts under FAA rules and the Aircraft maintenance program (the
"Technical Records"). If any such logs, manuals, records or other data are
missing, incomplete or otherwise not in accordance with FAA standards applicable
to the Lessee, the Lessee shall re-accomplish the maintenance tasks necessary to
produce such records in accordance with its approved maintenance program prior
to delivery of the Aircraft or otherwise perform all necessary acts (without
regard to any applicable waivers or deferrals) to obtain such records in a
manner satisfactory to the FAA and the Lessor.
(j) STORAGE UPON RETURN. If, at least 15 days prior to termination of
this Lease at the end of the Term or pursuant to Section 17, the Lessee receives
from the Lessor a written request for storage of the Aircraft upon its return
hereunder, the Lessee will provide the Lessor, or cause the Lessor to be
provided, with storage facilities for the Aircraft at the Lessee's risk and at
the Lessee's expense for a period not exceeding 30 days, and thereafter at the
Lessor's risk and at the Lessor's cost for insurance, maintenance and the
Lessee's out-of-pocket expenses for such storage for a period not exceeding 90
days (provided, that if such termination occurs as a result of a Lease Event of
Default hereunder, such storage shall be at the cost of the Lessee), commencing
on the date when the Aircraft is returned substantially in the condition
required under this Section 8, at a location in the continental United States
selected by the Lessee and used by the Lessee as a location for the long-term
parking or storage of aircraft.
(k) SEVERABLE PARTS. At any time that the Aircraft is to be returned to
the Lessor, the Lessee shall, at the Lessor's request, advise the Lessor of the
nature and condition of all severable nonproprietary Parts (other than Parts
otherwise required by Sections 10 or 11 to be maintained on the Aircraft) owned
by the Lessee have been used by the Lessee during the prior six months and that
the Lessee has or intends to remove from the Aircraft in accordance with Section
11 hereof. The Lessor may, at its option, upon 30 days notice to the Lessee,
purchase any or all of such nonproprietary Parts from the Lessee upon the
expiration of the Term at their fair market value.
-52-
(l) SURVIVAL. The obligations of the Lessee to comply with the terms of
this Section 8 shall survive the expiration or other termination of this Lease.
(m) DEREGISTRATION AND EXPORT. At such time as the Lessee is obligated
to redeliver the Aircraft to the Lessor pursuant to this Lease, the Lessee shall
at its expense upon the request of the Lessor:
(i) promptly take all such steps (not including procuring the
discharge of any Lessor's Liens) as may be necessary to cancel the
existing registration of the Aircraft (subject to the Lessor giving, or
procuring that any mortgagee of the Aircraft gives, such notices and/or
required consents to the cancellation of such registration) and obtain
and deliver to the Lessor all certificates relating to the Aircraft
required by applicable law on any transfer of or alteration to the
registration thereof;
(ii) provide to the Lessor all assistance as the Lessor may
reasonably request so as to enable the Lessor to obtain any documents
(including, without limitation, any export certificate of
airworthiness) required by applicable law in relation to the export of
the Aircraft from the state of registration or such other country in
which the Aircraft is for the time being located and shall re-assign or
otherwise confirm to the Lessor the benefit of any indemnities or
warranties available to the Lessee from the manufacturer or any other
supplier or manufacturer of the Airframe, Engines or any Part; and
(iii) provide to the Lessor such assistance with respect to
information and documentation as the Lessor may reasonably require so
as to enable the Aircraft to be registered and certified as to
airworthiness under any applicable laws and/or regulations of any
country other than the state of registration; provided, that the Lessor
shall reimburse, the Lessee for its reasonable out-of-pocket expenses
incurred in providing such assistance.
SECTION 9. Liens. The Lessee will not directly or indirectly
create, incur, assume or suffer to exist any Lien, on or with respect to the
Aircraft, title thereto or any interest therein, except the lien of the Aircraft
Chattel Mortgage and Permitted Encumbrances. The Lessee will promptly, at its
own expense, take such action as may be necessary to duly discharge any such
Lien not excepted above if the same shall arise at any time.
SECTION 10. Registration, Maintenance and Operation;
Possession and SubLEASES; INSIGNIA.
(a) MAINTENANCE AND OPERATION. The Lessee, at its own cost and
expense, until the expiration or earlier termination of this Lease, (i) will be
a "citizen of the United States" as defined in Section 40102(15) of Title 49 of
the United States Code and will be an air carrier certificated under Sections
401 and 609 of the Federal Aviation Act and hold all necessary air carrier
operating certificates; (ii) will cause ownership of the Aircraft to be duly
registered and remain duly registered with the FAA in the name of the Lessor in
accordance with the Federal Aviation Act and otherwise registered under all
applicable laws of the United States so as to be eligible to operate in
commercial air service under the Federal Aviation Act; and (iii) will service,
repair, inspect, test, maintain and overhaul the Airframe and each Engine,
install replacement equipment and parts on the Airframe and each Engine and
maintain the Technical
-53-
Records (A) so as to keep the Airframe and each Engine in such operating
condition as may be required to permit the Airframe and each Engine to be
utilized in commercial operations in the United States, (B) so as to enable the
airworthiness certification of the Airframe to be maintained in good standing at
all times under the Federal Aviation Act, except when aircraft of the same type,
model or series as the Airframe (powered by engines of the same type as those
with which the Airframe shall be equipped at the time of grounding) registered
in the United States have been grounded by the FAA; provided, however, that if,
following its issuance, the United States FAA airworthiness certificate of the
Aircraft shall be withdrawn, then, subject to the provisions of Section 13
hereof, so long as the Lessee is diligently taking or causing to be taken all
necessary action promptly to correct the condition that caused such withdrawal,
no Lease Event of Default shall arise from such withdrawal, (C) in accordance
with the Lessee's FAA-approved maintenance, inspection and maintenance control
programs, and in the same manner and with the same care used by the Lessee with
respect to the same or similar aircraft and engines owned or operated by the
Lessee so as to keep the same in as good operating condition as when originally
leased hereunder, ordinary wear and tear excepted, which practices shall at all
times be at or above the standard of the industry in the United States for
prudent maintenance of similar equipment, (D) in such manner as may be necessary
to maintain in full force all warranties of the manufacturers thereof, and (E)
to enable the Lessee to deliver the Aircraft to the Lessor in accordance with
Section 8. The Lessee shall maintain all records, logs and other materials that
may be required to permit the Airframe and each Engine to be so utilized.
The Lessee will comply in all material respects with all
airworthiness directives, mandatory notes or modifications or similar
requirements affecting the same (including those issued by the manufacturer or
supplier) in such condition so as to comply with this Lease and the rules and
regulations of the FAA from time to time in force and applicable to the Aircraft
and Engines. Neither the Airframe nor any Engine will be maintained, used or
operated in violation of any law or any rule, regulation or order of any
government or governmental authority having jurisdiction (domestic or foreign),
or in violation of any airworthiness certificate, license or registration
relating to the Airframe or such Engine issued by any such authority, and in the
event that such laws, rules, regulations or orders require alteration of the
Airframe or any Engine, the Lessee, at its own cost and expense, will conform
thereto or obtain conformance therewith and will maintain the same in proper
operating condition under such laws, rules, regulations and orders, provided,
however, that the Lessee may, in good faith (after having delivered to the
Lessor and the Agent an Officers' Certificate stating the facts with respect
thereto), contest the validity or application of any such law, rule, regulation
or order in any reasonable manner that does not, in the Lessor's and the Agent's
opinion (in their sole discretion), adversely affect the interests of the
Lessor, the Agent or any Lender.
The Lessee covenants and agrees with the Lessor that, the
better to ensure the availability of the benefits of Section 1110 of the
Bankruptcy Code, the Lessee shall not object to any motion, petition or
application filed by the Lessor with any bankruptcy court having jurisdiction
over the Lessee, solely as to the portion thereof that seeks, and to the extent
that such motion, petition or application seeks, a determination that such
Section 1110 of the Bankruptcy Code applies to the lease of the Aircraft
hereunder. In the event that Section 1110 is amended, or if it is repealed and
another statute is enacted in lieu thereof, the Lessor and the Lessee (at the
Lessee's expense) agree to amend this Lease and take such other action not
inconsistent with this Lease as the Lessor reasonably deems necessary so as to
afford to the Lessor the rights and
-54-
benefits as such amended or substituted statute confers upon owners, lessors and
conditional vendors of aircraft similarly situated to the Lessor.
The Lessee will not operate, use or locate the Airframe or any
Engine, (I) in any area in which any insurance required to be maintained
pursuant to Section 14 shall not be at the time in full force and effect, or in
any area excluded from coverage by an insurance policy in effect with respect to
the Airframe or such Engine, except in the case of a requisition for use by the
United States of America, and then only if the Lessee obtains indemnity in lieu
of such insurance from the United States of America against the risks and in the
amounts required by said Section covering such area, or (II) in any recognized
or threatened area of hostilities unless the Airframe or such Engine is operated
or used under contract with the Government of the United States of America under
which contract that Government assumes liabilities for any damages, loss,
destruction or failure to return possession of the Airframe or such Engine at
the end of the term of such contract and for injury to persons or damage to
property of others.
The Lessee shall not use the Aircraft nor suffer it to be used
in any manner or for any purpose excepted from any of the insurance on or in
respect of the Aircraft or for the purpose of carriage of goods of any
description excepted from such insurance nor do, or permit to be done, anything
which, or omit to do anything the omission of which, may invalidate any of such
insurance.
(b) POSSESSION. The Lessee will not, without the prior written
consent of the Agent and the Lessor, sell, assign, lease or otherwise in any
manner deliver, transfer or relinquish possession or control of, or transfer the
right, title or interest of the Lessee in, the Airframe or any Engine except
that, unless a Default or Lease Event of Default shall have occurred and be
continuing, the Lessee may, without the prior written consent of the Agent and
the Lessor, take the following actions so long as the actions to be taken shall
not deprive the Agent of the first priority Lien under the Aircraft Chattel
Mortgage in the assets subject thereto and so long as the actions to be taken
shall not deprive the Lessor of the protections of Section 1110 of the
Bankruptcy Code with respect to the Aircraft and shall not deprive the Agent of
the protections of Section 1110 of the Bankruptcy Code with respect to the
Aircraft as assignee of the Lessee's rights under this Lease pursuant to the
Aircraft Chattel Mortgage:
(i) transfer possession of the Airframe or any Engine other
than by lease to the United States of America or any instrumentality
thereof pursuant to the Civil Reserve Air Fleet Program (as
administered pursuant to Executive Order 12656, or any substitute
order) or any similar or substitute programs;
(ii) transfer possession of the Airframe or any Engine to the
manufacturer thereof for testing or other similar purposes or any other
organization for service, repairs, maintenance or overhaul or, to the
extent permitted by Section 11 hereof, for alterations or
modifications;
(iii) subject any Engine to normal interchange or pooling
agreements or arrangements of the type customary in the United States
airline industry and entered into by the Lessee in the ordinary course
of business that do not contemplate or require the transfer of title
to, use for the remainder of its useful life, or registration of the
Airframe or title to or use for the remainder of its useful life of
such Engine;
-55-
provided, however, that if the Lessee's title to or use for the
remainder of its useful life of the Airframe or any Engine shall be
divested under any such agreement or arrangement, such divesture shall
be deemed to be an Event of Loss with respect to the Airframe or such
Engine and the Lessee shall comply with Section 13 in respect thereof;
(iv) install an Engine on an airframe that is owned by the
Lessee free and clear of all Liens except (A) those permitted under
clauses (i) or (ii) of the definition of Permitted Encumbrances, (B)
those that apply only to the engines (other than the Engines),
appliances, parts, instruments, appurtenances, accessories, furnishings
and other equipment (other than Parts) installed on such airframe (but
not to the airframe as an entirety), and (C) the rights of any Domestic
Air Carrier, under normal interchange agreements that are customary in
the airline industry and do not contemplate or require the transfer of
title to such airframe or the engines installed thereon;
(v) install an Engine on an airframe leased to the Lessee or
owned by the Lessee subject to a conditional sale or other security
agreement, provided that: (A) such airframe is free and clear of all
Liens, except for the rights of the parties to the lease or conditional
sale or other security agreement covering such airframe and except for
Liens of the type permitted by clause (iv) above; and (B) the Agent and
the Lessor shall have received from the lessor, conditional vendor or
secured party and each of the purchasers, mortgagees and encumbrancers
of such lessor, conditional vendor or secured party of such airframe a
written agreement (which may be the lease, conditional sale agreement
or mortgage covering such airframe), whereby such lessor, conditional
vendor or secured party and each of the purchasers, mortgagees and
encumbrancers of such lessor, conditional vendor or secured party
expressly and effectively agrees that neither it nor its successors and
assigns will acquire or claim any right, title or interest in any
Engine by reason of such Engine being installed on such airframe at any
time when such Engine is subject to the Aircraft Chattel Mortgage;
(vi) install an Engine on an airframe owned by the Lessee,
leased by the Lessee or owned by the Lessee subject to a conditional
sale or other security agreement under circumstances where neither
clause (iv) nor clause (v) above is applicable; provided, that any
divesture of title to such Engine resulting from such installation
shall be deemed to be an Event of Loss with respect to such Engine and
the Lessee shall comply with Section 13 in respect thereof;
(vii) enter into an ACMI Contract or wet lease for the
Airframe and the Engines or engines installed thereon with any third
party pursuant to which the Lessee has operational control of the
Airframe and any Engines installed thereon, such operation to be
performed solely by individuals under the operational control of the
Lessee possessing all current certificates and licenses that would be
required under the applicable laws of the United States for the
performance by such employees of similar functions within the United
States; provided, that the Lessee's obligations hereunder shall
continue in full force and effect notwithstanding any such ACMI
Contract or wet lease;
(viii) in addition to the transactions permitted under
subsection 7(g)(9), enter into a lease (other than pursuant to
paragraph (vii) above) of the Airframe and the Engines or engines
installed thereon, so long as (A) either (i) (x) the lessee under such
-56-
lease, at the time such lease is entered into, holds an air carrier
operating certificate issued pursuant to Chapter 447 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, (y) the Lessee and the
lessee under such lease have expressed in writing (either in such lease
or in a substantially contemporaneous writing) that such lease is
intended to be treated as a lease for U.S. federal income tax purposes,
and (z) the Lessee has obtained an opinion, addressed to the Lessee,
the Lessor, the Agent, and the Lenders, in form and substance
reasonably satisfactory to each of the Lessor and the Agent, stating
that the Lessee is entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the Airframe and the Engines or engines
installed thereon, or (ii) the Lessee obtains the prior written consent
of both the Lessor and the Agent, which consent may be withheld by
either of the Lessor or the Agent in its sole discretion, and which
consent (x) may be conditioned on receipt of opinions in form and
substance satisfactory to each of the Lessor and the Agent in its sole
discretion from counsel of the same domicile as the lessee of such
lease, which counsel must be satisfactory to each of the Lessor and the
Agent in its sole discretion and (y) may be conditioned on such other
conditions as either the Lessor or the Agent may, in its sole
discretion, determine, (B) such lease (i) shall not have a term
(including, without limitation, any option to renew or extend) in
excess of sixty months, (ii) shall require rental payments to be made
at least quarterly, and (iii) shall otherwise be in form and substance
reasonably satisfactory to the Agent (including, without limitation,
with regard to the identity of the lessee), (C) the Lessee shall grant
a first priority security interest in such lease to the Lessor to
secure its obligations hereunder, shall take all necessary action to
ensure that such security interest is fully perfected pursuant to
documentation reasonably satisfactory to each of the Lessor and the
Agent, and shall deliver an opinion addressed to the Lessor and the
Agent to the effect that the Lessor holds a fully perfected first
priority security interest in such lease, and as to such other matters
as the Lessor or the Agent may reasonably request, which opinion shall
be in form and substance reasonably satisfactory to each of the Lessor
and the Agent, from counsel reasonably satisfactory to each of the
Lessor and the Agent, (D) the Lessor shall grant a first priority
security interest in its interest in such lease to the Agent, for the
benefit of the Lenders, and their respective successors and assigns, to
secure the Secured Obligations (as defined in the Aircraft Chattel
Mortgage), shall take all necessary action to ensure that such security
interest is fully perfected pursuant to documentation reasonably
satisfactory to the Agent, and shall deliver an opinion addressed to
the Agent to the effect that the Agent holds a fully perfected first
priority security interest in the Lessor's interest in such lease, and
as to such other matters as the Agent may reasonably request, which
opinion shall be in form and substance reasonably satisfactory to the
Agent, from counsel reasonably satisfactory to the Agent, and (E) the
Lessee shall not enter into any amendment, consent, waiver, supplement,
or other modification with respect to such lease that could reasonably
be expected to be materially adverse in any respect to the Lessee, the
Lessor, or the Lenders without the prior written consent of the Agent,
which consent shall be given or withheld by the Agent in its sole
discretion within ten Business Days of receipt by the Agent of the
proposed amendment, consent, waiver, supplement, or other modification
and any related documents reasonably requested by the Agent; provided,
that the Lessee's obligations hereunder shall continue in full force
and effect notwithstanding any such lease; and
-57-
(ix) sell the Aircraft in accordance with subsection 6.6(i) of
the Credit Agreement or replace the Airframe or any Engine in
accordance with subsection 9.21 of the Credit Agreement;
provided, however, that the rights of any transferee (other than with respect to
any transactions referred to in paragraph (ix) above) who receives possession of
the Airframe or any Engine permitted by the terms hereof shall be made subject
and subordinate to, and any lease permitted by this subsection 10(b) shall be
made expressly subject and subordinate to, the Lease and the lien and security
interest of the Aircraft Chattel Mortgage and all of the Agent's rights
thereunder and the Lessee shall remain primarily liable hereunder for the
performance of all the terms of the Lease to the same extent as if such transfer
had not occurred, and any such instrument of transfer shall include appropriate
provisions for the maintenance and insurance of the Airframe or such Engine, and
any such instrument of transfer shall expressly prohibit any further transfer of
the Airframe or such Engine or any assignment of the rights thereunder; and
provided further, that no such lease, pooling arrangement or other transfer or
relinquishment of the possession of the Airframe or any Engine shall in any way
discharge or diminish any of the Lessee's obligations to the Lessor hereunder.
(c) INSIGNIA. The Lessee shall, at its own cost and expense, cause the
Airframe and each Engine to be legibly marked (in a reasonably prominent
location, which in the case of the Airframe shall be adjacent to the
airworthiness certificate) with such a plate, disk, or other marking of
customary size, and bearing the legend "Owned by Atlas Freighter Leasing III,
Inc., and Mortgaged to Deutsche Bank Trust Company Americas, as the Agent" or
such other legend, as shall in the opinion of the Lessor and the Agent be
appropriate or desirable to evidence the fact that it is subject to the
ownership of the Lessor and the lien and security interest created by the
Aircraft Chattel Mortgage. The Lessee shall not remove or deface, or permit to
be removed or defaced, any such plate, disk, or other marking or the identifying
manufacturer's serial number, and, in the event of such removal or defacement,
shall promptly cause such plate, disk, or other marking or serial number to be
promptly replaced. Except as provided above, the Lessee shall not allow the name
of any person, association or corporation to be placed on the Airframe or any
Engine as a designation that might be interpreted as a claim of ownership or of
any security interest therein, except that the Lessee or any permitted lessee
may place its customary colors and insignia or the insignia of the manufacturer
on the Airframe or any Engine.
(d) HOLDING OUT. The Lessee agrees that it will not at any time
represent or hold out the Lessor, the Agent, any Lender or any Affiliate of any
of them (and will use its best efforts to ensure that none of the Lessor, the
Agent, any Lender or any Affiliate of any of them is not at any time represented
or held out) as being in any way connected or associated with any operation of
the Airframe, any Engine or any Part or any other operations or carriage
undertaken by the Lessee.
(e) NO PLEDGING OF CREDIT. The Lessee is not authorized to, and agrees
that it will not purport to, pledge the credit of the Lessor, any Lender or the
Agent for any maintenance, service, repairs, or overhauls of, modifications to,
or changes or alterations in, the Airframe, any Engine or any Part, or for any
other purpose whatsoever.
(f) TITLE. Title to the Aircraft shall remain vested in the Lessor
subject to the Aircraft Chattel Mortgage and any assignments, charges or other
disposals that the Lessor may
-58-
make in accordance with this Lease. The Lessee shall not do or knowingly permit
to be done anything that would jeopardize the rights of the Lessor as owner of,
or the rights of any Lender in, the Aircraft and shall cause to be taken all
actions necessary or reasonably requested by the Lessor to prevent the rights of
the Lessor and the Lenders in the Aircraft from being jeopardized. The Lessee
shall not hold itself out to any third party as the owner of the Aircraft or any
part of it, and when any third party inquires as to ownership of the Aircraft or
any Engine or any part thereof, it will make clear to such third party that
title to the same is held by the Lessor and that the Aircraft is mortgaged to
the Lenders. Without limiting the foregoing, if at any time subsequent to the
initial registration of the Aircraft, any filing, recording or act is necessary
or reasonably requested by the Lessor to perfect, protect and preserve the
rights and interests of the Lessor in the Aircraft and the rights and interests
of any Lender under the Aircraft Chattel Mortgage, the Lessee, at its own cost
and expense, will procure that such filings, recordings and acts are done
pursuant to applicable laws. At the reasonable request of the Lessor, the Lessee
shall furnish to the Lessor an opinion of counsel or other evidence satisfactory
to the Lessor of each such filing, recordation and act. The Lessor will
reimburse the Lessee for its reasonable out-of-pocket expenses incurred in
complying with its obligations under this subsection 10(f) insofar as they
relate to any Lender; provided, that, to the extent that such expenses relate to
(i) any reregistration of the Aircraft under Section 8 or any sublease of the
Aircraft, (ii) any Default or Lease Event of Default or (iii) any substitution
of Parts or Engines pursuant to the terms hereof, the Lessor shall not be
obligated to reimburse the Lessee for such increase in expense.
(g) INFORMATION AND RECORDS. The Lessee shall:
(i) promptly furnish to the Lessor all such information as the
Lessor may from time to time reasonably request regarding the Aircraft,
any Engine or any part thereof, its use, location and condition; (ii)
keep, or procure that there are kept, the Technical Records and shall
keep as part thereof accurate, complete and current records of all
flights made by the Aircraft, of all flight hours and cycles of the
Airframe, each Engine, the APU, the landing gear and the Parts, and of
all maintenance and repairs carried out on the Aircraft and each Engine
and every Part;
(iii) procure that the Technical Records shall be kept and
maintained in English and in such manner, form and location as the FAA
and any applicable law may from time to time require and shall disclose
the location of all Engines and Parts not installed on the Aircraft,
which Technical Records, unless otherwise required by applicable law,
shall be the property of the Lessor;
(iv) make the Technical Records available to the Lessor (or
any authorized representative of the Lessor) for examination during
normal business hours (or at such other time as the Lessee and the
Lessor shall mutually agree) upon giving reasonable written notice,
provided that, so long as no Default or Lease Event of Default shall
have occurred and be continuing, such examination does not impede the
normal commercial operation of the Aircraft, and provided further that
the cost of any such inspection shall be borne by the Lessee if the
Lessee is thereby shown to be in breach of its material obligations
hereunder, and otherwise by the party making the inspection; and
-59-
(v) promptly on, but in no event later than three Business
Days after, becoming aware of the same, notify the Lessor of: (I) any
total loss with respect to the Aircraft or any Engine, (II) any loss,
theft, damage or destruction to the Aircraft or any Engine or any part
thereof if the potential cost of repairs or replacement may exceed
$5,000,000, (III) any loss, arrest, hijacking, confiscation, seizure,
requisitioning, impounding, taking in execution, detention or
forfeiture of the Aircraft or any part thereof and (IV) any event in
respect of the Aircraft that might reasonably be expected to involve
the Lessor, the Lessee, the Agent or any Lender in any loss or
liability.
(h) ENGINE MAINTENANCE.
(i) In furtherance of, and not in limitation of anything
contained in this Lease or any other Loan Document, at all times each
of the Engines will be subject to an engine maintenance agreement with
General Electric Aircraft Engines ("GEAE"), MTU or such other provider
of engine maintenance services as may be acceptable to the Agent and
the Requisite Lenders, in each case in accordance with an engine
maintenance agreement that is in form and substance satisfactory to the
Agent and the Requisite Lenders (it being understood and agreed that
(x) any engine maintenance agreement with respect to any Engine that is
not a "power by the hour" engine maintenance agreement or similar
agreement that provides for the prepayment of maintenance expense shall
not be satisfactory to the Agent and the Requisite Lenders and (y) the
GEAE and MTU engine maintenance agreements as in effect on the
Restatement Effective Date are satisfactory to the Agent and the
Requisite Lenders). The Lessee will use its commercially reasonable
best efforts to enter into new or amended engine maintenance agreements
covering the AFL III Aircraft and the Engines comprising the Collateral
on a power-by-the-hour basis and on terms requiring the Lessee to make
monthly payments to the engine maintenance contractor in respect of
each engine at the rate of at least $150 per flight hour that such
engine was operated during the prior month. The Lessee shall use its
commercially reasonable best efforts to have the new engine maintenance
agreements provide that (i) the Agent is a third party beneficiary,
(ii) the Agent has a security interest in the agreements and (iii) the
Agent has the right to step into the Lessee's place should any Engines
be returned to the Lenders. Notwithstanding the foregoing, the Lessee
may amend the existing GEAE and MTU engine maintenance agreements to
reduce the hourly rate payable thereunder to the extent attributable to
demonstrable hourly rate and materials cost savings with the relevant
engine maintenance provider (as determined by the Agent) and to the
extent that such reductions could not reasonably be expected to result
in an increase in any "top-up" or "make-whole" or similar payment
thereunder, provided that (x) each Engine shall at all times be subject
to a minimum build standard in respect of each Part thereof of at least
2,000 cycles and (y) the Lessee will not remove any Part from an Engine
if such Part has at least 2,000 cycles remaining (except as permitted
by subsection 7(i) hereof). In addition, the Lessee shall continue to
comply with the terms of each such engine maintenance agreement
(including making all payments when due thereunder) and not take any
action with respect to any credits or equivalents thereof related to
any Engine (or permit any action to be taken), if, in the opinion of
the Agent, such action could cause the loss of any economic benefit
available under any engine maintenance agreement applicable to such
Engine (other than any loss resulting from the performance of
maintenance on such engine in accordance with the
-60-
applicable engine maintenance agreement or as specifically provided in
the following sentence). To the extent under the GEAE, MTU or any other
engine maintenance agreement in effect with respect to any Engine,
there is any surplus cash or credit with respect to any Engine after
such Engine completes a shop visit and the terms of the engine
maintenance agreement applicable to such Engine permit such surplus
cash or credit to be allocated to other engines currently being
overhauled by such engine maintenance provider pursuant to such
agreement, such surplus will first be applied to or for the benefit of
any other Engines and, second to the extent any such surplus can not be
applied to or for the benefit of any other Engine, to or for the
benefit of any other engine. In addition, the Lessee shall, at no
material cost to the Lessee, assist the Agent, for the benefit of the
Lenders, in obtaining the benefit of the credits or equivalents thereof
relating to such Engines in the event that the Agent acquires
possession of the Engines under each such engine maintenance agreement
through direct contractual agreements between the Agent and such engine
maintenance provider.
(ii) ▇▇▇▇-▇▇▇▇▇▇▇▇ Inc. ("S-P") or such other company as may
be appointed by the Requisite Lenders will be retained by the Lessee as
a third party provider to perform the services identified in Schedule
10(h)(ii) attached hereto, S-P will have limited access to the
maintenance module of SAP or an equivalent program (with no ability to
enter or change data) and the Lessee will provide to S-P such
additional documents as S-P reasonably requests from time to time (and
not available to S-P as a third-party provider). the Lessee will
promptly take such actions as the Agent deems reasonably necessary to
resolve each of the outstanding issues raised by S-P's ongoing reviews
of the Lessee's maintenance records and procedures (including, without
limitation, the resolution of all issues regarding the Lessee's failure
to maintain records for each Part constituting Collateral dating back
to the date of manufacture of such Part (each such issue, a
"BACK-TO-BIRTH TRACEABILITY ISSUE") as provided in the immediately
succeeding subclause (iii)). Any dispute concerning any issues raised
by S-P shall be resolved by an arbitrator reasonably satisfactory to
the Lessee and the Requisite Lenders (it being understood and agreed
that a request to resolve any back-to-birth traceability issues with
respect to the Collateral in the manner set forth in the immediately
succeeding subclause (iii) shall be complied with in accordance with
such subclause (iii) and shall not be subject to such dispute
resolution provision). the Lessee will pay the reasonable fees and
expenses of S-P in connection with such review.
(iii) The Lessee will resolve any Back-To-Birth Traceability
Issues by the replacement of any Part with an unresolved back-to-birth
traceability issue at the next shop visit for such Engine; provided
that (i) the Lessee shall not be required to spend more than $3,000,000
during the twelve month period commencing upon November 3, 2003 or any
twelve month period thereafter or $8,000,000 in the aggregate on or
after July 3, 2003 to replace (x) any Parts and (y) any parts of the
engines securing the Credit Agreement, in each case because of
back-to-birth traceability issues, (ii) the amounts in the preceding
clause (i) shall be net of any salvage value attributable to the
removed Parts or parts, as the case may be, and (iii) the cost to
replace any Part or part, as the case may be, that is scheduled to be
(or otherwise would have been) removed at such shop visit shall not be
included in the calculation in clause (i) of this proviso.
-61-
SECTION 11. Replacement and Pooling of Parts; Alterations,
Modifications and ADDITIONS.
(a) Except as otherwise provided in subsection 11(d), the Lessee, at
its own cost and expense, will promptly replace all Parts, which may from time
to time be incorporated or installed in or attached to the Airframe or any
Engine and which may from time to time become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for use
for any reason whatsoever. In addition, in the ordinary course of maintenance,
service, repair or testing, the Lessee at its own cost and expense may remove
any Parts, whether or not worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use;
provided, that, except as otherwise provided in subsection 11(d), the Lessee at
its own cost and expense shall replace such Parts as promptly as practicable.
All replacement Parts shall be owned by the Lessor free and clear of all Liens
(except Permitted Encumbrances and for pooling arrangements to the extent
permitted by subsection 11(b)), and shall be in as good operating condition as,
and shall have a value and utility at least equal to, the Parts replaced,
assuming that such parts were in the condition and repair required to be
maintained by the terms hereof.
All Parts at any time removed from the Airframe or any Engine shall
remain the property of the Lessor and shall remain subject to the lien and
security interest of the Aircraft Chattel Mortgage, no matter where located,
until such time as such Parts shall be replaced by parts that have been
incorporated or installed in or attached to the Airframe or any Engine and that
meet the requirements for replacement parts specified above. Immediately upon
any replacement Part becoming incorporated or installed in or attached to the
Airframe or any Engine as above provided, without further act, (A) title to such
replacement Part shall vest in and such replacement part shall become the
property of the Lessor and shall become subject to this Lease and the lien and
security interest of the Aircraft Chattel Mortgage and shall be deemed part of
the Airframe or such Engine for all purposes hereof to the same extent as the
property originally comprising, or installed on, such Airframe or such Engine,
and (B) title to the replaced part shall no longer be the property of the Lessor
and shall thereupon become free and clear of all rights of the Lessor hereunder
and all rights derivative of the Lessor's and shall no longer be deemed a Part
hereunder.
(b) Any Part removed from the Airframe or any Engine as provided in
subsection 11(a) may be subjected by the Lessee to a normal pooling arrangement
of the type customary in the airline industry entered into by the Lessee in the
ordinary course of its business and entered into with Domestic Air Carriers that
are not the subject of any bankruptcy, insolvency, or similar proceeding,
voluntary or involuntary; provided, that the Part replacing such removed Part
shall be incorporated or installed in or attached to the Airframe or such Engine
in accordance with subsection 11(a) as promptly as possible after the removal of
such removed part. In addition, any replacement Part when incorporated or
installed in or attached to the Airframe or any Engine in accordance with
subsection 11(a) may be owned by any third party subject to such a pooling
arrangement, provided that the Lessee, at its expense, as promptly thereafter as
possible, either (A) causes such replacement Part to become property of the
Lessor and subject to the lien and security interest of the Aircraft Chattel
Mortgage in accordance with subsection 11(a) free and clear of all Liens (except
Permitted Encumbrances and the Aircraft Chattel Mortgage relating to the
Aircraft) or (B) replaces such replacement Part by incorporating or installing
in or attaching
-62-
to the Airframe or such Engine a further replacement Part owned by the Lessee
which shall become the property of the Lessor subject to the lien and security
interest of the mortgage free and clear of all Liens (except Permitted
Encumbrances and the Aircraft Chattel Mortgage relating to the Aircraft).
(c) The Lessee, at its own cost and expense, shall make or cause to be
made such alterations and modifications in and additions to the Airframe and the
Engines as may be required from time to time to meet the standards of the FAA or
other governmental authority having jurisdiction; PROVIDED, that the Lessee may,
in good faith, contest the validity or application of any such standard in any
reasonable manner that shall not adversely affect the Lessor's or the Agent's
respective interests. The Lessee also agrees, at its own cost and expense, to
make or cause to be made such alterations and modifications in and additions to
the Airframe and the Engines as may be required from time to time to meet the
standards or requirements of any directive issued by a manufacturer relating to
the Airframe or any Engine. In addition, so long as no Default or Lease Event of
Default shall have occurred and be continuing, the Lessee, at its own cost and
expense, may from time to time make such alterations and modifications in and
additions to the Airframe and any Engine as the Lessee may deem desirable in the
proper conduct of its business, provided that no such alteration, modification
or addition diminishes the value or utility or impairs the condition or
airworthiness of the Airframe or such Engine below the value, utility, condition
or airworthiness thereof immediately prior to such alteration, modification or
addition, assuming that the Airframe or such Engine were then in the condition
and airworthiness required to be maintained by the terms of this Lease.
(d) All Parts incorporated or installed in or attached to or added to
the Airframe or any Engine as the result of such alteration, modification or
addition shall, without further act, become the property of, and title to such
parts shall vest in the Lessor and shall be subject to the lien and security
interest of the Aircraft Chattel Mortgage; PROVIDED, that, so long as no Default
or Lease Event of Default shall have occurred and be continuing, the Lessee may
remove and not replace any such Part if it (A) is in addition to, and not in
replacement of or in substitution for, any Part incorporated or installed in or
attached to the Airframe or such Engine on the date hereof, or any Part in
replacement of or substitution for any such Part, (B) is not required to be
incorporated or installed in or attached or added to the Airframe or such Engine
pursuant to the terms of subsection 10(a) hereof or any other provision of this
Lease or the Aircraft Chattel Mortgage and (C) can be removed from the Airframe
or such Engine without diminishing or impairing the value, utility or
airworthiness that the Airframe or such Engine would have had at such time had
such alteration, modification or addition not occurred, assuming that the
Airframe or such Engine was otherwise in the condition required by this Lease
and the Aircraft Chattel Mortgage. Upon the removal by the Lessee of any such
Part, as above provided, title thereto shall, without further act, be free and
clear of the interests of the Lessor and all rights derivative of the Lessor's
and such Part shall no longer be deemed a Part hereunder.
(e) In no event shall the Lessor bear any liability or cost whatsoever
for (i) any alteration or modification of, or addition to, the Airframe or any
Engine, (ii) any grounding of the Aircraft, (iii) suspension of certification of
the Aircraft, or (iv) loss of revenue suffered by the Lessee for any reason
whatsoever.
SECTION 12. INDEMNITIES. (a) Holdings and the Lessee agree to
pay, and hereby indemnify, on an after-tax basis, the Lessor and its assignees,
if any, from and against,
-63-
any and all fees and taxes, levies, imposts, duties, charges or withholdings,
together with any penalties, fines or interest thereon (any of the foregoing for
the purposes of this Section 12 being called a "TAX"), that may from time to
time be imposed on or asserted against the Lessor and its assignees, if any, or
the Airframe or any Engine or any part thereof or interest therein by any
federal, state or local government or other taxing authority in the United
States or by any foreign government or subdivision thereof or by any foreign
taxing authority in connection with, relating to or resulting from: (i) the
Airframe or any Engine or any part thereof or interest therein, (ii) the
manufacture, purchase, ownership, mortgaging, lease, sublease, use, storage,
maintenance, sale or other disposition of the Airframe or any Engine, (iii) any
rentals or other earnings therefor or arising therefrom or the income or other
proceeds received with respect thereto, or (iv) this Lease or the Aircraft
Chattel Mortgage; provided, however, that there shall be excluded from any
indemnification under this subsection 12(a) any Lessor Tax unless the payment of
any such Tax shall be a condition to the enforceability of the Aircraft Chattel
Mortgage or the perfection of the lien thereof or unless proceedings shall have
been commenced to foreclose any lien that may have attached as security for such
Tax, nothing in this Section shall require the payment of any Tax so long as and
to the extent that the validity thereof shall be contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
the Lessee shall have set aside on its books adequate reserves with respect
thereto in accordance with generally accepted accounting principles.
(b) Holdings and the Lessee jointly and severally agree to defend,
indemnify, pay and hold harmless the Lessor, the Agent and each Lender, and the
officers, directors, partners, employees, agents and affiliates of the Lessor,
the Agent and each Lender, (collectively called the "INDEMNITEES") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding, commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential party thereto), whether direct, indirect or consequential and
whether based on any federal, state or foreign laws, statutes, rules or
regulations (including, without limitation, securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable or other cause or on contract or otherwise, that may be imposed on,
incurred by, or asserted against any such Indemnitee, in any manner relating to
or arising out of this Lease or the other Transaction Documents or the
transactions contemplated hereby or thereby (including, without limitation, the
Lenders' agreement to make the Loans to the Lessor or the use or intended use of
the proceeds of any of the Loans) (collectively called the "INDEMNIFIED
LIABILITIES"); provided, that the Lessee shall not have any obligation to any
Indemnitee hereunder with respect to any Indemnified Liabilities to the extent
that such Indemnified Liabilities arise solely from the gross negligence or
willful misconduct of that Indemnitee as determined by a final judgment of a
court of competent jurisdiction. To the extent that the undertaking to defend,
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Lessee
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.
-64-
SECTION 13. EVENT OF LOSS. (a) If an Event of Loss shall occur with
respect to an Airframe or an Engine, the Lessee will promptly notify the Lessor
and the Agent thereof in writing (in any event within five (5) days of such
occurrence) and will, not later than 180 days after the occurrence of such Event
of Loss, convey or cause to be conveyed to the Lessor, free of all Liens (other
than Permitted Encumbrances) title to an Acceptable Alternate Airframe or
Acceptable Alternate Engine, as the case may be. Prior to or at the time of any
such conveyance, the Lessee, at its own expense, will, as conditions to such
transfer, (i) furnish the Lessor with a warranty (as to title) ▇▇▇▇ of sale,
from a person and in form and substance reasonably satisfactory to the Lessor,
with respect to such Acceptable Alternate Airframe or Acceptable Alternate
Engine, (ii) cause a Lease Supplement to be filed for recording pursuant to
Title 49 of the United States Code, as amended, (iii) furnish the Lessor with
such evidence of the Lessee's title to such Acceptable Alternate Airframe or
Acceptable Alternate Engine and of compliance with the insurance provisions of
Section 14 hereof with respect to such Acceptable Alternate Airframe or
Acceptable Alternate Engine as the Lessor may reasonably request, (iv) furnish
the Lessor with an opinion of the Lessee's counsel to the effect that title to
such Acceptable Alternate Airframe or Acceptable Alternate Engine has been duly
conveyed to the Lessor free and clear of all Liens except Permitted Encumbrances
and the Lessor and the Agent continue to have 1110 protection with respect to
such Aircraft. Upon satisfaction of the foregoing conditions, the Lessor shall
transfer to or at the direction of the Lessee without recourse or warranty all
of the Lessor's right, title and interest, if any, in and to (A) the Airframe or
Engine with respect to which such Event of Loss occurred and furnish to or at
the direction of the Lessee, at the Lessee's expense, a ▇▇▇▇ of sale without
warranty other than to the absence of a Lessor Lien in form and substance
reasonably satisfactory to the Lessee, evidencing such transfer and (B) all
claims, if any, against third parties, for damage to or loss of the Airframe or
Engine subject to such Event of Loss, and such Airframe or Engine shall
thereupon cease to be an Airframe or Engine leased hereunder. The Lessee shall
cooperate with the Lessor and take all such actions as shall be requested by the
Lessor so that the Lessor complies with subsection 4(f) of the Aircraft Chattel
Mortgage. For all purposes hereof, each such Acceptable Alternate Airframe or
Acceptable Alternate Engine shall, after such conveyance, be deemed part of the
property leased hereunder, and shall be deemed an "Airframe" or "Engine," as the
case may be. No Event of Loss under the circumstance contemplated by the terms
of this paragraph (a) shall result in any reduction in Basic Rent or any other
obligation of the Lessee hereunder.
(b) With respect to the Airframe or any Engine, as between the Lessor
and the Lessee, any payments on account of an Event of Loss (other than
insurance proceeds or other payments the application of which is provided for in
Section 14 below) received from any governmental authority or other person shall
be applied as follows:
(A) if such payments are received with respect to an Event of
Loss to an Airframe or Engine that has been or is being replaced by the
Lessee pursuant to the terms hereof, so long as there shall exist no
Default or Lease Event of Default, such payment shall be paid over to
or retained by the Lessee upon satisfaction of the conditions for
replacement contained in paragraph (a) above and until such time shall
be held by the Lessor as security for the obligations of the Lessee
under the Lease; and
(B) if such payments are received with respect to an Event of
Loss with respect to which no replacement is being effected, so much of
such payments as shall not exceed
-65-
(A) the Stipulated Loss Value as of the date of payment plus (B) all
unpaid Supplemental Rent due through the date of payment, plus (C) all
unpaid Basic Rent for the period ending on the date of payment shall be
paid by the Lessee to the Lessor and following the foregoing
application, the balance, if any, of such payments shall be distributed
between the Lessee and the Lessor as their respective interests may
appear;
(c) In the event of a requisition for use by the United States
Government of the Airframe or any Engine, the Lessee shall promptly notify the
Lessor and the Agent of such requisition and all of the Lessee's obligations
under the Lease shall continue to the same extent as if such requisition had not
occurred. Any payments received by the Lessor or the Lessee from the United
States Government for the use of the Airframe or such Engine, to the extent
allocable to the Term, shall be paid over to, or retained by, the Lessee.
(d) Any amount referred to in this Section 13 that is payable to or
retained by the Lessee shall not be paid to the Lessee or retained by the
Lessee, if at the time of such payment or retention any Default or Lease Event
of Default shall have occurred and be continuing, but shall be held by or paid
over to the Lessor as security for the obligations of the Lessee under the Lease
and shall be applied against the Lessee's obligations hereunder as and when due.
At such time as there shall not be continuing any such Default or Lease Event of
Default, such amount shall be paid to the Lessee to the extent not previously
applied in accordance with the preceding sentence.
SECTION 14. INSURANCE. (a) The Lessee will at all times carry and
maintain on or with respect to the Aircraft, at its own cost and expense, public
liability (including, without limitation, contractual liability, cargo
liability, passenger legal liability, bodily injury and product liability, but
excluding manufacturer's product liability) and property damage insurance with
insurers of recognized responsibility and reputation in amounts, of the type and
covering the risks customarily carried with respect to similar aircraft by
corporations engaged in the same or similar business and similarly situated with
the Lessee but in no event in an amount less than $500,000,000 per occurrence
(which shall include war risk, governmental confiscation and expropriation and
allied perils coverage). During any period when the Aircraft is on the ground
and not in operation, the Lessee may carry or cause to be carried, in lieu of
insurance required by this Section, insurance otherwise conforming with the
provisions of this Section except that the amounts of coverage shall not be
required to exceed the amounts of comprehensive airline liability insurance, and
the scope of risk covered and type of insurance shall be the same, as are
customarily carried with respect to similar aircraft on the ground by
corporations engaged in the same or similar business and similarly situated with
the Lessee. Any policies of insurance carried in accordance with this Section 14
and any policies taken out in substitution or replacement of any such policies
(A) shall be amended to name the Agent, the Lenders and the Lessor and their
respective shareholders, directors, officers, members, partners, servants,
employees and agents as additional named insureds, (B) shall be primary without
right of contribution from any other insurance that is carried by the Lessee,
(C) shall expressly provide that all provisions thereof, except the limits of
the liability, shall operate in the same manner as if there were a separate
policy covering each insured, and (D) shall provide that the insurer shall waive
any right of subrogation against the Agent, the Lenders and the Lessor.
(b) The Lessee will at all times carry and maintain with insurers of
recognized responsibility and reputation on or with respect to the Aircraft, at
its own cost and expense, aircraft ground and flight all-risk hull insurance as
well as fire and extended coverage insurance
-66-
on the Engines and other equipment while removed from the Airframe, which shall
include war risk, governmental confiscation and expropriation (other than by the
United States Government) and allied perils (if and to the extent that the same
shall be maintained by the Lessee with respect to similar aircraft owned or
operated by the Lessee on the same routes or if the Aircraft or another aircraft
is operated on routes where the custom is for Domestic Air Carriers similarly
situated with the Lessee flying comparable routes with similar aircraft to carry
such insurance, of the type usually carried by corporations engaged in the same
or similar business and similarly situated with the Lessee) including (A)
strikes, riots, civil commotions or labor disturbances, (B) any malicious act or
act of sabotage and (C) hijacking (air piracy) or any unlawful seizure or
wrongful exercise of control of the Aircraft or crew in flight (including any
attempt at such seizure or control) made by any person or persons aboard the
Aircraft or another aircraft acting without the consent of the insured;
provided, that such insurance (including any self-insurance to the extent
permitted below) shall at all times be for an agreed value not less than the
greater of the Stipulated Loss Value as of the closest Stipulated Loss
Determinate Date and $50,000,000. During any period when the Aircraft is on the
ground and not in operation, the Lessee may carry or cause to be carried, in
lieu of the insurance required by this Section, insurance otherwise conforming
hereto except that the scope of risk covered and type of insurance shall be the
same as are from time to time customarily carried with respect to similar
aircraft by corporations engaged in the same or similar business and similarly
situated with the Lessee for aircraft on the ground in an amount at least equal
to the applicable amount provided above. All such insurance shall name the
Agent, the Lenders and the Lessor as additional insureds and loss payees to the
extent that their interest may appear and shall provide that any loss to the
Airframe or an Engine in excess of $2,000,000 (and, if a Default or Lease Event
of Default has occurred and is continuing, any such loss) shall be payable to
the Lessor and to the Agent for the benefit of the Lenders; and shall be primary
without right of contribution from any other insurance that is carried by the
Lessor or the Agent with respect to its interest therein. In the event that the
Lessee arranges separate insurances to cover the all-risk hull insurance and the
war and perils hull insurance, the Lessee shall ensure that the insurers
subscribing to such insurances shall agree to a 50/50 claims funding arrangement
in the event of any dispute as to which insurance is applicable.
The Lessee may self-insure, by way of deductible or equivalent
provisions in insurance policies, the risks required to be insured against
pursuant to this subsection 14(b) in such reasonable amounts as are then
applicable to other similar aircraft or spare engines in the Lessee's fleet that
are of a value comparable to the Aircraft, and as are not substantially greater
than amounts self-insured by corporations engaged in the same or similar
business and similarly situated with the Lessee; provided, however, that the
Lessee may not self-insure in an amount in excess of $1,000,000 without the
prior written consent of the Lessor and the Agent.
(c) Any policies of insurance required pursuant to either paragraph (a)
or paragraph (b) above shall: (A) be amended to name the Lessor, the Agent and
the Lenders as additional named insureds, but without the Lessor, the Agent or
the Lenders being thereby liable for premiums (and the insurance companies
waiving their right with respect thereto), (B) provide that in respect of the
interest of (x) the Lessor or (y) the Agent or the Lenders in such policies the
insurance shall not be invalidated by any action or inaction of (x) the Lessee
or (y) the Lessee or the Lessor, respectively, and shall insure the interests of
the Agent and the Lenders regardless of any breach or violation by the Lessee,
the Lessor or any Person (other than the Agent) of any warranty, declaration,
condition or exclusion from coverage contained in such policies, (C)
-67-
provide that if such insurance is cancelled, or if any material change is made
in the coverage that affects the interest of the Lessor, the Agent or any
Lender, or if such insurance is allowed to lapse for nonpayment of premium, such
cancellation, change or lapse shall not be effective as to the Lessor, the Agent
or any Lender for thirty (30) days (seven (7) days, or such shorter or longer
period as may from time to time be customarily available in the industry, in the
case of any war risk and allied perils coverage) after receipt by the Agent and
the Lessor of written notice from such insurers of such cancellation, change or
lapse, (D) be in full force and effect throughout any geographical areas at any
time traversed by the Aircraft and shall be payable in U.S. dollars, (E) waive
any right of the insurers to any setoff or counterclaim or any other deduction,
whether by attachment or otherwise in respect of any liability of the Lessee,
the Lessor or the Agent except in respect of outstanding premium due for the
Aircraft, (F) waive all rights of subrogation against the Lessor and the Agent
and (G) include a year 2000 date recognition writeback.
(d) In the case of a lease or contract with the United States or any
agency or instrumentality thereof in respect of the Airframe or any Engine, a
valid agreement by the United States or such agency or instrumentality to
indemnify the Lessee against the same risks against which the Lessee is required
hereunder to insure shall be considered adequate insurance with respect to the
Airframe or such Engine to the extent of the risks and in the amounts that are
the subject of any such agreement to indemnify.
(e) On or prior to the date hereof, and annually thereafter on or prior
to January 31, the Lessee will furnish to the Lessor and the Agent (A) a report
signed by a firm of independent aircraft insurance brokers, appointed by the
Lessee and not objected to by the Lessor or the Agent, describing in reasonable
detail acceptable to the Lessor and the Agent the insurance then carried and
maintained on or with respect to the Aircraft and the Engines and stating that
in the opinion of such firm such insurance complies with the terms of this
Section 14 and is adequate to protect the interests of the Lessee, the Lessor
and the Agent, and (B) certificates of the insurer or insurers evidencing the
insurance covered by the report. The Lessee will cause such brokers to advise
the Agent in writing (x) promptly of any default in the payment of any premium
and of any other act or omission on the part of the Lessee of which such firm
has knowledge and that might invalidate or render unenforceable, in whole or in
part, any insurance on the Aircraft or any Engine and (y) at least thirty (30)
days prior to the expiration or termination date, or date of effectiveness of
any material change, of any insurance carried and maintained on the Aircraft
hereunder.
(f) All insurance payments and other payments received by the Agent,
the Lessor or the Lessee from insurance referred to in paragraph (b) above shall
be, if received by the Lessor or the Lessee, immediately paid to the Agent, as
agent for itself and the Lessor and shall be paid to the Lessee upon compliance
by the Lessee with the terms of Section 13, provided that no Default or Lease
Event of Default shall have occurred and be continuing.
(g) The Lessee shall not create or permit to exist any Lien over the
insurances required by this Lease, or its interest therein, save as constituted
by this Lease and the Credit Agreement.
(h) If at any time the Lessee fails to maintain in full force and
effect insurances in compliance with any provision of this Section 14, the
Lessor shall be entitled but not bound (without prejudice to any other rights
that it may have or acquire under this Lease by reason of
-68-
such failure) (i) to pay any premiums due or to effect or maintain insurances
satisfactory to the Lessor or otherwise remedy such failure in such manner as
the Lessor considers appropriate, and the Lessee shall immediately reimburse the
Lessor in full for any amount so expended by the Lessor and/or (ii) at any time
while such failure is continuing, to require the Aircraft to remain at any
airport, or to proceed to and remain at any airport designated by the Lessor,
the Agent or the Lenders, until such failure is remedied.
(i) Nothing in this Section 14 shall prohibit the Agent, or any Lender
or the Lessor from obtaining insurance with respect to the Aircraft for its own
account. The Lessee may, at its own expense, carry insurance with respect to its
interest in the Aircraft in amounts in excess of that required to be maintained
by this Section 14. No insurance maintained by the Agent, the Lessor or any
Lender shall prevent the Lessee from carrying the insurance required or
permitted by this Section. Proceeds of any such insurance carried by the Lessee,
the Agent or any Lender shall be paid as provided in the insurance policy
relating thereto and no such Person shall have any duty to obtain any such
insurance.
(j) To the extent any of the Aircraft or Engines or any component
thereof are leased or under contract to the United States or any agency or
instrumentality thereof pursuant to the Civil Reserve Air Fleet Program or a
similar program, the Lessee shall take such actions as the Agent may reasonably
request to ensure that the Agent, for the benefit of the Lenders, (i) is a loss
payee under any insurance policy or indemnity granted to the Lessee or any of
its affiliates by the United States or any agency or instrumentality thereof
and/or (ii) has a perfected security interest in the proceeds of any payments
made by the United States or any agency or instrumentality thereof pursuant to
any such insurance policy or indemnity.
SECTION 15. ASSIGNMENT. Except as permitted in accordance with Section
10, the Lessee will not, without the prior written consent of the Lessor, assign
any of its rights hereunder or in the Aircraft. The Lessor agrees that it will
not assign or convey its right, title or interest in or to this Lease or the
Aircraft except in accordance with the Credit Agreement. Subject to the
foregoing, the terms and provisions of this Lease shall be binding upon and
inure to the benefit of the Lessor and the Lessee and their respective
successors and permitted assigns and shall inure to the direct benefit of, and
shall also be enforceable by, the Agent and the Lenders, and their respective
successors, as assignees of the Lessor.
SECTION 16. EVENTS OF DEFAULT. Each of the following events shall
constitute a lease event of default ("Lease Event of Default") (whether any such
event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body) and each such Lease Event of Default shall continue so long
as, but only as long as, it shall not have been remedied:
(a) the Lessee shall fail to pay any installment of Rent,
Stipulated Loss Value or any other amounts owing pursuant to this Lease
within 5 days after the due date thereof;
(b) the Lessee shall fail (i) to comply in any material
respect with the maintenance standards or (ii) to procure insurance
coverage as prescribed herein or (iii) to operate the Aircraft or any
Engine at a time or in a place where insurance described in Section 14
shall not be in effect;
-69-
(c) there shall exist a Lease Event of Default under, and as
defined in, any other Lease or the Lessee or Holdings shall fail to
perform or observe any other covenant or condition set forth in this
Lease or any other Transaction Document, which failure shall remain
unremedied for a period of 10 Business Days after written notice from
the Lessor or the Agent, unless action has been taken within 15
Business Days to remedy such breach and such action is being diligently
pursued, provided such breach is capable of being remedied;
(d) any representation or warranty of the Lessee or Holdings
in any Transaction Document or in any certificate furnished pursuant to
any Transaction Document is found to be incorrect in any material
respect at the time it was made and such breach shall remain unremedied
for a period of 15 Business Days after written notice thereof;
(e) (i) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of Holdings or any of its
Subsidiaries in an involuntary case under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, which decree or order is not stayed; or any other
similar relief shall be granted under any applicable federal or state
law, or (ii) an involuntary case shall be commenced against Holdings or
any of its Subsidiaries under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over Holdings
or any of its Subsidiaries, or over all or a substantial part of its
property, shall have been entered; or there shall have occurred the
appointment of an interim receiver, trustee or other custodian of
Holdings or any of its Subsidiaries; or a warrant of attachment,
execution or similar process shall have been issued against any
substantial part of the property of Holdings or any of its
subsidiaries, and any such event described in this clause (ii) shall
continue for 60 days unless dismissed, bonded or discharged;
(f) (i) Holdings or any of its Subsidiaries shall have an
order for relief entered with respect to it or commence a voluntary
case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case,
under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a
substantial part of its property; or Holdings or any of its
Subsidiaries shall make any assignment for the benefit of creditors; or
(ii) Holdings or any of its Subsidiaries shall be unable, or shall fail
generally, or shall admit in writing its inability, to pay its debts as
such debts become due; or the Board of Directors of Holdings or any of
its Subsidiaries (or any committee thereof) shall adopt any resolution
or otherwise authorize any action to approve any of the actions
referred to in clause (i) above or this clause (ii);
(g) any order, judgment or decree shall be entered against
Holdings or any of its Subsidiaries decreeing the dissolution or split
up of Holdings or any of its Subsidiaries and such order shall remain
undischarged or unstayed for a period in excess of 30 days;
-70-
(h) registration of the Aircraft is canceled and is not cured
within 15 Business Days;
(i) the Aircraft is arrested or detained in exercise of any
lien and the Lessee does not procure the release of the Aircraft within
15 business days;
(j) there shall have occurred an Event of Default under the
Amended Aircraft Credit Facility (whether or not such Event of Default
is thereafter waived by the requisite lenders);
(k) the Lessee shall not be a Certificated Air Carrier within
the meaning of Title 49 of the United States Code, as amended;
(l) Holdings or any of its Subsidiaries shall fail to pay when
due following applicable grace periods (a) any principal of or interest
on any Indebtedness in an individual principal amount of $5,000,000 or
more or any items of Indebtedness with an aggregate principal amount of
$10,000,000 or more or (b) any Contingent Obligation in an individual
principal amount of $5,000,000 or more or any Contingent Obligations
with an aggregate principal amount of $10,000,000 or more, in each case
beyond the end of any grace period provided therefor; or (ii) there
shall exist a breach by Holdings or any of its Subsidiaries with
respect to any other material term of (a) any evidence of any
Indebtedness in an individual principal amount of $5,000,000 or more or
any items of Indebtedness with an aggregate principal amount of
$10,000,000 or more or any Contingent Obligation in an individual
principal amount of $5,000,000 or more or any Contingent Obligations
with an aggregate principal amount of $10,000,000 or more or (b) any
loan agreement, mortgage, indenture or other agreement relating to such
Indebtedness or Contingent Obligation(s), if the effect of such breach
or default is to cause, or to permit the holder or holders of that
Indebtedness or Contingent Obligation(s) (or a trustee on behalf of
such holder or holders) to cause, that Indebtedness or Contingent
Obligation(s) to become or be declared due and payable prior to its
stated maturity or the stated maturity of any underlying obligations,
as the case may be (upon the giving or receiving of notice, lapse of
time, both, or otherwise);
(m) any money judgment, writ or warrant of attachment or
similar process involving (i) in any individual case an amount in
excess of $5,000,000 or (ii) in the aggregate at any time an amount in
excess of $10,000,000 (in either case not adequately covered by
insurance as to which a solvent and unaffiliated insurance company has
acknowledged coverage) shall be entered or filed against the Lessee or
any of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of 60
days (or in any event later than five days prior to the date of any
proposed sale thereunder);
(n) (i) (a) any Person or any two or more Persons acting in
concert shall have acquired beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Exchange
Act), directly or indirectly, of Securities of Holdings (or other
Securities convertible into such Securities) representing 40% or more
of the combined voting power of all Securities of the Lessee entitled
to vote in the election of directors, other than Securities having such
power only by reason of the
-71-
happening of a contingency; or (b) the Board of Directors of the Lessee
shall not consist of a majority of Continuing Directors; or (c) a
"Change of Control" shall occur under any of the Pass Through Trust
Documents, or any of the Material Agreements (as in effect on the date
of such occurrence); or (d) if at any time Holdings ceases to own
directly 100% (excluding director's qualifying shares, if any) of (i)
the outstanding capital stock of the Lessee and Polar Air or (ii) any
outstanding Securities (other than capital stock of the Lessee)
entitled to vote in the election of the directors of the Lessee; or (e)
if at any time Holdings grants a Lien with respect to the stock of the
Lessee or any Subsidiary Guarantor;
(o) if any consent, authorization, license or approval of, or
registration with or declaration to any governmental entity required by
the Lessee to authorize, or required by the Lessee in connection with,
the execution, delivery, validity, enforceability or admissibility in
evidence of this Lease or any other Transaction Document or the
performance by the Lessee of its obligations hereunder or thereunder is
modified in a manner unacceptable to the Lessor or is withheld, or is
revoked, suspended, canceled, withdrawn or terminated or expires and is
not renewed, or otherwise ceases to be in full force and effect and the
Lessor reasonably determines that such modification, withholding
revocation, suspension, cancellation, withdrawal, termination or
non-renewal or cessation may significantly prejudice its rights under
or in connection with this Lease, may have a material adverse effect on
the Lessee's ability to perform its obligations hereunder or jeopardize
the respective interests of the Lessor or any Lender in the Aircraft or
may give rise to criminal liability of or the Lessor;
(p) if any event occurs, circumstance arises or proceeding is
taken with respect to the Lessee in any jurisdiction to which the
Lessee is subject that has an effect equivalent or similar to any of
the events mentioned in subsections 16(e) or (f);
(q) if the Lessee suspends or ceases or threatens to suspend
or cease to carry on its business;
(r) if the Lessee disposes, threatens to dispose or takes any
action to dispose of all or a material part of its assets, whether by
one or a series of transactions, related or not, and such disposal or
action will have a material adverse effect on its ability to perform
its obligations under this Lease or any other Transaction Document;
(s) if the existence, validity, enforceability or priority of
the rights of the Lessor in respect of the Aircraft hereunder, or the
rights of any Lender, as mortgagee, of the Aircraft or the Lender as
assignee of the insurances are challenged by the Lessee or any other
person claiming through the Lessee;
(t) if the Lessee sells or executes any ▇▇▇▇ of sale affecting
the Aircraft or any interest therein or agrees or purposes to do any of
the same, or contests in any legal proceedings the Lessor's ownership
of the Aircraft;
(u) if any governmental authority shall have condemned, seized
or appropriated all or substantially all of the property of the Lessee;
or
-72-
(v) failure of Holdings and/or its Subsidiaries to deliver to
the Administrative Agent by no later than December 1, 2004 fully
executed amendments and any other documents in connection therewith to
the Pass Through Trust Documents and the leases related thereto on
substantially the same terms as the Restructuring Documents and such
documents shall be in full force and effect.
SECTION 17. REMEDIES. Upon the occurrence of any Lease Event
of Default and at any time thereafter so long as the same shall be continuing,
the Lessor may, at its option, declare, by written notice to the Lessee, this
Lease to be in default, except that upon the occurrence of a Lease Event of
Default referred to in clauses (e), (f) or (g) of Section 16, this Lease shall
be deemed declared in default without any further act or notice, and at any time
thereafter, the Lessor may do one or more of the following with respect to all
or any part of the Aircraft, Airframe and any or all of the Engines as the
Lessor in its sole discretion shall elect:
(a) upon the written demand of the Lessor and at the Lessee's
expense, promptly return the Aircraft, Airframe or any Engine as the
Lessor may so demand to the Lessor or its order in the manner and
condition required by, and otherwise in accordance with all the
provisions of, Section 8 hereof as if such Airframe or Engine were
being returned at the end of the Term, or the Lessor, at its option,
may enter upon the premises where all or any part of the Aircraft,
Airframe or any Engine is located and take immediate possession of and
remove the same by summary proceedings or otherwise, all without
liability accruing to the Lessor for or by reason of such entry or
taking of possession or removal, whether for the restoration of damage
to property caused by such action or otherwise; provided, that if the
Lessee shall for any reason fail to execute and deliver instruments
deemed necessary or advisable by the Lessor to obtain possession of the
Aircraft, Airframe and Engines, the Lessor shall be entitled, in a
proceeding (which proceeding may be done on an ex parte basis without
notice to the Lessee), to a preliminary injunction granting the Lessor
the right to possess the Aircraft without having to post a bond or
provide any other type of security and to a final judgment for specific
performance, conferring the right to immediate possession upon the
Lessor and requiring the Lessee to execute and deliver such instruments
to the Lessor;
(b) sell the Aircraft, Airframe or any Engine at public or
private sale, as the Lessor may determine, or otherwise dispose of,
hold, use, operate, lease to others or keep idle the Aircraft, Airframe
or any Engine as the Lessor, in its sole discretion, may determine, all
free and clear of any rights of the Lessee, except as hereinafter set
forth in this Section 17, and without any duty to account to the Lessee
with respect to such action or inaction;
(c) whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a)
or (b) above with respect to the Aircraft, the Lessor, by written
notice to the Lessee specifying a payment date, may demand that the
Lessee pay to the Lessor, and the Lessee shall pay the Lessor, on the
payment date so specified, any Basic Rent due on or before the payment
date so specified plus, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the installments of Basic Rent for the
Aircraft due after the date specified in such notice if any), an amount
equal to the Stipulated Loss Value for the Aircraft computed as of the
immediately preceding Stipulated Loss Determination Date, together with
interest, if any,
-73-
at the Past Due Rate on the amount of such Basic Rent and Stipulated
Loss Value from the Stipulated Loss Determination Date as of which
Stipulated Loss Value is computed until the date of actual payment; and
upon such payment of liquidated damages and all Supplemental Rent then
due and payable by the Lessee hereunder, the Lessor shall transfer
(without any representation, recourse or warranty whatsoever) the
Aircraft to the Lessee and the Lessor shall execute and deliver such
documents evidencing such transfer and take such further action as the
Lessee shall reasonably request to effect such transfer;
(d) in the event that the Lessor, pursuant to paragraph (b)
above, shall have sold the Aircraft, the Lessor, in lieu of exercising
its rights under paragraph (c) above with respect to such Aircraft,
may, if it shall so elect, demand that the Lessee pay the Lessor, and
the Lessee shall pay to the Lessor, on the date of such sale, any
accrued rent with respect to the Aircraft due on or prior to such date
plus, as liquidated damages for loss of a bargain and not as a penalty,
the amount of any deficiency between the net proceeds of such sale
(after deduction of all reasonable costs of sale) and the Stipulated
Loss Value of such Aircraft, computed as of the date of such sale
together with interest, if any, on the amount of such deficiency, at
the Past Due Rate, from the date of such sale to the date of actual
payment of such amount;
(e) the Lessor may terminate or cancel this Lease or proceed
by appropriate court action to enforce the terms hereof or to recover
damages for breach hereof; and
(f) the Lessor may exercise any other right or remedy which
may be available to it under applicable law.
In addition, the Lessee shall be liable, except as otherwise
provided above, without duplication of amounts payable hereunder, for any and
all unpaid Rent due hereunder before, after or during the exercise of any of the
foregoing remedies and for all reasonable legal fees and other costs and
expenses incurred by the Lessor and the Agent and any Lender (including
reasonable allocated time charges of internal counsel for the Lender) in
connection with the Lease Event of Default, the exercise of remedies and the
return of the Airframe or any Engine in accordance with the terms of Section 8
hereof or in placing such Airframe or Engine (which for purposes hereof, shall
include, without limitation, all logs, manuals and data and inspection,
maintenance, modification and overhaul and similar records with respect thereto)
in the condition and airworthiness required by such Section. The Lessee hereby
acknowledges that it shall be directly liable for such costs and expenses to any
Person designated by the Lessor, the Agent or any Lender (as the case may be) to
provide services in connection with or to effect the return of the Airframe or
any Engine in accordance with the terms of Section 8 hereof or in placing such
Airframe or Engine (which for purposes hereof shall include, without limitation,
such logs, manuals and records) in the condition and airworthiness required by
such Section.
At any sale of the Aircraft or any part thereof pursuant to
this Section 17, the Lessor or the Agent or any Lender may bid for and purchase
such property. The Lessor agrees to give the Lessee at least 10 days' written
notice of the date fixed for any public sale of any Airframe or Engine or of the
date on or after which will occur the execution of any contract providing for
any private sale. Except as otherwise expressly provided above, no remedy
referred to in this Section 17 is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to the Lessor at law or in
-74-
equity or otherwise; and the exercise or beginning of exercise by the Lessor of
any one or more of such remedies shall not preclude the simultaneous or later
exercise by the Lessor of any or all of such other remedies. No waiver by the
Lessor of any Lease Event of Default shall in any way be, or be construed to be,
a waiver of any future or subsequent Lease Event of Default. To the extent
permitted by applicable law, the Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise that may require the Lessor to sell,
lease, or otherwise use the Aircraft, Airframe or any Engine or any part thereof
in mitigation of the Lessor's damages as set forth in this Section 17 or that
may otherwise limit or modify any of the Lessor's rights and remedies in this
Section 17.
Notwithstanding any of the foregoing provisions of this
Section 17, so long as any Loan relating to the Aircraft or other Obligations
(other than principal and interest on Loans relating to other aircraft or spare
engines) are outstanding under the Credit Agreement, all rights of the Lessor
under this Section 17 shall be exercised only by the Agent as assignee of the
Lessor's rights under this Lease pursuant to the Aircraft Chattel Mortgage.
SECTION 18. LESSEE'S COOPERATION CONCERNING CERTAIN MATTERS.
(a) Forthwith upon the execution and delivery of each Lease Supplement from time
to time required by the terms hereof and upon the execution and delivery of any
amendment to this Lease, the Lessee (at its expense), unless such supplement or
amendment relates solely to the assignment of all or any portion of the Lessor's
interest hereunder, will cause such Lease Supplement (and, in the case of the
initial Lease Supplement, this Lease as well) or amendment to be duly filed and
recorded, and maintained of record, in accordance with the applicable laws of
the government of registry of the Aircraft. In addition, the Lessee at its
expense will promptly and duly execute and deliver to the Lessor and the Agent
such further documents and take such further action as the Lessor and the Agent
may from time to time reasonably request in order more effectively to carry out
the intent and purpose of this Lease and the other Transaction Documents and to
establish and protect the rights and remedies created or intended to be created
in favor of the Lessor and the Agent hereunder and under the other Transaction
Documents, including, without limitation, if requested by the Lessor and the
Agent, the execution and delivery of supplements or amendments hereto, at the
expense of the Lessee, each in recordable form, and all financing statements and
continuation statements, and all similar notices required by applicable law at
all times to be kept recorded and filed in such manner and such places as the
Lessor and the Agent may reasonably request.
(b) The Lessee agrees at its own expense to furnish to the
Lessor and the Agent promptly after execution and delivery of any supplement and
amendment hereto, an opinion of counsel satisfactory to the Lessor and the Agent
(which may include the Lessee's general counsel) stating that, in the opinion of
such counsel, such supplement or amendment to the Lease (or a financing
statement, continuation statement or similar notice thereof if and to the extent
permitted or required by applicable law) has been properly recorded or filed for
record in all public offices in which such recording or filing is necessary to
protect the right, title and interest of the Lessor hereunder and the Agent
under the Loan Documents.
SECTION 19. NOTICES. All notices required under the terms and
provisions hereof shall be in writing (including telex, facsimile or similar
writing) and shall be effective (a) if given by facsimile device, when
transmitted and the appropriate confirmation received, (b) if given by certified
mail, three Business Days after being deposited in the United States mail, with
-75-
appropriate postage prepaid, (c) if given by telex, upon receipt by the party
transmitting the telex of such party's answerback code at the end of such telex
(receipt of confirmation in writing not being necessary to the effectiveness of
any telex) and (d) if given by overnight service or other means, when received
or personally delivered, addressed:
(i) if to the Lessee, at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Treasurer, or to such other address as the
Lessee shall from time to time designate in writing to the Lessor; and
(ii) if to the Lessor, at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Treasurer, or to such other address as the
Lessor shall from time to time designate in writing to the Lessee, with
a copy to the Agent at ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇ ▇▇▇▇.
SECTION 20. NET LEASE, TRUE LEASE, ETC. (a) The Lessee's
obligations to pay Rent and all other amounts payable hereunder shall be
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including, without limitation, (i) any setoff, counterclaim,
recoupment, defense or other right that the Lessee may have against the Lessor,
the Agent, the Lenders, any manufacturer, any supplier or any other Person for
any reason whatsoever, (ii) any defect in the title, airworthiness, eligibility
for registration under Title 49 of the United States Code, as amended, or other
applicable law, condition, design, compliance with specifications, operation or
fitness for use of, or any damage to or loss or destruction of, the Aircraft, or
any theft, interference, interruption or cessation in or prohibition of the use
or possession thereof by the Lessee or any sublessee for any reason whatsoever,
including, without limitation, any such interference, interruption, cessation or
prohibition resulting from the act of any governmental authority or any other
Person, (iii) any Liens, encumbrances or rights of any other Person with respect
to the Aircraft, (iv) the invalidity or unenforceability or lack of due
authorization or other infirmity of this Lease or any other Transaction Document
or document or instrument executed pursuant hereto or thereto, or any lack of
right, power or authority of the Lessor or the Lessee or any other party to any
other Transaction Document to enter into this Lease or any other Transaction
Document or any such document or instrument, (v) any loss of or damage to the
Aircraft, Airframe, any Engine or any Part, (vi) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Lessee or any other
Person, or (vii) any failure, breach or delay by the Lessor or any other Person
in performing or complying with any term of this Lease or any other cause
whether similar or dissimilar to the foregoing, any present or future law
notwithstanding, it being the intention of the parties that all Rent payable by
the Lessee hereunder shall continue to be payable in all events in the manner
and at the times provided herein. Such Rent shall not be subject to any
abatement and the payments thereof shall not be subject to any setoff or any
reduction for any reason whatsoever, including any present or future claims of
the Lessee against the Lessor or any other Person under this Lease or otherwise.
The Lessee hereby waives, and hereby agrees to waive at any future time at the
request of the Lessor, to the full extent now or then permitted by applicable
law, any and all rights that it may now have or that at any time hereafter may
be conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease except in accordance with the express terms hereof. Each
payment of Rent made by the Lessee to the Lessor shall be final as to the Lessor
and the Lessee. The Lessee will not seek to recover all or any part of any such
payment of Rent from the Lessor for any reason whatsoever.
-76-
(b) It is the intention of the parties that the Lessor and the Agent,
as assignee of the Lessor's right under this Lease pursuant to the Aircraft
Chattel Mortgage, shall be entitled to the benefits of 11 U.S.C. ss. 1110 or any
analogous section of the Federal bankruptcy laws, as amended from time to time
with respect to the right to repossess the Airframe, Engines and Parts as
provided herein, and in any circumstances where more than one construction of
the terms and conditions of this Lease is possible, a construction that would
preserve such benefits shall control over any construction that would not
preserve such benefits or would render them doubtful. To the extent consistent
with the provisions of 11 U.S.C. ss. 1110 or any analogous section of the
federal bankruptcy laws, as amended from time to time, it is hereby expressly
agreed, that notwithstanding any other provisions of the federal bankruptcy law,
as amended from time to time, any right of the Lessor and the Agent, as assignee
of the Lessor under the Aircraft Chattel Mortgage, to take possession of the
Aircraft in compliance with the provisions of this Lease shall not be affected
by the provisions of 11 U.S.C. ss. 362 or ss. 363, as amended from time to time,
or any analogous provisions of any superseding statute or any power of the
bankruptcy court to enjoin such taking of possession.
(c) The Lessor and the Lessee hereby agree that this Lease, including
any modifications, supplements and amendments thereto, is intended to be treated
as a lease for purposes of the Internal Revenue Code, and neither the Lessor nor
the Lessee shall file any tax returns in a manner or take any other action or
position inconsistent with the foregoing or with the Lessor's ownership of the
Aircraft. Nothing contained in this Lease shall be construed as conveying to the
Lessee any right, title or interest in the Aircraft except as a Lessee only. The
Aircraft shall at all times during the term of this Lease be the sole and
exclusive property of the Lessor.
SECTION 21. PURCHASE OPTION.
(a) PURCHASE OPTION. So long as no Lease Event of Default has occurred
and is continuing, the Lessee shall have the option to purchase the Aircraft at
the end of the Term for a purchase price equal to the higher of the Fair Market
Sales Value (assuming that the Aircraft are in the condition required by the
Lease) as of such date and Stipulated Loss Value plus all accrued Rent and all
Supplemental Rent then due. Upon the payment by the Lessee of the full of such
amounts, the Lessor shall convey to the Lessee all right, title and interest of
the Lessor in and to the Aircraft on an "as-is, where is" basis, without
recourse or warranty.
(b) NOTICE OF PURCHASE. In order to exercise any purchase option under
Section 21, the Lessee shall be required to give not less than 90 days (but not
more than 360 days) irrevocable prior written notice to the Lessor. The Lessee
will give the Lessor prior written irrevocable notice not less than 90 days (but
not more than 360 days) before the expiration of the Term of its determination
to return the Aircraft and not exercise any purchase option under this Section
21. If the Lessee fails to give notice as required herein, the Lessee will be
deemed to have elected to return the Aircraft to the Lessor.
SECTION 22. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If the
Lessee fails to make any payment of Rent required to be made by it hereunder or
fails to perform or comply with any of its agreements contained herein, then the
Lessor may itself make such payment or perform or comply with such agreement but
shall not be obligated hereunder to do so, and the amount of such payment and
the amount of the reasonable expenses of the Lessor incurred in connection
-77-
with such payment or the performance of or compliance with such agreement, as
the case may be, together with interest thereon at the Past Due Rate, shall be
deemed Supplemental Rent, payable by the Lessee upon demand.
SECTION 23. MISCELLANEOUS. (a) Any provision of this Lease
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the Lessor, Holdings, the Lessee
and the Agent. This Lease shall constitute an agreement of lease, and nothing
contained herein shall be construed as conveying to the Lessee any right, title
or interest in the Aircraft except as a lessee only. Neither the Lessee nor any
Affiliate of the Lessee will file any tax returns in a manner inconsistent with
the foregoing fact or with the Lessor's ownership of the Aircraft or with the
parties' agreement that this Lease be treated as a tax lease for purposes of the
Internal Revenue Code. The section and paragraph headings in this Lease and the
table of contents are for convenience of reference only and shall not modify,
define, expand or limit any of the terms or provisions hereof and all reference
herein to numbered sections, unless otherwise indicated, are to sections of this
Lease. THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK AND SHALL IN ALL
RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. EACH OF
HOLDINGS, THE LESSEE AND THE LESSOR HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH IT IS A PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS LEASE OR ANY OTHER TRANSACTION DOCUMENT OR
THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER AND WHETHER ARISING OR
ASSERTED BEFORE OR AFTER THE DATE HEREOF OR BEFORE OR AFTER THE PAYMENT,
OBSERVANCE OR PERFORMANCE OF HOLDINGS', THE LESSEE'S OR THE LESSOR'S OBLIGATIONS
UNDER THIS LEASE OR ANY OTHER TRANSACTION DOCUMENT. This Lease may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
(b) This Lease, together with the agreements, instruments and other
documents required to be executed and delivered in connection herewith,
supersedes all prior agreements and understanding of the parties with respect to
the subject matter hereof and thereof, except any agreements referred to herein.
(c) The time stipulated in this Lease for all payments and notices by
the Lessee to the Lessor and for the performance of the Lessee's other
obligations under this Lease will be of the essence of this Lease.
-78-
SECTION 24. Security for Lessor's Obligations. In order to
secure the obligations, the Lessor has agreed in the Aircraft Chattel Mortgage,
among other things, to assign to the Agent this Lease and the Lease Supplements
and to mortgage in favor of the Agent the Aircraft, subject to the reservations
and conditions therein set forth. All rights of the Lessor hereunder are subject
to the Aircraft Chattel Mortgage and the Lessor and the Lessee agree that so
long as the lien of the Aircraft Chattel Mortgage has not been discharged in
accordance with its terms, (i) all payments hereunder shall be made to the Agent
for the benefit of Lenders to the extent of the Lenders' interest in such
payments, (ii) all notices from or to the Lessor shall be copied to the Agent
and (iii) the Lessee shall not take any actions that the Lessor would be
prohibited from taking under the terms of the Aircraft Chattel Mortgage. The
Lessee hereby acknowledges due notice of, and consents to, such assignment and
to the creation of such mortgage and security interest. To the extent, if any,
that this Lease and any Lease Supplement constitutes chattel paper (as such term
is in effect in any applicable jurisdiction), no security interest in this Lease
or any Lease Supplement may be created through the transfer or possession of any
counterpart other than the original executed counterpart containing the receipt
therefor executed by the Agent on the signature page hereof or thereof.
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this Lease to be
duly executed as of the day and year first above written.
ATLAS FREIGHTER LEASING III, INC.,
Lessor
By ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Treasurer and Secretary
ATLAS AIR, INC.,
Lessee
By ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President and Treasurer
Accepted and Agreed:
ATLAS AIR WORLDWIDE HOLDINGS, INC.
By ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President and Treasurer
SCHEDULE TO EXHIBIT 10.6.3
The agreements listed below are substantially identical to this exhibit and are
not being filed separately as exhibits pursuant to instruction 2 to Regulation
S-K, Item 601.
----------------------------------------------------------------------------------------------------------------------
REGISTRATION MANUFACTURER'S SERIAL LESSEE LESSOR AGREEMENT
NUMBER NUMBER(S)
----------------------------------------------------------------------------------------------------------------------
N509MC 21221 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N509MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N512MC 21220 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N512MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N517MC 23300 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N517MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N522MC 21783 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N522MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N523MC 21782 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N523MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N524MC 21784 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N524MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N526MC 22337 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N526MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N527MC 22471 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N527MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N528MC 22472 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N528MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
REGISTRATION MANUFACTURER'S SERIAL LESSEE LESSOR AGREEMENT
NUMBER NUMBER(S)
----------------------------------------------------------------------------------------------------------------------
N534MC 21832 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N534MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N808MC 21048 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N808MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
N809MC 20887 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
III (N809MC) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------
CF6-50E2 Spare 530168; 517530; Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
Engines 517790; 517602; III (CF6-50E2 Spare Engines)
517547; 517,538; dated as of November 30,
517,539; 455167; 530255 2004
----------------------------------------------------------------------------------------------------------------------
CF6-80C2 BSF Spare 704,699; 704860; 704918 Atlas Air, Inc. Atlas Freighter Leasing Amended and Restated Lease
Engines III (CF6-80C2 BSF Spare
Engines) dated as of
November 30, 2004
----------------------------------------------------------------------------------------------------------------------