Note to Exhibit 10.6
The following Lease is substantially identical in all material
respects to three additional Trust Agreements except as follows:
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Rental
Lease and
Aircraft Termination Related
Owner Participant Date (Tail No.) Date Terms
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NCC Charlie Company* September 10, 1998* N575ML* March 30, 2015* *
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NCC Charlie Company September 10, 1998 N576ML March 30, 2015 **
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General Electric November 10, 1998 N577ML May 12, 2015 **
Capital Corporation
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----------
* Filed document
** Confidential treatment requested for omitted information. Omitted
information has been filed separately with the Commission.
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LEASE AGREEMENT [N575ML]
dated as of September 10, 1998
between
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
Owner Trustee,
Lessor,
and
MIDWAY AIRLINES CORPORATION
Lessee.
Covering One Canadair Regional
Jet Series 200 ER Aircraft
Registration Number
N575ML
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This Lease Agreement is subject to a security interest in favor of The First
National Bank of Maryland, as Indenture Trustee, under the Trust Indenture and
Security Agreement [N575ML] dated as of September 10, 1998, for the benefit of
the holders of the Equipment Notes referred to in such Trust Indenture and
Security Agreement. This Lease Agreement has been executed in counterparts. To
the extent, if any, that this Lease Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any
jurisdiction), no security interest in this Lease Agreement may be created
through the transfer or possession of any counterpart other than the counterpart
containing the receipt therefor executed by The First National Bank of Maryland,
as Indenture Trustee, on the signature page thereof.
TABLE OF CONTENTS
Page
Section 1. Interpretation................................................. 1
(a) Definitions.................................................... 1
(b) References..................................................... 1
(c) Headings....................................................... 2
(d) Appendices, Schedules and Exhibits............................. 2
Section 2. Delivery and Leasing of the Aircraft........................... 2
(a) Leasing of the Aircraft........................................ 2
(b) Delivery and Acceptance of the Aircraft Under
the Lease...................................................... 2
Section 3. Term and Rent.................................................. 2
(a) Term........................................................... 2
(b) Basic Rent..................................................... 2
(c) Supplemental Rent.............................................. 3
(d) Adjustments to Basic Rent and Termination Values............... 3
(e) Manner of Payment.............................................. 5
(f) Minimum Rent................................................... 6
(g) Rent Obligations Unconditional................................. 6
Section 4. The Lessor's Representations and Warranties.................... 7
Section 5. Possession, Operation and Use,
Maintenance Registration and Insignia.......................... 8
(a) General........................................................ 8
(b) Possession..................................................... 8
(c) Operation and Use.............................................. 13
(d) Maintenance.................................................... 14
(e) Registration................................................... 15
Section 6. Inspection; Financial Information.............................. 15
Section 7. Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines........... 16
(a) Replacement of Parts........................................... 16
(b) Title to Parts................................................. 17
(c) Pooling or Parts Leasing....................................... 17
(d) Alterations, Modifications and Additions....................... 18
(e) Substitution of Engines........................................ 19
Section 8. Loss, Destruction or Requisition............................... 22
(a) Event of Loss with Respect to the Airframe..................... 22
(b) Effect of Replacement.......................................... 24
(c) Effect of Termination Value Payment............................ 24
(d) Conditions to Airframe Replacement............................. 25
(e) Non-Insurance Payments Received on Account of
an Event of Loss............................................... 28
(f) Requisition for Use............................................ 29
(g) Certain Payments to be Held As Security........................ 29
Section 9. Insurance...................................................... 30
(a) Public Liability and Property Damage Insurance................. 30
(b) Insurance Against Loss or Damage to the
Aircraft and Engines........................................... 30
(c) Additional Insureds; Loss Payment.............................. 31
(d) Deductibles and Self-Insurance................................. 32
(e) Application of Hull Insurance Proceeds......................... 32
(f) Insurance for Own Account...................................... 33
(g) Reports, etc................................................... 33
(h) Right to Pay Premiums.......................................... 34
Section 10. Liens.......................................................... 34
Section 11. Recordation and Further Assurances............................. 35
(a) Recordation of Lease........................................... 35
(b) Further Assurances............................................. 35
(c) Markings....................................................... 36
Section 12. Return of Aircraft and Records................................. 36
(a) Return of Aircraft............................................. 36
(b) Return of Other Engines........................................ 36
(c) Fuel; Records.................................................. 37
(d) Condition of Aircraft.......................................... 37
(e) Failure to Return.............................................. 37
(f) Storage and Related Matters.................................... 38
Section 13. Renewal Option and Purchase Options............................ 38
(a) Renewal Terms.................................................. 38
(b) Lessee's Purchase Options...................................... 39
(i) Rights to Purchase....................................... 39
(ii) Option to Assume Equipment Notes......................... 40
(iii) Notice of Exercise of Option............................. 40
Section 14. Voluntary Termination for Obsolescence......................... 40
(a) Termination by Sale of Aircraft................................ 40
(b) Payments Due Upon Sale of Aircraft............................. 41
(c) Preemptive Election by Lessor.................................. 42
(d) Termination of Lease........................................... 42
(e) Effect of No Sale or Preemptive Delivery to Lessor............. 43
(f) No Duty on Part of Lessor...................................... 43
Section 15. Investment of Security Funds................................... 43
Section 16. Events of Default.............................................. 44
Section 17. Remedies....................................................... 46
Section 18. Lessor's Right to Perform for the Lessee....................... 48
Section 19. Bankruptcy..................................................... 49
Section 20. Assignment: Benefit and Binding Effect......................... 49
(a) Assignment by the Lessee....................................... 49
(b) Assignment by the Lessor....................................... 49
(c) Benefit and Binding Effect..................................... 49
(d) Sublessee's Performance and Rights............................. 50
Section 21. Owner Trustee's Limitation on Liability........................ 50
Section 22. Certain Agreements of Lessee................................... 50
Section 23. Miscellaneous.................................................. 51
(a) Notices........................................................ 51
(b) Counterparts................................................... 51
(c) Amendments..................................................... 51
(d) Agreement to Lease............................................. 52
(e) Governing Law.................................................. 52
(f) Severability................................................... 53
(g) Survival....................................................... 53
(h) Article 2A..................................................... 53
Appendix A Definitions
Exhibit A Form of Lease Supplement
Exhibit B Certain Economic Information
Exhibit C Basic Rent
Exhibit D Termination Values
Exhibit E List of Countries
Exhibit F Return Conditions
THIS LEASE AGREEMENT [N575ML], dated as of September 10, 1998,
between FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, a national banking
association, not in its individual capacity but solely as Owner Trustee, the
Lessor, and MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee.
W I T N E S S E T H:
WHEREAS, the Lessor intends to purchase the Aircraft pursuant to the
terms of the Participation Agreement;
WHEREAS, the Lessee desires to lease from the Lessor and the Lessor
is willing to lease to the Lessee the Aircraft upon and subject to the terms and
conditions of this Lease; and
WHEREAS, the parties intend this Lease to constitute a true lease
and not a security agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration the receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound, the parties do
hereby agree as follows:
Section 1. Interpretation.
(a) Definitions.
Capitalized terms used herein and defined in Appendix A shall,
except as such definitions may be specifically modified in the body of this
Lease for the purposes of a particular section, paragraph or clause, have the
meanings given such terms in Appendix A and, unless otherwise specified, such
meanings shall be equally applicable to both the singular and the plural forms
of such terms.
(b) References.
References in this Lease to sections, paragraphs, clauses,
appendices, schedules and exhibits are to sections, paragraphs, clauses,
appendices, schedules and exhibits in and to this Lease unless otherwise
specified. Paragraphs identified with a letter and clauses identified with a
number or letter within a section may be referred to either by section reference
(for example, this is Section l(b)) or by paragraph and clause reference (for
example, this is also paragraph (b) of Section 1) with the same meaning.
(c) Headings.
The headings of the various sections, paragraphs and clauses of this
Lease and the table of contents are for convenience of reference only and shall
not modify, define, expand or limit any of the terms or provisions hereof.
(d) Appendices, Schedules and Exhibits.
The appendices, schedules and exhibits are part of this Lease.
Section 2. Delivery and Leasing of the Aircraft.
(a) Leasing of the Aircraft.
Subject to the satisfaction or waiver of the conditions precedent
stated in the Participation Agreement, the Lessor agrees to lease to the Lessee,
and the Lessee agrees to lease from the Lessor, the Aircraft on the terms and
conditions set forth herein, such leasing to be evidenced by the execution and
delivery by the Lessor and the Lessee on the Delivery Date of a Lease
Supplement.
(b) Delivery and Acceptance of the Aircraft Under the Lease.
The Lessor hereby authorizes one or more persons designated by the
Lessee as the authorized representative or representatives of the Lessor to
accept delivery of the Aircraft from the Seller. By executing and delivering
Lease Supplement No. 1, the Lessee confirms to the Lessor that the Lessee has
duly and irrevocably accepted delivery of the Aircraft for all purposes of this
Lease.
Section 3. Term and Rent.
(a) Term.
The Aircraft is leased for a Term which shall comprise the Basic
Term and, at the option of the Lessee exercised in accordance with Section
13(a), one or more Renewal Terms. The Basic Term shall commence on the Delivery
Date and continue through the Expiration Date; and each Renewal Term, if any,
shall be for the applicable period provided in Section 13(a), except that the
Term (including the Basic Term or any Renewal Term, as the case may be) shall
end upon any earlier termination of this Lease according to its terms.
(b) Basic Rent.
The Lessee shall pay Basic Rent in consecutive semi-annual
installments on each Basic Rent Payment Date during the Basic Term, each such
installment to be in an amount determined by multiplying Lessor's Cost by the
percentage set forth in Exhibit C for the applicable Basic Rent Payment Date.
The Lessee shall pay Basic Rent
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during a Renewal Term in the amounts and at the times provided in Section 13(a)
for such Renewal Term.
(c) Supplemental Rent.
The Lessee shall pay to the Lessor, or to whoever shall be entitled
thereto, any and all Supplemental Rent when the same shall become due and owing.
Without limiting the foregoing, the Lessee shall pay as Supplemental Rent:
(i) to the Lessor, on demand, interest at the Past Due
Rate on any part of any installment of Basic Rent not paid
when due for the period for which the same shall be overdue;
(ii) to whoever shall have been entitled to receive the
relevant payment of Supplemental Rent, on demand, interest at
the Past Due Rate on any payment of Supplemental Rent (other
than interest payable under this clause (ii)) not paid when
due for the period for which the same shall be overdue;
(iii) to the Lessor, an amount equal to any Make-Whole
Premium as and when such amount is due and payable by the
Lessor under the terms of the Indenture (except in the case of
any prepayment pursuant to Section 6.02(a)(iii) of the
Indenture); and
(iv) the Administrative Fee and the Guarantee Fee (each
as defined in the Deficiency Agreement).
(d) Adjustments to Basic Rent and Termination Values.
All installments of Basic Rent remaining to be paid during the Basic
Term shall be recalculated and adjusted, upwards or downwards as the case may be
(and corresponding adjustments shall be made to the EBO Amount and the
Termination Values applicable during the remaining Basic Term) to maintain the
Net Economic Return and, to the greatest extent consistent with such maintenance
of such Net Economic Return, to minimize the net present value (calculated at a
discount rate equal to the Debt Rate or such other rate as may be specified by
the Lessee to the Owner Participant) of the remaining Basic Rent payments (or,
if the Lessee shall have so specified to the Owner Participant, the remaining
Basic Rent Payments to the EBO Date together with the EBO Amount, if:
(i) the Delivery Date shall not be September 30, 1998;
(ii) there shall be a refinancing or refunding of the debt evidenced
by the Equipment Notes pursuant to Section 13 of the Participation Agreement;
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(iii) the Transaction Costs payable by the Owner Participant
pursuant to Section 8.01(a) of the Participation Agreement shall be
greater or less than the percentage of Lessor's Cost set forth on Exhibit
B;
(iv) there shall be an adjustment of Termination Values as provided
in Section 16 of the Tax Indemnity Agreement; or
(v) there shall be any increase in the amount of interest due on the
Equipment Notes pursuant to the Registration Rights Agreement.
Adjustments to the installments of Basic Rent (expressed as percentages of
Lessor's Cost) set forth in Exhibit C and conforming adjustments to the EBO
Amount and the amounts of Termination Values (expressed as percentages of
Lessor's Cost) set forth in Exhibit D shall be calculated by the Owner
Participant in accordance with the terms of this Section 3(d), and the Owner
Participant shall deliver to the Lessee, the Lessor and the Indenture Trustee
schedules setting forth the revised EBO Amount and the revised percentages that
the Owner Participant proposes to include in Exhibits C and D, subject to review
by the Lessee and verification as provided herein. In the event of a dispute
regarding any such adjustment which is not resolved by agreement of the Lessee
and the Owner Participant, the adjustments, at the request of the Lessee
delivered to the Owner Participant within 30 days after receipt of the Owner
Participant's proposed adjustments, shall be subjected to verification by a
lease advisory firm or a nationally recognized firm of accountants to be
selected by the Owner Participant and reasonably acceptable to the Lessee. The
Owner Participant shall provide to such firm, but not, in any circumstances, to
Lessee or any representatives of Lessee, on a confidential basis such
information as such firm may reasonably require, including, without limitation,
a true copy of this Lease and a full description of the methodology and
assumptions employed by the Owner Participant in calculating the Basic Rent, EBO
Amount and Termination Values set forth in Exhibits C and D as in effect on the
Delivery Date and a true copy of the calculations of the same performed by the
Owner Participant at the time, to enable such firm to determine whether the
adjustments proposed by the Owner Participant are mathematically accurate, apply
the same methodology and assumptions (except to the extent changed by the events
giving rise to such recalculation) as were employed in the calculations of the
Basic Rent, EBO Amount and Termination Values in effect on the Delivery Date,
and are otherwise in conformity with the provisions of this Lease. The Lessee
and its financial advisors shall be entitled to submit such data and views as
the Lessee may elect to such firm concerning the proposed adjustments. The firm
shall be requested to deliver to each of the Owner Participant, the Lessee, the
Lessor and the Indenture Trustee within 30 days after its appointment its
determination as to the changes, if any, that are appropriate with respect to
the adjustments proposed by the Owner Participant. The adjustments proposed by
the Owner Participant, if not disputed by the Lessee as provided above, or the
determination of the firm as provided above, as the case may be, shall be
conclusive, final and binding upon the Lessor, the Lessee and the Owner
Participant, and the EBO Amount and Exhibits C and D shall be amended to reflect
them. No dispute concerning any adjustment shall release the Lessee from its
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obligation to pay Basic Rent, the EBO Amount or Termination Value as then set
forth in Exhibits C and D. All reasonable fees and expenses payable to a firm
pursuant to this paragraph shall be paid by the Lessee except that such fees and
expenses shall be paid entirely by the Owner Participant if, as a result of
changes determined by the firm, the net present value, discounted at the Debt
Rate or such other rate as the Lessee may have specified as provided above in
this paragraph, of Basic Rent remaining to be paid is ten basis points (0.10%)
or more lower than it would have been under the adjustments proposed by the
Owner Participant.
Any adjustments made pursuant to this Section 3(d) shall (i) be made so as to
avoid characterization of this Lease as a "disqualified leaseback or long-term
agreement" within the meaning of Section 467 of the Code and/or regulations
thereunder (or any successor or relevant Code provision or regulations) and (ii)
be in compliance with the requirements of Sections 4.02(5) and 4.07(l) of the
Revenue Procedure 75-28 (or any successor relevant procedure), except to the
extent that on the Delivery Date the Lease constituted such a "disqualified
leaseback or long-term agreement" or was not in compliance with the revenue
procedure referred to in clause (ii). In addition, notwithstanding any other
provisions herein, in no event shall the EBO Amount be adjusted to an amount
that is less than the greater of (A) the adjusted Termination Value as of the
applicable EBO Date, (B) the estimated fair market value of the Aircraft on the
applicable EBO Date (as set forth in the appraisal received pursuant to Section
3.01(b)(xiii) of the Participation Agreement), and (C) the present value as of
the applicable EBO Date of (x) the remaining scheduled Basic Rent through the
end of the Basic Term plus (y) Estimated Value (as identified on Exhibit B) (the
present value calculation described in this clause (C) shall utilize a
semi-annual compounded discount rate no lower than the rate per annum identified
on Exhibit B as the Compounded Discount Rate). All adjustments required pursuant
to this Section 3(d) shall be set forth in a Lease Supplement or in an amendment
to this Lease, and promptly after execution thereof by Lessor and Lessee, Lessee
shall give a copy thereof to the Indenture Trustee.
(e) Manner of Payment.
All Rent payable by the Lessee to the Lessor hereunder shall be paid
to the Lessor at its principal office at One ▇▇▇▇▇▇ Square, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇, Attention: Corporate Trust
Administration, or to such other address as the Lessor shall specify in a notice
to the Lessee, in Dollars in immediately available funds, so that the Lessor
receives the full amount of each payment not later than 12:00 noon Eastern Time
on the due date thereof, except that so long as the Indenture shall not have
terminated pursuant to its terms, all Rent payable to the Lessor (other than
Excepted Payments) shall be paid to the Indenture Trustee, in the manner
provided above, at its principal office as specified in the Indenture, or as the
Indenture Trustee may otherwise direct by a notice delivered to the Lessee prior
to the date of payment. If any Rent is due on a day that is not a Business Day,
such Rent shall be paid on the next succeeding Business Day with the same force
and effect as if paid on the scheduled date of payment and no interest shall
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accrue on the amount of such payment from and after such scheduled date to the
time of payment on such next succeeding Business Day. Whether or not the
Indenture remains in effect, Rent constituting Excepted Payments shall be paid
directly to the Person entitled thereto in the manner and at or before the time
specified above.
(f) Minimum Rent.
Anything herein to the contrary notwithstanding,
(i) each installment of Basic Rent, whether or not such
installment has been adjusted pursuant to Section 3(d), shall
be in an amount which is at least equal to the amount of any
principal of and interest on the Equipment Notes that falls
due and is payable by the Lessor pursuant to the terms of the
Indenture (other than by reason of acceleration of the
Equipment Notes) on the date when such installment of Basic
Rent is due, and
(ii) Termination Value, whether or not Termination Value
has been adjusted pursuant to Section 3(d), shall be in an
amount which (when taken together with any Basic Rent due and
payable in connection therewith) is at least equal to, as of
the applicable date of payment, the aggregate unpaid principal
of and accrued interest on the Equipment Notes (other than
overdue amounts attributable to an Indenture Event of Default
not caused solely by an Event of Default).
The preceding sentence is intended solely to provide for, and to allocate as
between the Lessor and the Lessee the risk of, the possibility of miscalculation
by the Lessor and the Lessee of amounts of Rent which it is contemplated will be
available to the Indenture Trustee, as the Lessor's security assignee under the
Indenture, for application to the payment of amounts payable by the Lessor on
the Equipment Notes. The Lessee does not guarantee, and nothing in this
paragraph (f) shall be construed to be a guarantee by the Lessee, that the
Lessor will repay any principal of or pay any premium or interest on any
Equipment Notes or that the Indenture Trustee will, or will be able to, apply
for such purposes any amount of Rent paid by the Lessee.
(g) Rent Obligations Unconditional.
The Lessee's obligations to pay all Rent due and owing under the
terms hereof shall be absolute and unconditional and shall not be affected by
any circumstance whatsoever including, without limitation, (i) any setoff,
counterclaim, recoupment or other right which the Lessee may have against the
Lessor, the Owner Participant, the Indenture Trustee, the holders of the
Equipment Notes or anyone else for any reason whatsoever, (ii) any defect in the
title, airworthiness, condition, design, operation or fitness for use of, or any
damage to or loss or destruction of, the Aircraft, or any interference,
interruption or cessation in or prohibition of the use or possession
-6-
thereof by the Lessee for any reason whatsoever, including, without limitation,
any such interference, interruption, cessation or prohibition resulting from the
act of any governmental authority or any violation by the Lessor of Section 4
hereof, (iii) any Liens, encumbrances or rights of others with respect to the
Aircraft, (iv) the invalidity or unenforceability or lack of due authorization
or other infirmity or disaffirmance of this Lease or any provision hereof or any
other Operative Agreement or any lack of right, power or authority of the Lessor
or the Lessee to enter into this Lease or any other Operative Agreement, (v) any
insolvency, bankruptcy, reorganization or similar proceedings by or against the
Lessee, or any other Person, or (vi) any other cause whether similar or
dissimilar to the foregoing, any present or future law notwithstanding, it being
the intention of the parties that all Rent payable by the Lessee hereunder shall
continue to be payable in all events in the manner and at the times provided
herein. Such Rent shall not be subject to any abatement and the payments thereof
shall not be subject to any setoff or any reduction for any reason other than
manifest error in the calculation thereof or the documentation of this Lease. To
the extent permitted by Applicable Law, the Lessee waives any rights which it
may now have or which may be conferred upon it by statute or otherwise to
terminate, cancel, quit or surrender this Lease except in accordance with the
terms hereof. If for any reason whatsoever this Lease shall be terminated in
whole or in part by operation of law or otherwise except as specifically
provided in Sections 8, 13, 14 and 17, Lessee nonetheless agrees to pay to
Lessor an amount equal to the Rent payment at the time such payment would have
become due and payable in accordance with the terms hereof had this Lease not
been terminated in whole or in part. Subject to the following sentence, each
payment of Rent made by Lessee to Lessor shall be final as to Lessor and Lessee
and Lessee will not seek to recover all or any part of such payment of Rent for
any reason whatsoever. Nothing herein shall be construed as a waiver by the
Lessee of any claim it may have against any Person arising under any of the
Operative Agreements or otherwise, including, without limitation, any claim that
Rent payments demanded from or paid by the Lessee are or were not due, are or
were erroneous or were paid under mistake or protest, or be construed as a
limitation on any rights of the Lessee to assert any claim in any proceeding at
law, in equity or otherwise against the Lessor or any other Person and to pursue
and obtain relief on such claim in such manner as the Lessee shall deem
appropriate other than by setoff against Rent payments due under the terms
hereof.
Section 4. The Lessor's Representations and Warranties.
(a) THE LESSOR LEASES THE AIRCRAFT HEREUNDER "AS-IS" AND NEITHER THE
LESSOR, TRUST COMPANY INDIVIDUALLY NOR THE OWNER PARTICIPANT SHALL BE DEEMED TO
HAVE MADE, AND HEREBY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION,
MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS, CONSTRUCTION, PERFORMANCE OR
FITNESS FOR USE OR FOR ANY PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO
THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO
-7-
THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE
ABSENCE OF OBLIGATIONS BASED ON LIABILITY IN TORT, STRICT OR OTHERWISE, OR AS TO
THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that the Lessor warrants
that on the Delivery Date the Lessor shall have received whatever title was
conveyed to it by the Seller and the Lessor warrants that the Aircraft shall be
free of Lessor's Liens during the Term.
(b) The Lessor covenants that during the Term, as long as no Event
of Default has occurred and is continuing, the Lessee's possession, use and
quiet enjoyment of the Aircraft leased hereunder shall not be interrupted by the
Lessor (or any Person lawfully claiming through the Lessor).
Section 5. Possession, Operation and Use,
Maintenance Registration and Insignia.
(a) General.
Except as otherwise expressly provided herein, the Lessee (and any
Permitted Sublessee) shall be entitled during the Term to operate, use, locate,
employ or otherwise utilize or not utilize the Airframe, Engines and Parts
leased hereunder in any lawful manner or place in accordance with the Lessee's
(or such Permitted Sublessee's) business judgment.
(b) Possession.
The Lessee shall not sublease, or otherwise in any manner deliver,
relinquish or transfer possession of the Airframe or any Engine leased hereunder
to any Person or install any Engine, or permit any Engine to be installed, on
any airframe other than the Airframe, during the Term, without the prior consent
of the Lessor, which consent may be withheld in its sole discretion, provided,
however, that so long as (A) only in the case of clause (x) below, no Default of
the type referred to in Section 16(a), (b), (f), (g) or (h) hereof shall have
occurred and be continuing, (B) no Event of Default shall have occurred and be
continuing, and (C) all approvals, consents or authorizations required from the
Aeronautical Authority in connection with any such sublease or such delivery,
transfer or relinquishment of possession have been obtained and remain in full
force and effect, the Lessee (or, except in the case of clause (x) below, any
Permitted Sublessee) may, without the prior consent of the Lessor:
(i) enter into a charter or wet lease or other similar
arrangement under which the Lessee (or such Permitted
Sublessee) has operational control of the Airframe and any
Engines installed thereon in the course of the Lessee's
business (which shall not be considered a transfer of
possession hereunder), provided that the
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Lessee's obligations under this Lease and such Permitted
Sublessee's obligations under the relevant Sublease shall
continue in full force and effect notwithstanding any such
charter or wet lease or other similar arrangement;
(ii) deliver possession of the Airframe or any Engine or
any Part to the manufacturer thereof or to any organization
for testing, service, repair, maintenance, overhaul work or
other similar purposes or for alterations or modifications or
additions required or permitted by the terms of this Lease;
(iii) subject the Airframe and any Engines installed
thereon to interchange agreements (provided that (x) any such
interchange agreement with respect to the Airframe shall not
result in the Lessee (or a Permitted Sublessee) being out of
possession of the Airframe for a period of more than two (2)
consecutive days at any one time; (y) such interchange
agreement is entered into with a Permitted Sublessee; and (z)
the party to such interchange agreement is not then subject to
a proceeding or final order under applicable bankruptcy,
insolvency or reorganization laws on the date such interchange
agreement is entered into) or any Engine to interchange or
pooling agreements or arrangements which are applicable to
other similar property owned by or leased to the Lessee (or
such Permitted Sublessee) and are entered into by the Lessee
(or such Permitted Sublessee) in the course of its airline
business with any air carrier, provided, that (A) no such
agreement or arrangement shall under any circumstances result
in, contemplate or require the transfer of title to the
Aircraft, Airframe or any Engine and (B) if the Lessor's title
to any Engine shall nevertheless be divested under any such
agreement or arrangement, such divestiture shall be deemed to
be an Event of Loss with respect to such Engine and the Lessee
shall comply with Section 7(e) hereof in respect thereof;
(iv) install an Engine on an airframe owned by the
Lessee (or such Permitted Sublessee) free and clear of all
Liens except (A) Permitted Liens, (B) those which apply only
to the engines (other than the Engines), appliances, parts,
instruments, appurtenances, accessories, furnishings and other
equipment (other than Parts) installed on such airframe, and
(C) those created by the rights of other air carriers under
interchange or pooling agreements or other arrangements
customary in the airline industry which do not contemplate,
permit or require the transfer of title to such airframe or
engines installed thereon;
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(v) install an Engine on an airframe, leased to the
Lessee (or such Permitted Sublessee) or purchased by the
Lessee (or such Permitted Sublessee) subject to a conditional
sale or other security agreement, but only if (A) such
airframe is free and clear of all Liens, except (i) the rights
of the parties to such lease, or any such secured financing
arrangement, covering such airframe and (ii) Liens of the type
permitted by Section 5(b)(iv) and (B) Lessee (or such
Permitted Sublessee) shall have received from the lessor,
mortgagee, secured party or conditional seller, in respect of
such airframe, a written agreement (which may be a copy of the
lease, mortgage, security agreement, conditional sale or other
agreement covering such airframe), whereby such Person agrees
that it will not acquire or claim any right, title or interest
in, or Lien on, such Engine by reason of such Engine being
installed on such airframe at any time while such Engine is
subject to this Lease (or, in the case of such Permitted
Sublessee, the relevant Sublease) or is owned by Lessor;
(vi) install an Engine on an airframe, owned by the
Lessee (or such Permitted Sublessee), leased by the Lessee (or
such Permitted Sublessee) or purchased by the Lessee (or such
Permitted Sublessee) subject to a conditional sale or other
security agreement under circumstances where neither clause
(iv) nor clause (v) above is applicable, provided that any
such installation (so long as the same shall be continuing)
shall be deemed an Event of Loss with respect to such Engine
and the Lessee shall comply with Section 7(e) hereof;
(vii) transfer possession of the Airframe or Engine to
the United States of America or any instrumentality thereof
pursuant to the Civil Reserve Air Fleet Program (as
established and administered pursuant to Executive Order
11490, as amended, as superseded by United States Executive
Order No. 12656) or any similar or substitute program ("CRAF
Program"), in which event Lessee (or such Permitted Sublessee)
shall promptly notify Lessor and Indenture Trustee in writing
of any such transfer of possession and, in the case of any
transfer pursuant to the CRAF Program, in such notification
shall identify by name, address and telephone numbers the
Contracting Office Representatives of the Military Airlift
Command of the United States Air Force to whom notices must be
given and to whom requests or claims must be made to the
extent applicable under the CRAF Program;
(viii) transfer possession of the Airframe or any Engine
to the United States of America, or to a foreign government,
when required by Applicable Law (it being understood that
nothing in
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this clause (viii) shall relieve the Lessee from its
obligations under Section 8(a) if such transfer becomes an
Event of Loss), in which event Lessee shall promptly notify
Lessor and Indenture Trustee in writing of any such transfer
of possession;
(ix) [Reserved];
(x) subject to the provisions of this Section 5(b),
enter into a sublease with respect to any Engine or the
Airframe and Engines or engines then installed on the Airframe
to any Permitted Sublessee if (A) Lessee shall provide written
notice to Lessor, Owner Participant and Indenture Trustee at
least 10 days prior to entering into any such sublease, (B) in
any such case, the sublessee under such sublease is not
subject to a proceeding or final order under applicable
bankruptcy, insolvency or reorganization laws on the date such
sublease is entered into, (C) in the event that the sublessee
under such sublease is a foreign air carrier or Person based
in a country other than the United States, the United States
maintains normal diplomatic relations with the country in
which such proposed sublessee is principally based at the time
such sublease is entered into and (D) in the event that the
sublessee under such sublease is a foreign air carrier or
Person based in a country other than the United States, prior
to the effectiveness of such sublease Lessor shall have
received an opinion (in form and substance reasonably
acceptable to Lessor) of counsel to Lessee (reasonably
acceptable to Lessor) to the effect that (I) the terms of the
proposed sublease will be legal, valid, binding and (subject
to customary exceptions) enforceable against the proposed
sublessee in the country in which the proposed sublessee is
principally based, (II) there exist no possessory rights in
favor of the sublessee under such sublease under the laws of
such sublessee's country of domicile that would, upon
bankruptcy or insolvency of or other default by the Lessee and
assuming that at such time such sublessee is not insolvent or
bankrupt, prevent the return or repossession of the Aircraft
in accordance with and when permitted by the terms of Section
17(a) upon the exercise by Lessor of its remedies under
Section 17(a), (III) the laws of such sublessee's country of
domicile require fair compensation by the government of such
jurisdiction payable in currency freely convertible into
Dollars for the loss of use of or title to such Engine or the
Airframe in the event of the requisition by such government of
such use or title (it being understood that in the event such
opinion cannot be given in a form reasonably satisfactory to
the Owner Participant, such opinion will be waived if
insurance reasonably satisfactory to the Owner Participant is
provided to cover such requisition), (IV) the laws of such
sublessee's country of domicile would give
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recognition to Lessor's title to such Engine or the Airframe,
to the registry of such Engine or the Airframe in the name of
Lessor (or Lessee, as "lessee", or the proposed sublessee, as
appropriate), (V) all filings, if any, required to be made in
such jurisdiction in connection with the execution of such
sublease in order to protect the interest of Lessor in such
Engine or the Airframe have been made, (VI) it is not
necessary for the Owner Participant or Lessor to register or
qualify to do business in such jurisdiction, if not already so
registered or qualified, as a result, in whole or in part, of
the proposed sublease, (VII) the agreement of such Permitted
Sublessee that its rights under the sublease are subject and
subordinate to all the terms of this Lease is enforceable
against such Permitted Sublessee under Applicable Law of such
country, and (VIII) there is no tort liability for owners not
in possession of aircraft in such country more onerous than
under the laws of the United States or any state thereof (it
being agreed that in the event such opinion cannot be given in
a form reasonably satisfactory to the Owner Participant, such
opinion will be waived if insurance reasonably satisfactory to
the Owner Participant is provided to cover the risk of such
tort liability); provided that no such sublease shall be made
to a Permitted Sublessee of the type described in clause (b)
of the definition thereof that is not domiciled in the United
States or of the type described in clause (b) of the
definition of Permitted Air Carrier or to any tax exempt
entity within the meaning of Section 168(h) of the Code prior
to the end of the Recovery Period, unless the Lessee prepays
on a lump sum basis any liability due under the Tax Indemnity
Agreement as a result of such sublease based upon the
assumption that such sublease will continue for the full term
of such sublease;
provided that (1) the rights of any transferee who receives possession by reason
of a transfer permitted by this Section 5(b) (other than by a transfer of an
Engine which is deemed an Event of Loss) shall be subject and subordinate to all
the terms of this Lease; (2) the Lessee shall remain primarily liable hereunder
for the performance of all the terms and conditions of this Lease and all of the
terms and conditions of this Lease and the other applicable Operative Agreements
shall remain in effect; (3) no sublease or transfer of possession otherwise in
compliance with this Section 5(b) shall (A) result in any registration or
re-registration of the Aircraft except to the extent permitted by Section 5(e)
or the maintenance, operation or use thereof except in compliance with Sections
5(c) and 5(d), (B) permit any action not permitted to the Lessee hereunder, (C)
extend beyond the end of the Term (except to the extent that the Lessee shall
have irrevocably committed to exercise a purchase option in accordance with the
terms hereof) or (D) contain any purchase option exercisable at an earlier date
or at a lower price than such date or price, as the case may be, as permitted
under Section 13(b) hereof; (4) if any such sublease or transfer of possession
shall, in the reasonable opinion of the Owner Participant, result in any risk of
adverse tax consequences, the Lessee
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shall, prior to entering into the same, provide an indemnity satisfactory in
form and substance to the Owner Participant against any such adverse tax
consequences; (5) the Lessee shall provide evidence reasonably satisfactory to
Lessor and Owner Participant that the insurance required by Section 9 remains in
effect; (6) all necessary documents shall have been duly filed or recorded in
applicable public offices as may be required to preserve the title of Lessor to
the Airframe and Engines; and (7) Lessee shall reimburse Lessor, Owner
Participant and Indenture Trustee, on an After Tax Basis, for all of their
reasonable out-of-pocket expenses (including fees and disbursements of counsel)
in connection with any such sublease or transfer.
In the case of any sublease permitted under this Section 5(b), the
Lessee will include in such sublease appropriate provisions which (a) make such
sublease expressly subject and subordinate to all of the terms of this Lease and
the Indenture, including the rights of the Lessor and the Indenture Trustee to
avoid such sublease in the exercise of their rights to repossession of the
Airframe and Engines hereunder and thereunder; (b) expressly prohibit any
further subleasing of the Airframe and Engines; (c) require that the Airframe
and Engines be maintained in accordance with a maintenance program approved by
the Aeronautical Authority applicable thereto; (d) require the sublessee to
comply with the terms of Section 9 hereof; (e) limit the term of such sublease
(including renewal rights) to a period not beyond the end of the Term unless the
Lessee shall then have irrevocably committed to exercise a purchase option in
accordance with the terms hereof; (f) require that the Airframe and Engines be
used in accordance with the limitations applicable to the Lessee's possession
and use provided in this Lease and (g) shall include provisions for the
maintenance, operation, possession and inspection of the Aircraft that are the
same in all material respects as the applicable provisions of this Lease.
The Lessor hereby agrees for the benefit of the lessor or secured
party of any engine or of any airframe (other than the Airframe) leased to the
Lessee or purchased by the Lessee subject to a conditional sale or other
security agreement, which lease or conditional sale or other security agreement
(in the case of any such airframe) also covers an engine or engines owned by the
lessor under such lease or subject to a security interest in favor of the
secured party under such conditional sale or other security agreement, that the
Lessor will not acquire or claim, as against such lessor or secured party, any
right, title or interest in any such engine as the result of such engine being
installed on the Airframe at any time while such engine is owned by such lessor
or is subject to such conditional sale or other security agreement or security
interest in favor of such secured party.
(c) Operation and Use.
The Lessee shall not operate, use or locate the Airframe or any
Engine, or suffer such Airframe or any Engine to be operated, used or located
(i) in any area excluded from coverage by any insurance required by the terms of
Section 9 hereof, except in the case of a requisition by the United States of
America where the Lessee obtains (and provides evidence of) indemnity from the
Government for the benefit of
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the Additional Insureds against substantially the same risks and for at least
the amounts of the insurance required by Section 9 hereof covering such area, or
(ii) outside the United States or Canada in any recognized or, in the Lessee's
reasonable judgment, threatened area of hostilities unless covered by war risk
insurance, or in either case unless the Airframe or such Engine is operated or
used under contract with the Government under which contract the Government
assumes liability for substantially the same risks in at least the same amounts
as would be covered by such insurance. The Lessee shall not permit the Airframe
or any Engine to be used or operated during the Term in violation of any
Applicable Law or in violation of any airworthiness certificate, license or
registration relating to the Aircraft or such Engines issued by any competent
governmental authority, unless (i) the validity thereof is being contested in
good faith and by appropriate proceedings which do not involve a non-de minimis
danger of the sale, forfeiture or loss of the Airframe or such Engine or the
interest of any Participant therein, any risk of criminal liability or any
material risk of civil liability against Lessor or any Participant, or (ii) it
is not possible for the Lessee (or a Permitted Sublessee) to comply with the
laws of a jurisdiction other than the United States (or other than any
jurisdiction in which the Aircraft is then registered) because of a conflict
with the applicable laws of the United States (or such jurisdiction in which the
Aircraft is then registered).
(d) Maintenance.
The Lessee, at its own cost and expense, shall during the Term
service, repair, maintain, overhaul and test the Aircraft, the Airframe and each
Engine or cause the same to be done in accordance with (1)(i) a maintenance
program approved by the Aeronautical Authority and (ii) maintenance standards
required by, or substantially equivalent to those required by, the FAA or the
central civil aviation authority of Canada, France, Germany, Japan, The
Netherlands or the United Kingdom, and shall keep or cause to be kept the
Aircraft, the Airframe and each Engine in as good operating condition as
originally delivered hereunder, ordinary wear and tear excepted, and shall keep
or cause to be kept the Aircraft, the Airframe and each Engine in such operating
condition as may be necessary to enable the airworthiness certification of the
Aircraft to be maintained in good standing at all times under the applicable
rules and regulations of the Aeronautical Authority, except when aircraft of the
same type, model or series as the Airframe (powered by engines of the same type
as those with which the Airframe shall be equipped at the time of grounding)
registered in the same country have been grounded by the Aeronautical Authority,
provided, however, that if the airworthiness certificate of the Aircraft shall
be withdrawn, then, subject to Section 8 hereof, so long as the Lessee (or a
Permitted Sublessee) is taking or causing to be taken all necessary action to
promptly correct the condition which caused such withdrawal, no Event of Default
shall arise from such withdrawal and (2) except during periods when a Sublease
is in effect, the same standards Lessee uses with respect to similar aircraft of
similar size in its fleet operated (whether owned or leased) by Lessee in
similar circumstances and during any period in which a Sublease is in effect,
the same standards the Permitted Sublessee uses with respect to similar aircraft
of similar size in its fleet and operated (whether owned or leased) by the
Permitted Sublessee in
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similar circumstances. Nothing herein shall be deemed to prevent the Lessee (or
a Permitted Sublessee) from taking the Aircraft out of service for maintenance
or modifications permitted hereunder or storage in accordance with applicable
Aeronautical Authority requirements and sound practice for such storage. The
Lessee shall maintain or cause to be maintained all records, logs and other
documents required by the Aeronautical Authority to be maintained in respect of
the Aircraft in English. Lessee further agrees that the Aircraft, Airframe and
Engines will be maintained, used, serviced, repaired, overhauled or inspected in
compliance with Applicable Law with respect to the maintenance of the Aircraft
and compliance with each applicable airworthiness certificate, license and
registration relating to the Aircraft, Airframe or any Engine issued by the
Aeronautical Authority.
(e) Registration
Except as otherwise permitted by Section 4.02(b) of the
Participation Agreement, or as otherwise required by the Federal Aviation Act or
rules, regulations, or orders promulgated thereunder, or to the extent that such
registration cannot be effected or continued due to the Lessor's or the Owner
Participant's failure to comply with the citizenship or other eligibility
requirements for registration of commercial aircraft under the Transportation
Code or any rule, regulation or order promulgated thereunder, the Aircraft shall
be duly registered in the name of the Lessor under the Transportation Code at
all times during the Term; provided that the Lessor shall execute and deliver
all such documents as the Lessee may reasonably request for the purpose of
effecting, continuing or (as provided in this Section 5(e) hereof and Section
4.02(b) of the Participation Agreement) changing such registration.
Section 6. Inspection; Financial Information.
At all reasonable times during the Term, but upon at least 15 days'
prior notice to the Lessee (unless an Event of Default shall have occurred and
be continuing, in which event a prior written notice of at least one (1)
Business Day is required) and at a time and place reasonably acceptable to the
Lessee, the Lessor, the Owner Participant and the Indenture Trustee or their
authorized representatives (which may include the Manufacturer) may at their own
expense (unless an Event of Default shall have occurred and be continuing, in
which event the Lessee shall bear such expense) and risk conduct a visual
walk-around inspection of the Aircraft and any Engine (including a visual
walk-around inspection of the Aircraft during any "C" check or other heavy
maintenance) and may inspect the books and records of the Lessee relating to the
operation and maintenance thereof and the Lessee shall provide copies of such
books and records to the Lessor and the Owner Participant or their authorized
representatives at its or their reasonable request; provided that (a) such
representatives shall be fully insured to the reasonable satisfaction of the
Lessee by the Lessor, the Owner Participant or the Indenture Trustee with
respect to any risks incurred in connection with any such inspection, (b) any
such inspection shall be subject to the safety, security and workplace rules
applicable at the location where such inspection is conducted and any applicable
governmental rules or regulations, (c) in the case of an
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inspection during a maintenance visit, such inspection shall not interfere with
the normal conduct of such maintenance visit or extend the time required for
such maintenance visit or, in any event, at any time interfere with the use or
operation of the Airframe or any Engine or with the normal conduct of the
Lessee's or a permitted sublessee's business, and (d) the Lessee shall not be
required to undertake or incur any additional liabilities in connection with any
such inspection. All information obtained in connection with any such inspection
shall be held confidential by the Lessor, the Indenture Trustee and the Owner
Participant and shall not be furnished or disclosed by them to anyone other than
each other, their bank examiners, auditors, accountants, agents and legal
counsel and any Person with whom the Owner Participant is in good faith
conducting negotiations relating to the possible transfer and sale of the Owner
Participant's interest in the Trust Estate or the Aircraft, if such Person shall
have entered into an agreement similar to that contained in this Section 6
whereby such Person agrees to hold such information confidential, and except as
may be required by an order of any court or administrative agency or by any
statute, rule, regulation or order of any governmental authority or as may be
necessary to enforce the terms of this Lease, provided, however, that the Lessor
or the Owner Participant may during any time it is offering the Aircraft for
sale make customary disclosures to prospective purchasers of the Aircraft as to
the then current flight and maintenance status of the Aircraft. The Lessor, the
Owner Participant and the Indenture Trustee shall have no duty to make any such
inspection and shall not incur any liability or obligation by reason of not
making any such inspection.
In addition to any inspection as provided hereunder, upon each
request of Owner Participant to Lessee made not more than four times in a
calendar year, Lessee will make available to Owner Participant information with
respect to the cycles and hours of operation of the Airframe and Engines and the
status of the time controlled components of the Engines.
If requested by Lessor or Owner Participant, Lessee shall provide,
or shall cause any Permitted Sublessee to provide, the date (if then scheduled)
upon which the Airframe undergoes its next scheduled major check and, with
respect to any Engine, the next scheduled off the Airframe maintenance, and
shall advise Lessor and Owner Participant of the name and location (if then
known) of the relevant maintenance performer.
Section 7. Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines.
(a) Replacement of Parts.
Except as otherwise provided in the proviso to the third sentence of
Section 7(d) or if the Airframe or an Engine to which a Part relates has
suffered an Event of Loss, the Lessee, at its own cost and expense, will during
the Term promptly replace all Parts that may from time to time become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for
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any reason whatsoever. In addition, in the ordinary course of maintenance,
service, repair, overhaul or testing, the Lessee (or a Permitted Sublessee), at
its own cost and expense, may remove any Parts, whether or not worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use, provided that the Lessee (or such Permitted Sublessee),
at its own cost and expense, shall, except as otherwise provided in the proviso
to the third sentence of Section 7(d), replace such Parts as promptly as
practicable with replacement Parts or temporary replacement parts as provided in
Section 7(c) hereof. All replacement Parts shall be free and clear of all Liens
except for pooling arrangements to the extent permitted by Section 7(c) and
Permitted Liens and shall be in as good operating condition as, and shall have a
value and utility at least equal to, the Parts replaced assuming such replaced
Parts were in the condition and repair required to be maintained by the terms
hereof.
(b) Title to Parts.
Except as otherwise provided in the proviso to the third sentence of
Section 7(d), all Parts at any time removed from the Airframe or any Engine
shall remain the property of the Lessor and subject to this Lease, no matter
where located, until such time as such Parts shall be replaced by Parts that
have been incorporated or installed in or attached to such Airframe or Engine
and that meet the requirements for replacement Parts specified in Section 7(a).
Immediately upon any replacement Part becoming incorporated or installed in or
attached to an Airframe or Engine as provided in Section 7(a), without further
act, (i) title to the replaced Part shall thereupon vest in the Lessee (or the
relevant Permitted Sublessee), in "as-is, where-is" condition, free and clear of
all rights of the Lessor and the Indenture Trustee and any Lessor's Liens and
shall no longer be deemed a Part hereunder; (ii) title to such replacement Part
shall thereupon vest in the Lessor (subject only to Permitted Liens); and (iii)
such replacement Part shall become subject to this Lease and be deemed part of
such Airframe or Engine, as the case may be, for all purposes hereof to the same
extent as the Parts originally incorporated or installed in or attached to such
Airframe or Engine.
(c) Pooling or Parts Leasing.
Any Part removed from the Airframe or from any Engine as provided in
Section 7(a) may be subjected by the Lessee (or a Permitted Sublessee) to a
pooling or parts leasing agreement or arrangement of a type customary in the
airline industry entered into in the ordinary course of the Lessee's (or such
Permitted Sublessee's) business, provided the part replacing such removed Part
shall be incorporated or installed in or attached to such Airframe or Engine in
accordance with Sections 7(a) and 7(b) as promptly as practicable after the
removal of such removed Part. In addition, any replacement part when
incorporated or installed in or attached to the Airframe or any Engine in
accordance with Section 7(a) may be owned by another airline or vendor as
customary in the airline industry, subject to a pooling or parts leasing
arrangement, provided that the Lessee (or a Permitted Sublessee), at its expense
as promptly thereafter as reasonably practicable, either (i) causes title to
such
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temporary replacement part to vest in the Lessor in accordance with Section 7(b)
by the Lessee (or such Permitted Sublessee) acquiring title thereto for the
benefit of the Lessor free and clear of all Liens except Permitted Liens, at
which time such temporary replacement part shall become a Part and become
subject to this Lease or (ii) replaces such temporary replacement part by
incorporating or installing in or attaching to such Airframe or Engine a further
replacement Part owned by the Lessee (or such Permitted Sublessee) free and
clear of all Liens except Permitted Liens and by causing title to such further
replacement Part to vest in the Lessor in accordance with Section 7(b).
(d) Alterations, Modifications and Additions.
The Lessee, at its own expense, shall make (or cause to be made)
alterations and modifications in and additions to the Airframe and any Engine as
may be required to be made from time to time during the Term by Applicable Law
or in order to maintain the insurance required under Section 9 regardless of
upon whom such requirements are, by their terms, nominally imposed; provided,
that the Lessee may, in good faith and by appropriate procedure, contest the
validity or application of any such standard in any reasonable manner which does
not materially adversely affect the interests of the Lessor or the Lien of the
Indenture and does not involve any non-de minimis risk of sale, forfeiture or
loss of the Aircraft or the interest of any Participant therein, any material
risk of civil penalty or any risk of criminal liability being imposed on Lessor
or Owner Participant. In addition, the Lessee (or a Permitted Sublessee), at its
own expense, may from time to time make or cause to be made such alterations and
modifications in and additions to the Airframe and any Engine as the Lessee (or
such Permitted Sublessee) may deem desirable in the proper conduct of its
business including, without limitation, removal of Parts which Lessee (or such
Permitted Sublessee) deems are obsolete or no longer suitable or appropriate for
use in the Aircraft, Airframe or such Engine so long as the aggregate value of
such removed Parts (based on their value as of the Delivery Date) does not
exceed $200,000, provided further that no such alteration, modification or
addition (i) diminishes the value, utility, estimated residual value (with
respect to the Airframe only), condition, remaining useful life or airworthiness
of such Airframe or Engine below the value, utility, estimated residual value,
condition, remaining useful life or airworthiness thereof immediately prior to
such alteration, modification or addition, assuming such Airframe or Engine was
then in the condition required to be maintained by the terms of this Lease or
(ii) causes the Aircraft to be limited use property, except that the value (but
not the utility, estimated residual value, condition, remaining useful life or
airworthiness) of the Aircraft may be reduced by the value of Parts which the
Lessee (or such Permitted Sublessee) has removed as permitted above. Title to
all Parts incorporated or installed in or attached or added to the Airframe or
any Engine as the result of any alteration, modification or addition effected by
the Lessee (or a Permitted Sublessee) shall, without further act, vest in the
Lessor free and clear of any Liens except Permitted Liens and become subject to
this Lease; provided that the Lessee (or such Permitted Sublessee) may, at any
time during the Term, remove any such Part from the Airframe or an Engine if (i)
such Part is in addition to, and not in replacement of or in substitution for,
any Part originally incorporated or installed in
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or attached to such Airframe or Engine at the time of delivery thereof hereunder
or any Part in replacement of, or in substitution for, any such original Part,
(ii) such Part is not required to be incorporated or installed in or attached or
added to such Airframe or Engine pursuant to the terms of Section 5(d) or the
first sentence of this Section 7(d) or pursuant to the terms of any insurance
policies required to be carried hereunder or under any Applicable Law and (iii)
such Part can be removed from such Airframe or Engine without diminishing or
impairing the value, condition, utility, estimated residual value, remaining
useful life or airworthiness which such Airframe or Engine would have had at the
time of removal had such alteration, modification or addition not been effected
by the Lessee (or such Permitted Sublessee) assuming the Aircraft was otherwise
maintained in the condition required by this Lease. Upon the removal by the
Lessee (or such Permitted Sublessee) of any such Part as above provided, title
thereto shall, without further act, vest in the Lessee (or such Permitted
Sublessee), in "as-is, where-is" condition, free and clear of all rights of the
Lessor and the Indenture Trustee and any Lessor's Liens and such Part shall no
longer be deemed a Part hereunder. Any Part not removed by the Lessee (or a
Permitted Sublessee) as above provided prior to the return of the Airframe or
respective Engine to the Lessor hereunder shall remain the property of the
Lessor; provided that nothing in this Section 7(d) shall prohibit the Lessee (or
a Permitted Sublessee) from removing any seats from the Aircraft (which seats
while so removed shall remain in the possession of the Lessee (or such Permitted
Sublessee)) so long as the Aircraft when returned to the Lessor pursuant to
Section 12 hereof shall be in the condition required thereby.
(e) Substitution of Engines.
So long as no Specified Default shall have occurred and be
continuing, the Lessee (or a Permitted Sublessee) shall have the right at its
option at any time, on at least 30 days' prior notice to the Lessor, the Owner
Participant and the Indenture Trustee, to substitute, and if an Event of Loss
shall have occurred with respect to an Engine under circumstances in which there
has not occurred an Event of Loss with respect to the Airframe, shall within 90
days of the occurrence of such Event of Loss and on at least five days' prior
notice to the Lessor substitute, a Replacement Engine for any Engine not then
installed or held for use on the Airframe. In such event, immediately upon the
effectiveness of such substitution on the date set forth in such notice and
without further act, (i) title to the Replacement Engine shall thereupon vest in
the Lessor free and clear of all Liens (other than Permitted Liens), (ii) title
to the replaced Engine shall thereupon vest in the Lessee (or its designee), in
"as-is, where-is" condition, free and clear of all rights of the Lessor and the
Indenture Trustee and any Lessor's Liens and shall no longer be deemed an Engine
hereunder, and (iii) such Replacement Engine shall become subject to this Lease
and be deemed part of the Aircraft for all purposes hereof to the same extent as
the Engine originally installed on or attached to the Airframe. Upon the
substitution of a Replacement Engine, the following conditions shall be
satisfied at the Lessee's sole cost and expense and the parties agree to
cooperate with the Lessee to the extent necessary to enable it to timely satisfy
such conditions:
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(i) the following documents shall be duly authorized,
executed and delivered by the respective party or parties
thereto, and an executed counterpart of each shall be
delivered to the Lessor, the Owner Participant and, if the
Indenture is in effect, the Indenture Trustee:
(A) a Lease Supplement covering the Replacement
Engine, which shall have been duly filed for recordation
with the FAA;
(B) so long as the Indenture shall not have been
satisfied and discharged, an Indenture Supplement
covering the Replacement Engine, which shall have been
duly filed for recordation with the FAA;
(C) a full warranty ▇▇▇▇ of sale (as to title), in
form and substance satisfactory to the Lessor and the
Owner Participant, covering the Replacement Engine,
executed by the owner thereof in favor of the Lessor;
(D) as long as the Indenture is in effect, such
documents as may be required under Section 9.08 of the
Indenture relating to the Replacement Engine;
(E) (i) so long as the Indenture shall not have
been satisfied and discharged, such Uniform Commercial
Code financing statements covering the security
interests created by the Indenture (or any similar
statements or other documents required to be filed or
delivered pursuant to the laws of the jurisdiction in
which the Replacement Engine may be registered in
accordance with Section 5(e)), and (ii) "precautionary"
Uniform Commercial Code financing statements as are
deemed necessary or desirable by counsel for the Owner
Participant or the Indenture Trustee to protect the
ownership interests of the Owner Trustee and the
security interests of the Indenture Trustee in the
Replacement Engine;
(F) an Officer's Certificate of the Lessee
certifying that (i) in the case of a voluntary
replacement only, no Specified Default shall have
occurred and be continuing and (ii) (x) in the case of a
voluntary replacement, the Replacement Engine has at
least the same number of hours or cycles (whichever is
applicable) of operation on such Replacement Engine
remaining until the next scheduled life limited part
replacement as the Engine it replaces, assuming
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such Engine had been maintained in the condition
required hereunder; or (y) in the case of a mandatory
replacement, the Lessee has not discriminated in its
selection of the Replacement Engine (based on the leased
status of the Aircraft);
(G) an opinion of qualified FAA counsel as to the
due recordation of the Lease Supplement, the Indenture
Supplement and all other documents or instruments the
recordation of which is necessary to perfect and protect
the rights of the Lessor and the Indenture Trustee in
the Replacement Engine;
(H) to the extent that an engine warranty in
respect of such Replacement Engine is available to the
Lessee, an engine warranty assignment covering such
Replacement Engine, in substantially the form of the
Engine Warranty Assignment or otherwise in such form and
substance satisfactory to the Lessor and the Owner
Participant and a consent to such engine warranty
assignment, in substantially the form of the Engine
Warranty Assignment or otherwise in such form and
substance satisfactory to the Lessor and the Owner
Participant; and
(I) evidence that the insurance requirements of
Section 9 with respect to an Engine are satisfied and
that the insurance covering such Replacement Engine
shall be of the type usually carried by the Lessee (or,
in the case of a voluntary replacement, such Permitted
Sublessee) with respect to similar engines, and covering
risks of the kind customarily insured against by the
Lessee (or, in the case of a voluntary replacement, such
Permitted Sublessee);
(ii) the Lessee shall furnish (or cause to be furnished
to) the Lessor, the Owner Participant and the Indenture
Trustee with an opinion, reasonably satisfactory in form and
substance to the Lessor, the Owner Participant and the
Indenture Trustee, of the Lessee's counsel, which may be the
Lessee's General Counsel or Associate General Counsel, to the
effect that (x) such bills of sale or other documents
reasonably requested by the Lessor, the Owner Participant or
the Indenture Trustee are sufficient to convey title to such
Replacement Engine to the Lessor and with respect to the
effectiveness of the interests in the Trust Indenture Estate
which the Indenture purports to create and, (y) the Lessor and
the Indenture Trustee (as assignee of Lessor under the
Indenture), are
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entitled to the benefits of Section 1110 with respect to such
Replacement Engine to the same extent as with respect to the
replaced Engine immediately preceding such replacement; and
(iii) either (x) the Owner Participant shall have
received an opinion of independent tax counsel (selected by
the Owner Participant and reasonably acceptable to the
Lessee), reasonably satisfactory to the Owner Participant, to
the effect that there shall be no risk of adverse tax
consequences resulting from such replacement (and the Owner
Participant shall use its best efforts to cause a timely
opinion to be delivered) or (y) the Lessee shall have
provided, or caused to be provided, an indemnity in respect of
any adverse tax consequences reasonably satisfactory (or, in
the case of any voluntary substitution, satisfactory) in form
and substance to the Owner Participant.
Upon satisfaction of all conditions to such substitution, (x) the
Lessor shall, at the expense of the Lessee, execute and deliver, and request the
Indenture Trustee to execute and deliver to the Lessee such bills of sale and
other documents and instruments as the Lessee shall reasonably request to
evidence the transfer to the Lessee and vesting of all right, title and interest
in and to the replaced Engine in the Lessee, in "as-is, where-is" condition,
free and clear of all right, title and interest of the Lessor and the Indenture
Trustee, and any Lessor's Liens; (y) the Lessor shall, at the request and
expense of the Lessee, assign to the Lessee all claims it may have against any
other Person relating to an Event of Loss giving rise to such substitution and
shall exercise such rights as it has to cause such assignment to be free and
clear of the Lien of the Indenture and (z) the Lessee shall be entitled to
receive all insurance proceeds (other than those reserved to others under
Section 9(f) hereof) and proceeds in respect of any Event of Loss giving rise to
such replacement to the extent not previously applied to the purchase price of
the Replacement Engine as provided in Sections 9(e)(i) and 8(e)(ii).
Section 8. Loss, Destruction or Requisition.
(a) Event of Loss with Respect to the Airframe.
Upon the occurrence of an Event of Loss with respect to the
Airframe, the Lessee shall forthwith (and in any event within 15 days after such
occurrence) give the Lessor, the Owner Participant and the Indenture Trustee
notice of such Event of Loss. The Lessee shall, within 60 days after such
occurrence, give the Lessor, the Owner Participant and the Indenture Trustee
written notice of its election to perform one of the following options (it being
agreed that if the Lessee shall not have given the Lessor such notice of such
election, the Lessee shall be deemed to have elected to perform the option
identified in the following clause (ii)):
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(i) subject to the satisfaction of the conditions
contained in Section 8(d), on a date not more than 180 days
after the occurrence of the Event of Loss (or, if earlier, the
last day of the Term), convey or cause to be conveyed to the
Lessor, and to be leased by the Lessee hereunder in
replacement of the Airframe and Engines with respect to which
the Event of Loss occurred, a Replacement Airframe (together
with the same number of Replacement Engines as the number of
Engines, if any, which were subject to such Event of Loss),
such Replacement Airframe and Replacement Engines to be free
and clear of all Liens except Permitted Liens and to have a
remaining useful life, estimated residual value, value and
utility at least equal to the Airframe and Engines, if any, so
replaced (assuming such Airframe and Engines were in the
condition and repair required by the terms hereof) and to be
an airframe that is the same model and same or later vintage
as the Airframe to be replaced thereby, or an improved model;
provided that, if the Lessee shall not perform its obligation
to effect such replacement under this clause (i) during the
180-day period of time provided herein, it shall give the
Lessor, the Owner Participant and the Indenture Trustee notice
to such effect upon or before the expiration of such period of
time and shall promptly pay on the first Termination Date next
following the thirtieth (30th) day after the date of such
notice to the Lessor, in immediately available funds, the
amount specified in clause (ii) below; or
(ii) pay or cause to be paid to the Lessor in
immediately available funds, on a date specified at least 30
days in advance by the Lessee, which date shall be a
Termination Date not more than 180 days after the occurrence
of the Event of Loss, an amount equal to (A) the arrears
portion, if any, of Basic Rent payable on such Termination
Date, together with all unpaid Basic Rent, if any, payable
before such payment date plus (B) all unpaid Supplemental Rent
(other than Termination Value) due on or before such payment
date, plus (C) the Termination Value for the Aircraft
determined as of the date of payment or, if such date of
payment is beyond the end of the Term, the Termination Value
as of the last Termination Date of the Term plus (D) all
reasonable out-of-pocket expenses (including reasonable
attorneys' fees) incurred by the Lessor or the Owner
Participant in connection with such Event of Loss plus (E) if
the date of such payment is beyond the end of the Term,
interest on the amount of such payment, at a rate per annum
equal to the TV Rate identified on Exhibit B, for the period
from and including the last day of the Term to but excluding
such date of payment.
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(b) Effect of Replacement.
Should the Lessee have provided a Replacement Aircraft as provided
for in Section 8(a)(i), (i) this Lease shall continue with respect to such
Replacement Aircraft as though no Event of Loss had occurred; (ii) the Lessor
shall, at the expense of Lessee, convey "as-is, where-is", without recourse or
warranty except for a warranty against Lessor's Liens, to the Lessee all right,
title and interest of the Lessor, in and to the Airframe and the Engine or
Engines, if any, installed on the Airframe upon the occurrence of the Event of
Loss by executing and delivering to the Lessee such bills of sale and other
documents and instruments as the Lessee may reasonably request to evidence such
conveyance and shall exercise such rights as it has to cause such Airframe and
Engines and the Purchase Agreement and Assignment with respect to such Airframe
and Engines to be released from the Lien of the Indenture; (iii) the Lessor
shall, at the request and expense of Lessee, assign to the Lessee all claims it
may have against any other Person arising from the Event of Loss (except with
respect to insurance obtained in accordance with Section 9(f)) and (iv) the
Lessee shall be entitled to receive all insurance proceeds (other than those
reserved to others under Section 9(f)) and proceeds from any award in respect of
condemnation, confiscation, seizure or requisition, including any investment
interest thereon, to the extent not previously applied to the purchase price of
the Replacement Aircraft as provided in Sections 9(e)(iii) and 8(e)(i).
(c) Effect of Termination Value Payment.
In the event of a payment in full of the Termination Value for the
Aircraft and other Rent payable as provided in Section 8(a)(ii), (i) this Lease
and the obligations of the Lessee to pay Rent (except for Supplemental Rent
obligations which survive pursuant to Section 3(c) and Articles 6 and 7 of the
Participation Agreement or the Tax Indemnity Agreement or which have accrued but
have not otherwise been paid as of the date of such payment) shall terminate and
the Term shall end, (ii) any remaining insurance proceeds (other than those
reserved to others under Section 9(f)), including any investment interest
thereon, shall be promptly paid over to the Lessee; and (iii) the Lessor, at the
expense of Lessee, shall convey, "as-is, where-is" without recourse or warranty,
except for a warranty against Lessor's Liens attributable to Lessor and Owner
Participant, to the Lessee all right, title and interest of the Lessor in and to
the Airframe and Engines and shall execute and deliver to the Lessee such bills
of sale and other documents and instruments as the Lessee may reasonably request
to evidence such conveyance and shall exercise such rights as it has to cause to
be released from the Lien of the Indenture, the Airframe and the Engines and the
Purchase Agreement and Assignment with respect to such Airframe and Engines, all
claims for damage to such Airframe and Engines, if any, against third persons
arising from the Event of Loss and any interest of the Lessor in engines (which
are not Engines) installed on the Airframe.
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(d) Conditions to Airframe Replacement.
The Lessee's right to substitute a Replacement Aircraft as provided
in Section 8(a)(i) shall be subject to the fulfillment, at the Lessee's sole
cost and expense, in addition to the conditions contained in such Section
8(a)(i), of the following conditions precedent:
(i) On the date when the Replacement Aircraft is
delivered to the Lessor (such date being referred to in this
Section 8(d) as the "Replacement Closing Date"), no Specified
Default shall have occurred and be continuing and the Lessor,
the Owner Participant and the Indenture Trustee shall have
received an Officer's Certificate so certifying;
(ii) On the Replacement Closing Date the following
documents shall have been duly authorized, executed and
delivered by the respective party or parties thereto and shall
be in full force and effect, and an executed counterpart of
each thereof (or, in the case of the FAA Bills of Sale (or a
comparable document, if any, of another Aeronautical
Authority, if applicable) referred to below, a photocopy
thereof) shall have been delivered to the Lessor, the Owner
Participant and the Indenture Trustee:
(A) a Lease Supplement covering the Replacement Aircraft,
which shall have been duly filed for recordation with the FAA;
(B) so long as the Indenture shall not have been discharged
and satisfied, an Indenture Supplement covering the Replacement
Aircraft, which shall have been duly filed for recordation with the
FAA;
(C) an FAA ▇▇▇▇ of Sale (or a comparable document, if any, of
another Aeronautical Authority, if applicable) covering the
Replacement Aircraft, executed by the owner thereof in favor of the
Lessor, and dated the Replacement Closing Date;
(D) a full warranty (as to title) ▇▇▇▇ of sale, in form and
substance satisfactory to the Indenture Trustee, the Owner
Participant and the Lessor, covering the Replacement Aircraft,
executed by the owner thereof in favor of the Lessor, dated the
Replacement Closing Date and guaranteed by the Lessee;
(E) as long as the Indenture is in effect, such documents as
may be required under Section 9.08 of the Indenture;
(F) (1) so long as the Indenture shall not have been
discharged, such Uniform Commercial Code financing statements (or
any similar
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statements or other documents required to be filed or delivered
pursuant to the laws of the jurisdiction in which the Replacement
Aircraft may be registered in accordance with Section 5(e)) covering
the security interests created by the Indenture, and (2) such
"precautionary" Uniform Commercial Code financing statements as are
deemed necessary or desirable by counsel for the Owner Participant
or the Indenture Trustee to protect the ownership interests of the
Owner Trustee and the security interests of the Indenture Trustee in
the Replacement Aircraft; and
(G) an Officer's Certificate of the Lessee certifying that (i)
the Replacement Aircraft is a Canadair Regional Jet Series 200 ER
aircraft of a more advanced model, is in as good operating condition
as, and has a value, remaining useful life, estimated residual value
and utility at least equal to, the Aircraft it replaces, assuming
such Aircraft had been maintained in the condition required
hereunder and (ii) in the event the Event of Loss occurs after the
fifth anniversary of the Delivery Date, the Replacement Airframe
shall have no more than 105% of the total hours of operation, as
compared to the Airframe it replaces;
(iii) On or before the Replacement Closing Date, the
Lessor, the Owner Participant and the Indenture Trustee
(acting directly or by authorization to their respective
special counsel) shall have received such documents and
evidence with respect to the Lessee, the Lessor, the Owner
Participant, the owner of such Replacement Aircraft or the
Indenture Trustee, as the Lessor, the Owner Participant or the
Indenture Trustee or their respective special counsel may
reasonably request in order to establish the consummation of
the transactions contemplated by Section 8(a)(i) and this
Section 8(d), the taking of all necessary corporate action in
connection therewith and compliance with the conditions set
forth in this Section 8(d), in each case in form and substance
reasonably satisfactory to the Lessor, the Owner Participant
and the Indenture Trustee;
(iv) The Lessor, the Owner Participant and the Indenture
Trustee (acting directly or by authorization to their
respective special counsel) shall each have received
satisfactory evidence as to the compliance with Section 9
hereof with respect to the Replacement Aircraft;
(v) On the Replacement Closing Date, (A) the Lessor
shall receive good title to the Replacement Aircraft free and
clear of Liens (other than Permitted Liens), (B) the
Replacement Aircraft shall have been duly certified by the
Aeronautical Authority as to type and airworthiness in
accordance with the terms of this Lease, and (C) application
for registration of the Replacement Aircraft in
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accordance with Section 5(e) shall have been duly made with
the Aeronautical Authority;
(vi) The Owner Participant shall have received an
appraisal reasonably satisfactory to it with respect to the
Replacement Aircraft;
(vii) The Lessor, the Owner Participant and the
Indenture Trustee shall have received (acting directly or by
authorization to its special counsel) (A) an opinion,
satisfactory in form and substance to the Lessor, the Owner
Participant and the Indenture Trustee, of counsel to the
Lessee (which may be the Lessee's General Counsel) to the
effect that (x) the ▇▇▇▇ of sale referred to in clause (ii)(D)
above constitutes an effective instrument for the conveyance
of title to the Replacement Airframe and Replacement Engines,
if any, to the Lessor, (y) all documents executed and
delivered by the Lessee pursuant to this Section 8(d) have
been duly authorized, executed and delivered by the Lessee and
constitute legal, valid and binding obligations of, and are
enforceable against, the Lessee in accordance with their
respective terms, and (z) the Lessor and the Indenture Trustee
(as assignee of Lessor under the Indenture), are entitled to
the benefits of Section 1110 with respect to such Replacement
Aircraft to the same extent as with respect to the replaced
Aircraft immediately preceding such replacement; and (B) an
opinion of qualified FAA counsel (or counsel in such
jurisdiction outside of the United States where the Aircraft
may be registered in accordance with Section 5(e)), as to, in
the case of FAA counsel, the due recordation of the Lease
Supplement, the Indenture Supplement and all other documents
or instruments the recordation of which is necessary to
perfect and protect the rights of the Lessor and the Indenture
Trustee in the Replacement Aircraft or, in the case of counsel
in another jurisdiction, the taking of all action necessary in
such jurisdiction for such purposes;
(viii) the Lessor and the Indenture Trustee (as assignee
of Lessor under the Indenture), shall be entitled to the
benefits of Section 1110 with respect to such Replacement
Aircraft to the same extent as with respect to the replaced
Aircraft immediately preceding such replacement; and
(ix) Either (1) the Owner Participant shall have
received an opinion of independent tax counsel (selected by
the Owner Participant and reasonably acceptable to the
Lessee), reasonably satisfactory to the Owner Participant, to
the effect that there shall be no risk of adverse tax
consequences resulting from such
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replacement (and the Owner Participant shall use its best
efforts to cause a timely opinion to be delivered) or (2) the
Lessee shall have provided, or caused to be provided, an
indemnity in respect of any adverse tax consequences in form
and substance satisfactory to the Owner Participant.
Lessee shall reimburse the Lessor and the Owner Participant for all
reasonable out-of-pocket costs (including reasonable attorneys' fees) incurred
by them in connection with any substitution of a Replacement Aircraft pursuant
to this Section 8.
(e) Non-Insurance Payments Received on Account of an Event of Loss.
As between the Lessor and the Lessee, any payments on account of an
Event of Loss (other than insurance proceeds or other payments the application
of which is provided for in this Section 8 or elsewhere in this Lease, as the
case may be, or payments in respect of damage to the business or property of the
Lessee) with respect to the Aircraft, an Engine or any Part received at any time
by the Lessor or by the Lessee from any governmental authority or other Person
will be applied as follows:
(i) if such payments are received with respect to an
Event of Loss as to the Aircraft, and the Airframe or the
Airframe and the Engines or engines installed thereon are
being replaced by the Lessee pursuant to Section 8(a)(i), such
payments shall be paid over to, or retained by, the Lessee,
provided that if the Lessee has not completed such
replacement, such payments shall be paid over to, or retained
by, the Lessor as security, and upon completion of, or in
connection with a closing for, such replacement, be paid over
to or retained by the Lessee;
(ii) if such payments are received with respect to an
Event of Loss to an Engine that has been or is being replaced
by the Lessee pursuant to the terms hereof, such payments
shall be paid over to, or retained by, the Lessee, provided
that if the Lessee has not completed such replacement, such
payments shall be paid over to, or retained by, the Lessor as
security, and upon completion of, or in connection with a
closing for, such replacement, be paid over to or retained by
the Lessee; and
(iii) if such payments are received with respect to an
Event of Loss as to the Aircraft, and if the Airframe or the
Airframe and the Engines or engines installed thereon have not
been and will not be replaced as contemplated by Section 8(a),
(x) so much of such payments as shall not exceed the
Termination Value required to be paid by the Lessee pursuant
to Section 8(a) hereof shall be applied in reduction of the
Lessee's obligation to
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pay such Termination Value and other amounts, to the extent
not already paid by the Lessee, and, after the Termination
Value and all amounts required to be paid to the Lessor
pursuant to Section 8(a)(ii) above shall be paid in full,
shall be applied to reimburse the Lessee for such Termination
Value up to the full amount thereof, and (y) the balance, if
any, of such payment remaining thereafter shall be applied to
reimburse the Lessee, the Owner Participant and the Lessor for
their reasonable costs (including attorney's fees), if any, of
procuring such payments, and (z) the balance remaining, if
any, shall then be distributed between the Lessor and the
Lessee as their interests may appear.
(f) Requisition for Use.
In the event of a requisition for use by any government during the
Term of the Airframe and the Engines, if any, or engines installed on the
Airframe (including the Government pursuant to the CRAF Program), the Lessee
shall promptly notify the Lessor, the Owner Participant and the Indenture
Trustee of such requisition and, if the same does not constitute an Event of
Loss, all of the Lessee's obligations under this Lease shall continue to the
same extent as if such requisition had not occurred except to the extent that
the performance or observance of any obligation by the Lessee shall have been
prevented or delayed by such requisition, provided that the Lessee's obligations
for the payment of money and under Section 9 (except, in the case of Section 9,
while an assumption of liability by the government of the United States of the
scope referred to in Section 5(c) is in effect) and Section 12 shall not be
reduced, delayed or affected by such requisition. Any payments received by the
Lessor or the Lessee from such government with respect to the use of such
Airframe or Engines during the Term shall be paid over to, or retained by, the
Lessee and any payments received by the Lessor or Lessee from such government
with respect to the use of the Airframe or Engines after the Term shall be paid
over to, or retained by, Lessor. In the event of an Event of Loss of an Engine
resulting from the requisition for use by a government of such Engine (but not
the Airframe), the Lessee will replace such Engine hereunder by complying with
the terms of Section 7(e) and any payments received by the Lessor or the Lessee
from such government with respect to such requisition shall be paid over to, or
retained by, the Lessee.
(g) Certain Payments to be Held As Security.
Any amount referred to in this Section 8 or Section 9 hereof which
is payable to the Lessee shall not be paid to the Lessee, or, if it has been
previously paid directly to the Lessee, shall not be retained by the Lessee, if
at the time of such payment a Specified Default shall have occurred and be
continuing, but shall be paid to and held by the Lessor as security for the
obligations of the Lessee under this Lease, unless and until applied by Lessor
to Lessee's obligations and at such time as there shall not be continuing any
such Specified Default, such amount and any gain realized as a result of
Permitted Investments required to be made pursuant to Section 15 or
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Section 5.08 of the Indenture shall to the extent not so applied be paid over to
the Lessee.
Section 9. Insurance.
(a) Public Liability and Property Damage Insurance.
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor, maintain or cause to be maintained in
effect at all times during the Term with insurers of nationally recognized
responsibility public liability insurance (including, without limitation,
passenger legal liability, property damage and product liability coverage but
excluding manufacturer's product liability coverage) with respect to the
Aircraft in an amount not less than the Lessee may carry from time to time on
other similar aircraft in its fleet (whether owned or leased) but not less than
the Minimum Liability Amount; provided that an agreement of the Government for
the benefit of the Additional Insureds to insure against or indemnify for
substantially the same risks to at least the same amount shall satisfy the
requirements of this Section 9(a), provided that on or prior to the date of such
agreement, the Lessee shall provide an Officer's Certificate of the Lessee
certifying that any such insurance or indemnity provides protection no less
favorable than insurance coverage that would comply with this Section 9. Such
insurance shall be of the type usually carried by the Lessee with respect to
similar aircraft and engines, and covering risks of the kind customarily insured
against by the Lessee.
During any period that the Aircraft is grounded and not in operation
for any reason, the Lessee may modify the insurance required by this Section
9(a) to reduce the amounts of public liability and property damage insurance and
(ii) to modify the scope of the risks covered and the type of insurance, in both
circumstances to conform to such insurance customary in the United States
airlines industry for regional air carriers similarly situated with the Lessee
in respect of similar aircraft which are grounded, not in operation, and stored
or hangared, except that the amounts of coverage and scope of risk covered and
the type of insurance shall be the same as from time to time applicable to
aircraft owned or leased by Lessee on the ground, not in operation, and stored
or hangared.
(b) Insurance Against Loss or Damage to the Aircraft and Engines.
Subject to the rights of the Lessee under Section 9(d), the Lessee
shall, without expense to the Lessor, the Indenture Trustee or the Participants,
maintain or cause to be maintained in effect at all times during the Term with
insurers of nationally recognized responsibility (i) all risk, agreed value,
ground and flight hull insurance, which may, except as provided below, exclude
war risks and allied perils, covering the Aircraft for an amount not less than
the Termination Value from time to time; provided that, neither the Lessee nor
any Permitted Sublessee shall be required to maintain all- risk flight aircraft
hull insurance with respect to any period in which the Aircraft is grounded for
any reason and properly stored or hangared. Such insurance shall not
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provide insurers with a right to replace the Airframe or any Engine with another
airframe or Engine. Such hull insurance or other personal property insurance of
the Lessee (or a Permitted Sublessee) shall cover Engines or engines and Parts
temporarily removed from the Airframe, pending replacement by installation of
the same or similar Engines, engines or Parts on the Airframe but such insurance
need not cover an Engine while attached to an airframe not owned, leased or
operated by the Lessee or a Permitted Sublessee. Such insurance shall be of the
type usually carried by the Lessee with respect to similar aircraft and engines,
and covering risks of the kind customarily insured against by the Lessee. If and
to the extent that the Lessee or a sublessee operates the Aircraft (A) on routes
where it maintains war risk, hijacking or allied perils insurance in effect with
respect to other similar owned or leased aircraft in its fleet, (B) on routes
(other than routes within the United States, Canada, Mexico, Bermuda and islands
other than Cuba in the Caribbean Basin) where the custom in the industry is to
carry war risk insurance or (C) in any area of recognized hostilities, the
Lessee or such sublessee shall maintain or cause to be maintained such insurance
in effect with respect to the Aircraft in the lesser of an amount at least equal
to Termination Value or the amount of such insurance customarily carried by
corporations engaged in the same or similar business similarly situated with the
Lessee and owning or operating similar aircraft and engines on such routes or
similar routes, provided that if the requirement to maintain war risk insurance
arises under clause (A) of this sentence, such insurance shall be maintained in
an amount not less than that maintained by the Lessee or such sublessee on
similar aircraft in its fleet. An agreement by the Government to insure against
or indemnify for substantially the same risks to at least the same amount will
satisfy any of the requirements of this Section 9(b).
(c) Additional Insureds; Loss Payment.
The Lessee shall cause all policies of insurance carried in
accordance with this Section 9 to name the Additional Insureds as their
respective interests may appear as additional insureds. Such policies shall
provide with respect to such Additional Insureds that (i) none of their
respective interests in such policies shall be invalidated by any act or
omission or breach of warranty or condition contained in such policies by the
Lessee or, in the case of any particular Additional Insured, any other
Additional Insured; (ii) no cancellation or lapse of coverage for nonpayment of
premium or otherwise, and no substantial change of coverage which adversely
affects the interests of any such Additional Insured, shall be effective as to
such Additional Insured until 30 days (or such lesser period as may be
applicable in the case of any war risk coverage) after receipt by such
Additional Insured of written notice from the insurers of such cancellation,
lapse or change; (iii) they shall have no liability for premiums, commissions,
calls, assessments or advances with respect to such policies; (iv) such policies
will be primary without any right of contribution from any other insurance
carried by such Additional Insureds; (v) the insurers waive any rights of
set-off, counterclaim, deduction or subrogation against such Additional
Insureds; (vi) shall apply worldwide and have no territorial restrictions or
limitations (except, in the case of war, hijacking or related perils insurance,
as otherwise permitted hereunder); and (vii) shall contain a 50/50% Clause per
Lloyd's Aviation Underwriter's Association
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Standard Policy Form AVS 103. Each liability policy shall provide that all the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured and provide that
the exercise by the insurer of rights of subrogation derived from rights
retained by the Lessee will not delay payment of any claim that would otherwise
be payable but for such rights of subrogation. Each hull policy shall name the
Indenture Trustee as loss payee as long as the Indenture shall remain in effect
and thereafter shall name the Lessor as loss payee; provided that, so long as
the insurers shall not have received written notice that an Event of Default has
occurred and is continuing, if insurance proceeds in the aggregate equal
$2,000,000 or less, then such proceeds shall be payable to the Lessee and,
notwithstanding the foregoing, any amounts up to Termination Value (i) of any
proceeds which in the aggregate exceed $2,000,000, (ii) of any proceeds in
respect of a total loss or an Event of Loss or (iii) if the insurers shall have
received written notice that an Event of Default has occurred and is continuing,
any proceeds with respect to any single loss, shall be payable to such loss
payee.
(d) Deductibles and Self-Insurance.
The Lessee may from time to time self-insure, by way of deductible
or premium adjustment provisions in insurance policies or otherwise, the risks
required to be insured against pursuant to this Section 9 in such amounts as are
then self-insured with respect to similar owned or leased aircraft in the
Lessee's fleet but in no case shall such self-insurance in the aggregate exceed,
on a per occurrence or on fleetwide basis, an amount equal to 5% of the Lessee's
tangible net worth, calculated as at the end of the Lessee's immediately
preceding fiscal year (but in no event to exceed $15,000,000). A deductible per
occurrence that is not in excess of the prevailing standard market deductible
for similar aircraft shall be permitted, for each aircraft in the Lessee's
fleet, in addition to such self-insurance.
(e) Application of Hull Insurance Proceeds.
Subject to Section 8(g), as between the Lessor and the Lessee, any
payments received under policies of hull or other property insurance required to
be maintained by the Lessee pursuant to Section 9(b), shall be applied as
follows:
(i) if such payments are received with respect to loss
or damage (including an Event of Loss with respect to an
Engine) not constituting an Event of Loss with respect to the
Airframe, payments in the aggregate of $2,000,000 or less
shall be paid over to or retained by the Lessee and, subject
to Section 9(c), any payments which in the aggregate are
greater than $2,000,000 shall be paid over to or retained by
the Lessor for payment to the Lessee only upon performance of
its repair or replacement obligation;
(ii) if such payments are received with respect to an
Event of Loss with respect to the Airframe and the Airframe is
not
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being replaced by the Lessee pursuant to Section 8(a)(i), so
much of such payments as shall not exceed the Termination
Value and other amounts required to be paid by the Lessee
pursuant to Section 8(a)(ii) shall be applied in reduction of
the Lessee's obligation to pay such amounts if not already
paid by the Lessee, and to reimburse the Lessee if such
amounts shall have been paid, and the balance, if any, of such
payments shall be promptly paid over to or retained by the
Lessee; and
(iii) if such payments are received with respect to the
Airframe or the Airframe and Engines or engines installed
thereon and the Airframe is being replaced by the Lessee
pursuant to Section 8(a)(i), such payments shall be paid over
to, or retained by the Lessee, provided that if the Lessee has
not completed such replacement and the performance of all
other obligations under Section 8(d), such payments shall be
paid over to, or retained by, the Lessor as security, and upon
completion of, or in connection with a closing for, such
replacement, be paid over to or retained by the Lessee.
(f) Insurance for Own Account.
Nothing in this Section 9 shall prohibit the Lessor, the Owner
Participant, the Lessee or any Additional Insured from obtaining insurance with
respect to the Aircraft for its own account (including, without limitation, in
the case of the Lessee, hull insurance under the same policies maintained
pursuant to this Section 9 in amounts in excess of those required to be
maintained pursuant to this Section 9) and any proceeds payable thereunder shall
be payable as provided in the insurance policy relating thereto, provided that
no such insurance may be obtained which would limit or otherwise adversely
affect the availability coverage or payment of any insurance required to be
obtained or maintained pursuant to this Section 9, it being understood that all
salvage rights to the Airframe or the Engines shall remain with the Lessee's
insurers at all times.
(g) Reports, etc.
Lessee will furnish to the Lessor, the Owner Participant and the
Indenture Trustee (A) on or prior to the Delivery Date, insurance certificates
describing in reasonable detail the insurance maintained by Lessee as required
pursuant to this Section 9, (B) prior to the cancellation, lapse or expiration
of the insurance policies required pursuant to this Section 9, evidence of
renewal of such insurance policies, and (C) on or prior to the Delivery Date and
on or before the renewal dates of the insurance policies carried by the Lessee
pursuant to this Section 9, a report signed by a firm of aircraft insurance
brokers, not affiliated with the Lessee, appointed by the Lessee and reasonably
satisfactory to the Lessor, stating the opinion of such firm that all premiums
in connection with the insurance then due have been paid and the insurance then
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carried and maintained on the Aircraft complies with the terms hereof and, in
the case of renewal insurance, that such renewal insurance will on and after the
effective date thereof so comply with the terms hereof, provided that all
information contained in such report shall be held confidential by the Lessor
and the Indenture Trustee, and shall not be furnished or disclosed by them to
anyone except bona fide prospective transferees of the Owner Participant and
their respective agents (provided that they shall agree for the benefit of the
Lessee to hold all such information similarly confidential) or as may be
required by Applicable Law. The Lessee will instruct such firm to give prompt
written advice to the Lessor, the Owner Participant and the Indenture Trustee of
any default in the payment of any premium and of any other act or omission on
the part of the Lessee of which it has knowledge and which would in such firm's
opinion invalidate or render unenforceable, in whole or in any material part,
any insurance on the Aircraft. The Lessee will also instruct such firm to advise
the Lessor, the Owner Participant and the Indenture Trustee in writing at least
30 days prior to the termination or cancellation of, or material adverse change
in, such insurance carried and maintained on the Aircraft pursuant to this
Section 9 (or such lesser period as may be applicable in the case of war risk
coverage).
(h) Right to Pay Premiums.
The Additional Insureds shall have the rights but not the
obligations of an additional named insured. None of Lessor, Owner Participant,
Indenture Trustee and the other Additional Insureds shall have any obligation to
pay any premium, commission, assessment or call due on any such insurance
(including reinsurance). Notwithstanding the foregoing, in the event of
cancellation of any insurance due to the nonpayment of premiums, each of Lessor,
Owner Participant, Indenture Trustee and the other Additional Insureds shall
have the option, in its sole discretion, to pay any such premium in respect of
the Aircraft that is due in respect of the coverage pursuant to this Lease and
to maintain such coverage, as Lessor, Owner Participant, Indenture Trustee or
the other Additional Insureds may require, until the scheduled expiry date of
such insurance and, in such event, Lessee shall, upon demand, reimburse Lessor,
Owner Participant, Indenture Trustee and the other Additional Insureds for
amounts so paid by them.
Section 10. Liens.
The Lessee shall not during the Term directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
Airframe, any Engine or any Part or title thereto or any interest therein or in
this Lease except (a) the respective rights of the Lessor and the Lessee as
provided herein, the Lien of the Indenture and the rights of the parties to the
other Operative Agreements; (b) the rights of others under agreements or
arrangements to the extent expressly permitted in Sections 5(b) and 7(c); (c)
Liens for Taxes either not yet due or being contested in good faith by
appropriate proceedings so long as such proceedings do not involve any non-de
minimis risk of the sale, forfeiture or loss of the Aircraft, Airframe or an
Engine or the interest of any Participant therein or any risk of criminal
liability or any
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material risk of civil penalty against Lessor or any Participant; (d) Liens of
suppliers, mechanics, workers, repairers, employees, airport operators, air
traffic control authorities or other like Liens arising in the ordinary course
of business and for amounts the payment of which is either not yet delinquent or
is being contested in good faith (and for the payment of which adequate reserves
have been provided) by appropriate proceedings, so long as such proceedings do
not involve a non-de minimis risk of the sale, forfeiture or loss of the
Airframe or an Engine or the interest of any Participant therein or any risk of
criminal liability or any material risk of civil penalty against Lessor or any
Participant; (e) Liens arising out of judgments or awards against the Lessee so
long as there shall be in effect with respect to which a stay of execution; (f)
Lessor's Liens, Trust Company Liens and Indenture Trustee's Liens; (g) salvage
and similar rights of insurers under policies of insurance maintained with
respect to the Aircraft and (h) Liens with respect to which the Lessee (or any
sublessee) has provided a bond or other security adequate in the good faith
opinion of the Lessor and the Owner Participant. Liens described in clauses (a)
through (h) above are referred to herein as "Permitted Liens." The Lessee shall
promptly, at its own expense, take such action as may be necessary to duly
discharge (by bonding or otherwise) any Lien other than a Permitted Lien arising
at any time during the Term;
Section 11. Recordation and Further Assurances.
(a) Recordation of Lease.
The Lessee shall cause this Lease, any Lease Supplements, and any
and all additional instruments which shall be executed pursuant to the terms
hereof to be kept, filed and recorded and to be re-executed, refiled and
re-recorded at all times during the Term with the FAA or other Aeronautical
Authority to the extent required to perfect and preserve the Lessor's interest
in the Aircraft.
(b) Further Assurances.
The Lessee and the Lessor will each promptly and duly execute and
deliver to the other such further documents and assurances and take such further
action as the other may from time to time reasonably request in order to more
effectively carry out the intent and purpose of this Lease and to establish and
protect the rights and remedies created or intended to be created in favor of
the Lessor and the Lessee hereunder, including, without limitation, if requested
by the Lessor or the Lessee, the execution and delivery of supplements or
amendments hereto, in recordable form, subjecting any replacement or substituted
aircraft or engine to this Lease and the recording or filing of counterparts
hereof, or of financing statements with respect hereto.
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(c) Markings.
If permitted by Applicable Law, on or reasonably promptly after the
Delivery Date, Lessee will cause to be affixed to, and maintained in, the
cockpit of the Airframe, in a clearly visible location (it being understood that
the location of such placard, as identified to the Owner Participant prior to
the Delivery Date, shall be deemed to be in compliance with this requirement), a
placard of a reasonable size and shape bearing the legend, in English, set forth
below:
Leased from
First Union Trust Company, National Association,
not in its individual capacity
but solely as Owner Trustee, Owner and Lessor
and Mortgaged to
The First National Bank of Maryland,
not in its individual capacity
but solely as Indenture Trustee
Such placard may be removed temporarily, if necessary, in the course of
maintenance of the Airframe. If such placard is damaged or becomes illegible,
Lessee shall promptly replace it with a placard complying with the requirements
of this Section 11(c).
Section 12. Return of Aircraft and Records.
(a) Return of Aircraft.
Upon the termination of this Lease at the expiration of the Term or
upon the earlier termination of this Lease pursuant to the terms hereof, unless
the Lessee shall purchase the Aircraft or there shall have been an Event of Loss
with respect to the Aircraft, the Lessee, at its own expense, shall, except as
otherwise expressly provided herein, return the Airframe by delivering the same
to the Lessor in the continental United States of America at a location on the
Lessee's domestic route system chosen by the Lessee and reasonably acceptable to
the Lessor, fully equipped with two Engines or other General Electric CF34-3B1
Series 200 engines (or engines of a comparable or an improved model and suitable
for installation and use on the Airframe and owned by the Lessee) duly installed
thereon.
(b) Return of Other Engines.
In the event any engine not owned by the Lessor shall be returned
with the Airframe, such engine shall satisfy the requirements for a Replacement
Engine, shall be free and clear of all Liens other than Lessor's Liens and shall
have a value,
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remaining useful life, utility and condition at least as great as the Engine
replaced (assuming such Engine was maintained in accordance with the terms
thereof) and the Lessee shall, at its own expense and concurrently with such
return, furnish the Lessor with (i) a full warranty ▇▇▇▇ of sale guaranteed by
Lessee, in form and substance reasonably satisfactory to the Lessor and the
Owner Participant, (ii) an Officer's Certificate as described in Section
7(e)(i)(F), and (iii) an opinion of counsel to the Lessee as described in
Section 7(e)(ii), with respect to each such engine and shall take such other
action as required by Section 7(e) to cause such engine to be a Replacement
Engine or as the Lessor may reasonably request in order that such engine shall
be duly and properly titled in the Lessor free and clear of all Liens other than
Lessor's Liens. Upon passage of title such engine shall be deemed to be an
Engine for all purposes hereof and thereupon the Lessor will transfer to the
Lessee, without recourse or warranty except a warranty against Lessor's Liens,
all right, title and interest of the Lessor or any Affiliate in and to an Engine
not installed on the Airframe at the time of the return thereof and, if the
Indenture has not been discharged, shall exercise such rights as it has to cause
such Engine to be released from the Lien of the Indenture.
(c) Fuel; Records.
Upon the return of the Aircraft, (i) the Lessor shall have no
obligation with respect to the amount of fuel or oil contained in the Airframe
and (ii) the Lessee shall deliver to the Lessor all logs, manuals, certificates
and inspection, modification and overhaul records which are required to be
maintained with respect thereto under applicable rules and regulations of the
FAA and Department of Transportation.
(d) Condition of Aircraft.
The Aircraft when returned to the Lessor shall be in the operating
condition required by Exhibit F hereto.
(e) Failure to Return. If Lessee shall, for any reason whatsoever,
fail to return the Aircraft and the documents referred to in Section 12(c)(ii)
at the time and place and in the condition specified herein, all obligations of
Lessee under this Lease shall continue in effect with respect to the Aircraft
until the Aircraft is so returned to Lessor and Lessee shall pay to Lessor an
amount equal to the average daily Basic Rent payable by Lessee during the Term
for each day after the end of the Term to but excluding the day of such return;
provided, however, that this Section 12(e) shall not be construed as permitting
Lessee to fail to meet its obligations to return the Aircraft or the documents
referred to in Section 12(c)(ii) in accordance with the requirements hereof or
constitute, or be deemed to constitute, a waiver of any Event of Default
resulting from Lessee's failure to return the Aircraft or such documents or
otherwise; and provided, further, that Lessee shall not be responsible for
Lessor's failure to accept return of the Aircraft and the documents referred to
in Section 12(c)(ii) in accordance with the requirements hereof in a timely
manner or for any rent with respect to periods after Lessee has tendered the
Aircraft and the documents referred to in Section 12(c)(ii) for return in
accordance with this Lease, provided however that if Lessor's inspection
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of the Aircraft and the documents referred to in Section 12(c)(ii), which
inspection shall be conducted in good faith and timely manner, reveals any
discrepancy from the condition required by the provisions of this Section 12,
Lessee shall continue to pay rent in accordance with this Section 12(e) until
the Aircraft and the documents referred to in Section 12(c)(ii) are returned to
the Lessor in accordance with this Lease. Any rent owed to Lessor pursuant to
this Section 12(e) shall be payable upon acceptance of the Aircraft and the
documents referred to in Section 12(c)(ii) by Lessor.
(f) Storage and Related Matters.
If Lessor gives written notice to Lessee not less than 60 days nor
more than 180 days prior to the end of the Term requesting storage of the
Aircraft upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with outdoor parking facilities for the Aircraft for a period up
to 60 days, commencing on the date of such return, at such storage facility in
the 48 contiguous states of the United States as Lessee may select. Lessee
shall, at Lessor's written request, maintain insurance (if available) for the
Aircraft during such storage period, provided that Lessor shall reimburse Lessee
for Lessee's out-of-pocket cost of providing such insurance. Such storage shall
be at Lessor's risk, and Lessor shall pay all applicable storage fees, except
that Lessee shall pay the parking fees for the initial 60 day storage period;
provided that Lessee's obligation to provide parking shall be subject to Lessee
and Lessor entering into an agreement prior to the commencement of the storage
period with the storage facility providing, among other things, that Lessee
shall pay only the parking fees for the initial storage period of up to 60 days
and that Lessor shall bear all maintenance charges and other costs incurred
relating to such storage.
Section 13. Renewal Option and Purchase Options.
(a) Renewal Terms.
Subject to the final sentence of this Section 13(a), upon expiration
of the Basic Term, the Lessee shall have the right to extend this Lease for
successive periods of one or two years each (each a "Fixed Renewal Term"), but
for not more than an aggregate of three years. Upon expiration of the Basic Term
or at the end of any Fixed Renewal Term, the Lessee shall have the right to
extend this Lease for any number of successive periods of one year each (each a
"Fair Market Value Renewal Term"; each Fixed Renewal Term and each Fair Market
Value Renewal Term, being hereinafter sometimes called a ("Renewal Term")
provided that the aggregate term of all Renewal Terms shall not exceed six
years. A Fixed Renewal Term will commence at the end of the Basic Term or the
preceding Fixed Renewal Term, as the case may be and a Fair Market Value Renewal
Term will commence at the end of the Basic Term or the preceding Renewal Term,
as the case may be. Such right to extend this Lease shall be exercised upon
notice to the Lessor, specifying the nature and duration of the Renewal Term,
not less than 210 days nor more than 365 days before the expiration of the Basic
Term or the preceding Renewal Term, as the case may be. Such notice shall be
irrevocable except that in the event the Lessee gives such notice to the Lessor
240 or
-38-
more days before the end of the Basic Term or the Renewal Term then in effect,
as the case may be, the Lessee may revoke its election to extend this Lease
within 15 days following the determination of the Fair Market Rental Value of
the Aircraft but in no event later than 210 days prior to the end of the Basic
Term or the preceding Renewal Term, as the case may be. If the Lessee requests a
determination of Fair Market Rental Value at least 240 days before the
expiration of the Basic Term or a Renewal Term, as the case may be, the Lessor
and the Lessee shall comply in a timely manner with their respective obligations
under the definition of "Fair Market Rental Value" to allow any appraisal of
Fair Market Rental Value to be completed in sufficient time to permit the Lessee
to exercise the revocation right provided above. If no Specified Default shall
have occurred and be continuing on the date of such notice or on the date of the
commencement of any Renewal Term, then this Lease shall be extended for the
additional period of such Renewal Term as specified in such notice on the same
conditions as provided for herein. The Basic Rent payable per annum during any
Fixed Renewal Term shall be the lesser of (i) the then Fair Market Rental Value
for the Aircraft and (ii) Renewal Rental Rate identified on Exhibit B. The
rental payable per annum during any Fair Market Value Renewal Term shall be the
then Fair Market Rental Value for the Aircraft. Such rental during each Renewal
Term shall be payable semi-annually in arrears. The Termination Value of the
Aircraft during each Renewal Term shall be the Fair Market Sales Value for the
Aircraft at the beginning of such Renewal Term declining on a straight line
basis to the projected Fair Market Sales Value for the Aircraft at the end of
such Renewal Term, but in both cases determined prior to the commencement of
such Renewal Term. Lessee's right to renew this Lease at the end of the Basic
Term is subject to the condition precedent that the Owner Participant shall have
agreed with Lessee not to demand payment of the Payment Amount (as defined in
the Residual Agreement) pursuant to Section 4(a) of the Residual Agreement
within the period specified therein (unless an Event of Default shall thereafter
occur and be continuing).
(b) Lessee's Purchase Options.
(i) Rights to Purchase.
The Lessee shall have the right upon notice as provided herein to
purchase the Aircraft (A) on the EBO Date for a price equal to the EBO Amount;
(B) upon the termination of the Basic Term a price equal to the then Fair Market
Sales Value of the Aircraft; or (C) at the end of any Renewal Term for a price
equal to the then Fair Market Sales Value of the Aircraft in each case as long
as no Event of Default of the type referred to in Section 16(f), (g) or (h)
hereof shall have occurred and be continuing on the date of purchase. Upon the
payment by the Lessee of the purchase price for the Aircraft and the Basic Rent,
if any, payable in arrears on the date of purchase, together with all unpaid
Basic Rent, if any, payable before such date and all Supplemental Rent then due
and payable hereunder (including any Supplemental Rent payable in respect of
Make-Whole Premium), the Term shall end and the obligations of the Lessee to pay
Rent hereunder (except for Supplemental Rent obligations surviving pursuant to
Section 3(c), Articles 6 and 7 of the Participation Agreement or the Tax
Indemnity
-39-
Agreement or which have otherwise accrued but not been paid as of the date of
such payment) shall cease, and the Lessor shall convey to the Lessee all right,
title and interest of the Lessor in and to the Aircraft on an "as-is, where is"
basis, without recourse or warranty except a warranty against Lessor's Liens.
(ii) Option to Assume Equipment Notes.
In the event the Lessee elects to purchase the Aircraft pursuant to
clause (A) of Section 13(b)(i), the Lessee may, at its election, assume the
payment obligations of the Lessor with respect to such Equipment Notes as
contemplated by Section 5.10 of the Participation Agreement, in which case the
purchase price to be paid by the Lessee shall be reduced by an amount equal to
the principal of the Equipment Notes so assumed by the Lessee.
(iii) Notice of Exercise of Option.
The Lessee's right to purchase provided for in clause (B) or (C) of
Section 13(b)(i) shall be exercised upon written notice to the Lessor not less
than 180 days nor more than 365 days before the applicable date of purchase
provided in such clause (B) or (C) as the case may be. Such notice shall be
irrevocable, except that where the purchase price is or may be measured by the
Fair Market Sales Value of the Aircraft the Lessee may revoke its exercise of an
option to purchase the Aircraft within 15 days following the determination of
such Fair Market Sales Value, but in no event later than 180 days prior to the
applicable date of purchase provided in such clause (B) or (C), as the case may
be. The Lessee's right to purchase provided for in clause (A) of Section
13(b)(i) shall be exercised upon written notice to the Lessor not less than 90
days nor more than 365 days before the EBO Date and shall be irrevocable when
given.
Section 14. Voluntary Termination for Obsolescence.
(a) Termination by Sale of Aircraft.
So long as no Specified Default shall have occurred and be
continuing, the Lessee shall have the right at its option five years or more
after commencement of the Basic Term on at least 180 days', but not more than
365 days, prior written notice (which notice shall be irrevocable, except as
provided below) to the Lessor and the Indenture Trustee, specifying a proposed
date of termination which shall be a Termination Date, to terminate this Lease
if the chief financial officer of the Lessee shall have certified in writing to
the Lessor that the Aircraft shall have become obsolete or shall be surplus to
the Lessee's equipment requirements. Subject to the Lessor's preemptive election
under Section 14(c), during the period following the giving of such notice of
termination until the Termination Date, the Lessee, as agent for the Lessor,
shall endeavor to sell the Aircraft "as is", without any warranty by the Lessor
or the Lessee except as to the Lessor's title, on behalf of the Lessor. If
Lessee receives any bid, it shall at least 10 Business Days prior to the
proposed day of sale, certify to Lessor
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in writing the amount and terms of such bid, such proposed date of sale and the
name and address of the potential buyer (which shall not be Lessee or any
Affiliate or any Person with whom Lessee or any Affiliate has any arrangement or
understanding for the future purchase, lease, operation or use of the Aircraft).
Lessor may also solicit bids directly or through agents other than Lessee. So
long as the Lessor has not exercised its preemptive election under Section
14(c), the Lessee may, by notice to the Lessor and the Indenture Trustee,
withdraw its notice of termination at any time on or before the date 10 days
prior to the proposed Termination Date (unless such withdrawal is due to the
cancellation of the proposed purchase of the Aircraft by the potential buyer in
which event such notice may be given at any time on or prior to the proposed
Termination Date), and thereupon this Lease shall continue in full force and
effect. Withdrawal of notice of termination shall not exhaust the Lessee's right
to give a further notice of termination as provided herein; provided that Lessee
shall not be entitled to give more than two such notices (excluding one notice
of termination which has been withdrawn due to the cancellation of the proposed
purchase of the Aircraft by the potential buyer). Unless the Lessee shall
withdraw its notice of termination as stated above or the Lessor shall have made
a preemptive election to take possession of the Aircraft in accordance with
Section 14(c), on the Termination Date, or such other date of sale as shall be
consented to in writing by the Lessor and the Lessee, which date shall
thereafter be deemed the Termination Date, the Lessee shall, upon payment in
full of the amounts described in Section 14(b), deliver the Airframe and Engines
or engines installed thereon to the party which shall have prior to such date
submitted the highest bona fide cash bid to close such sale and purchase of the
same, in the same manner as if delivery were being made to the Lessor pursuant
to Section 12, and shall duly transfer to such party title to any engines which
are not Engines delivered with the Airframe in accordance with the terms of
Section 12. The Lessor shall, without recourse or warranty (except a warranty as
to the absence of Lessor's Liens), simultaneously therewith sell and convey
title to the Airframe and the Engines or engines conveyed to the Lessor as
provided in Section 12 for cash to such party and exercise such rights as it has
to cause the Aircraft to be released from the Lien of the Indenture. Upon the
sale of the Airframe and the Engines or engines conveyed to the Lessor as
provided in Section 12 pursuant to this Section 14 and receipt by the Lessor of
all amounts referred to in Section 14(b), the Lessor will transfer to the
Lessee, without recourse or warranty (except a warranty as to the absence of
Lessor's Liens), all right, title and interest of the Lessor in and to any
Engines constituting part of the Aircraft but which were not delivered to the
purchaser with the Airframe. The Lessee shall pay all out of pocket expenses of
the Lessor, Owner Participant and Indenture Trustee in connection with any
termination or proposed termination of this Lease except that Lessee shall not
be responsible for such expenses of the Lessor or the Owner Participant in the
event the Lessor exercises its preemptive election under Section 14(c) and
thereafter fails to perform its obligations under such Section.
(b) Payments Due Upon Sale of Aircraft.
The total selling price realized at any sale of the Airframe and
Engines or engines installed thereon in accordance with this Section 14 shall be
retained by the
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Lessor and, in addition, on the Termination Date, the Lessee shall pay to the
Lessor or, in the case of Supplemental Rent, to the Persons entitled thereto, in
immediately available funds, an amount equal to the sum of (A) the excess, if
any, of (x) the Termination Value as of the Termination Date, over (y) the net
proceeds of the sale of the Aircraft, plus (B) all unpaid Supplemental Rent due
on or before the Termination Date (including Make-Whole Premium), plus (C) the
arrears portion, if any, of Basic Rent payable on such Termination Date,
together with all unpaid Basic Rent, if any, payable before the Termination
Date, plus (D) the reasonable fees and expenses of the Participants, the
Indenture Trustee and Lessor in connection therewith, plus (E) any sales,
transfer or similar Taxes incurred on such sale.
(c) Preemptive Election by Lessor.
Notwithstanding the foregoing provisions of this Section 14, the
Lessor may, not later than 90 days prior to the proposed Termination Date,
notify the Lessee of its preemptive election to take possession of the Aircraft,
which notice shall be accompanied by an irrevocable undertaking by the Lessor to
pay to the Indenture Trustee the amount required to pay in full (after giving
effect to any installment of Basic Rent due and payable on such date) the
aggregate unpaid principal amount of the outstanding Equipment Notes, together
with all accrued interest thereon and Make Whole Premium, if any (without
releasing Lessee from its obligations under clause (B) of Section 14(b) in
respect of the payment of such amount). Upon payment by the Lessor of such
amount to the Indenture Trustee, and payment of any Basic Rent due on such date,
the Lessee shall have no obligation to pay Termination Value. On the Termination
Date, if the Lessor shall have paid such amount to the Indenture Trustee, the
Lessee shall deliver the Airframe and Engines or engines installed thereon to
the Lessor in accordance with Section 12 and shall pay all unpaid Basic Rent, if
any, payable before the Termination Date, together with all accrued Basic Rent
(on a per diem basis), if any, which would otherwise have been paid in arrears
on the next following Basic Rent Payment Date, all unpaid Supplemental Rent due
on or before or after the Termination Date (including Make-Whole Premium), and
the Lessor shall transfer to the Lessee title to any Engines constituting part
of the Airframes but which were not then installed on the Aircraft as provided
in Section 12(b). If the Lessor, having given notice of a preemptive election,
shall fail to perform any of its obligations pursuant to this Section 14(c) and
as a result thereof this Lease shall not be terminated on a proposed Termination
Date, the Lessee may at its option at any time thereafter submit a new
termination notice but the Lessor may only be entitled to exercise on one
additional occasion its preemptive election to retain the Aircraft upon a
subsequent termination pursuant to this Section 14.
(d) Termination of Lease.
Upon delivery by the Lessee of the Airframe and Engines or engines
installed thereon and payment by the Lessee of all amounts payable by the Lessee
under either Section 14(b) or 14(c), as the case may be, the obligations of the
Lessee to pay Rent (except for Supplemental Rent obligations surviving pursuant
to the second
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sentence of Section 3(c) and Articles 6 and 7 of the Participation Agreement or
the Tax Indemnity Agreement or which have otherwise accrued but not paid as of
the Termination Date) shall cease and the Term shall end.
(e) Effect of No Sale or Preemptive Delivery to Lessor.
If on the Termination Date no sale of the Aircraft shall have
occurred and the Lessee has not delivered the Aircraft to the Lessor pursuant to
Section 14(c), the Lessee's notice given pursuant to Section 14(a) shall be
deemed to be withdrawn as of such date and this Lease shall continue in full
force and effect, without prejudice, however, to any claims the Lessee may have
against any Person under the Participation Agreement or otherwise if a failure
to deliver the Aircraft to the Lessor pursuant to Section 14(c) shall have been
due to a failure of the Lessor to make the payment by the Lessor provided for in
such Section.
(f) No Duty on Part of Lessor.
Lessor shall be under no duty to solicit bids, to inquire into the
efforts of Lessee to obtain bids or otherwise to take any action in connection
with any such sale other than to cooperate with such efforts as Lessee may
reasonably request and to make the transfers described in the last two sentences
of Section 14(a).
Section 15. Investment of Security Funds.
Any monies paid to or retained by the Lessor which are required to
be paid to the Lessee or applied for the benefit of the Lessee (including,
without limitation, amounts payable to the Lessee under Sections 8 and 9), but
which the Lessor is entitled to hold under the terms hereof pending the
occurrence of some event or the performance of some act (including, without
limitation, the remedying of an Event of Default), shall, until paid to the
Lessee or applied as provided herein, be invested by the Lessor (or, if the
Indenture shall not have been discharged, the Indenture Trustee) from time to
time at the direction, risk and expense of the Lessee in Permitted Investments,
subject, in the case of investments by the Indenture Trustee to the terms of
Section 5.08 of the Indenture. There shall be promptly remitted to the Lessee
any gain (including interest received) realized as the result of any such
investment (net of any fees, commissions and other expenses, if any, incurred in
connection with such investment) unless a Specified Default shall have occurred
and be continuing, in which case such gains shall be held or applied in
accordance with the preceding sentence. The Lessee will promptly pay to the
Indenture Trustee or the Lessor, as the case may be, on demand, the amount of
any loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment).
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Section 16. Events of Default.
The following events shall constitute Events of Default and each
such Event of Default shall be deemed to exist and continue so long as, but only
so long as, it shall not have been remedied:
(a) The Lessee shall fail to make any payment of (i) Basic Rent,
Termination Value or a payment required by clause (iii) of the second
sentence of Section 3(c) when due and such failure shall continue for a
period of 10 days or (ii) Supplemental Rent (other than Termination Value
or the payment required by clause (iii) of the second sentence of Section
3(c)) within 30 days after receipt by the Lessee of a written demand
therefor from the Lessor or the Indenture Trustee, provided, that in the
case of Supplemental Rent which constitutes an Excepted Payment, such
demand shall only be effective for purposes of this paragraph (a) if sent
by the Owner Participant or the Lessor and such failure shall not become
an Event of Default until the Owner Participant shall have notified the
Indenture Trustee that it has elected to treat such failure as an Event of
Default;
(b) The Lessee shall fail to procure and maintain insurance required
pursuant to Section 9 or such insurance shall be cancelled or lapse;
provided that such lapse or cancellation shall not constitute an Event of
Default until the earlier of 30 days after receipt by the Lessor or the
Indenture Trustee of notice of such lapse or cancellation or the date that
the lapse or cancellation is effective as to the Lessor, the Owner
Participant or the Indenture Trustee;
(c) The Lessee shall operate the Aircraft after having received
notice that the public liability insurance required by Section 9(a) has
lapsed or has been cancelled;
(d) The Lessee shall fail to perform or observe any other covenant
or condition to be performed or observed by it hereunder or under any
other Operative Agreement (other than the Tax Indemnity Agreement), and
such failure shall continue unremedied for a period of 30 days after
delivery of notice of such failure from the Lessor or the Indenture
Trustee to the Lessee, unless such failure is curable and the Lessee
shall, after the delivery of such notice, be diligently proceeding to
correct such failure and shall in fact correct such failure 180 days after
delivery of such notice;
(e) Any representation or warranty made by the Lessee herein or in
any Operative Agreement or in any certificate required to be delivered by
the Lessee pursuant thereto (other than the Tax Indemnity Agreement) shall
prove to have been incorrect in any material respect when made and shall
remain material at the time in question and shall not be remedied within
30 days after notice thereof has been given to the Lessee by the Lessor or
the Indenture Trustee, unless such incorrectness is curable and Lessee
shall, after delivery of
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such notice, be diligently proceeding to correct such failure and shall in
fact correct such failure 180 days after the delivery of such notice;
(f) The Lessee shall consent to the appointment of or taking
possession by a receiver, assignee, custodian, sequestrator, trustee or
liquidator (or other similar official) of itself or of a substantial part
of its property, or the Lessee shall admit in writing its inability to pay
its debts generally as they come due (as provided in 11 U.S.C. ss.
303(h)(1)), or shall make a general assignment for the benefit of its
creditors, or the Lessee shall file a voluntary petition in bankruptcy or
a voluntary petition or answer seeking liquidation, reorganization or
other relief with respect to itself or its debts under the Federal
bankruptcy laws, as now or hereafter constituted or any other applicable
Federal or State bankruptcy, insolvency or other similar law or shall
consent to the entry of an order for relief in an involuntary case under
any such law or the Lessee shall file an answer admitting the material
allegations of a petition filed against the Lessee in any such proceeding,
or otherwise seek relief under the provisions of any now existing or
future Federal or State bankruptcy, insolvency or other similar law
providing for the reorganization or winding-up of corporations, or
providing for an agreement, composition, extension or adjustment with its
creditors;
(g) An order, judgment or decree shall be entered in any proceedings
by any court of competent jurisdiction appointing, without the consent of
the Lessee, a receiver, trustee or liquidator of the Lessee or of any
substantial part of its property, or any substantial part of the property
of the Lessee shall be sequestered, and any such order, judgment of decree
of appointment or sequestration shall remain in force undismissed,
unstayed or unvacated for a period of 90 days after the date of entry
thereof; or
(h) A petition against the Lessee in a proceeding under the Federal
bankruptcy laws or other insolvency laws as now or hereafter in effect
shall be filed and shall not be withdrawn or dismissed within 90 days
thereafter, or, under the provisions of any law providing for
reorganization or winding-up of corporations which may apply to the
Lessee, any court of competent jurisdiction shall assume jurisdiction,
custody or control of the Lessee or of any substantial part of its
property and such jurisdiction, custody or control shall remain in force
unrelinquished, unstayed or unterminated for a period of 90 days;
provided that, notwithstanding anything to the contrary contained in this Lease,
any failure of the Lessee to perform or observe any covenant, condition, or
agreement herein shall not constitute an Event of Default under clause (d) above
if such failure is caused solely by reason of an event referred to in the
definition of "Event of Loss" so long as the Lessee is continuing to comply with
the applicable terms of Section 8.
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Section 17. Remedies.
Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be continuing, the Lessor may, at its
option, declare this Lease to be in default by a notice to the Lessee (provided
that this Lease shall be deemed to have been declared in default without the
necessity of such notice upon the occurrence of any Event of Default described
in paragraph (f), (g) or (h) of Section 16 hereof); and at any time thereafter
so long as the Lessee shall not have remedied all outstanding Events of Default,
the Lessor may do, and the Lessee shall comply with, one or more of the
following with respect to the Airframe and all or any part of the Engines, as
the Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, Applicable Law then in
effect; provided that during any period the Aircraft is subject to the Civil
Reserve Air Fleet Program in accordance with the provisions of Section 5(b) and
in the possession of the United States government or an instrumentality or
agency thereof, the Lessor shall not, on account of any Event of Default, be
entitled to do any of the following in such manner as to limit the Lessee's
control under this Lease (or any sublessee's control under any sublease
permitted by the terms of this Lease) of any Airframe or any Engines, unless at
least 60 days' (or such lesser period, if any, as may then be applicable under
the Military Airlift Command Program of the United States Government) prior
notice of default hereunder shall have been given by the Lessor by registered or
certified mail to the Lessee (or any sublessee) with a copy addressed to the
Contracting Office Representative for the Military Airlift Command of the United
States Air Force under any contract with Lessee (or any sublessee) relating to
the Aircraft:
(a) Cause the Lessee, upon the written demand of the Lessor and at
the Lessee's expense to, and the Lessee shall, promptly return the
Airframe and all or such part of the Engines as the Lessor may demand to
the Lessor in the manner and condition required by, and otherwise in
accordance with all of the provisions of, Section 12 as if the Airframe
and such Engines were being returned at the end of the Term; or the
Lessor, at its option, may cause public officials acting pursuant to
judicial order obtained in summary proceedings or otherwise to enter upon
the premises where the Airframe or any or all Engines are located or
reasonably believed to be located and take immediate possession of and
remove such Airframe or Engines, and the Lessee shall comply therewith,
all without liability to the Lessor for or by reason of such entry or
taking possession, whether for the restoration of damage to property
caused by such taking or otherwise; and the Lessee shall promptly execute
and deliver to the Lessor such instruments of title or other documents as
the Lessor may deem necessary or advisable to enable the Lessor or its
agent to obtain possession of the Airframe or the Engines, provided that
if the Lessee shall for any reason fail to execute and deliver such
instruments and documents after such request, the Lessor shall be
entitled, in a proceeding to which the Lessee shall be a necessary party,
to a judgment for specific performance, conferring the right to immediate
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possession upon the Lessor and requiring the Lessee to execute and deliver
such instruments and documents to the Lessor;
(b) Sell or otherwise dispose of all or any part of the Aircraft, at
public or private sale, as the Lessor may determine, or hold, use,
operate, lease to others or keep idle all or any part of the Aircraft,
Airframe or any Engine as the Lessor, in its sole discretion, may
determine, in any such case free and clear of any rights of the Lessee
except as hereinafter set forth in this Section 17 and without any duty to
account to the Lessee with respect to such action or inaction or for any
proceeds with respect thereto except to the extent required by paragraph
(d) below in the event the Lessor elects to exercise its rights under said
paragraph in lieu of its rights under paragraph (c) below;
(c) Whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) above with respect to the Aircraft, the Lessor, by written
notice to the Lessee specifying a payment date (which shall be a
Termination Date) not earlier than 10 days from the date of such notice,
may require the Lessee to pay to the Lessor, and the Lessee shall pay to
the Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty, any installment of
Basic Rent due on or before such payment date plus an amount equal to the
excess, if any, of (i) Termination Value for the Aircraft, determined as
of such payment date over (ii) the Fair Market Sales Value for the
Aircraft, computed as of the payment date specified pursuant to this
paragraph (c), together with interest, to the extent permitted by
Applicable Law, at the Past Due Rate on the amount of such excess, if any,
from such payment date specified pursuant to this paragraph (c), to the
date of actual payment of such amount provided that, in any such instance
in which the Lessor is unable to repossess the Aircraft due to
circumstances not relating to or caused by any Lessee Person and the Fair
Market Sales Value thereof is deemed to be zero, upon receipt of any such
payment under this clause (c) and all other amounts due hereunder, the
Lessor shall convey, as-is, where-is, without recourse or warranty, other
than a warranty against Lessor's Liens, to the Lessee all right, title and
interest of the Lessor in and to the Airframe and Engines, and execute and
deliver to the Lessee such bills of sale and other documents and
instruments as the Lessee may reasonably request to evidence such
conveyance;
(d) In the event the Lessor, pursuant to paragraph (b) above, shall
have sold the Aircraft upon reasonable notice to the Lessee, the Lessor in
lieu of exercising its rights under paragraph (c) above with respect to
the Aircraft, may, if it shall so elect, require the Lessee to pay the
Lessor, and the Lessee shall pay to the Lessor, on the date of such sale,
as liquidated damages for loss of a bargain and not as a penalty (in lieu
of the Basic Rent due after the date on which such sale occurs but in
addition to any installment of Basic Rent due on or up to the date on
which such sale occurs), the amount of any deficiency of the net proceeds
of such sale below the Termination Value of the Aircraft,
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determined as of the Termination Date immediately preceeding the date of
such sale, together with interest, to the extent permitted by Applicable
Law, at the Past Due Rate on the amount of such deficiency from such
Termination Date the date of actual payment; and
(e) Rescind, cancel or terminate this Lease or exercise any other
right or remedy which may be available under Applicable Law or proceed by
appropriate court action to enforce the terms hereof or to recover damages
for the breach hereof.
In addition, the Lessee shall be liable for any unpaid Supplemental Rent due
hereunder before or after any termination hereof, including all reasonable costs
and expenses including attorney's fees and disbursements incurred by the Lessor
or the Owner Participant by reason of the occurrence of any Event of Default or
the exercise of the Lessor's remedies with respect thereto including without
limitation all costs and expenses incurred in connection with the return of the
Airframe or any Engine in accordance with, and in the condition required by, the
terms of Section 12 or any appraisal of the Aircraft required for purposes of
this Section 17. At any sale of the Aircraft, the Airframe or any Engine, or
portion thereof pursuant to this Section 17, the Lessor or the Owner Participant
may bid for and purchase such property. Except as otherwise expressly provided
above, no remedy referred to in this Section 17 is intended to be exclusive (but
the liquidation of damages provided in this Section 17 shall be exclusive to the
extent permitted by Applicable Law), but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to the
Lessor for the Event of Default at law or in equity; and the exercise or
beginning of exercise by the Lessor of any one or more of such remedies shall
not preclude the simultaneous or later exercise by the Lessor of any or all such
other remedies. No express or implied waiver by the Lessor of any Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default.
Section 18. Lessor's Right to Perform for the Lessee.
If the Lessee fails to make any payment of Rent required to be made
by it hereunder or fails to perform or comply with any of its agreements
contained herein the Lessor may, upon prior notice to the Lessee, itself make
such payment or perform or comply with such agreement, and the amount of such
payment and the amount of the reasonable expenses of the Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Past Due
Rate, shall be deemed Supplemental Rent, payable by the Lessee upon demand;
provided that no such payment or performance by the Lessor shall be deemed to
cure any Default or Event of Default under this Lease or relieve the Lessee of
any of its obligations hereunder; provided further that nothing in this Section
18 shall be deemed to permit the Lessor to exercise any control over the
operation or maintenance of the Aircraft or any part thereof while it is being
utilized in the air transportation services of the Lessee or any Permitted
Sublessee without the consent of the Lessee; provided further that the
provisions of this Section 18 shall not affect
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Lessor's right to exercise its remedies under Section 17 upon the occurrence and
continuance of an Event of Default.
Section 19. Bankruptcy.
It is the intention of the parties that the Lessor (and the
Indenture Trustee as assignee of the Lessor under the Indenture) shall be
entitled to the benefits of 11 U.S.C. ss. 1110 with respect to the right to
repossess the Airframe, Engines and Parts as provided herein, and in any
circumstances where more than one construction of the terms and conditions of
this Lease is possible, a construction which would preserve such benefits shall
control over any construction which would not preserve such benefits or would
render them doubtful. To the extent consistent with the provisions of 11 U.S.C.
ss. 1110 or any analogous section of the Federal bankruptcy laws, as amended
from time to time, it is hereby expressly agreed and provided that,
notwithstanding any other provisions of the Federal bankruptcy laws, as amended
from time to time, any right of the Lessor to take possession of the Aircraft in
compliance with the provisions of this Lease shall not be affected by the
provisions of 11 U.S.C. ss. 362 or 363, as amended from time to time, or any
analogous provisions of any superseding statute or any power of the bankruptcy
court to enjoin such taking of possession.
Section 20. Assignment: Benefit and Binding Effect.
(a) Assignment by the Lessee.
The Lessee may not, without the prior written consent of the Lessor
and the Owner Participant, assign any of its rights hereunder except as
otherwise expressly provided herein.
(b) Assignment by the Lessor.
The Lessor's interest in this Lease has been assigned as security to
the Indenture Trustee pursuant to the Indenture for the benefit of the holders
from time to time of the Equipment Notes, and the Lessee acknowledges due notice
of, and consents to, such security assignment. The Lessor may not, without the
prior consent of the Lessee, otherwise assign any of its rights under or
interest in this Lease except to a successor Owner Trustee or additional trustee
referred to in Section 9.01 of the Participation Agreement and Section 9.01 of
the Trust Agreement or as otherwise expressly provided herein.
(c) Benefit and Binding Effect.
The terms and provisions of this Lease shall be binding upon and,
subject to the limitations on assignment of rights hereunder, inure to the
benefit of the Lessor and the Lessee and their respective successors and
permitted assigns. Nothing herein
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shall be construed as creating rights in any other Person except, to the extent
provided herein, the Owner Participant.
(d) Sublessee's Performance and Rights.
Any obligation imposed on the Lessee in this Lease shall require
only that the Lessee perform or cause to be performed such obligation, even if
stated herein as a direct obligation, and the performance of any such obligation
by any sublessee or transferee of the Airframe or any Engine or Part permitted
by the terms hereof under a sublease or transfer agreement then in effect shall
constitute performance by the Lessee and to the extent of such performance
discharge such obligation by the Lessee.
Section 21. Owner Trustee's Limitation on Liability.
Trust Company is entering into this Lease solely as Owner Trustee
under the Trust Agreement and not in its individual capacity and neither Trust
Company nor any entity acting as successor Owner Trustee or additional Owner
Trustee under the Trust Agreement shall be personally liable for, or for any
loss in respect of, any of the statements, representations, warranties,
agreements or obligations stated to be those of the Lessor hereunder, as to
which all interested parties shall look solely to the Trust Estate, except to
the extent expressly provided otherwise in the other Operative Agreement,
provided, however, that nothing in this Section 21 shall be construed to limit
in scope or substance the liability of Trust Company or any entity acting as
successor Owner Trustee or additional Owner Trustee under the Trust Agreement in
its individual capacity for the consequences of its own willful misconduct or
gross negligence or (in receiving, handling or remitting funds) its simple
negligence, or the inaccuracy or breach of its representations, warranties or
covenants made in such capacity in any other Operative Agreement.
Section 22. Certain Agreements of Lessee.
The Lessee will take, or cause to be taken, at the Lessee's cost and
expense, such action with respect to the recording, filing, re-recording and
re-filing of this Lease, each Lease Supplement, the Trust Agreement, the
Indenture, each Indenture Supplement and any financing statements or other
instruments as are necessary or requested by the Owner Participant or the
Indenture Trustee and appropriate, to maintain, so long as the Indenture or this
Lease is in effect, the perfection of the security interest created by the
Indenture and any security interest that may be claimed to have been created by
this Lease and the ownership interest of the Owner Trustee in the Aircraft, and
will furnish to the Owner Trustee, the Indenture Trustee and the Owner
Participant timely notice of the necessity of such action, together with such
instruments, in execution form, and such other information as may be required to
enable them to take such action.
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Section 23. Miscellaneous.
(a) Notices.
Except as otherwise specifically provided herein, all notices,
requests, approvals or consents required or permitted by the terms hereof shall
be in writing (it being understood that the specification of a writing in
certain instances and not in others does not imply an intention that a writing
is not required as to the latter). Any notice shall be effective when received.
Any notice shall either be mailed, certified or registered mail, return receipt
requested with proper first class postage prepaid, or sent in the form of a
telecopy, provided that there is receipt of such notice the next Business Day
from an overnight courier service, or by overnight delivery service or delivered
by hand. Any notice shall be directed to the Lessee, the Lessor, the Indenture
Trustee or any other party to the Participation Agreement to the respective
addresses set forth in Section 12.01 to the Participation Agreement or to such
other address or telecopy number as any such party may designate pursuant to
Section 12.01 of the Participation Agreement.
(b) Counterparts.
This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall, subject to the
next sentence and the legends appearing on the cover and signature page hereof,
be an original, but all such counterparts shall together constitute but one and
the same instrument. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL
PAPER (AS THE TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL
COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE INDENTURE TRUSTEE ON
THE SIGNATURE PAGE THEREOF.
(c) Amendments.
Neither this Lease nor any of the terms hereof may be terminated,
amended, supplemented, waived or modified orally, but only by an instrument in
writing signed by the Lessor and the Lessee provided, however, that unless and
until the Indenture has been discharged, except as otherwise provided in the
Indenture, no termination, amendment, supplement, waiver or modification of, or
waiver by or consent of the Lessor in respect of, any of the provisions of this
Lease shall be effective unless the Indenture Trustee shall have joined in such
amendment, modification, waiver or consent or shall have given its prior consent
thereto.
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(d) Agreement to Lease.
It is the intent of the parties to this Lease that for all purposes
(including, without limitation, U.S. Federal income tax purposes) this Lease
will be a true lease, and that this Lease conveys to the Lessee no right, title
or interest in the Aircraft except as a lessee.
(e) Governing Law.
(i) THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE. THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK.
(ii) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF
NEW YORK AND OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN
CONNECTION WITH ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTER
RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS LEASE.
(iii) EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS AND AGREES
THAT THE SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF
ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE
MADE BY MAILING COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
AT THE ADDRESS SET FORTH PURSUANT TO SECTION 12.01 OF THE PARTICIPATION
AGREEMENT. EACH PARTY HERETO AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS,
IN EACH CASE IN ACCORDANCE WITH THIS SECTION 23(e)(iii), SHALL CONSTITUTE VALID
AND EFFECTIVE PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO HEREBY
AGREES THAT THE FAILURE OF ANY OF ITS AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE
TO ANY SUCH PARTY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH
SERVICE ON SUCH PARTY OR ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED
THEREON.
(iv) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION,
AS A DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER
IN ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT VENUE FOR THE ACTION
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OR PROCEEDING IS IMPROPER OR THAT THIS LEASE OR ANY OTHER OPERATIVE AGREEMENT
MAY NOT BE ENFORCED IN OR BY SUCH COURTS.
(v) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR
RELATING TO THIS LEASE.
(f) Severability.
Any provision of this Lease which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
(g) Survival.
The representations, warranties, indemnities and covenants set forth
herein shall survive the delivery of the Aircraft, the transfer of any interest
of Owner Participant in this Lease, the other Operative Agreements, the Trust
Estate and the Trust Agreement and the transfer of any interest by any Holder of
its Equipment Notes.
(h) Article 2A.
The Lessor and the Lessee agree that this Lease is a "finance lease"
for purposes of Article 2A of, and as defined in Section 2-A-103 of the Uniform
Commercial Code. The Lessee agrees that no right or remedy granted solely by
reason of Article 2A of the Uniform Commercial Code shall be available to the
Lessee as against the Lessor unless expressly provided in this Lease.
* * *
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IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed by their authorized officers as of the day and year
first above written.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
not in its individual
capacity, but solely
as Owner Trustee
By:____________________________
Name:
Title:
MIDWAY AIRLINES CORPORATION
By:____________________________
Name:
Title:
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THE LESSOR HAS ASSIGNED THIS LEASE AGREEMENT TO THE INDENTURE TRUSTEE AS
SECURITY. TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT CONSTITUTES CHATTEL
PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN
ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE AGREEMENT MAY
BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART HEREOF OTHER
THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE
INDENTURE TRUSTEE IMMEDIATELY FOLLOWING THIS LEGEND.
Receipt of this original counterpart of the foregoing Lease Agreement is
hereby acknowledged on this _____ day of ______________, 1998.
THE FIRST NATIONAL BANK OF MARYLAND, as
Indenture Trustee
By: _______________________________
Name:
Title:
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Exhibit A
to Lease
LEASE SUPPLEMENT NO. 1 [N575ML]
THIS LEASE SUPPLEMENT NO. 1 [N575ML] dated September _____, 1998,
between FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION, not in its individual
capacity, but solely as Owner Trustee, except as otherwise provided herein, the
Lessor, and MIDWAY AIRLINES CORPORATION, a Delaware corporation, the Lessee;
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee have heretofore entered into that
certain Lease Agreement [N575ML], dated as of September 10, 1998 (the "Lease",
the terms defined therein being herein used with the same meaning), which Lease
provides, among other things, for the execution and delivery of Lease
Supplements in substantially the form hereof for the purpose of leasing a
specific Aircraft under the Lease when delivered by the Lessor to the Lessee in
accordance with the terms thereof;
WHEREAS, the Lease, a counterpart of which is attached hereto and
made a part hereof, relates to the Aircraft and Engines described in Schedule I
hereto and this Lease Supplement, together with such attachment, is being filed
for recordation on the date hereof with the FAA as one document;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Section 2 of the Lease, the Lessor and
the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee, and the
Lessee hereby accepts and leases from the Lessor, under the Lease as herein
supplemented, the Aircraft, described in Schedule I hereto.
2. The Delivery Date is the date of this Lease Supplement set forth
in the opening paragraph hereof.
3. The Basic Term shall commence on the Delivery Date and continue
through March 30, 2015 (the "Expiration Date"), unless terminated earlier as
provided in the Lease.
4. Lessee hereby confirms to Lessor that Lessee has duly and
irrevocably accepted the Aircraft under and for all purposes hereof, of the
Lease and of the other Lessee Documents.
5. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
6. This Lease Supplement may be executed by the parties hereto in
separate counterparts and all such counterparts shall together constitute but
one and the same instrument. To the extent, if any, that this Lease Supplement
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease Supplement or the Lease may be created through the transfer or possession
of any counterpart other than the original counterpart of each thereof
containing the receipt therefor executed by the Indenture Trustee on the
signature page of each thereof.
7. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease Supplement to be duly executed by their authorized officers as of the day
and year first above written.
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
not in its individual
capacity, but solely as
Owner Trustee
By:_____________________________
Name:
Title:
MIDWAY AIRLINES CORPORATION
By:_____________________________
Name:
Title:
THE LESSOR HAS ASSIGNED THIS LEASE SUPPLEMENT TO THE INDENTURE
TRUSTEE AS SECURITY. TO THE EXTENT, IF ANY, THAT THIS LEASE SUPPLEMENT
CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS
LEASE SUPPLEMENT MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY
COUNTERPART HEREOF OTHER THAN THE ORIGINAL COUNTERPART CONTAINING THE RECEIPT
THEREFOR EXECUTED BY THE INDENTURE TRUSTEE IMMEDIATELY FOLLOWING THIS LEGEND.
Receipt of this original counterpart of the foregoing Lease
Supplement is hereby acknowledged on this _____ day of September, 1998.
THE FIRST NATIONAL BANK OF
MARYLAND, as Indenture Trustee
By:______________________________
Name:
Title:
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
AIRFRAME
Manufacturer's FAA Registration Manufacturer's
Manufacturer Model No. Serial No.
------------ -------------- ---------------- --------------
Bombardier Inc. CL-600-2B19 N575ML 7256
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
------------ -------------- --------------
General Electric Company CF34-3B1 GE-E-872364
GE-E-872365
Each Engine is of 750 or more "rated take-off horsepower" or the
equivalent of such horsepower.
Exhibit B
Certain Economic Information
"EBO Amount" shall mean $*.
"EBO Date" shall mean January 2, 2013.
"Lessor's Cost" shall mean $*.
"Minimum Liability Amount" shall mean $200,000,000.
"Transaction Costs" shall mean *% of Lessor's Cost.
"Seller" shall mean Bombardier Capital Inc..
"Estimated Value" shall mean *% of Lessor's Cost.
"Compounded Discounted Rate" shall mean 15% per annum.
"TV Rate" shall mean a rate equal to the rate per annum announced from time to
time by Citibank, N.A. as its prime rate plus two percent (2%) per annum.
"Renewal Rental Rate" shall mean $* per annum.
----------
* Confidential treatment requested for omitted information. Omitted
information has been filed separately with the Commission.
Exhibit C
Basic Rent
----------
Basic Rent Payment Date Amount
----------------------- ------
Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
Exhibit D
Termination Values
------------------
Termination Date Termination Value
---------------- -----------------
Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.
Exhibit E
Lists of Countries - Permitted for Re-Registration and Subleasing
Australia Italy
Austria Japan
Belgium Luxembourg
Canada Netherlands
Denmark New Zealand
Finland Norway
France Spain
Germany Sweden
Greece Switzerland
Iceland United Kingdom
Ireland
Exhibit F
RETURN CONDITIONS
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
A. General Conditions Upon Return. Unless purchased by Lessee pursuant to
Section 13 of the Lease, at the time of return of the Airframe upon the
termination of the Lease at the end of the Basic Term or any Renewal Term or
pursuant to Section 14(c) or 17 of the Lease: (i) the Aircraft shall be
registered with the FAA in the name of the Lessor (except for a failure caused
by the Lessor being ineligible to be the registered owner of an aircraft
registered with the FAA), (ii) the Aircraft shall have and be in compliance with
a currently valid standard certificate of airworthiness issued by the FAA and be
in compliance with Part 121 of the FAA Regulations (or successor regulations),
(iii) the Aircraft shall be free and clear of all Liens (other than Lessor's
Liens) and rights of persons not party to any Operative Agreement under pooling,
interchange, overhaul, repair or similar agreements or arrangements, (iv) the
Aircraft shall be in as good operating condition as when originally delivered to
Lessee, ordinary wear and tear excepted, and be fully equipped with two Engines
or other engines meeting the requirements of Replacement Engines, (v) the
Aircraft shall have all Lessee's and any Permitted Sublessee's exterior markings
removed or painted over and the areas where such markings were removed or
painted over refurbished as necessary to blend with adjacent areas, (vi) the
Aircraft shall be in regular U.S. passenger configuration and with the same
number of seats as when delivered and the interior of the Aircraft shall be
clean in accordance with Lessee's customary standard for a "between flights"
cleaning, (vii) the Aircraft will be in compliance with the maintenance
provisions of the Lease, and (viii) the Aircraft shall have no outstanding
airworthiness directives issued by the FAA requiring terminating action by the
date of return. In the event the FAA shall issue any directive which would
require improvements to the Aircraft in order for the airworthiness certificate
of the Aircraft to be maintained in good standing, Lessee shall not apply for an
extension of the date of compliance with the directive as to the Aircraft to a
date after the date of return of the Aircraft pursuant to Section 12 of the
Lease, unless it shall previously or concurrently have applied for such an
extension with respect to all Canadair Regional Jet Series 200 ER aircraft in
its fleet affected by such directive.
B. Hours of Operation. Unless purchased by Lessee pursuant to Section 13
of the Lease, at the time of return of the Airframe upon the termination of the
Lease at the end of the Basic Term or any Renewal Term or pursuant to Section
14(c) or 17 of the Lease: (i) in the event that the Lessee (or any Permitted
Sublessee then in possession of the Aircraft) shall not then be using a
continuous maintenance program with respect to the Airframe, Lessee agrees that
during the period of operation of the Aircraft immediately prior to such return
(A) Lessee or such Permitted Sublessee, as the case may be, shall have been
using block inspection program with respect to the Airframe which shall have
been approved by all necessary governmental approvals of
the country under the laws of which the Aircraft shall then have been registered
and (B) the Airframe shall have remaining until the next scheduled block
inspection at least 25% of the allowable hours or cycles (whichever shall be
applicable) between block inspections permitted under the block inspection
program then used by the Lessee or such Permitted Sublessee, and (ii) in the
event that Lessee (or any Permitted Sublessee then in possession of the
Aircraft) during the period of operation of the Aircraft immediately prior to
such return shall not have been using an on-condition maintenance program with
respect to any Engine or engine installed on the Airframe, Lessee agrees that
the number of hours or cycles of operation (whichever shall be applicable under
the maintenance program then in use with respect to such Engine or engine) on
each such Engine or engine remaining until the next scheduled life limited part
replacement shall be at least 25% of the hours or cycles (whichever shall be
applicable) between life limited part replacement allowed under the maintenance
program then in use with respect to such Engine or engine which shall have been
approved by all necessary governmental approvals of the country under the laws
of which the Aircraft shall have then been registered.
If clause (i)(B) of the first sentence of the preceding paragraph
shall be applicable but the Airframe does not meet the conditions specified in
said clause (i)(B), Lessee shall pay or cause to be paid to Lessor a Dollar
amount computed by multiplying (I) the cost of performing the airframe block
inspection of the type referred to in such clause (i)(B) at a rate then charged
by an outside maintenance provider to Lessee for performing such work (where
such rate would also be available to Lessor) by (II) a fraction of which (x) the
numerator shall be the excess of (A) 25% of the hours of operation allowable for
the Airframe between block inspections under the block inspection program then
in use with respect to the Airframe over (B) the number of hours of operation
remaining on the Airframe to the next such block inspection and (y) the
denominator shall be the number of hours of operation allowable between such
block inspections in accordance with such block inspection program.
If clause (ii) of the first sentence of the second preceding
paragraph shall be applicable but any Engine or engine does not meet the
conditions specified in said clause (ii), Lessee shall pay or cause to be paid
to Lessor, with respect to any such Engine or engine, a Dollar amount computed
by multiplying (aa) the cost of performing the scheduled life limited part
replacement under the maintenance program then used by Lessee or any Permitted
Sublessee for an engine of the same model as such Engine at a rate then charged
by an outside maintenance provider to Lessee or such Permitted Sublessee for
performing such work (where such rate would also be available to Lessor) by (cc)
a fraction of which (x) the numerator shall be the excess of 25% of the hours or
cycles of operation (whichever is applicable) between life limited part
replacement allowable for an engine under the maintenance program then in use
with respect to such Engine or engine over the actual average number of hours or
cycles of operation on such Engine or engine remaining until the next such
scheduled life limited part replacement and (y) the denominator shall be the
number of hours or cycles allowable between such scheduled life limited part
replacement.
SCHEDULE I
TO EXHIBIT A
DESCRIPTION OF AIRFRAME AND ENGINES
Exhibit B
Certain Economic Information
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
Exhibit C
Basic Rent
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
Exhibit D
Termination Values
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.
Exhibit F
RETURN CONDITIONS
The portion of this Exhibit appearing below this text is intentionally deleted
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.