CONFORMED COPY
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LEASE AGREEMENT [N586ML]
dated as of December 10, 1999
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 N586ML
Manufacturer's Serial Number 7341
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THIS IS ORIGINAL COUNTERPART NO. 1.
TO THE EXTENT, IF ANY, THAT THIS LEASE AGREEMENT [N586ML] 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 AGREEMENT [N586ML]
MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN
THE ORIGINAL COUNTERPART MARKED COUNTERPART NO. 1.
TABLE OF CONTENTS
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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..................................................... 3
(c) Supplemental Rent.............................................. 3
(d) Adjustments to Basic Rent and Termination Values............... 3
(e) Manner of Payment.............................................. 5
(f) Rent Obligations Unconditional................................. 5
Section 4. Lessor/Lessee Representations and Warranties................... 6
Section 5. Possession, Operation and Use,
Maintenance, Registration and Insignia......................... 7
(a) General........................................................ 7
(b) Possession..................................................... 7
(c) Operation and Use.............................................. 12
(d) Maintenance.................................................... 13
(e) Registration................................................... 14
Section 6. Inspection..................................................... 14
Section 7. Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines........... 15
(a) Replacement of Parts........................................... 15
(b) Title to Parts................................................. 16
(c) Pooling or Parts Leasing....................................... 16
(d) Alterations, Modifications and Additions....................... 16
(e) Substitution of Engines........................................ 18
Section 8. Loss, Destruction or Requisition............................... 20
(a) Event of Loss with Respect to the Airframe..................... 20
(b) Effect of Replacement.......................................... 21
(c) Effect of Termination Value Payment............................ 21
(d) Conditions to Airframe Replacement............................. 22
(e) Non-Insurance Payments Received on Account of an Event of
Loss........................................................... 24
(f) Requisition for Use............................................ 25
(g) Certain Payments to be Held As Security........................ 26
Section 9. Insurance...................................................... 26
(a) Public Liability and Property Damage Insurance................. 26
(b) Insurance Against Loss or Damage to the Aircraft and Engines... 27
(c) Additional Insureds; Loss Payment.............................. 28
(d) Deductibles and Self-Insurance................................. 28
(e) Application of Hull Insurance Proceeds......................... 29
(f) Insurance for Own Account...................................... 30
(g) Reports, etc................................................... 30
(h) Right to Pay Premiums.......................................... 31
Section 10. Liens.......................................................... 31
Section 11. Recordation and Further Assurances............................. 32
(a) Recordation of Lease........................................... 32
(b) Further Assurances............................................. 32
Section 12. Return of Aircraft and Records................................. 32
(a) Return of Aircraft............................................. 32
(b) Return of Other Engines........................................ 32
(c) Fuel; Records.................................................. 33
(d) Condition of Aircraft.......................................... 33
(e) Storage and Related Matters.................................... 33
(f) Pre-Return Inspections......................................... 34
Section 13. Renewal Option and Purchase Options............................ 34
(a) Renewal Terms.................................................. 34
(b) Lessee's Purchase Options...................................... 35
(i) Rights to Purchase....................................... 35
(ii) Notice of Exercise of Option............................. 36
Section 14. Voluntary Termination for Obsolescence......................... 36
(a) Termination by Sale of Aircraft................................ 36
(b) Payments Due Upon Sale of Aircraft............................. 37
(c) Preemptive Election by Lessor.................................. 38
(d) Termination of Lease........................................... 38
(e) Effect of No Sale or Preemptive Delivery to Lessor............. 38
(f) No Duty on Part of Lessor...................................... 39
Section 15. Investment of Security Funds................................... 39
Section 16. Events of Default.............................................. 39
Section 17. Remedies....................................................... 41
Section 18. Lessor's Right to Perform for the Lessee....................... 44
Section 19. Bankruptcy..................................................... 44
Section 20. Assignment: Benefit and Binding Effect......................... 45
(a) Assignment by the Lessee....................................... 45
(b) Assignment by the Lessor....................................... 45
(c) Benefit and Binding Effect..................................... 45
(d) Sublessee's Performance and Rights............................. 45
Section 21. Owner Trustee's Limitation on Liability........................ 45
Section 22. Certain Agreements of Lessee................................... 46
Section 23. Miscellaneous.................................................. 46
(a) Notices........................................................ 46
(b) Counterparts................................................... 46
(c) Amendments..................................................... 47
(d) Agreement to Lease............................................. 47
(e) Governing Law.................................................. 47
(f) Severability................................................... 48
(g) Survival....................................................... 48
(h) Article 2A..................................................... 48
Appendix A Definitions
Exhibit A Lease Supplement
Exhibit B Certain Economic Information
Exhibit C Basic Rent
Exhibit D Termination Values
Exhibit E List of Countries - Permitted for Re-Registration and Subleasing
Exhibit F Return Conditions
THIS LEASE AGREEMENT [N586ML], dated as of December 10, 1999, 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:
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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.
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(a) Definitions.
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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.
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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 1(b)) or by paragraph and clause reference (for
example, this is also paragraph (b) of Section 1) with the same meaning.
(c) Headings.
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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.
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The appendices, schedules and exhibits hereto are part of this
Lease.
Section 2. Delivery and Leasing of the Aircraft.
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(a) Leasing of the Aircraft.
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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.
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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 and the other Operative Agreements.
Section 3. Term and Rent.
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(a) Term.
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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.
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(b) Basic Rent.
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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 during a Renewal Term in the amounts and at the
times provided in Section 13(a) for such Renewal Term.
(c) Supplemental Rent.
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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; and
(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.
The obligations of the Lessee to pay Supplemental Rent provided
for in this Section 3(c) shall survive the expiration or other termination of
this Lease.
(d) Adjustments to Basic Rent and Termination Values.
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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 through the EBO Date as well as the end of the Basic Term
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 Applicable 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 December 15, 1999;
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(ii) the Transaction Costs payable by the Owner Participant
pursuant to Section 8.01(a) of the Participation Agreement shall be greater
or less than the percentage of Lessor's Cost set forth on Exhibit B; or
(iii) there shall be an adjustment of Termination Values as
provided in Section 16 of the Tax Indemnity 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 and the Lessor 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 in each case to be selected
by the Owner Participant and reasonably acceptable to the Lessee. The Owner
Participant shall provide to such firm, but not, in any circumstances, to Lessee
or any representatives of Lessee, on a confidential basis such information as
such firm may reasonably require, including, without limitation, a true copy of
this Lease and a full description of the methodology and assumptions employed by
the Owner Participant in calculating the EBO Amount or Basic Rent or Termination
Value 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 and the Lessor 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 obligation to pay the EBO Amount or Basic Rent 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
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changes determined by the firm, the net present value, discounted at the
Applicable 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(1) 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 (A) the adjusted Termination Value as of the applicable EBO
Date or (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)(xii) of the Participation Agreement). All adjustments required pursuant
to this Section 3(d) shall be set forth in a Lease Supplement or in an amendment
to this Lease.
(e) Manner of Payment.
-----------------
All Rent payable by the Lessee to the Lessor hereunder shall be
paid to the Lessor at the following account or at such other account 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:
Bank: First Union Bank of Delaware
ABA No.: ▇▇▇▇▇▇▇▇▇
Account no.: 5000000016439
F/F/C to: First Union Trust Company
Attn: CT/3236, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Ref: Midway N586ML Rent Payment
If any Rent is due on a day that is not a Business Day, such Rent shall be paid
on the next succeeding Business Day with the same force and effect as if paid on
the scheduled date of payment and (if paid on such next succeeding Business Day)
no interest shall accrue on the amount of such payment from and after such
scheduled date to the time of payment on such next succeeding Business Day.
(f) Rent Obligations Unconditional.
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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,
5
without limitation, (i) any setoff, counterclaim, recoupment or other right
which the Lessee may have against the Lessor, the Owner Participant, or anyone
else for any reason whatsoever, (ii) any defect in the title, airworthiness,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, the Aircraft, or any interference, interruption or cessation in
or prohibition of the use or possession thereof by the Lessee for any reason
whatsoever, including, without limitation, any such interference, interruption,
cessation or prohibition resulting from the act of any governmental authority or
any violation by the Lessor of Section 4 hereof, (iii) any Liens, encumbrances
or rights of others with respect to the Aircraft, (iv) the invalidity or
unenforceability or lack of due authorization or other infirmity or
disaffirmance of this Lease or any provision hereof or any other Operative
Agreement or any lack of right, power or authority of the Lessor or the Lessee
to enter into this Lease or any other Operative Agreement, (v) any insolvency,
bankruptcy, reorganization or similar proceedings by or against the Lessee, or
any other Person, or (vi) any other cause whether similar or dissimilar to the
foregoing, any present or future law notwithstanding, it being the intention of
the parties that all Rent payable by the Lessee hereunder shall continue to be
payable in all events in the manner and at the times provided herein. Such Rent
shall not be subject to any abatement and the payments thereof shall not be
subject to any setoff or any reduction for any reason other than manifest error
in the calculation thereof or the documentation of this Lease. To the extent
permitted by Applicable Law, the Lessee waives any rights which it may now have
or which may be conferred upon it by statute or otherwise to terminate, cancel,
quit or surrender this Lease except in accordance with the terms hereof. If for
any reason whatsoever this Lease shall be terminated in whole or in part by
operation of law or otherwise except as specifically provided in Sections 8, 13,
14 and 17, Lessee nonetheless agrees to pay to Lessor an amount equal to the
Rent payment at the time such payment would have become due and payable in
accordance with the terms hereof had this Lease not been terminated in whole or
in part. Subject to the following sentence, each payment of Rent made by Lessee
to Lessor shall be final as to Lessor and Lessee and Lessee will not seek to
recover all or any part of such payment 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.
Section 4. Lessor/Lessee Representations and Warranties.
--------------------------------------------
(a) THE LESSOR LEASES THE AIRCRAFT HEREUNDER "AS-IS", "WHERE IS"
AND NEITHER THE LESSOR, TRUST COMPANY INDIVIDUALLY NOR THE OWNER PARTICIPANT
SHALL BE DEEMED TO HAVE MADE, AND HEREBY DISCLAIMS, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE,
DESIGN, OPERATION, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS,
CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR FOR ANY PURPOSE OF THE AIRCRAFT
OR ANY PART THEREOF, AS TO
6
THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE
ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE
ABSENCE OF OBLIGATIONS BASED ON LIABILITY IN TORT, STRICT OR OTHERWISE, OR AS TO
THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that the Lessor warrants
that on the Delivery Date the Lessor shall have received whatever title was
conveyed to it by the Seller and the Lessor warrants that the Aircraft shall be
free of Lessor's Liens during the Term.
(b) The Lessor covenants that during the Term, so long as no Event
of Default shall have occurred and be continuing and the Lessor has not
commenced the exercise of remedies set forth in Section 17, Lessor or any Person
claiming by, through or under Lessor will not take or cause to be taken any
action contrary to the Lessee's rights hereunder, including, without limitation,
its rights to possession, use and quiet enjoyment of the Aircraft during the
Term, provided that nothing contained herein shall affect any of the rights of
--------
the Lessor under Section 17 upon the occurrence and during the continuance of an
Event of Default.
(c) Lessee has not asked for, been given or relied upon any
statements, representations, guaranties or warranties of Lessor other than those
set forth herein and in the other Operative Agreements; Lessor is not in the
business of manufacturing or assembling aircraft or otherwise in the business of
being a vendor or supplier. Lessor's agreement to enter into this Lease is in
reliance upon the freedom from liability or responsibility for the matters
waived and disclaimed herein. None of the provisions of this Section 4 or any
other provision of this Lease shall be deemed to amend, modify, or otherwise
affect the representations, warranties or other obligations (expressed or
implied) of Manufacturer or Engine Manufacturer or any subcontractor thereof or
supplier thereto with respect to the Airframe, Engines or any Parts, or to
release Manufacturer or Engine Manufacturer or any such subcontractor or
supplier from such representation, warranty or obligation. Neither Lessor nor
the Owner Participant is responsible or liable for any direct, indirect,
incidental or consequential damage to or losses resulting from the delivery,
operation or use of the Aircraft.
Section 5. Possession, Operation and Use,
Maintenance, Registration and Insignia.
--------------------------------------
(a) General.
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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.
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(b) Possession.
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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 Event of
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Default shall have occurred and be continuing, and (B) 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 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 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 or any Engine to interchange or pooling
agreements or arrangements which are customary in the commercial airline
industry, 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
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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,
8
instruments, appurtenances, accessories, furnishings and other equipment
(other than Parts) installed on such airframe and otherwise not encumbering
the Engines, 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 and
otherwise not encumbering the Engines;
(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 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 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;
9
(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 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 in writing of any such transfer of possession;
(ix) transfer possession of the Airframe or any Engine to the
Government pursuant to a sublease, contract or other instrument;
(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 and Owner Participant 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 there is no
declared war within or involving such country 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 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, prevent or unreasonably delay
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 recognition to Lessor's title to such Engine or the Airframe, (V) all
filings, if any,
10
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 of the
proposed sublease, and (VII) 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 expressly 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 (B) 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); (4) if any such
sublease or transfer of possession shall, in the reasonable opinion of the Owner
Participant, result in any risk of adverse tax consequences, the Lessee shall,
prior to entering into the same, provide an indemnity satisfactory in form and
substance to the Owner Participant against any such adverse tax consequences;
(5) the Lessee shall provide evidence reasonably satisfactory to Lessor and
Owner Participant that the insurance required by Section 9 remains in effect and
for the purpose of Lessor's and Owner Participant's review of such insurance
requirements, the Lessee shall, at least five (5) days prior to the date of any
sublease permitted under this Section 5(b), provide to Lessor and Owner
Participant, forms of the broker's report and insurance certificates required by
Section 9(g); (6) all necessary documents shall have been duly filed or recorded
in applicable public offices as may be required to preserve the title of Lessor
to the Airframe and Engines; and (7) Lessee shall reimburse Lessor and Owner
Participant, 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.
11
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,
including the rights of the Lessor to avoid such sublease in the exercise of its
rights to repossession of the Airframe and Engines hereunder and thereunder; (b)
expressly prohibit any further subleasing of the Airframe and Engines; (c) 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; and (d) 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.
The Lessor hereby agrees for the benefit of the lessor or secured
party of any engine (other than the Engines) or of any airframe (other than the
Airframe) leased to the Lessee or purchased by the Lessee subject to a
conditional sale or other security agreement, which lease or conditional sale or
other security agreement (in the case of any such airframe) also covers an
engine or engines (other than the Engines) owned by the lessor under such lease
or subject to a security interest in favor of the secured party under such
conditional sale or other security agreement, that the Lessor will not 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; provided, however, that such agreement of the Lessor shall
-------- -------
not be for the benefit of any lessor or secured party of any airframe leased to
the Lessee or owned or purchased by the Lessee subject to a conditional sale or
other security agreement or for the benefit of any mortgagee of or any other
holder of a security interest in an airframe owned by the Lessee, unless such
lessor, conditional vendor, other secured party or mortgagee has agreed (which
agreement may be contained in such lease, conditional sale or other security
agreement or mortgage and may consist of a paragraph similar to this paragraph)
that neither it nor its successors or assigns will acquire, as against the
Lessor, any right, title or interest in an Engine as a result of such Engine
being installed on such airframe.
(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 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 (x) 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
12
be covered by such insurance, or (y) except to the extent attributable to causes
beyond the reasonable control of the Lessee or any Permitted Sublessee or to
circumstances involving an isolated occurrence or series of events not in the
ordinary course of the regular operations of the Lessee or any Permitted
Sublessee, and the Lessee or Permitted Sublessee is diligently trying to rectify
the situation and rectifies such situation within ninety (90) days of the
occurrence thereof. 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 Aeronautical 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 Owner Participant therein, any
risk of criminal liability or any material risk of civil liability against
Lessor or Owner Participant, or (ii) it is for minor, unanticipated, or non-
recurring violations that the Lessee is diligently trying to rectify which do
not render the Aircraft liable to any risk of condemnation, destruction, seizure
or confiscation by any Person.
(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 no less stringent than 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 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
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, except
for the purpose of avoiding compliance with any FAA airworthiness directive
otherwise required to be complied with by the Lessee pursuant to the terms of
this Lease
13
prior to the end of the Term. The Lessee shall maintain or cause to be
maintained all records, logs, manuals, certificates, data and inspection,
modification, repair, overhaul records and other documents required by the
Aeronautical Authority to be maintained in respect of the Aircraft in English
(collectively, the "Manuals and Technical Records"). Lessee further agrees that
the Aircraft, Airframe and Engines will be maintained, used, serviced, repaired,
overhauled or inspected in compliance with Applicable Law with respect to the
maintenance of the Aircraft and compliance with each applicable airworthiness
certificate, license and registration relating to the Aircraft, Airframe or any
Engine issued by the Aeronautical Authority.
(e) Registration
------------
Except as otherwise permitted by Section 4.02(b) of the
Participation Agreement, or as otherwise required by the Transportation Code or
rules, regulations, or orders promulgated thereunder, or to the extent that such
registration cannot be effected or continued due to the Lessor's or the Owner
Participant's failure to comply with the citizenship or other eligibility
requirements for registration of commercial aircraft under the Transportation
Code or any rule, regulation or order promulgated thereunder, the Aircraft shall
be duly registered in the name of the Lessor under the Transportation Code at
all times during the Term; provided that the Lessor shall execute and deliver
--------
all such documents as the Lessee may reasonably request for the purpose of
effecting, continuing or (as provided in this Section 5(e) hereof and Section
4.02(b) of the Participation Agreement) changing such registration.
Section 6. Inspection.
----------
At all 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 three (3)
Business Day is required) and at a time and place reasonably acceptable to the
Lessee, the Lessor and the Owner Participant or their authorized representatives
(which may include the Manufacturer) may at their own 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) 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, (b) in the case of an inspection during a
maintenance visit, such inspection shall not interfere with the normal conduct
of such maintenance visit or extend the time required for such maintenance visit
or, in any event, at any time interfere with the use or operation of the
Airframe or any Engine or with the normal conduct of the Lessee's or a Permitted
Sublessee's business, and (c) the Lessee shall not be required to undertake or
incur any additional liabilities in connection with any such inspection. All
information obtained
14
in connection with any such inspection shall be held confidential by the Lessor
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. The Lessor and the Owner
Participant 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.
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 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.
15
(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 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 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
16
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 and does not involve any non-de minimis risk
of sale, forfeiture or loss of the Aircraft or the interest of Owner 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 diminishes, in the Lessee's reasonable
judgment, the value, utility, condition or airworthiness of such Airframe or
Engine below the value, utility, condition 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, except that the value (but not the utility, condition or airworthiness)
of the Aircraft may be reduced by the value of Parts which the Lessee (or such
Permitted Sublessee) has removed as permitted above. Title to all Parts
incorporated or installed in or attached or added to the Airframe or any Engine
as the result of any alteration, modification or addition effected by the Lessee
(or a Permitted Sublessee) shall, without further act, vest in the Lessor free
and clear of any Liens except Permitted Liens and become subject to this Lease;
provided that the Lessee (or such Permitted Sublessee) may, at any time during
--------
the Term, remove any such Part from the Airframe or an Engine if (i) such Part
is in addition to, and not in replacement of or in substitution for, any Part
originally incorporated or installed in or attached to 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)
and (iii) such Part can be removed from such Airframe or Engine without
diminishing or impairing the value, condition, utility 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 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.
17
(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 and the Owner Participant,
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 120 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 any Lessor's Liens and shall no
longer be deemed an Engine hereunder, and (iii) such Replacement Engine shall
become subject to this Lease and be deemed part of the Aircraft for all purposes
hereof to the same extent as the Engine originally installed on or attached to
the Airframe. Upon the substitution of a Replacement Engine, the following
conditions shall be satisfied at the Lessee's sole cost and expense and the
parties agree to cooperate with the Lessee to the extent necessary to enable it
to timely satisfy such conditions:
(i) the following documents shall be duly authorized, executed
and delivered by the respective party or parties thereto, and an
executed counterpart of each shall be delivered to the Lessor and the
Owner Participant:
(A) a Lease Supplement covering the Replacement Engine,
which shall have been duly filed for recordation with the FAA;
(B) 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;
(C) "precautionary" Uniform Commercial Code financing
statements as are deemed necessary or desirable by counsel for
the Owner Participant to protect the ownership interests of the
Owner Trustee in the Replacement Engine;
(D) an Officer's Certificate of the Lessee certifying that
the Replacement Engine is of at least equal value, remaining
useful life and utility, and in as good operating condition, as
the Engine it replaces assuming such Engine had been maintained
in the condition required hereunder;
18
(E) an opinion of qualified FAA counsel as to the due
recordation of the Lease Supplement and all other documents or
instruments the recordation of which is necessary to perfect and
protect the rights of the Lessor in the Replacement Engine;
(F) 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;
(G) evidence of compliance with the insurance provisions of
Section 9 with respect to such Replacement Engine; and
(H) the Deficiency Agreement and the Residual Agreement
shall remain in full force and effect;
(ii) the Lessee shall furnish (or cause to be furnished to) the
Lessor and the Owner Participant with an opinion, reasonably
satisfactory in form and substance to the Lessor and the Owner
Participant, of the Lessee's counsel, which may be the Lessee's
General Counsel, to the effect that such bills of sale or other
documents reasonably requested by the Lessor or the Owner Participant
are sufficient to convey title to such Replacement Engine to the
Lessor; and
(ii) 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 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"
19
condition, free and clear of all right, title and interest of the Lessor and any
Lessor's Liens; (y) the Lessor shall, at the request and expense of the Lessee,
assign to the Lessee all claims it may have against any other Person relating to
an Event of Loss giving rise to such substitution (other than those in respect
of insurance maintained by the Owner Participant pursuant to Section 9(f)) and
(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 and the Owner Participant notice of such Event of
Loss. The Lessee shall, within 45 days after such occurrence, give the Lessor
and the Owner Participant written notice of its election to perform one of the
following options (it being agreed that if the Lessee shall not have given the
Lessor such notice of such election, the Lessee shall be deemed to have elected
to perform the option identified in the following clause (ii)):
(i) subject to the satisfaction of the conditions contained
in Section 8(d), on a date not more than 180 days after the
occurrence of the Event of Loss (or, if earlier, the last day of
the Term), convey or cause to be conveyed to the Lessor, and to
be leased by the Lessee hereunder in replacement of the Airframe
and Engines with respect to which the Event of Loss occurred, a
Replacement Airframe (together with the same number of
Replacement Engines as the number of Engines, if any, which were
subject to such Event of Loss), such Replacement Airframe and
Replacement Engines to be free and clear of all Liens except
Permitted Liens and to have a remaining useful life, estimated
residual value, value and utility at least equal to the Airframe
and Engines, if any, so replaced (assuming such Airframe and
Engines were in the condition and repair required by the terms
hereof) and to be an airframe that is the same model and same or
later vintage as the Airframe to be replaced thereby, or an
improved model; provided that, if the Lessee shall not perform
-------- ----
its obligation to effect such replacement under this clause (i)
during the 180-day period of time provided herein (or, if
earlier, the last day of the Term), it shall give the Lessor and
the Owner Participant notice to such effect upon or before the
expiration of such period of time and shall promptly pay on the
first Termination Date next following the thirtieth (30th) day
after the date of such notice to the Lessor (or, if earlier, the
last day of the Term), in immediately available funds, the amount
specified in clause (ii) below; or
20
(ii) pay or cause to be paid to the Lessor in immediately
available funds, on a Termination Date falling on the earlier of
120 days after the occurrence of the Event of Loss and 3 Business
Days after receipt of insurance proceeds in an amount equal to
the Termination Value for the Aircraft determined as of such
Termination Date, 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
Termination 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 such
Termination Date or, if such Termination Date is beyond the end
of the Term, the Termination Value as of the last Termination
Date of the Term plus (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.
(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; (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
21
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.
(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 Event of Default shall
have occurred and be continuing and the Lessor and the Owner
Participant 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 and the Owner Participant:
(A) a Lease Supplement covering the Replacement
Aircraft, which shall have been duly filed for recordation
with the FAA;
(B) 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;
(C) a full warranty (as to title) ▇▇▇▇ of sale, in
form and substance satisfactory to 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;
(D) such "precautionary" Uniform Commercial Code
financing statements as are deemed necessary or desirable by
counsel for the Owner Participant to protect the ownership
interests of the Owner Trustee in the Replacement Aircraft;
22
(E) an Officer's Certificate of the Lessee certifying
that 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;
(F) a residual value agreement which is (x) the
Residual Agreement, (y) a renewal of the Residual Agreement,
or (z) a residual value agreement that is substantially
identical to the Residual Agreement, covering the
Replacement Aircraft; and
(G) a deficiency agreement which is either (x) the
Deficiency Agreement, (y) a renewal of the Deficiency
Agreement, or (z) a deficiency agreement that is
substantially identical to the Deficiency Agreement,
covering the Replacement Aircraft;
(iii) On or before the Replacement Closing Date, the
Lessor and the Owner Participant (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 or the owner of such
Replacement Aircraft, as the Lessor or its 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 and the Owner Participant;
(iv) The Lessor and the Owner Participant (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 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;
23
(vii) The Lessor and the Owner Participant shall have
received (acting directly or by authorization to its special
counsel) (A) an opinion, satisfactory in form and substance to
the Lessor and the Owner Participant, 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 is 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
and all other documents or instruments the recordation of which
is necessary to perfect and protect the rights of the Lessor 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) Either (1) the Owner Participant shall have received
an opinion of independent tax counsel (selected by the Owner
Participant and reasonably acceptable to the Lessee), reasonably
satisfactory to the Owner Participant, to the effect that there
shall be no risk of adverse tax consequences resulting from such
replacement (and the Owner Participant shall use its best efforts
to cause a timely opinion to be delivered) or (2) the Lessee
shall have provided, or caused to be provided, an indemnity in
respect of any adverse tax consequences in form and substance
satisfactory to the Owner Participant.
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:
24
(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 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 and the Owner Participant 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)
25
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.
---------------------------------------
Notwithstanding the foregoing, 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 an Event of
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 Event of Default, such amount and any
gain realized as a result of Permitted Investments required to be made pursuant
to Section 15 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 or
internationally recognized responsibility public liability insurance (including,
without limitation, aircraft third party, passenger legal liability, property
damage, general third party legal liability and product liability coverage but
excluding manufacturer's product liability coverage) with respect to the
Aircraft in an amount not less than the greater of (i) the amount which Lessee
may carry from time to time on other similar aircraft in its fleet (whether
owned or leased) and (ii) the Minimum Liability Amount; provided that an
--------
agreement of the Government for the benefit of the Additional Insureds to insure
against or indemnify for substantially the same risks to at least the same
amount shall satisfy the requirements of this Section 9(a), provided that on or
--------
prior to the date of such agreement, the Lessee shall provide an Officer's
Certificate of the Lessee certifying that any such insurance or indemnity
provides protection no less favorable than insurance coverage that would comply
with this Section 9. Such insurance shall be of the type usually carried by the
Lessee with respect to similar aircraft and engines and shall provide coverage
that is in substantially similar form, of such types and having limits within
the range of limits as are
26
customarily obtained by similarly situated United States carriers operating
similar aircraft on similar routes.
During any period that the Aircraft is grounded and not in
operation, the Lessee may modify the insurance required by this Section 9(a) to
modify the amounts of public liability and property damage insurance, the scope
of the risks covered and the type of insurance, in all circumstances to conform
to such insurance customary in the United States airlines industry for regional
air carriers similarly situated with the Lessee in respect of similar aircraft
which are grounded, not in operation, and stored or hangared, except that in all
instances, the amounts of coverage and scope of risk covered and the type of
insurance shall be at a minimum no less favorable than the insurance as from
time to time applicable to aircraft owned or leased by Lessee on the ground, not
in operation, and stored or hangared.
(b) Insurance Against Loss or Damage to the Aircraft and
----------------------------------------------------
Engines.
-------
Subject to the rights of the Lessee under Section 9(d), the
Lessee shall, without expense to the Lessor or the Owner Participant, 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 at all times (even when
the Aircraft is grounded or in storage) not less than the Termination Value from
time to time; provided that, neither the Lessee nor any Permitted Sublessee
-------- ----
shall be required to maintain all-risk flight aircraft hull insurance with
respect to any period in which the Aircraft is grounded and properly stored or
hangared but shall provide all-risk ground insurance otherwise conforming with
the provisions of this Section 9(b) except that the scope of the risks and the
type of insurance shall 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. Such insurance shall not provide insurers with a right to replace
the Airframe or any Engine with another airframe or engine. Such hull insurance
or other personal property insurance of the Lessee (or a Permitted Sublessee)
shall cover Engines or engines and Parts temporarily removed from the Airframe,
pending replacement by installation of the same or similar Engines, engines or
Parts on the Airframe. Such insurance shall be of the type usually carried by
the Lessee with respect to similar aircraft and engines and shall provide
coverage that is in substantially similar form, of such types and having limits
within the range of limits as are customarily obtained by similarly situated
United States carriers operating similar aircraft on similar routes. If and to
the extent that the Lessee or a Permitted Sublessee operates the Aircraft (A) on
routes where it maintains war risk, hijacking or allied perils insurance in
effect with respect to other similar owned or leased aircraft in its fleet, (B)
on routes (other than routes within the United States and Canada) where the
custom in the industry is to carry war risk insurance or (C) in any area of
recognized hostilities, the Lessee or such Permitted Sublessee shall maintain or
cause to be maintained such insurance in effect with respect to the Aircraft in
the amount at least equal to Termination Value from time to time. An agreement
27
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 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 each hull policy shall 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 Lessor as loss payee;
provided that, so long as the 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
28
during any policy year, on a per occurrence or on fleetwide basis, an amount
equal to the lesser of (a) $15,000,000 or (b) 1.5% of the average aggregate
insurable value of all aircraft on which Lessee carries insurance. 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 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.
29
(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 of coverage or payment of any insurance required to be
obtained or maintained pursuant to this Section 9, it being understood that all
salvage rights to the Airframe or the Engines shall remain with the Lessee's
insurers at all times.
(g) Reports, etc.
------------
Lessee will furnish to the Lessor and the Owner Participant (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 (but no less frequently than annually), 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 (i) all premiums in connection with the insurance then
due have been paid and (ii) the insurance then carried and maintained on the
Aircraft complies with the terms hereof and is in full force and effect 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 Owner Participant, and shall not be furnished or disclosed by them to
anyone except their legal counsel, insurance brokers or advisors, 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 and
the Owner Participant 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 and the Owner Participant 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).
30
(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
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
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 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 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 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 Owner
Participant therein or any risk of criminal liability or any material risk of
civil penalty against Lessor or Owner 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 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 Owner Participant therein or any risk
of criminal liability or any material risk of civil penalty against Lessor or
Owner 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; (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.
31
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.
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 like engines of the same manufacturer of a comparable or
an improved model and suitable for installation and use on the Airframe and
owned by the Lessee and satisfying all the requirements for a Replacement
Engine) 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 the
Lessee shall, at its own expense and concurrently with such
32
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)(D), and (iii) an opinion of counsel to the Lessee as described in
Section 7(e)(ii), with respect to each such engine and shall take such other
action as required by Section 7(e) to cause such engine to be a Replacement
Engine or as the Lessor may reasonably request in order that such engine shall
be duly and properly titled in the Lessor free and clear of all Liens other than
Lessor's Liens. Upon passage of title such engine shall be deemed to be an
Engine for all purposes hereof and thereupon the Lessor will transfer to the
Lessee, in "as-is, where is" condition, without recourse or warranty except a
warranty against Lessor's Liens, all right, title and interest of the Lessor or
any Affiliate in and to an Engine not installed on the Airframe at the time of
the return thereof.
(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 Manuals and Technical
Records which are required to be maintained with respect thereto under
applicable rules and regulations of the FAA and DOT.
(d) Condition of Aircraft.
---------------------
The Aircraft when returned to the Lessor shall be in the operating
condition required by Exhibit F hereto.
(e) 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 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 and normally used
for the storage of commercial aircraft. 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 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 60 days and that Lessor shall
bear all maintenance and insurance charges and other costs incurred relating to
such storage.
33
(f) Pre-Return Inspections.
----------------------
The Lessor (or Persons designated by the Lessor) shall be permitted
to perform a physical inspection of the Aircraft and Manual and Technical
Records at its expense during the three-day period before its return (including
for this purpose any engines that are not Engines to be returned). During any
such inspection, the Lessor (or Persons designated by the Lessor) shall be
permitted to open bays or panels on the Aircraft or to make similar inspections,
including those which require the removal of equipment if the Lessor has an
objective reason (based on the Manuals and Technical Records, Aircraft
performance, or other physical evidence) to believe that opening such bays or
panels will demonstrate that the Aircraft is not in the condition required by
Exhibit F; and all resulting costs shall be borne by the Lessee if the Lessor's
belief is correct and by the Lessor if the Lessor's belief is incorrect. The
Lessee shall provide for an acceptance test flight (plus additional test flights
as necessary to demonstrate that any deficiencies discovered on the prior test
flight(s) have been corrected) to demonstrate the airworthiness of the Aircraft
(including for this purpose any engines which are not Engines to be returned)
and the proper functioning of all systems and components in accordance with the
manufacturer's flight functional procedures. The Lessor shall pay for any costs
associated with such flights, including costs for fuel, oil, airport fees,
insurance, takeoff/landing fees, airway communication fees, ground handling
fees, customs duties, and any other costs incurred by the Lessor; provided, that
if additional flight(s) are necessary to demonstrate that deficiencies have been
corrected, the Lessee shall pay for any costs associated with one such
additional flight. The Lessee shall permit the Lessor's representatives on board
during any flight tests as direct observers of the functional tests.
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 two years each (each a "Fixed Renewal Term"),
but for not more than an aggregate of four years. Subject to the final sentence
of this Section 13(a), 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 180 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
34
such notice to the Lessor 210 or 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 180 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 210 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
Event of 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
pursuant to this Section 13(a) is subject to the condition precedent that either
(i) the Owner Participant shall have agreed in writing 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); or (ii)
the Owner Participant shall have received a residual value agreement which is
either (x) a renewal of the Residual Agreement, or (y) a residual value
agreement that is substantially identical to the Residual Agreement or otherwise
fully acceptable to the Owner Participant from or guaranteed by an institution,
the senior unsecured debt obligations of which are rated "A/A2" or better by
Standard & Poor's Ratings Group or ▇▇▇▇▇'▇ Investors Service, Inc. and which (as
to clauses (x) and (y)) is in an amount which protects the Owner Participant's
Net Economic Return through the end of the Renewal Term, and providing residual
value protection as provided in Exhibit B.
(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 (unless the
35
Lessee shall have obtained and provided to the Lessor a final order of a court
of competent jurisdiction confirming that the payment of the purchase price for
the Aircraft would not be subject to recapture by the Lessee (or any trustee of
the Lessee)) 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, the Term shall end and the obligations of the
Lessee to pay Rent hereunder (except for Supplemental Rent obligations surviving
pursuant to Section 3(c), Articles 6 and 7 of the Participation Agreement or the
Tax Indemnity Agreement or which have otherwise accrued but not been paid as of
the date of such payment) shall cease, and the Lessor shall convey to the Lessee
all right, title and interest of the Lessor in and to the Aircraft on an "as-is,
where is" basis, without recourse or warranty except a warranty against Lessor's
Liens.
(ii) 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 120 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 120 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 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 120 days' prior written notice
(which notice shall be irrevocable, except as provided below) to the Lessor,
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 use commercially reasonably efforts to sell the
Aircraft "as is", without any warranty by the Lessor or the Lessee except as to
the Lessor's title, on behalf of the Lessor. If Lessee receives any bid, it
shall at least 10 Business Days prior to the proposed day of sale, certify to
Lessor in writing
36
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, 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 notices of termination (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, in "as-is, where-is" condition, without recourse
or warranty (except a warranty as to the absence of Lessor's Liens),
simultaneously therewith sell and convey title to the Airframe and the Engines
or engines conveyed to the Lessor as provided in Section 12 for cash to such
party. Upon the sale of the Airframe and the Engines or engines conveyed to the
Lessor as provided in Section 12 pursuant to this Section 14 and receipt by the
Lessor of all amounts referred to in Section 14(b), the Lessor will transfer to
the Lessee, in "as-is, where-is" condition, without recourse or warranty (except
a warranty as to the absence of Lessor's Liens), all right, title and interest
of the Lessor in and to any Engines constituting part of the Aircraft but which
were not delivered to the purchaser with the Airframe. The Lessee shall pay all
out of pocket expenses of the Lessor and Owner Participant in connection with
any termination or proposed termination of this Lease except that Lessee shall
not be responsible for such expenses of the Lessor or the Owner Participant in
the event the Lessor exercises its preemptive election under Section 14(c) and
thereafter fails to perform its obligations under such Section.
(b) Payments Due Upon Sale of Aircraft.
----------------------------------
The total selling price realized at any sale of the Airframe and
Engines or engines installed thereon in accordance with this Section 14 shall be
retained by the Lessor and, in addition, on the Termination Date, the Lessee
shall pay to the Lessor or, in the case of Supplemental Rent, to
37
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, 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 Owner Participants 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.
Upon payment of any Basic Rent due on such Termination Date, the Lessee shall
have no obligation to pay Termination Value. On the Termination Date, if the
Lessor shall have exercised its preemptive election to retain the Aircraft in
accordance with the terms of this Section 14(c), 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 Basic Rent (if payable in arrears) due on
such Termination Date, all unpaid Supplemental Rent due on or before or after
the Termination Date, 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 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
38
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 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 from time to
time at the direction, full and complete risk and expense of the Lessee in
Permitted Investments. 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 Lessor, on demand,
the amount of any loss realized as the result of any such investment (together
with any fees, commissions and other expenses, if any, incurred in connection
with such investment).
Section 16. Events of Default.
-----------------
The following events shall constitute Events of Default 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 or
Termination Value when due and such failure shall continue for a period of
5 Business Days or (ii) Supplemental Rent (other than Termination Value)
within 20 days after receipt by the Lessee of a written demand therefor
from the Lessor;
39
(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 (or 7 days in the case of war
risk insurance) after receipt by the Lessor of notice of such lapse or
cancellation or the date that the lapse or cancellation is effective as to
the Lessor or the Owner Participant;
(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 except any
failure to make payments under 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 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 150 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,
unless such incorrectness is curable and Lessee shall, after delivery of
such notice, be diligently proceeding to correct such failure and shall in
fact correct such failure 150 days after the delivery of such notice,
provided that it is hereby agreed that any material incorrectness of the
representations contained in Section 4.01(o) of the Participation Agreement
shall not be subject to cure);
(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.
(S)303(h)(1)), or shall make a general assignment for the benefit of its
creditors, or the Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition or answer seeking liquidation, reorganization or other
relief with respect to itself or its debts under 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
40
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.
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
41
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 lawfully and non-negligently 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 possession upon the Lessor and requiring the Lessee to execute
and deliver such instruments and documents to the Lessor;
(b) With or without taking possession, 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
42
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, determined as of the
Termination Date immediately preceding 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 to 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
43
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 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 shall be
entitled to the benefits of 11 U.S.C. (S)1110 with respect to the right to
repossess the Airframe, Engines and Parts as provided herein, and in any
circumstances where more than one construction of the terms and conditions of
this Lease is possible, a construction which would preserve such benefits shall
control over any construction which would not preserve such benefits or would
render them doubtful. To the extent consistent with the provisions of 11 U.S.C.
(S)1110 or any analogous section of the Federal bankruptcy laws, as amended from
time to time, it is hereby expressly agreed and provided that, notwithstanding
any other provisions of the Federal bankruptcy laws, as amended from time to
time, any right of the Lessor to take possession of the Aircraft in compliance
with the provisions of this Lease shall not be affected by the provisions of 11
U.S.C. (S)362 or 363, as amended from time to time, or any analogous provisions
of any superseding statute or any power of the bankruptcy court to enjoin such
taking of possession.
44
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 may not, without the prior consent of the Lessee, 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 8.01 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 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 of the Airframe or any Engine or Part permitted by the terms
hereof under a sublease agreement permitted by the terms hereof then in effect
shall constitute performance by the Lessee to the extent of such performance.
Section 21. Owner Trustee's Limitation on Liability.
---------------------------------------
Trust Company is entering into this Lease solely as Owner Trustee
under the Trust Agreement and not in its individual capacity and neither Trust
Company nor any entity acting as successor Owner Trustee or additional Owner
Trustee under the Trust Agreement shall be personally liable for, or for any
loss in respect of, any of the statements, representations, warranties,
agreements or obligations stated to be those of the Lessor hereunder, as to
which all interested parties shall look solely to the Trust Estate, except to
the extent expressly provided otherwise in any other Operative Agreement,
provided, however, that nothing in this Section 21 shall be construed to limit
-------- -------
in scope or substance the liability of Trust Company or any entity acting as
successor Owner Trustee or additional Owner Trustee under the Trust Agreement in
its individual capacity for the consequences of its own willful misconduct or
gross negligence or (in receiving, handling or remitting funds) its
45
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 and any
financing statements or other instruments as are necessary or requested by the
Owner Participant and appropriate, to maintain 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 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.
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 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 legend appearing on the cover 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
MARKED COUNTERPART NO. 1.
46
(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.
(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) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF ANY AND ALL
LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET
FORTH PURSUANT TO SECTION 12.01 OF THE PARTICIPATION AGREEMENT. EACH PARTY
HERETO AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN
ACCORDANCE WITH THIS SECTION 23(e)(iii), SHALL CONSTITUTE VALID AND EFFECTIVE
PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO HEREBY AGREES THAT THE
FAILURE OF ANY OF ITS AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH
PARTY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH
PARTY OR ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.
47
(iv) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION,
AS A DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER
IN ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR
THAT THIS LEASE OR ANY OTHER OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY
SUCH COURTS.
(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.
(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.
* * *
48
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: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
MIDWAY AIRLINES CORPORATION
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
General Counsel
49
APPENDIX A
DEFINITIONS [N586ML]
GENERAL PROVISIONS
The following terms shall have the following meanings for all purposes
of the Operative Agreements (as defined below), unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. In the case
of any conflict between the provisions of this Appendix and the provisions of
any Operative Agreement, the provisions of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean such agreements as amended and supplemented from time to
time, and any agreement, instrument or document entered into in substitution or
replacement therefor, and (ii) references to parties to agreements shall be
deemed to include the successors and permitted assigns of such parties.
"Additional Insureds" means the Owner Trustee (in its individual and trust
-------------------
capacities) and the Owner Participant and the directors, officers, members,
employees and agents of each of the foregoing.
"Aeronautical Authority" means as of any time of determination, the FAA or
----------------------
other governmental airworthiness authority or such other Person who shall be
vested with the supervision of or having jurisdiction over the Aircraft or the
Airframe and Engines or engines attached thereto and the registration, operation
or other matters relating to aviation with respect thereto under the laws of the
country in which the Airframe is then registered.
"Affiliate" means, with respect to any specified Person, any other Person
---------
directly or indirectly controlling 50% or more of any class of voting securities
of such Person or otherwise controlling, controlled by or under common control
with such Person. For the purposes of this definition, "control" (including
"controlled by" and "under common control with") shall mean the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether through the ownership of voting securities or by contract
or otherwise.
"After Tax Basis" means on a basis such that any payment to be received or
---------------
deemed to be received or receivable by a Person shall be supplemented by a
payment or further payments to such Person so that the sum of such payments,
after deduction of all Taxes (taking into account any related credits or
deductions) resulting from the actual or constructive receipt or accrual of such
payments, shall be equal to the payment to be received, utilizing, for this
purpose, the highest marginal rate for each such Tax at which the recipient is
paying tax for such year.
"Aircraft" means the Airframe together with the two (2) Engines, whether or
--------
not any of the Engines may at the time of determination be installed on the
Airframe or installed on any other airframe or on any other aircraft.
"Airframe" means (i) the Canadair Regional Jet Model CL-600-2B19 Series
--------
200ER aircraft (excluding the Engines and any other engines which may from time
to time be installed thereon, but including any and all Parts which may from
time to time be incorporated in, installed on or attached to such aircraft, and
including any and all such Parts removed therefrom so long as title to such
removed Parts remains vested in the Lessor under the terms of Section 7 of the
Lease) originally delivered and leased under the Lease, identified by national
registration number and manufacturer's serial number in the Lease Supplement
executed and delivered on the Delivery Date, so long as a Replacement Airframe
shall not have been substituted therefor pursuant to Section 8 of the Lease, and
(ii) a Replacement Airframe, so long as another Replacement Airframe shall not
have been substituted therefor pursuant to Section 8 of the Lease.
"Applicable Law" means all applicable laws, treaties, judgments, decrees,
--------------
injunctions, writs and orders of any court, governmental agency or authority and
rules, regulations, orders, directives, licenses and permits of any governmental
body, instrumentality, agency or authority.
"Applicable Rate" has the meaning specified in Exhibit B to the Lease.
---------------
"Bankruptcy Code" means Title 11 of the United States Code, as amended, and
---------------
any successor thereto.
"Basic Rent" means the rent payable on Basic Rent Payment Dates throughout
----------
the Basic Term for the Aircraft pursuant to Section 3(b) of the Lease and rent
payable during any Renewal Term pursuant to Section 13(a) of the Lease.
"Basic Rent Payment Date" means each date listed under the heading "Basic
-----------------------
Rent Payment Date" in Exhibit C to the Lease.
"Basic Term" means the period commencing at the beginning of the day on the
----------
Delivery Date and ending at end of the day on the Expiration Date, or such
earlier date on which the Lease shall be terminated as provided therein.
"Beneficial Interest" means the interest of the Owner Participant under the
-------------------
Trust Agreement.
"Bills of Sale" means the FAA ▇▇▇▇ of Sale and the Warranty ▇▇▇▇ of Sale.
-------------
"Business Day" means any day other than a Saturday or Sunday or other day
------------
on which commercial banks are authorized or required by law to close in New York
City, Charlotte, North Carolina and Wilmington, Delaware.
"Citizen of the United States" means a citizen of the United States as
----------------------------
defined in (S)40102(a)(15) of the Transportation Code, or any analogous part of
any successor or substituted legislation or regulation at the time in effect.
"Code" means the United States Federal Internal Revenue Code of 1986, as
----
amended from time to time, or any similar legislation of the United States
enacted to supersede, amend, or supplement such Code (and any reference to a
provision of the Code shall refer to any successor provision(s), however
designated).
"Commitment" shall have the meaning given such term in Section 2.01(c) of
----------
the Participation Agreement.
"CRAF Program" has the meaning specified in Section 5(b)(vii) of the Lease.
-------------
"Default" means any event or condition which, with the lapse of time or the
-------
giving of notice, or both, would constitute an Event of Default.
"Deficiency Agreement" has the meaning given to such term in the recitals
--------------------
of the Participation Agreement.
"Deficiency Obligor" has the meaning given to such term in the recitals of
------------------
the Participation Agreement.
"Delivery Date" means the date on which the Aircraft is delivered and sold
-------------
to the Lessor and leased by the Lessor to the Lessee under the Lease, which date
shall be the date of the initial Lease Supplement.
"Dollars", "Dollar" and "$" means dollars in lawful currency of the United
------- ------ -
States.
"DOT" means the United States Department of Transportation or any successor
---
thereto.
"EBO Date" has the meaning given to such term in Exhibit B to the Lease.
--------
"EBO Amount" has the meaning given to such term in Exhibit B to the Lease.
----------
"Engine" means (A) each of the two General Electric CF34-3B1 Series 200
------
engines originally delivered and leased under the Lease, identified by
manufacturer's serial number in the
Lease Supplement executed and delivered on the Delivery Date, so long as a
Replacement Engine shall not have been substituted therefor pursuant to Section
7(e) of the Lease, and (B) a Replacement Engine, so long as another Replacement
Engine shall not have been substituted therefor pursuant to Section 7(e) of the
Lease, whether or not such engine or Replacement Engine, as the case may be, is
from time to time installed on the Airframe or installed on any other aircraft,
and including in each case all Parts incorporated or installed in or attached
thereto and any and all Parts removed therefrom so long as title to such Parts
remains vested in the Lessor under the terms of Section 7 of the Lease. The term
"Engines" means, as of any date of determination, the two engines each of which
-------
is an Engine on that date.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation.
"Engine Manufacturer's Consent" means the Engine Manufacturer's Consent and
-----------------------------
Agreement [N586ML], dated as of December 10, 1999, from the Engine Manufacturer.
"Engine Warranty Assignment" means the Engine Warranty Assignment [N586ML],
--------------------------
dated as of December 10, 1999, between Lessee and Owner Trustee.
"ERISA" means the Employee Retirement Income Security Act of 1974 and any
-----
regulations and rulings issued thereunder all as amended and in effect from time
to time.
"ERISA Plan" means, individually or collectively, an employee benefit plan,
----------
as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA or any
applicable regulation thereunder or a plan or individual retirement account
which is subject to Section 4975(c) of the Code;
"Event of Default" has the meaning given to such term in Section 16 of the
----------------
Lease.
"Event of Loss" means any of the following events with respect to the
-------------
Aircraft, the Airframe or any Engine:
(i) any theft, hijacking or disappearance of such property for a
period of 60 consecutive days or more or, if earlier for a period that
extends until the end of the Term;
(ii) destruction, damage beyond economic repair or rendition of such
property permanently unfit for normal use for any reason whatsoever;
(iii) any event which results in an insurance settlement with respect
to such property on the basis of an actual, constructive or compromised
total loss;
(iv) with respect to the Airframe only, requisition of use of such
property by any foreign government or purported government or any agency or
instrumentality thereof (other
than the Government), for a period in excess of 180 consecutive days or
such shorter period ending on the expiration of the Term;
(v) with respect to the Airframe only, requisition of use of such
property by the Government for a period extending beyond the Term;
(vi) condemnation, confiscation or seizure of, or requisition of
title of such property by any foreign government or purported government or
any agency or instrumentality thereof or by the Government, for a period in
excess of 60 consecutive days or such shorter period ending on the
expiration of the Term;
(vii) as a result of any law, rule, regulation, order or other action
by the Aeronautical Authority, the use of the Aircraft or Airframe in the
normal course of air transportation shall have been prohibited by virtue of
a condition affecting all Canadair Regional Jet Series 200ER aircraft
equipped with engines of the same make and model as the Engines for a
period of 6 consecutive months (or beyond the end of the Term), unless the
Lessee, prior to the expiration of such 6-month period, shall be diligently
carrying forward all necessary and desirable steps to permit normal use of
the Aircraft and shall within such 6-month period have conformed at least
one Canadair Regional Jet Series 200ER aircraft (but not necessarily the
Aircraft) to the requirements of any such law, rule, regulation, order or
action, and shall be diligently pursuing conformance of the Aircraft in a
non-discriminatory manner provided that, notwithstanding the foregoing, if
such normal use of such property subject to the Lease shall be prohibited
for a period more than 12 consecutive months or, if earlier, at the end of
the Term, an Event of Loss shall be deemed to have occurred; and
(viii) with respect to an Engine only, the requisition or taking of
use thereof by any government, and any divestiture of title or ownership
deemed to be an Event of Loss with respect to an Engine under Section
5(b)(iii) or 5(b)(vi) of the Lease.
The date of such Event of Loss shall be (aa) the 61st day following loss of such
property or its use due to theft or disappearance (or the end of the Term if
earlier); (bb) the date of any destruction, damage beyond economic repair or
rendition of such property permanently unfit for normal use; (cc) the date of
any insurance settlement on the basis of an actual, constructive or compromised
total loss; (dd) the 181st day following requisition of use of such property by
any foreign government or purported government or any agency or instrumentality
thereof referred to in clause (iv) above, or the end of the Term if earlier than
such 181/st/ day; (ee) the 61st day following condemnation, confiscation or
seizure of, or requisition of title of such property by any foreign government
or purported government or any agency or instrumentality thereof referred to in
clause (vi) above or the Government or the end of the Term if earlier than such
61st day; (ff) the last day of the Term in the case of requisition of use of
such property by the Government; and (gg) the last day of the applicable period
referred to in clause (vii) above (or if earlier, the end of the Term). An
Event of
Loss with respect to the Aircraft shall be deemed to have occurred if any Event
of Loss occurs with respect to the Airframe. An Event of Loss with respect to an
Engine shall not be an Event of Loss in respect of the Airframe.
"Expenses" has the meaning given to such term in Section 7.01(a) of the
--------
Participation Agreement.
"Expiration Date" means the date specified as such in the Lease Supplement
---------------
executed and delivered on the Delivery Date.
"FAA ▇▇▇▇ of Sale" means (A) the ▇▇▇▇ of sale for the Airframe on AC Form
----------------
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the Seller in favor of the Owner Trustee and to be dated the
Delivery Date, and (B) a ▇▇▇▇ of sale for a Replacement Airframe on AC Form
8050-2, or such other form as may be approved by the Aeronautical Authority,
executed by the seller thereof in favor of the Owner Trustee.
"Fair Market Rental Value" or "Fair Market Sales Value" of the Airframe or
------------------------ -----------------------
any Engine shall mean the value that would be obtained in an arms'-length
transaction between an informed and willing lessee-user or buyer-user (other
than a lessee currently in possession or a used equipment dealer) under no
compulsion to lease or buy, as the case may be, and an informed and willing
lessor or seller, as the case may be, under no compulsion to lease or sell, as
the same shall be specified by agreement between the Lessor and the Lessee or,
if not agreed to by the Lessor and the Lessee within a period of 15 days after
either party requests a determination, then as specified in an appraisal
prepared and delivered in New York City mutually agreed to by two recognized
independent aircraft appraisers, one of which shall be appointed by the Lessor
and the other of which shall be appointed by the Lessee, or, if such appraisers
cannot agree on such appraisal, an appraisal arrived at by a third independent
recognized appraiser chosen by the mutual consent of the two aircraft
appraisers. If either party should fail to appoint an appraiser within 15 days
of receiving notice of the appointment of an appraiser by the other party, then
such appraisal shall be made by the appraiser appointed by the first party. If
the two appraisers cannot agree on such appraisal and fail to appoint a third
independent recognized aircraft appraiser within 15 days after the appointment
of the second appraiser, then either party may apply to the American Arbitration
Association to make such appointment. The appraisal shall be completed within
30 days of the appointment of the last appraiser appointed. In determining Fair
Market Rental Value or Fair Market Sales Value by appraisal or otherwise, it
will be assumed that the Aircraft, Airframe or Engine is in the condition,
location and overhaul status in which it is required to be returned to the
Lessor pursuant to Section 12 of the Lease and that the Lessee has removed all
Parts which it is entitled to remove pursuant to Section 7 of the Lease and that
the Aircraft is not encumbered by the Lease. Except as otherwise expressly
provided in the Lease, all appraisal costs will be shared equally by the Lessor
and the Lessee; provided that if the Lessee elects not to renew the Lease or
--------
purchase the Aircraft following the conclusion of such appraisal, the Lessee
shall pay all appraisal costs. Notwithstanding
the foregoing, for purposes of Section 17 of the Lease, the "Fair Market Rental
Value" or "Fair Market Sales Value" of the Aircraft, the Airframe or any Engine,
shall be determined on an "as is, where is" basis and shall take into account
customary brokerage and other out-of-pocket fees and expenses which typically
would be incurred in connection with a re-lease or sale of the Aircraft, the
Airframe or any Engine. Any such determination pursuant to Section 17 of the
Lease shall be made by a recognized independent aircraft appraiser selected by
Lessor and the costs and expenses associated therewith shall be borne by Lessee,
unless Lessor does not obtain possession of the Aircraft, Airframe and Engines
pursuant to Section 17 of the Lease, in which case an appraiser shall not be
appointed and Fair Market Rental Value and Fair Market Sales Value for purposes
of Section 17 of the Lease shall be zero.
"Fair Market Value Renewal Term" has the meaning given to such term in
------------------------------
Section 13(a) of the Lease.
"Federal Aviation Administration" or "FAA" means the United States Federal
-------------------------------- ---
Aviation Administration and any successor agency or agencies thereto.
"Fixed Renewal Term" has the meaning given to such term in Section 13(a) of
------------------
the Lease.
"Government" means the United States of America or an agency or
----------
instrumentality thereof the obligations of which bear the full faith and credit
of the United States of America.
"Indemnitee" means each of Trust Company, in its individual capacity and as
----------
Owner Trustee, the Owner Participant, and each Affiliate, officer, director,
employee, agent, servant, successor and permitted assigns of any of the
foregoing Persons.
"Lease" means the Lease Agreement [N586ML], dated as of December 10, 1999
-----
between the Owner Trustee and the Lessee.
"Lease Supplement" means any Lease Supplement, substantially in the form of
----------------
Exhibit A to the Lease, entered into between the Lessor and the Lessee for the
purpose of leasing the Aircraft under and pursuant to the terms of the Lease,
including any amendment thereto entered into subsequent to the Delivery Date.
"Lessee" means Midway Airlines Corporation, a Delaware corporation, and its
------
successors and permitted assigns.
"Lessee Documents" means the Operative Agreements to which the Lessee is a
----------------
party.
"Lessor" means First Union Trust Company, National Association, a national
------
banking association, not in its individual capacity but solely as Owner Trustee
under the Trust Agreement, and its successors and permitted assigns.
"Lessor's Cost" has the meaning given to such term in Exhibit B of the
-------------
Lease.
"Lessor's Estate" means all estate, right, title and interest of the Owner
---------------
Trustee in and to the Aircraft, and Engines and the Operative Agreements (other
than the Tax Indemnity Agreement) including, without limitation, all amounts of
Rent, insurance proceeds and requisition, indemnity or other payments of any
kind.
"Lessor's Liens" means Liens against, on or with respect to the Aircraft,
--------------
any Engine, the Lessor's Estate or any part thereof, title thereto or any
interest therein arising as a result of (i) claims against or affecting the
Lessor, in its individual capacity or as Owner Trustee, or the Owner
Participant, in each case not related to the Operative Agreements or the
transactions contemplated thereby, (ii) acts or omissions of the Lessor in its
individual capacity or as Owner Trustee, or of the Owner Participant not
permitted under the terms of the Operative Agreements, (iii) Taxes or Expenses
imposed against the Lessor, in its individual capacity or as Owner Trustee,
Owner Participant, Lessor's Estate or the trust created by the Trust Agreement
which are not required to be indemnified against by the Lessee pursuant to
Articles 6 or 7 of the Participation Agreement (other than pursuant to Section
6.01(b)(x) or 7.01(b)(vii)) and which are not required to be indemnified against
by the Lessee pursuant to the Tax Indemnity Agreement, or (iv) claims against
the Lessor, in its individual capacity or as Owner Trustee, or the Owner
Participant arising from the transfer by the Lessor or the Owner Participant of
its interests in the Aircraft or any Engine other than a transfer of the
Aircraft or any other portion of the Lessor's Estate pursuant to Section 5(b),
7(b), 7(c), 7(d), 7(e), 8, 12(b), 13(b), 14(a) or 17 of the Lease and other than
a transfer pursuant to the exercise of the remedies set forth in Section 17 of
the Lease.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
"Manuals and Technical Records" has the meaning set forth in Section 5(d)
-----------------------------
of the Lease.
"Manufacturer" means Bombardier Inc., a Canadian corporation, and its
------------
successors and permitted assigns.
"Material Adverse Change" means, with respect to any Person, any event,
-----------------------
condition or circumstance that materially and adversely affects such Person's
business or consolidated financial condition.
"Minimum Liability Amount" has the meaning given to such term in Exhibit B
------------------------
to the Lease.
"Net Economic Return" means the Owner Participant's nominal after-tax book
-------------------
yield (utilizing the multiple investment sinking fund method of analysis),
computed through the EBO Date and the Expiration Date on the basis of the same
methodology, constraints and assumptions as were utilized by the initial Owner
Participant in determining Basic Rent percentages and Termination Value
percentages as of the Delivery Date; provided, that, if the initial Owner
--------
Participant shall have transferred its interest, Net Economic Return shall be
calculated as if the initial Owner Participant had retained its interest.
"Non-U.S. Person" means any Person other than a U.S. Person.
---------------
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
"Operative Agreements" means the Participation Agreement, the Trust
--------------------
Agreement, the Deficiency Agreement, the Residual Agreement, the Return
Condition Agreement, the FAA ▇▇▇▇ of Sale, the Warranty ▇▇▇▇ of Sale, the
Purchase Agreement, the Purchase Agreement Assignment, the Engine Warranty
Assignment, the PAA Consent, the Engine Manufacturer's Consent, the Lease, each
Lease Supplement, any Owner Participant Guaranty and the Tax Indemnity
Agreement.
"Owner Participant" means ICX Corporation, an Ohio corporation and its
-----------------
successors and permitted transferees and assigns.
"Owner Participant Guarantor" means the provider of an Owner Participant
---------------------------
Guaranty.
"Owner Participant Guaranty" means any guaranty delivered or to be
--------------------------
delivered to support the obligations of the Owner Participant under the
Operative Agreements in connection with the transfer by the Owner Participant of
the Beneficial Interest.
"Owner Trustee" means the Trust Company, not in its individual capacity
-------------
except as otherwise expressly stated, but solely as trustee under the Trust
Agreement, and its successors and permitted assigns.
"PAA Consent" means the Aircraft Manufacturer's Consent and Agreement
-----------
[N586ML], dated as of December 10, 1999, from the Manufacturer.
"Participation Agreement" means the Participation Agreement [N586ML], dated
-----------------------
as of December 10, 1999, among the Lessee, the Owner Trustee not in its
individual capacity except as otherwise expressly provided therein, but solely
as owner trustee and the Owner Participant.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines
or engines and temporary replacement parts as provided in Section 8 of the Lease
and cargo containers) which may from time to time be incorporated or installed
in or attached to any Airframe or any Engine, exclusive of any items leased by
the Lessee from third parties and not required in the navigation of the
Aircraft.
"Past Due Rate" means a rate per annum identified in Exhibit B to the
-------------
Lease.
"Permitted Air Carrier" means (a) any Section 1110 Person and (b) any
---------------------
foreign air carrier that is principally based in any foreign country listed on
Exhibit E to the Lease, except those that do not maintain normal diplomatic
relations with the United States, are involved in internal or external war or
military conflict or is a country with which it would constitute a breach of
applicable U.S. law for the Lessor or Owner Participant to engage directly or
indirectly in business, and provided that in each case, such Person is not the
subject of bankruptcy or similar proceedings.
"Permitted Investments" means (a) direct obligations of the Government, (b)
---------------------
obligations fully guaranteed by the United States of America or any agency or
instrumentality thereof, (c) any mutual fund the portfolio of which is limited
to obligations of the type described in clauses (a) and (b), (d) certificates of
deposit issued by, or bankers' acceptances of, or time deposits or a deposit
account with, any bank, trust company, or national banking association
incorporated or doing business under the laws of the United States of America or
one of the states thereof, having a combined capital and surplus of at least
$500,000,000 and having a rating of "A" or better from the ▇▇▇▇▇ Bank Watch
Service, (e) commercial paper issued by companies in the United States which
directly issue their own commercial paper and which are doing business under the
laws of the United States of America or one of the states thereof and in each
case having a rating assigned to such commercial paper by a nationally
recognized rating organization in the United States of America equal to the
highest rating assigned by such organization, or (f) obligations of the type
described in clauses (a), (b), (d), or (e) above, purchased from any bank, trust
company, or banking association referred to in clause (d) above pursuant to
repurchase agreements obligating such bank, trust company, or banking
association to repurchase any such obligation not later than 30 days after the
purchase of any such obligation. Unless otherwise specified in writing by the
Owner Trustee, all such Permitted Investments shall mature not later than 30
days from the date of purchase.
"Permitted Lien" has the meaning given to such term in Section 10 of the
--------------
Lease.
"Permitted Sublessee" means (a) any Permitted Air Carrier, (b) any airframe
-------------------
or engine manufacturer, or Affiliate of such a manufacturer, who is domiciled in
the United States of America or a country listed on Exhibit E to the Lease or
(c) the Government.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, limited liability
company or government (federal, state, local, foreign or any agency,
instrumentality, division or body thereof) or other entity of whatever nature.
"Purchase Agreement" means Bombardier Regional Aircraft Division Purchase
------------------
Agreement No. PA-0393 dated September 17, 1997, as amended, between the Lessee
and the Manufacturer (including all exhibits thereto, together with all letter
agreements entered into that by their terms constitute part of such Purchase
Agreement).
"Purchase Agreement Assignment" means the Purchase Agreement Assignment
-----------------------------
[N586ML], dated as of December 10, 1999, between Lessee and Owner Trustee.
"Purchase Price" means an amount equal to Lessor's Cost.
--------------
"Reasonable Basis" means that a realistic possibility of success, within
----------------
the meaning of ABA Formal Opinion No. 85-352, exists for pursuing such contest.
"Recovery Period" means "Tax Attribute Period" as defined in the Tax
---------------
Indemnity Agreement.
"Related Tax Indemnitee" means any Affiliate of any Tax Indemnitee.
----------------------
"Renewal Term" has the meaning given to such term in Section 13(a) of the
------------
Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Replacement Aircraft" means any Aircraft of which a Replacement Airframe
--------------------
is part.
"Replacement Airframe" means a Canadair Regional Jet Series 200ER series
--------------------
aircraft or a comparable or improved model of such aircraft of the Manufacturer
(except Engines or engines from time to time installed thereon) which shall have
become subject to the Lease in accordance with and pursuant to Section 8
thereof.
"Replacement Closing Date" has the meaning given such term in Section 8(d)
------------------------
of the Lease.
"Replacement Engine" means a General Electric CF34-3B1 Series 200 engine
------------------
(or engine of the same manufacturer of a comparable or an improved model and
suitable for installation and use on the Airframe), which has a value, utility
and remaining useful life at least equal to, and which is in as good operating
condition as, the Engine to be replaced thereby (assuming that such Engine being
replaced was in the condition required to be maintained in accordance with the
Lease), and which shall have become subject to the Lease pursuant to
Section 7(e) thereof.
"Residual Agreement" has the meaning given to such term in the recitals of
------------------
the Participation Agreement.
"Responsible Officer" means, with respect to the Owner Trustee, any officer
-------------------
in its Corporate Trust Administration, as the case may be, designated by such
Person to perform obligations under the Operative Agreements, and with respect
to any other party, the President or the Chief Financial Officer or any
corporate officer of a party who, in the normal performance of his or her
operational responsibilities, with respect to the subject matter of any
covenant, agreement or obligation of such party pursuant to any Operative
Agreement, would have responsibility for and knowledge of such matter and the
requirements of any Operative Agreement with respect thereto.
"Return Condition Agreement" means the Return Condition Agreement [N586ML],
--------------------------
dated as of December 10, 1999, between the Manufacturer and the Lessee.
"SEC" means the Securities and Exchange Commission of the United States and
---
any successor agencies or authorities.
"Section 1110" means 11 U.S.C. (S) 1110 or any successor or analogous
------------
section of the federal bankruptcy law in effect from time to time.
"Section 1110 Person" means a Citizen of the United States who is an air
-------------------
carrier holding a valid air carrier operating certificate issued pursuant to 49
U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" has the meaning given to such term in Exhibit B to the Lease.
------
"Specified Default" means (a) an event or condition described in Section
-----------------
16(a), (f), (g) or (h) of the Lease that, after the giving of notice or lapse of
time, or both, would become an Event of Default, or (b) any Event of Default.
"Sublease" means any sublease agreement between the Lessee and a Permitted
--------
Sublessee as permitted by Section 5(b) of the Lease.
"Supplemental Rent" means all amounts, liabilities, indemnities and
-----------------
obligations which the Lessee assumes or agrees to perform or pay under the Lease
or under the Participation Agreement or Tax Indemnity Agreement or any other
Operative Agreement to the Lessor, the Owner Participant, or others, including
payments of Termination Value, EBO Amount, and amounts calculated by reference
to Termination Value, all other amounts payable under Section 3(c) of the Lease,
and all amounts required to be paid by Lessee under the agreements, covenants,
and indemnities contained
in the Lease or in the Participation Agreement or the Tax Indemnity Agreement or
any other Operative Agreement, but excluding Basic Rent.
"Tax" or "Taxes" has the meaning set forth in Section 6.01(a) of the
--- -----
Participation Agreement.
"Tax Indemnitee" means each of Trust Company, individually and as Owner
--------------
Trustee, the Owner Participant and any Affiliate thereof.
"Tax Indemnity Agreement" means the Tax Indemnity Agreement [N586ML], dated
-----------------------
as of December 10, 1999 between the Lessee and the Owner Participant.
"Term" has the meaning given to such term in Section 3(a) of the Lease.
----
"Termination Date" means each date listed in the column entitled
----------------
"Termination Date" in Exhibit D to the Lease or, during a Renewal Term or
otherwise during any period following the last day of the Term, the second day
of each month.
"Termination Value" means (a) as of any Termination Date during the Basic
-----------------
Term, the amount determined as set forth in Exhibit D to the Lease for that
Termination Date, and (b) during any Renewal Term, the amount for the date
involved, determined in accordance with Section 13(a) of the Lease, in either
case adjusted as required by Section 3(d) of the Lease.
"Transaction Costs" means those costs and expenses set forth in Section
-----------------
8.01(a) of the Participation Agreement.
"Transportation Code" means Title 49 of the United States Code, subtitle
-------------------
VII, as amended and in effect on the date of the Lease or as subsequently
amended, or any successor or substituted legislation at the time in effect and
applicable, and the regulations promulgated pursuant thereto.
"Trust Agreement" means the Trust Agreement [N586ML], dated as of December
---------------
10, 1999, between the Owner Participant and the Trust Company.
"Trust Company" means First Union Trust Company, National Association, a
-------------
national banking association, and its successors and permitted assigns.
"Trust Estate" means the Lessor's Estate.
------------
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in any relevant jurisdiction.
"United States", "U.S." or "US" means the United States of America.
------------- ---- --
"U.S. Person" means a Person described in (S) 7701(a)(30) of the Code.
-----------
"Warranty ▇▇▇▇ of Sale" means (A) the full warranty ▇▇▇▇ of sale covering
---------------------
the Aircraft (and specifically referring to each Engine) executed by the Seller
in favor of the Owner Trustee and to be dated the Delivery Date, and (B) a full
warranty ▇▇▇▇ of sale covering a Replacement Aircraft (and specifically
referring to each Engine) executed by the seller thereof in favor of the Owner
Trustee.
Exhibit A
to Lease Agreement
------------------
LEASE SUPPLEMENT NO. 1 [N586ML]
-------------------------------
THIS LEASE SUPPLEMENT NO. 1 [N586ML] dated ____________, 1999, 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 [N586ML], dated as of December 10, 1999 (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 June 15, 2016 (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, the Lease
and 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 marked
Counterpart No. 1.
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:
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 N586ML 7341
ENGINES
Manufacturer's Manufacturer's
Manufacturer Model Serial Nos.
------------------------ -------------- --------------
General Electric Company CF34-3B1 GE-E-872580
GE-E-872581
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 June 15, 2014.
--------
"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.
------
"Past Due 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 one percent (1%) per
annum.
"Renewal Rental Rate" shall mean $* per annum.
-------------------
"Applicable Rate" shall mean *% per annum.
---------------
"Residual Value Protection": the residual value support referred to in Section
-------------------------
13(a) shall protect, as of the end of any Renewal Term, against shortfalls in
value of the Aircraft below the residual value as of the end of the Basic Term,
less the amount of such residual value amortized by Basic Rent received during
such Renewal Term, provided that the amount of such residual value support shall
not exceed 15/40 of the amount of such amortized residual value as of the end of
such Renewal Term.
* 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
List of Countries - Permitted for Re-Registration and Subleasing
------------------------------------------------------------------
Australia Italy *
Austria Japan
Belgium Luxembourg
Canada Netherlands
Denmark New Zealand *
Finland Norway
France Portugal
Germany Sweden
Iceland Switzerland
Ireland United Kingdom
* Requires Lessor's consent in the case of Re-Registration.
Exhibit F
RETURN CONDITIONS
-----------------
[*]
* Confidential treatment requested for omitted information. Omitted information
has been filed separately with the Commission.