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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission File No. 1-9259
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
California 94-3008908
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(State of Organization) (I.R.S. Employer Identification No.)
733 Front Street, P.O. Box 193985, San Francisco, CA 94119
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 627-9289
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE
Depositary Units Representing ON WHICH REGISTERED:
Limited Partner Interests New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
Aggregate market value of Depositary Units, held by nonaffiliates of
the registrant as of the close of business at March 22, 1996 was
$66,575,950.00.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
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Page
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<S> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 13
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . 14
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART III
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Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 20
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 23
PART IV
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Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K . . . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Exhibits Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
</TABLE>
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
PART I
ITEM 1. BUSINESS
General
Airlease Ltd., A California Limited Partnership (the "Partnership"),
was formed in 1986. The General Partner is Airlease Management Services, Inc.,
a wholly-owned subsidiary of USL Capital Corporation ("USL Capital"). There
are 3,600,000 depositary units representing limited partners' interests
("Depositary Units" or "Units") held by the public and 1,025,000 units of
limited partners' interests ("Units") held by United States Airlease Holding,
Inc. ("Holding"), also a wholly-owned subsidiary of USL Capital. Terms used
and not defined herein have the meaning set forth in the Amended and Restated
Agreement of Limited Partnership, as amended (the "Partnership Agreement"),
which is incorporated herein by reference.
Principal Investment Objectives
The business of the Partnership is to acquire and own, either directly
or through joint ventures, commercial aircraft, including complete aircraft
(airframes with installed engines), spare or separate engines and rotable parts
(collectively "Aircraft") and to lease such Aircraft primarily to airlines.
The Partnership's principal investment objectives are (i) to own and lease (or
otherwise finance) a portfolio of leased Aircraft in order to generate income
for quarterly cash distributions to holders of Units ("Unitholders"); (ii)
until January 1, 2005, to use a substantial portion of the cash derived from
the sale, refinancing or other disposition of Aircraft to purchase additional
Aircraft if attractive investment opportunities are available; and (iii) to
refinance, sell or otherwise dispose of the Aircraft in such a manner as will
maximize the proceeds to the Partnership on such disposition.
The Partnership's portfolio consists of full and undivided partial
ownership interests in narrow-body (single-aisle) twin and tri-jet commercial
Aircraft which were acquired as used Aircraft. Although the Partnership is
permitted to do so, the Partnership does not own interests in Aircraft which
were acquired as new Aircraft; nor does the Partnership own any wide-body
Aircraft, such as the Boeing 747 and McDonnell Douglas MD-11, or any turboprop
or prop-fan powered Aircraft.
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Aircraft Portfolio
The following table describes the Partnership's Aircraft portfolio at
December 31, 1995 and March 1, 1996.
<TABLE>
<CAPTION>
Number & Acquired Current Purchase
type: year Ownership by lease price(in Type of Noise
Lessee of delivery interest Partnership expiration millions) lease compliance(1)
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<S> <C> <C> <C> <C> <C> <C> <C>
USAir, Inc. 5 MD-82 100% 1986 2001(3) $91.0 Direct Stage III
("USAir") 1981(2) Finance
FedEx 1 727-200FH 100% 1987 2006 $18.5 Direct Stage III
1979 (4) Finance
Trans World 1 MD-82 50% 1988 2002 $10.1 Direct Stage III
Airlines 1984 Finance
("TWA")
Continental 6 737-200 33.3% 1986-1987 1996 $14.4 Operating Stage II
Airlines 1969
("Continental")
Finnair Oy 1 MD-82 50% 1992 1999 $8.5 Operating Stage III
("Finnair")(5) 1982
Sun Jet 1 DC-9-51 50% 1986 1997 $4.4 Operating Stage II
International, 1975 (6)
Inc.
("Sun Jet")
</TABLE>
1. See "Government Regulation - Aircraft Noise" below for a
description of laws and regulations governing aircraft noise.
2. The investment tax credits and the accelerated depreciation
originally available upon delivery of the USAir aircraft were
sold in 1981 pursuant to a tax benefit transfer lease, which
terminated November, 1991. See Note 10 of Notes to Financial
Statements.
3. USAir has the right to renew the lease as to all Aircraft at
the end of the initial twelve year term for an additional
three years at the current quarterly rental. If USAir does
not elect to renew, it is required to make a termination
payment and return the Aircraft to the Partnership. See Note
2 of Notes to Financial Statements.
4. The purchase price includes $6.9 million of conversion costs
for the upgrade of the Aircraft from a Stage II passenger
aircraft to a Stage III freighter.
5. This Aircraft was sold on March 26, 1996. See "Disposition
of Aircraft," below.
6. The purchase price includes $0.7 million related to the
overhaul of the Aircraft.
At December 31, 1995, the current book value of Aircraft by lessee as
a percent of total assets was as follows: USAir, 69.8%; FedEx, 11.8%; TWA,
7.3%; Finnair, 6.5%, Continental, 2.1%, and Sun Jet, 1.4%. Revenues by lessee
as a percentage of total revenue for 1995 and 1994, respectively, were as
follows: USAir, 64% and 67.1%; Continental, 10.8% and 11.7%; TWA, 6.9% and
5.2%; Finnair, 9.6% and 9.6%; FedEx 4.6% and 4.6%; and Sun Jet 2.7% and 0.1%.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for further discussion of the Partnership's lessees.
TWA was in bankruptcy for a portion of 1995.
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Existing Participants in Leases
USL Capital originally participated equally with the Partnership in all
transactions except the USAir Aircraft. PS Group, Inc. ("PS Group") purchased
the other one-third interest in the Continental transaction. In April 1993 the
Partnership leased two aircraft (held jointly with USL Capital), which were
previously off lease, to FedEx. In September 1993 the Partnership exchanged
its 50% interest in the two aircraft for a 100% interest in one aircraft.
As to transactions entered jointly between USL Capital and the
Partnership, USL Capital and the Partnership have agreed (i) to act in good
faith to reach agreement as to all actions which may be required with respect
to the lease and that any dispute between them will be settled by arbitration;
(ii) not to transfer any interest in the related Aircraft or lease without the
consent of the other, except for a transfer to an affiliate and except for a
transfer described in clause (iii); and (iii) that each party has a right of
first refusal to purchase any such interest prior to the transfer to any third
party. As to the transactions entered jointly among USL Capital, the
Partnership and PS Group, the parties have similar agreements with respect to
transfers and rights of first refusal, and action under the trust agreement for
those transactions requires the approval of parties holding 75% of the
beneficial interest in the trust.
Description of Leases
All Aircraft owned by the Partnership are leased to third parties
pursuant to either full-payout leases (direct finance) or operating leases.
Generally, operating leases are for a shorter term than full-payout leases and,
therefore, it will be necessary for the Partnership to remarket the Aircraft in
order to recover its full investment. Full-payout leases are generally for a
longer term and hence provide more predictable revenue than do operating
leases.
All of the Partnership's leases are net leases, which provide that the
lessee will bear the direct operating costs and the risk of physical loss of
the Aircraft; pay sales, use or other similar taxes relating to the lease or
use of the Aircraft; maintain the Aircraft; indemnify the Partnership-lessor
against any liability suffered by the Partnership as the result of any act or
omission of the lessee or its agents; maintain casualty insurance in an amount
equal to the specific amount set forth in the lease (which may be less than
market value); and maintain liability insurance naming the Partnership as an
additional insured with a minimum coverage which the General Partner deems
appropriate. In general, substantially all obligations connected with the
ownership and operation of the leased Aircraft are assumed by the lessee and
minimal obligations are imposed upon the Partnership. Default by a lessee may
cause the Partnership to incur unanticipated expenses. See "Government
Regulations" below.
Certain provisions of the Partnership's leases may not be enforceable
upon a default by a lessee or in the event of a lessee's bankruptcy. The
enforceability of leases will be subject to limitations imposed by Federal,
California, or other applicable state law and equitable principles.
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In order to encourage equipment financing to certain transportation
industries, Federal bankruptcy laws traditionally have afforded special
treatment to certain lenders or lessors who have provided such financing.
Section 1110 of the Bankruptcy Code implements this policy by creating a
category of aircraft lenders and lessors whose rights to repossession are
substantially improved. If a transaction complies with Section 1110, the
transaction is not affected by the automatic stay provisions of the Bankruptcy
Code (and thus, the lender or lessor may repossess the equipment) unless within
60 days after commencement of a bankruptcy proceeding, the trustee agrees to
perform all obligations of the debtor under the agreement or lease and all
defaults (except those relating to insolvency or insolvency proceedings) are
cured within such 60-day period.
On October 22, 1994, President Clinton signed into law the Bankruptcy
Reform Act of 1994 (the "Reform Act"). The Reform Act made several changes to
Section 1110, such that it now protects all transactions involving qualifying
equipment, whether the transaction is a lease, conditional sale, purchase money
financing or customary refinancing. For equipment first placed in service on
or prior to the date of enactment, the requirement that the lender provide
purchase money financing continues to apply, but there is a "safe harbor"
definition for leases, so that Section 1110 benefits will be available to the
lessor without regard to whether or not the lease is ultimately determined to
be a "true" lease. This safe harbor is not the exclusive test so that other
leases which do not qualify under the safe harbor, but which are true leases,
will continue to be covered as leases by Section 1110.
It should be noted, however, that the Partnership may enter into
transactions where it is not entitled to the benefits of Section 1110 upon
insolvency of a lessee airline. The Partnership has an interest in one
Aircraft leased to an operator (Finnair) based outside the United States. This
Aircraft is not registered in the United States and it is not possible to file
liens on the Aircraft with the Federal Aviation Administration (the "FAA").
Further, in the event of a lessee default or bankruptcy, repossession and
claims will be subject to laws other than those of the United States.
Aircraft Remarketing
On termination of a lease and return of the Aircraft to the
Partnership, the Partnership must remarket the Aircraft to realize its full
investment. The remarketing of Aircraft may be through a lease or sale. The
terms and conditions of any such lease will be determined at the time of the
re-lease, and it is possible (although not anticipated at this time) that the
lease may not be a net lease. The General Partner will evaluate the risks
associated with leases which are not net leases prior to entering into any such
lease.
The General Partner has not established any standards for lessees to
which it will lease aircraft and, as a result, there is no investment
restriction prohibiting the Partnership from doing business with any lessee,
including "start-up" airlines. However, the General Partner will analyze the
credit of a potential lessee and evaluate the aircraft's potential value prior
to entering into any lease.
The six 737-200 aircraft on lease to Continental (representing 2.1% of
Partnership assets) are scheduled to come off lease at December 31, 1996.
These aircraft do not comply
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with the Stage III noise requirements and generally cannot be operated within
the continental United States after 1999. See "Government Regulation --
Aircraft Noise," below, for further discussion. Discussions have been
initiated with Continental and others to consider re-lease or sale alternatives
for the aircraft.
There were no Aircraft held for lease or sale at year-end 1994 or 1995.
Disposition of Aircraft
The General Partner intends to cause the Partnership to dispose of all
its Aircraft by the year 2011, subject to prevailing market conditions and
other factors including the income tax status of the Partnership. See "Federal
Income Taxation" below for a discussion of United States tax law which may
affect the timing of the disposition of the Partnership's Aircraft portfolio.
Disposition of Aircraft with a view to the dissolution of the Partnership is
subject to the approval of a majority of limited partners.
Aircraft may be sold at any time whether or not the Aircraft are
subject to leases if, in the judgment of the General Partner, it is in the best
interest of the Partnership to do so. Since its inception, the Partnership has
sold its interest in four Aircraft including the recent sale of the Finnair
Aircraft as described below.
In 1995, casualty proceeds were received on one 737-200 Aircraft on
lease to Continental Airlines which was damaged in a ground accident and
declared a total loss. The proceeds received exceeded the net book value of
the aircraft and resulted in a net gain of $21,000. The amount of proceeds
received were insufficient to reinvest in additional aircraft, and in the third
quarter a special cash distribution of 10 cents per unit was declared. See
discussion of "Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters -- Cash Available From Sale or Refinancing."
In March 1996, the Partnership sold its 50% interest in one MD-82
aircraft on lease to Finnair OY to a third party for approximately $6.9
million, resulting in a net gain of approximately $600,000. The Partnership
had acquired its interest in this Aircraft in April 1992, for approximately
$8.5 million. A portion of the sale proceeds will be used to pay off the
outstanding loan balance under the non-recourse loan agreement which was
collateralized by this Aircraft. The General Partner has not yet determined
the best use of the remaining sale proceeds, which may include reinvestment,
repayment of debt, or a special cash distribution.
The Partnership may sell Aircraft to affiliates of the General Partner
at the fair market value of the Aircraft at the time of sale as established by
an independent appraisal. The General Partner will receive a Disposition or
Remarketing Fee for any such sale.
Joint Ventures/General Arrangements
Except for the USAir Aircraft and the FedEx aircraft owned by the
Partnership, the Partnership has made all of its Aircraft acquisitions on a
joint venture basis with Related Entities (as defined in the Partnership
Agreement) of the General Partner (e.g., USL Capital). See "Approved
Partnership Investments" below, for a description of the provisions of the
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Partnership Agreement governing acquisition of Aircraft by the Partnership
jointly with USL Capital. Future acquisitions may or may not be made jointly.
In addition, the Partnership may enter into joint ventures with other third
parties (e.g., PS Group). Generally, each party to a joint venture is jointly
responsible for all debts and obligations incurred by the joint venture, and
the joint venture will be treated as a single entity by third parties. The
Partnership may become liable to third parties for obligations of the joint
venture in excess of those contemplated by the terms of the joint venture
agreement. There can be no assurance that the Partnership will be able to
obtain control in any joint ventures, or that, even with such control, the
Partnership will not be adversely affected by the decisions and actions of the
co-venturers. The General Partner attempts to ensure that all such agreements
will be fair and reasonable to the Partnership, although joint ventures with
affiliates of the General Partner may involve potential conflicts of interest.
Borrowing Policies
Under the terms of the Partnership Agreement, the Partnership may
borrow funds or assume financing in an aggregate amount not exceeding 50% of
the higher of the cost or fair market value at the time of the borrowing of all
Aircraft owned by the Partnership. The Partnership may exceed such 50% limit
for short-term borrowing so long as the General Partner uses its best efforts
to comply with such 50% limits within 120 days from the date such indebtedness
is incurred or if the borrowed funds are necessary to prevent foreclosure on
any Partnership asset. There is no limitation on the amount of such short-term
indebtedness. The General Partner is authorized to borrow for working capital
purposes and to make distributions. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" and Note 5 of Notes to
Financial Statements for a description of outstanding borrowing and credit
facilities.
Management of Aircraft Portfolio
Aircraft management services are provided by the General Partner and
its affiliates and by persons employed by USL Capital. The fees and expenses
of these services are reviewed annually and are subject to approval by the
Audit Committee of the Partnership.
Registration of Aircraft; United States Person
Under the Federal Aviation Act as amended (the "FAA Act") the operation
of an aircraft not registered with the Federal Aviation Administration in the
United States is generally unlawful Subject to certain limited exceptions, an
aircraft may not be registered under the FAA Act unless it is owned by a
"citizen of the United States" or a "resident alien" of the United States. In
order to attempt to ensure compliance with the citizenship requirements of the
FAA Act, the Partnership Agreement requires that all Unitholders (and all
transferees of Units) be United States citizens or resident aliens within the
meaning of the FAA Act.
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Government Regulation
General
The ownership and operation of aircraft in the United States are
strictly regulated by the FAA, which imposes certain minimum restrictions and
economic burdens upon the use, maintenance and ownership of aircraft. The FAA
Act and FAA regulations contain strict provisions governing various aspects of
aircraft ownership and operation, including aircraft inspection and
certification, maintenance, equipment requirements, general operating and
flight rules, noise levels, certification of personnel, and record keeping in
connection with aircraft maintenance. FAA policy has given high priority to
aviation safety, and a primary objective of FAA regulations is that an aircraft
be maintained properly during its service life. FAA regulations establish
standards for repairs, periodic overhauls and alterations and require that the
owner or operator of an aircraft establish an airworthiness inspection program
to be carried out by certified mechanics qualified to perform aircraft repairs.
Each aircraft in operation is required to have a Standard Airworthiness
Certificate issued by the FAA.
Maintenance and Aircraft Aging
The Partnership, as the beneficial owner of Aircraft, bears the
ultimate responsibility for compliance with certain federal regulations.
However, under all of its Aircraft leases, the lessee has the primary
obligation to ensure that at all times, the use, operation, maintenance and
repair of the Aircraft are in compliance with all applicable governmental rules
and regulations and that the Partnership/lessor is indemnified from loss by the
lessee for breach of any of these lessee responsibilities. Changes in
government regulations after the Partnership's acquisition of Aircraft may
increase the cost to, and other burdens on, the Partnership of complying with
such regulations.
The General Partner monitors the physical condition of the
Partnership's Aircraft and periodically inspects them to attempt to ensure that
the lessees comply with their maintenance and repair obligations under their
leases. Maintenance is further regulated by the FAA which also monitors
compliance. At lease termination, the lessees are required to return the
Aircraft in airworthy condition. The Partnership may incur unanticipated
maintenance expenses if a lessee were to default under a lease and the
Partnership were to take possession of the leased Aircraft without such
maintenance having been completed. If the lessee defaulting is in bankruptcy,
the General Partner will file a proof of claim for the required maintenance
expenses in the lessee's bankruptcy proceedings and attempt to negotiate
payment and reimbursement of a portion of these expenses. The bankruptcy of a
lessee could adversely impact the Partnership's ability to recover maintenance
expense.
As a result of investigations into the causes of several incidents of
rapid in-flight aircraft decompression and fatigue cracks in critical parts,
the aircraft manufacturers issued service bulletins and the FAA has also issued
airworthiness directives. These bulletins and directives provide instructions
to aircraft operators in the maintenance of aircraft and are intended to
prevent the occurrence of similar incidents. Compliance with Airworthiness
Directives is mandatory.
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On March 6, 1989, the FAA ordered extensive repairs of all older
commercial aircraft. The Partnership has interests in seven such Aircraft
representing 3.5% of its total 1995 assets. A formal program to control
corrosion in all aircraft has also been added to the FAA mandatory requirements
for maintenance for each type of aircraft. These FAA rules and proposed rules
evidence the current approach to aircraft maintenance developed by the
manufacturers and supported by the FAA in conjunction with an aircraft industry
group. The Partnership may be required to pay for these FAA requirements if a
lessee defaults or if necessary to re-lease or sell the Aircraft.
There are more than 12,000 jet aircraft in the western fleets of the
principal airlines of the world. On average these aircraft are less than 13
years old. Several hundred have been in service for 20 years or more and that
number is growing. See "Aircraft Portfolio" above for a table showing the year
of delivery (manufacture) and the date of lease termination of Partnership
Aircraft. See "Aircraft Noise" below for a discussion of the residual value of
the Partnership Aircraft portfolio at lease termination.
Aircraft Noise
The FAA, through regulations, has categorized certain aircraft types as
Stage I, Stage II and Stage III according to the noise level as measured at
three designated points. Stage I aircraft create the highest measured noise
levels. Aircraft which exceed Stage I noise maximums are no longer allowed to
operate from civil airports in the United States.
The Aviation Safety and Capacity Act of 1990 bans the operation of
Stage II aircraft after December 31, 1999. There are only two exemptions
allowable: if full compliance produces demonstrable commercial hardship, or if
the airline cannot feasibly re- engine, hushkit or replace its Stage II fleet
by December 31, 1999. The states of Alaska and Hawaii are exempt from these
requirements. In either case the deadline could be extended to January 1,
2003. United States airlines will not be able to operate Stage II aircraft
beyond January 1, 2003, nor will they be able to obtain an exemption for more
than 15% of their fleet beyond the turn of the century. If an airline cannot
comply by December 31, 1999, it must prove it has a firm contract in place to
retrofit or replace its Stage II aircraft. Airlines are required to file a
report annually detailing the current noise compliance status of their fleet
and how they plan to achieve further compliance targets. The FAA has produced
a phase-out schedule of Stage II aircraft in the United States. The noise
policy includes a timetable setting out mandatory levels for the increased
phase-in of Stage III aircraft by the airlines until the end of this century.
The Aviation Safety and Capacity Act of 1990 also allows United States
airports to impose their own Stage II noise bans before the formal cut-off
date, provided that an analysis of the costs and benefits of the restriction is
presented and 180 days are allowed for public comment. The Act affects about
2,500 Stage II aircraft operated by the United States airlines.
Alternatives for operators of Stage II aircraft include hushkitting,
re-engining and movement to jurisdictions without mandated noise compliance.
Hushkit options are expected to become more plentiful. However, even when
certified, there will still be considerable lag time before each program can be
brought to maximum production efficiency.
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See "Aircraft Portfolio" above for a description of the Partnership's
Portfolio. At December 31, 1995, the net book value of Stage II Aircraft owned
by the Partnership was $3.6 million or 3.5% of total assets representing its
interest in one DC-9-51 aircraft with a net book value of $1.5 million and six
737-200 aircraft with a net-book value of $2.1 million. A noise kit that will
bring the DC-9-51 aircraft into compliance with Stage III noise requirements
has not yet been developed. A noise kit for the 737- 200 aircraft was
certificated in late 1994 which can bring these aircraft into compliance with
Stage III noise requirements. The cost of the hushkit is approximately $2.0
million per Aircraft, and the Partnership will likely determine that it would
be not be economically feasible to upgrade these 27 year-old aircraft.
Acquisition of Additional Aircraft
During the past five years, Airlease has added only one aircraft to its
portfolio. In general, the Partnership cannot compete for new acquisitions
because of its limited sources of capital. External financing is not readily
available since most aircraft are already being used to secure existing
partnership borrowings. Internal financing is limited as cash from operations
is required to be distributed to unitholders and only cash from aircraft sales
can be used for reinvestment. When sufficient funds do become available, the
Partnership will consider additional aircraft investments. Absent attractive
investment opportunities, the Partnership expects to return funds to
Unitholders.
In March 1996, the Partnership sold its 50% interest in one MD-82
Aircraft on lease to Finnair OY for approximately $6.9 million. A portion of
the sale proceeds will be used to pay off the outstanding loan balance under
the non-recourse loan agreement which was collateralized by this Aircraft. The
General Partner has not yet determined the best use of the remaining sale
proceeds, which may include reinvestment, repayment of debt, or a special cash
distribution. See "Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters -- Cash Available from Sale or Refinancing."
If the Partnership were to acquire additional aircraft, it could do so
in many different forms, such as in sale/leaseback transactions, by purchasing
interests in existing leases from other lessors, by making loans secured by
aircraft or by acquiring or financing leasehold interests in Aircraft. The
Partnership is permitted to acquire aircraft from affiliates of the General
Partner subject to limitations set forth in the Partnership Agreement.
Management of the Partnership
The General Partner of the Partnership is Airlease Management Services,
Inc., a Delaware corporation, incorporated in July 1986 to act as the general
partner of the Partnership. The General Partner is a wholly-owned subsidiary
of USL Capital, which in turn is an indirect subsidiary of Ford Motor Company
("Ford"). The General Partner has agreed that it will remain the General
Partner until at least October 1996, and USL Capital has agreed that, until
such date, the General Partner will remain a Related Entity, as defined in the
Partnership Agreement (unless in either case to do so would materially and
adversely affect the Part-
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nership). Ford has announced that it is investigating and considering the sale
of all or a portion of USL Capital.
Approved Partnership Investments
Prior to September 30, 1991, the General Partner and USL Capital were
required to offer the Partnership a 50% participation interest in certain
Aircraft leasing investments made by Related Entities. Since September 30,
1991, the General Partner and USL Capital may, but are not obligated to,
continue to offer investment opportunities to the Partnership. The Partnership
has agreed to accept suitable opportunities provided the General Partner and
Related Entities make at least 20% (including their investment through
ownership of Units and the General Partner's interest) of the total investment
made by Related Entities and the Partnership in such transactions. In the
event that the Partnership elects not to make or to make only a portion of an
investment offered to it by an affiliate, the remaining investment may be made
by affiliates of the General Partner or third parties. A determination that an
investment is not suitable for the Partnership will be subject to subsequent
review by the Audit Committee of the board of directors of the General Partner.
In determining whether an investment is suitable for the Partnership,
the General Partner will consider the following factors: the expected cash
flow from the investment and whether existing Unitholders' investment will be
diluted; the existing portfolio of the Partnership and the effect of the
investment on the diversification of the Partnership's assets; the amount of
funds available to finance the investment; the ability of the Partnership to
obtain additional funds through debt financing, by issuing Units, or
otherwise; the cost of such additional funds and the time needed to obtain such
funds; the amount of time available to remove contingencies prior to making the
investment; projected Federal income tax effect of the investment; projected
residual value, if any; any legal or regulatory restrictions; and other factors
deemed relevant by the General Partner.
Leasing Industry Competition
The aircraft leasing industry is highly competitive, offering users
alternatives to the purchase of nearly every type of aircraft. Competitive
conditions vary considerably depending upon the type of aircraft to be leased
and the nature of the prospective lessee. In attempting to obtain commitments
to lease aircraft to specific lessees, the Partnership competes with aircraft
manufacturers, airlines and other operators, equipment managers, leasing
companies, financial institutions and other parties engaged in leasing,
managing, marketing or remarketing aircraft. In addition, a number of
unrelated limited partnerships exist whose investment objectives are similar to
the Partnership. Many of these competitors have significantly greater
financial resources than the Partnership and may have greater experience than
the General Partner and its affiliates in managing, leasing, operating and
selling aircraft. Such competitors may offer to lease aircraft at rates lower
than those which the Partnership can reasonably offer and may provide certain
benefits, such as maintenance, crews, support services and trade-in privileges,
which the Partnership generally cannot provide. In general the Partnership's
pricing is uncompetitive for new acquisitions because of its limited sources of
capital. See "Acquisition of Additional Aircraft," above.
12
<PAGE> 13
The Partnership could be deemed to be in competition with affiliates of
the General Partner for aircraft, for purchasers, sellers or lessees of
aircraft and for sources of financing. While the Partnership Agreement does
not prohibit affiliates of the General Partner from making investments in
aircraft, certain investments may be offered to the Partnership or be made
jointly. See "Approved Partnership Investment" above.
Federal Income Taxation
The Partnership is considered a publicly traded partnership ("PTP")
under the Revenue Act of 1987 and therefore is scheduled to lose its tax
exemption effective January 1, 1998. As a result, the Partnership will be
subject to Federal income tax on any taxable income at regular corporate rates
prior to the payment of any cash distributions. Cash distributions to
Unitholders would also be subject to personal taxation (similar to corporate
dividends). Although alternatives may be available to avoid this additional
level of taxation (de-listing from the New York Stock Exchange and
substantially limiting trading or liquidating the Partnership), such
alternatives have important consequences which must be considered carefully.
Certain of these actions require Unitholder approval and will only be
recommended after a thorough consideration of the advantages and disadvantages
of each alternative and determining which action would be in the Unitholders'
best interest. See Note 9 to Notes to Financial Statements for a description
of the effect of the Partnership's use of different accounting methods for
income tax and financial statement purposes and the impact of the sale of the
Aircraft prior to 1998 which is an aspect of liquidating the Partnership.
ITEM 2. PROPERTIES
The Partnership owns no real property and shares office space in the
offices of its USL Capital affiliates.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Partnership units of Airlease Ltd. are traded on the New York Stock
Exchange under the symbol, FLY. As of February 29, 1996, there were 1,618
holders of record of Airlease Ltd. partnership units. See Note 11 of Notes to
Financial Statements for quarterly trading information regarding the Units.
Cash Distribution
The Partnership makes quarterly cash distributions to unitholders which
are based on its cash flow from operations and are partially tax sheltered.
Information on the tax status of such payments, which is necessary in the
preparation of individual tax returns, is prepared and mailed to unitholders as
quickly as practical after the close of each year. Distributions declared
during 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
Record Date Payment Date Per Unit
----------- ------------ --------
<S> <C> <C>
March 31, 1994 May 13, 1994 46 cents
June 30, 1994 August 15, 1994 46 cents
September 30, 1994 November 15, 1994 46 cents
December 30, 1994 February 15, 1995 47 cents
March 31, 1995 May 14, 1995 47 cents
June 30, 1995 August 13, 1995 50 cents
September 29, 1995 November 15, 1995 60 cents (1)
December 29, 1995 February 15, 1996 50 cents
</TABLE>
The first quarter 1996 distribution of 50 cents per unit was declared
on February 28, 1996, payable on May 15, 1996 to unitholders of record on March
29, 1996.
(1) Includes special cash distribution of 10 cents per unit from casualty
proceeds received on one aircraft.
Cash Available from Operations
The Partnership distributes all Cash Available from Operations, as
defined by the Partnership Agreement. The Partnership is authorized to make
distributions from any source, including reserves and borrowed funds.
Distributions of Cash Available from Operations are allocated 99% to
Unitholders and 1% to the General Partner. The Partnership makes distributions
of Cash Available from Operations, generally on the fifteenth day of each
February, May, August and November to Unitholders of record on the last
business day of the calendar quarter preceding payment.
14
<PAGE> 15
Cash Available from Sale or Refinancing
Any Cash Available From Sale or Refinancing (including casualty
proceeds), as defined in the Partnership Agreement, received prior to January
1, 2005, is expected to be retained for use in the Partnership's business. If,
prior to January 1, 2005, the General Partner does not believe that attractive
investment opportunities exist for the Partnership, the Partnership may
distribute Cash Available from Sale or Refinancing. Any Cash Available from
Sale or Refinancing received after January 1, 2005, will not be reinvested but
will be distributed, unless the General Partner determines it would be in the
Partnership's best interest to repay indebtedness.
One of the Aircraft on lease to Continental was damaged in a ground
accident and declared a total loss during 1995. The Partnership received
casualty proceeds from this Aircraft which exceeded the net book value of the
Aircraft and resulted in a gain on sale of $21,000. After considering the
small amount of casualty proceeds and the lack of new investment opportunities
which would provide an acceptable return to Unitholders, the Partnership
distributed these proceeds to Unitholders. This special distribution of 10
cents per unit was declared for unitholders of record on September 29, 1995 and
was paid November 15, 1995.
In March 1996, the Partnership sold its 50% interest in one MD-82
Aircraft on lease to Finnair OY for approximately $6.9 million. A portion of
the sale proceeds will be used to pay off the outstanding loan balance under
the non-recourse loan agreement which was collateralized by this Aircraft. The
General Partner has not yet determined the best use of the remaining sale
proceeds, which may include reinvestment, repayment of debt, or a special cash
distribution.
Tax Allocations
Allocations for tax purposes of income, gain, loss deduction, credit
and tax preference are made on a monthly basis to Unitholders who owned Units
on the first day of each month. Thus, for example, if an aircraft were sold at
a gain, that gain would be allocated to Unitholders who owned Units on the
first day of the month in which the sale occurred. If proceeds from this sale
were distributed to Unitholders, such proceeds would be distributed to
Unitholders who owned Units on the record date for such distribution, which
because of notice requirements would likely not occur in the same month as the
sale. In addition, a Unitholder who transfers his or her Units after the
commencement of a quarter but prior to the record date for that quarter will be
allocated a share of tax items for the first two months of that quarter without
any corresponding distribution of Cash Available from Operations for, among
other things, payment of any resulting tax.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data and other data
concerning the Partnership for each of the last five years:
<TABLE>
<CAPTION>
For years ended December 31,
(In thousands except per-unit amounts) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
------------------------------------------------------
Total revenues $12,513 $12,538 $12,852 $12,375 $14,062
------------------------------------------------------
Interest expense 2,366 2,660 2,557 2,529 2,531
Depreciation expense 2,129 2,146 2,426 2,921 2,845
Other expenses 1,196 1,401 1,786 1,259 1,330
------------------------------------------------------
Total expenses 5,691 6,207 6,769 6,709 6,706
------------------------------------------------------
Net income $ 6,822 $ 6,331 $ 6,083 $ 5,666 $ 7,356
------------------------------------------------------
Net income per limited partnership unit (1) $ 1.46 $ 1.36 $ 1.30 $ 1.21 $ 1.57
Cash distributions declared per limited $ 2.07(2) $ 1.85 $ 1.69 $ 1.66 $ 1.64
partnership unit
FINANCIAL POSITION
Total assets $103,021 $107,542 $113,967 $112,337 $108,534
Long-term obligations $ 27,483 $ 29,525 $ 27,940 $ 30,861 $ 25,268
Total partners' equity $ 71,712 $ 74,562 $ 76,874 $ 78,685 $ 80,774
</TABLE>
(1) After allocation of the 1% General Partner's interest
(2) Includes special cash distribution of 10 cents per unit from casualty
proceeds
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
At December 31, 1995, long-term borrowings of $27.5 million represented 18.7%
of the cost of the aircraft presently owned by the partnership and 26.7% of
total assets. This debt is outstanding under four long-term, non-recourse debt
facilities collateralized by certain aircraft, two of which are at fixed rates
and two of which are at floating rates. The partnership has entered into
interest rate protection agreements which limits its risk on floating rate
debt. At December 31, 1994 and 1995, $29.5 million and $27.5 million,
respectively, were outstanding under these four facilities and approximately
$2.1 million remained available. See Note 5 to Financial Statements.
Net cash provided by operating activities was $10.5 million for 1993, $7.3
million for 1994, and $9.3 million for 1995. Total debt service for 1993,
1994, and 1995 was 54.3%, 95.8%, and 59.3%, respectively, of net cash provided
by operating activities. In 1993 the partnership incurred costs to convert an
off-lease Boeing 727 aircraft to a cargo configuration and lease it to FedEx
under a finance lease. This caused debt service to increase in 1994 due to the
payment of these conversion costs, and caused net cash from operating
activities to decrease (since as a finance lease, the FedEx lease generates
more cash from investing activities rather than operating activities).
Total scheduled debt service in 1996 is $7.6 million and will be paid from
revenues, primarily from the rental payments received from aircraft leases.
Notes receivable of $933,000 represent advances under the partnership's
agreement to finance certain aircraft modifications for Continental pursuant to
a restructured lease agreement. The partnership's maximum financing obligation
is $282,000 per aircraft, and a total of $251,000 remains available. These
financings will be repaid with interest through the year 2000.
Cash distributions paid by the partnership were $7.6 million ($1.63 per unit)
in 1993, $8.6 million ($1.84 per unit) in 1994, and $9.5 million in 1995 ($2.04
per unit). Distributions in 1995 include a special cash distribution of 10
cents per unit made from the proceeds received from the casualty of one
aircraft. The increase in cash distributions per unit reflects the re-lease of
aircraft in 1993 and 1994 and the proceeds received from the casualty loss.
Partnership net income was $6.1 million in 1993, $6.3 million in 1994, and $6.8
million in 1995. Pursuant to the Partnership Agreement, the partnership
distributed all Cash Available From Operations. Since such distributions were
in excess of earnings, partnership equity declined from $74.6 million at
December 31, 1994, to $71.7 million at December 31, 1995.
Results of Operations
In 1993, revenues were earned from seven aircraft subject to finance leases
(USAir, TWA, and FedEx) and eight aircraft subject to operating leases
(Continental and Finnair). Finance lease income increased from 1992,
reflecting the lease in April 1993 of an off-lease aircraft to
17
<PAGE> 18
FedEx. Operating lease rentals increased $399,000 from 1992 as a result of the
receipt of twelve months' rent from Finnair compared to eight months rent in
the prior year. Leases with lessees in bankruptcy (Continental and TWA)
contributed $2.3 million of gross revenues in 1993. At year-end 1993,
off-lease aircraft represented 1.2% of total partnership assets.
In 1994, revenues were earned from seven aircraft subject to finance leases
(USAir, TWA, and FedEx) and nine aircraft subject to operating leases
(Continental, Finnair, and Sun Jet). Finance lease income declined from 1993
as the balances due declined, and there were two months of non-accrual of TWA
revenue (November and December). TWA contributed 5.2% of 1994 total revenues
(January 1994 through October 1994). Operating lease rentals increased over
1993, reflecting the December 1994 re-lease of an off-lease aircraft to Sun
Jet. At year-end 1994, there were no off-lease aircraft and none of the
partnership's lessees was in bankruptcy.
In 1995, revenues were earned from seven aircraft subject to finance leases
(USAir, TWA, and FedEx). Finance lease income declined from 1994 as the
balances due declined. TWA was on non-accrual status early in 1995, but had
remitted all past-due amounts by the third quarter. TWA was in bankruptcy for
a portion of 1995, and the TWA lease contributed $870,000 of total 1995
revenues. Revenues were earned from nine aircraft subject to operating leases
(Continental, Finnair, and Sun Jet) from January through May, and eight
aircraft for the balance of the year, reflecting the casualty loss of one
aircraft leased to Continental. At year-end 1995, there were no off-lease
aircraft, all of the partnership's lessees were current under their lease
agreements, and none was in bankruptcy.
USAir, the partnership's major lessee (69.8% of total year-end assets),
reported an after-tax profit of $119 million for 1995, compared with 1994's
loss of $685 million. USAir has reported that discussions with two major
airlines regarding possible acquisition of USAir ceased in November. The
airline also elected Stephen M. Wolf as its new chairman and chief executive
officer.
For information regarding the percentage of total partnership assets and
revenues represented by aircraft owned and leased by the partnership, see
"Aircraft Portfolio."
The partnership believes that its revenues and income have not been materially
affected by inflation and changing prices because its principal items of
revenue (rental payments) and expenses (interest) are at fixed long-term rates.
Interest expense in 1995 reflects an average interest rate of 8.3% based on
average total outstanding debt of $28.5 million, compared to 1994's average
interest rate of 8.9% based on average total outstanding debt of $29.9 million.
Depreciation expense relates to aircraft subject to operating leases and those
held for sale or lease. In 1994 depreciation expense decreased as an off-lease
aircraft was placed on a finance lease with FedEx in April 1993.
In 1994, general and administrative expenses were $388,000, which included
$197,000 in non-recurring expenses, primarily related to the early return and
repair of the aircraft now on
18
<PAGE> 19
lease to Sun Jet. The $700,000 provision for loss on aircraft in 1993 reflects
a charge recorded by the partnership on its DC-9-51 aircraft (which had been
off lease since 1991) to reduce the net book value of this aircraft to reflect
a lower estimate of its then current market value. In 1994, the partnership
incurred total expenses of $798,000, (of which $668,000 have been capitalized)
to prepare this aircraft for re-lease.
In March 1995, the Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which is
effective for fiscal years beginning after December 15, 1995. The Partnership
adopted the standard January 1, 1996, and the impact on the financial
statements is not expected to be material.
Subsequent Event
In connection with the sale of an Aircraft in March 1996, one of the four
outstanding long-term, non-recourse debt facilities has been paid in full. See
"Business - Disposition of Aircraft."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and Notes to Financial Statements described in
Item 14(a) are set forth in Appendix A and are filed as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 21, 1994, the Board of Directors of Airlease Management
Services, Inc., the General Partner, unanimously approved the appointment of
Coopers & Lybrand L.L.P. as independent auditors of the Partnership for the
year ending December 31, 1994, and dismissed the firm of Deloitte & Touche LLP.
Separate action by the Audit Committee was not required. The change was made
primarily to achieve efficiencies in the audit process and reduce costs as
Coopers & Lybrand L.L.P. are also the auditors for the General Partner.
Deloitte & Touche LLP were the independent auditors of the Partnership
since its inception in October 1986. As required by Item 304(a) of Regulation
S-K, the Partnership reported that during the two fiscal years immediately
preceding such dismissal and subsequent interim period prior to March 21, 1994,
there were no disagreements on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures.
None of the reports of Deloitte & Touche LLP on the Partnership's financial
statements for any of the two years immediately preceding such dismissal
contained an adverse opinion or a disclaimer of opinion or was qualified or
modified as to uncertainty, audit scope or accounting principles.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Under the
Partnership Agreement, the General Partner has full power and authority in the
management and control of the business of the Partnership, subject to certain
provisions requiring the consent of the unitholders.
The directors and executive officers of the General Partner are as
follows:
<TABLE>
<CAPTION>
Name Position with the General Partner
---- ---------------------------------
<S> <C>
James G. Duff Chairman of the Board, Chief Executive Officer and Director
David B. Gebler President, Chief Operating Officer and Director
Stanley E. Gutman Vice President and Secretary
William A. Hasler Director
Robert A. Keyes, Jr. Vice President, Chief Financial Officer, Principal Accounting
Officer and Director
Henry Lerner Senior Vice President and General Counsel
Leonard Marks, Jr. Director
John R. Pettipher Director
</TABLE>
JAMES G. DUFF (age 58), has been Chairman of USL Capital since April
1992, President and Chief Executive Officer since January 1990 and a Director
of the General Partner since 1988. He was President and Chief Operating
Officer of USL Capital from February 1988 through January 1990. From April
1980 through February 1988, Mr. Duff was an Executive Vice President of Ford
Motor Credit Company, where he was responsible for its Diversified Operations.
Mr. Duff holds a bachelors and a masters degree in Finance from the University
of Kansas.
DAVID B. GEBLER (age 46), Senior Vice President of the Transportation and
Industrial Financing business unit of USL Capital, has been with USL Capital
since November 1989 and has been a Director of the General Partner since 1990.
Prior to that time he held various positions with Ford Motor Credit Company.
Mr. Gebler holds a bachelors degree in mathematics from Clarkson University and
graduate degrees in Engineering and Management from the University of Michigan.
20
<PAGE> 21
STANLEY E. GUTMAN (age 61), has been Senior Counsel of USL Capital since
June 1986. Prior to that time, Mr. Gutman was Assistant Vice President,
Associate General Counsel and Secretary of GATX Leasing Corporation. Mr.
Gutman holds an A.B. degree from the University of California, Berkeley; a
L.L.B. from the University of California, Berkeley, (Boalt Hall); and an M.B.A.
from Harvard University.
WILLIAM A. HASLER (age 54), has been the dean of the Haas School of
Business at the University of California at Berkeley since August 1991 and a
Director of the General Partner since 1995. From 1984 to 1991, he was vice
chairman and director of KPMG Peat Marwick and was responsible for the
worldwide consulting business. He is a member of the board of governors of The
Pacific Stock Exchange and the boards of The Gap, TCSI, RCM Strategic Global
Fund and Aphton Corporation. He serves on a presidential advisory board on
critical technologies. He is a 1963 graduate of Pomona College and earned his
MBA from Harvard in 1967.
ROBERT A. KEYES, JR. (age 43), has been Vice President and Corporate
Controller of USL Capital since January 1990 and has been a Director of the
General Partner since 1990. From January 1984 through December 1989 he served
as Senior Vice President and Chief Financial Officer of Wells Fargo Leasing
Corporation. Mr. Keyes is a C.P.A. and previously served with Arthur Andersen
& Co. on their audit staff. Mr. Keyes holds a B.S. degree in economics from
Bates College and an M.B.A. in accounting from Rutgers University.
HENRY LERNER (age 47), has been Senior Vice President and General Counsel
of USL Capital since May 1994. From 1985 through April 1994, he was the senior
litigation partner of the San Francisco law firm of Stein Lubin & Lerner.
Prior to that time, he served as a senior attorney-adviser in the Office of the
Legal Adviser of the U.S. Department of State in Washington, D.C. Mr. Lerner
holds a B.A. in economics and English from the University of Michigan, an M.A.
in English from the University of California at Berkeley, and a law degree from
the University of California at Berkeley (Boalt Hall).
LEONARD MARKS, JR. (age 74), retired as Executive Vice President of
Castle & Cooke, Inc., in 1985. Prior to that time, he was also president of
the real estate and diversified activities group of that company. Mr. Marks
has been a Director of the General Partner since 1986. For many years, Mr.
Marks was an assistant professor of Finance at the Harvard Business School and
a professor of Finance at the Stanford Business School. He was Assistant
Secretary of the United States Air Force from 1964 to 1968. Mr. Marks is a
director of Alexion Pharmaceutical Inc. and Northern Trust Bank of Arizona.
Mr. Marks holds a Ph.D in Business Administration from Harvard University.
JOHN R. PETTIPHER (age 53), has been President of the Transportation and
Industrial Financing business unit of USL Capital since November 1990 and has
been a Director of the General Partner since 1990. Prior to that time he was
the President of the U.S. Capital Equipment division of USL Capital from
January 1989 to November 1990. From October 1987 to December 1988, Mr.
Pettipher was the Manager of Capital Equipment Financing for Ford Motor Credit
Company. Mr. Pettipher holds a BA in Economics from Michigan State University
and an MBA in Finance/Marketing from Wayne State University.
21
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not pay or employ directly any directors or
officers. Each of the officers of the General Partner is also an officer or
employee of USL Capital and is not separately compensated by the General
Partner or the Partnership for services on behalf of the Partnership. Thus,
there were no deliberations of the General Partner's Board of Directors with
respect to compensation of any officer or employee.
The Partnership reimburses the General Partner for fees paid to
Directors of the General Partner who are not otherwise affiliated with the
General Partner or its affiliates. In 1995, such unaffiliated directors were
paid an annual fee of $14,500 and $500 for each meeting attended.
The Partnership has not established any plans pursuant to which
cash or non-cash compensation has been paid or distributed during the last
fiscal year or is proposed to be paid or distributed in the future. The
Partnership has not issued or established any options or rights relating to the
acquisition of its securities or any plans therefor.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1996, the following person was known to the
Partnership to be beneficial owners of more than five percent of the
Partnership's equity securities:
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF OF BENEFICIAL OF BENEFICIAL OF
CLASS OWNER OWNERSHIP CLASS(1)
----- ---------------- ---------------- -----
<S> <C> <C> <C>
Units of Limited U.S. Airlease Holding, Inc. 1,025,000(2) 22.2%
Partnership 733 Front Street
Interest San Francisco, CA
94111(2)
</TABLE>
_______________________
(1) Represents percentage of all units of limited partnership interests
whether or not held as Depositary Units.
(2) USL Capital, 733 Front Street, San Francisco, CA 94111, owns all of
the outstanding stock of Holding. Therefore, USL Capital is deemed
also to be the beneficial owner of such Units. In addition, USL
Capital, through a subsidiary, owns all the outstanding stock of the
General Partner. Therefore, USL Capital is also indirectly the
beneficial owner of the General Partner's 1% general partner interest.
USL Capital is a wholly owned subsidiary of Ford Holdings, Inc. All
of the outstanding common stock of Ford Holdings, Inc. is owned
directly or indirectly by Ford Motor Company.
22
<PAGE> 23
Set forth below is information regarding interests in the Partnership
owned by each director of and all directors and executive officers, as a group,
of the General Partner. Unless otherwise noted, each person has sole voting
and investment power over all units owned.
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF OF BENEFICIAL OF BENEFICIAL OF
CLASS OWNER OWNERSHIP CLASS(1)
- ----- ---------------- ----------------- -----
<S> <C> <C> <C>
Depositary Units James G. Duff 100 (2)
David B. Gebler 700(3) (2)
Leonard Marks, Jr. 500 (2)
All directors and executive
officers as a group 1300(4) (2)
</TABLE>
_______________________
(1) Represents percentage of all Units of limited partnership interests
whether or not held as Depositary Units.
(2) Represents less than 1%.
(3) Includes 200 units held by Mr. Gebler as custodian for a minor child as to
which Mr. Gebler has shared voting and investment power and as to which
beneficial ownership is disclaimed.
(4) Includes the 200 Units described in note 3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a discussion of certain fees, expenses and reimbursements payable
and paid to the General Partner and its affiliates by the Partnership, see Note
8 of Notes to Financial Statements. From time to time, the Partnership borrows
funds from USL Capital, including advances for expense payments. All such
borrowings have been unsecured and have borne interest at a floating rate not
exceeding the prime rate.
For a discussion of certain terms of the Partnership Agreement
regarding the Partnership's participation in aircraft leasing investments made
by the General Partner and its Related Entitles, see "Business -- Approved
Partnership Investments." For a discussion of joint venture arrangements
between the Partnership and USL Capital, see "Business -- Aircraft Portfolio",
"Business -- Existing Participants in Leases" and "Business -- Joint
Venture/General Arrangements."
23
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following financial statements of the Partnership are
included in this report as Appendix:
<TABLE>
<CAPTION>
PAGE
--------------------
<S> <C>
Management's Responsibility for Financial Statements A-1
Independent Auditors' Report A-2 - A-3
Statements of Income for periods ended
December 31, 1995, 1994, and 1993 A-4
Balance Sheets at December 31, 1995 and 1994 A-5
Statements of Cash Flows for periods ended
December 31, 1995, 1994, and 1993 A-6
Statements of Changes in Partners' Equity for
the periods ended December 31, 1995, 1994, and 1993 A-7
Notes to Financial Statements A-7
</TABLE>
Financial statement schedules other than those listed above are
omitted because the required information is included in the
financial statements or the notes thereto or because of the
absence of conditions under which they are required.
(b) The Partnership did not file any Report on Form 8-K in 1995.
24
<PAGE> 25
(c) Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
3.1 (1) Amended and Restated Agreement of Limited Partnership of
Partnership.
3.2 (1) Form of Certificate for Limited Partnership Units of
Partnership.
3.3 (1) Form of Depositary Agreement among Partnership, Manufacturers
Hanover Trust Company, the General Partner and Limited Partners
and Assignees holding Depositary Receipts.
3.4 (1) Form of Depositary Receipt for Units of Limited Partners'
Interest in the Partnership.
3.5 Amendments to Amended and Restated Partnership Agreement.
4.1 (1) Form of Application for Transfer of Depositary Unit.
4.2 Loan and Security Agreement dated as of March 20, 1987 between
Meridian Trust Company, as Trustee, as Borrower and The World
Wing Company Limited, as Lender.
4.3 8.75% Secured Non-recourse Note of Meridian Trust Company dated
March 31, 1987 in favor of The World Wing Company Limited.
4.4 Instructions and Consent Agreement dated as of March 31, 1987
between the Registrant and The World Wing Company Limited.
10.1 (1) Trust Agreement, together with Trust Agreement Supplement No.
1-5, dated as of July 10, 1986 between the Registrant, Meridian
Trust Company and the General Partner.
10.3 (1) Lease Agreement, together with Lease Supplement Nos. 1-5, dated
as of July 10, 1986, between Meridian Trust Company, not in its
individual capacity but solely as Trustee, and Pacific Southwest
Airlines.
10.9 Lease Agreement dated as of November 6, 1986, between GATX, as
lessor and NYA, as lessee, with respect to aircraft N7379F.
10.17 Trust Agreement dated as of December 30, 1986, with respect to
aircraft N7379F together with related trust certificate.
</TABLE>
____________________________
(1) Incorporated by reference to Partnership's Registration on Form S-1
(File No. 33-7985), as amended.
(2) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31,1991.
(3) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31, 1992.
(4) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31, 1993.
25
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
10.40 Trust Agreement dated as of August 15, 1988, between Trust
Company for USL, Inc., as Trustee, United States Airlease, Inc.,
and the Registrant, with respect to aircraft N913TW.
10.41(2) Stipulation and order dated July 1991 among Continental
Airlines, Inc., Continental Airlines Holdings, Inc., New York
Airlines, Inc., United States Leasing International, Inc.,
Airlease, Ltd., PS Group, Inc., and Trust Company for USL, Inc.
concerning seven Boeing 737-200 aircraft and certain engines and
related equipment.
10.43(3) Trust Agreement dated as of April 30, 1992 between United States
Leasing International, Inc. as Owner Participant and Agent,
Airlease Ltd., A California Limited Partnership, as Owner
Participant and Trust Company for USL, Inc., as Owner Trustee,
with respect to One (1) McDonnell Douglas MD-82 Aircraft with
Finnish Registration Mark OH-LMO Leased to Finnair Oy.
10.44(4) Aircraft Lease Agreement dated as of April 15, 1993 between
Trust Company for USL, Inc. as Owner Trustee, Lessor, and
Federal Express Corporation, Lessee with respect to one (1)
Boeing 727-2D4 Aircraft, U.S. Registration No. 362PA
(manufacture serial no. 21850).
10.45 Trust Agreement dated as of July 27, 1993 among Airlease Ltd., A
California Limited Partnership, as Owner Participant, United
States Leasing International, Inc., as Agent, and Trust Company
for USL, Inc. as Trustee, with respect to one (1) Boeing 727-204
Aircraft with FAA Registration No. N362PA leased to Federal
Express Corporation.
10.46(4) Loan and Security Agreement dated as of April 30, 1993 between
Airlease Ltd., a California Limited Partnership as Borrower and
ORIX USA Corporation as Lender.
10.47(4) Intercreditor Agreement dated as of April 30, 1993 between
United States Leasing International, Inc., Airlease Ltd., a
California Limited Partnership and ORIX USA Corporation.
</TABLE>
________________________________________________________
(1) Incorporated by reference to Partnership's Registration on Form S-1
(File No. 33-7985), as amended.
(2) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31,1991.
(3) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31, 1992.
(4) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31, 1993.
26
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.48(5) Aircraft Lease Agreement dated as of December 1, 1994 and Lease
Supplement dated December 13, 1994 between Trust Company for
USL, Inc., as Owner Trustee, Lessor and Sun Jet International,
Inc., Lessee; Instruction Letter dated as of December 12, 1994
between Trust Company for USL, Inc. as Owner Trustee, USL
Capital Corporation and Airlease Ltd. as Owner Participants;
and Appointment Letter of Leasing Agent dated as of December 12,
1994 between USL Capital Corporation and Trust Company for USL,
Inc., as Owner Trustee, with respect to one (1) McDonnell
Douglas DC-9-51 Aircraft, Aircraft Registration No. N920PJ
(manufacture serial #47677).
</TABLE>
Omission of Substantially Identical Documents
In accordance with Regulation 12b-31, Omission of Substantially Identical
Documents, five additional Lease Agreements and five additional Trust
Agreements which are substantially identical to Exhibit 10.9 and Exhibit 10.17,
respectively, are not being filed. Exhibits 10.9 and 10.17. cover one of six
aircraft. Each additional aircraft (aircraft registration numbers N7371F,
N7372F, N7373F, N7374F, and N7378F) is covered by substantially identical
documents.
(1) Incorporated by reference to Partnership's Registration on Form S-1
(File No. 33-7985), as amended.
(2) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31,1991.
(3) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31, 1992.
(4) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31, 1993.
(5) Incorporated by reference to Partnership's Annual Report on Form 10-K
for the year ended December 31, 1994.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 28, 1996.
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
(Registrant)
By: Airlease Management Services, Inc.,
General Partner
By: /s/ David B. Gebler
------------------------------------
David B. Gebler
President and Chief Operating Officer
28
<PAGE> 29
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
For Airlease Management
Services, Inc. ("AMSI"), General Partner
<TABLE>
<S> <C>
/s/ J. G. Duff March 28, 1996
- ------------------------------------------------
J. G. Duff
Chairman of the Board, Chief Executive Officer
and Director of AMSI
/s/ D. B. Gebler March 28, 1996
- ------------------------------------------------
D. B. Gebler
President, Chief Operating Officer
and Director of AMSI
/s/ R. A. Keyes, Jr. March 28, 1996
- ------------------------------------------------
R. A. Keyes, Jr.
Vice President, Chief Financial Officer and
Director of AMSI (Principal Financial Officer
and Accounting Officer)
/s/ J. R. Pettipher March 28, 1996
- ------------------------------------------------
J. R. Pettipher
Director of AMSI
</TABLE>
The foregoing constitute a majority of the members of the Board of Directors of
Airlease Management Services, Inc. (the General Partner).
29
<PAGE> 30
APPENDIX A
Management's Responsibility for Financial Statements
Airlease Management Services, Inc., the general partner of the partnership and
a wholly owned subsidiary of USL Capital Corporation ("USL Capital"), is
responsible for the preparation of the partnership's financial statements and
the other financial information in this report. This responsibility includes
maintaining the integrity and objectivity of the financial records and the
presentation of the partnership's financial statements in accordance with
generally accepted accounting principles.
The general partner maintains an internal control structure designed to
provide, among other things, reasonable assurance that partnership records
include the transactions of its operations in all material respects and to
provide protection against significant misuse or loss of partnership assets.
The internal control structure is supported by careful selection and training
of financial management personnel, by written procedures that communicate the
details of the control structure to the partnership's activities, and by USL
Capital's staff of operating control specialists who conduct reviews of
adherence to the partnership's procedures and policies.
The partnership's financial statements have been audited by Coopers & Lybrand
L.L.P., independent auditors for the years ended December 31, 1995 and December
31, 1994, and by Deloitte & Touche LLP, independent auditors for the year ended
December 31, 1993. Their audits were conducted in accordance with generally
accepted auditing standards which included consideration of the general
partner's internal control structure. The Independent Auditors' Report appears
on page A-2.
The board of directors of the general partner, acting through its Audit
Committee composed solely of directors who are not employees of the general
partner, is responsible for overseeing the general partner's fulfillment of its
responsibilities in the preparation of the partnership's financial statements
and the financial control of its operations. The independent auditors have
full and free access to the Audit Committee and meet with it to discuss their
audit work, the partnership's internal controls, and financial reporting
matters.
/s/ David B. Gebler
- ---------------------
David B. Gebler
President and Chief Operating Officer
Airlease Management Services, Inc.
/s/ Robert A. Keyes, Jr.
- --------------------------
Robert A. Keyes, Jr.
Chief Financial Officer
Airlease Management Services, Inc.
A-1
<PAGE> 31
LETTERHEAD OF COOPERS & LYBRAND L.L.P.
INDEPENDENT AUDITORS' REPORT
To the Partners of Airlease Ltd.,
A California Limited Partnership:
We have audited the financial statements of Airlease Ltd., A California Limited
Partnership (listed in Part IV Item 14(a)1.) of this Form 10-K. These
financial statements are the responsibility of the partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the partnership as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
San Francisco, California
January 29, 1996
A-2
<PAGE> 32
LETTERHEAD OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' REPORT
To the Partners of Airlease Ltd.,
A California Limited Partnership:
We have audited the accompanying statements of income, cash flows and changes
in partners' equity of Airlease Ltd., A California Limited Partnership for the
year ended December 31, 1993. These financial statements are the
responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Airlease Ltd. for the
year ended December 31, 1993, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
- ---------------------------
Deloitte & Touche LLP
January 21, 1994
A-3
<PAGE> 33
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended
December 31,
(In thousands except per-unit amounts) 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Finance lease income $ 9,455 $ 9,635 $10,061
Operating lease rentals 2,883 2,743 2,667
Other income 175 160 124
-----------------------------
Total revenues 12,513 12,538 12,852
-----------------------------
EXPENSES
Interest 2,366 2,660 2,557
Depreciation - operating leases 2,129 2,146 2,426
Provision for loss on aircraft held for lease or sale -- -- 700
Management fee - general partner 784 800 744
Investor reporting 258 213 192
General and administrative 154 388 150
-----------------------------
Total expenses 5,691 6,207 6,769
-----------------------------
NET INCOME $ 6,822 $ 6,331 $ 6,083
-----------------------------
NET INCOME ALLOCATED TO:
General partner $ 68 $ 63 $ 61
-----------------------------
Limited partners $ 6,754 $ 6,268 $ 6,022
-----------------------------
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 1.46 $ 1.36 $ 1.30
-----------------------------
</TABLE>
See notes to financial statements
A-4
<PAGE> 34
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
(IN THOUSANDS EXCEPT UNIT DATA) NOTES 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash $ 0 $ 0
Finance leases - net 1 & 2 91,564 93,697
Operating leases - net 1 & 3 10,259 12,853
Notes receivable 4 & 7 933 673
Prepaid expenses and other assets 265 319
------------------
Total Assets $103,021 $107,542
------------------
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Distribution payable to partners $ 2,336 $ 2,196
Accounts payable and accrued liabilities 1,490 1,259
Long-term notes payable 5 27,483 29,525
------------------
Total liabilities 31,309 32,980
------------------
COMMITMENTS AND CONTINGENCIES 6
PARTNERS' EQUITY:
Limited partners (4,625,000 units outstanding) 70,995 73,816
General partner 717 746
------------------
Total partners' equity 71,712 74,562
------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $103,021 $107,542
------------------
</TABLE>
See notes to financial statements
A-5
<PAGE> 35
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,822 $ 6,331 $ 6,083
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and provision for loss 2,129 2,146 3,126
Increase (decrease) in accounts payable and accrued
liabilities 231 (1,092) 1,227
Decrease (increase) in prepaid expenses and other assets 54 (157) (46)
Decrease (increase) in accounts receivable 111 103 96
Gain on disposition of equipment (21) 0 0
---------------------------------
Net cash provided by operating activities 9,326 7,331 10,486
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Aircraft equipment purchase and refurbishment (net of
accrued refurbishment costs of $66 in 1995,
$250 in 1994 and $4,855 in 1993) (66) (4,401) (3,004)
Casualty settlement proceeds 440 0 0
Increase (decrease) in notes receivable (260) (434) 78
Rental receipts in excess of earned finance lease income 2,133 4,513 2,976
---------------------------------
Net cash provided (used) by investing activities 2,247 (322) 50
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit borrowing (repayment)-net 545 5,946 (7,582)
Proceeds from issuance of long-term debt 575 0 7,800
Repayment of long-term debt (3,162) (4,361) (3,139)
Distributions paid to partners (9,531) (8,596) (7,614)
---------------------------------
Net cash used by financing activities (11,573) (7,011) (10,535)
---------------------------------
Increase (decrease) in cash 0 (2) 1
Cash at beginning of year 0 2 1
---------------------------------
Cash at end of year $ 0 $ 0 $ 2
---------------------------------
Additional information:
Cash paid for interest $ 2,052 $ 2,483 $ 2,449
---------------------------------
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the second quarter of 1994, accrued conversion costs were adjusted by
$920,000
See notes to financial statements
A-6
<PAGE> 36
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
For the years ended December 31, 1995, 1994, and 1993
General Limited
(In thousands except per-unit amounts) Partner Partners Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 $787 $77,898 $78,685
Net Income - 1993 61 6,022 6,083
Distributions to partners declared
($1.69 per limited partnership unit) (79) (7,815) (7,894)
- --------------------------------------------------------------------------------
Balance, December 31, 1993 769 76,105 76,874
Net Income - 1994 63 6,268 6,331
Distributions to partners declared
($1.85 per limited partnership unit) (86) (8,557) (8,643)
- --------------------------------------------------------------------------------
Balance, December 31, 1994 746 73,816 74,562
Net Income - 1995 68 6,754 6,822
Distributions to partners declared
($2.07 per limited partnership unit) (97) (9,575) (9,672)
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $717 $70,995 $71,712
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Airlease Ltd., A California Limited Partnership (the
"partnership") engages in the business of acquiring, either directly or through
joint ventures, commercial jet aircraft, spare or separate engines and related
rotable parts ("aircraft") and leasing such aircraft to domestic and foreign
airlines and freight carriers. The general partner is Airlease Management
Services, Inc., a wholly owned subsidiary of USL Capital Corporation ("USL
Capital"). United States Airlease Holding, Inc. ("Holding"), an affiliate of
the general partner, holds 1,025,000 units. An additional 3,600,000 units
are publicly held.
BASIS OF PRESENTATION - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FINANCE LEASES - Lease agreements, under which the partnership recovers
substantially all its investment from the minimum lease payments are accounted
for as finance leases. At lease commencement, the partnership records the
lease receivable, estimated residual value of the leased
A-7
<PAGE> 37
aircraft, and unearned lease income. The original unearned income is equal to
the receivable plus the residual value less the cost of the aircraft (including
the acquisition fee paid to an affiliate of the general partner). The
remaining unearned income is recognized as revenue over the lease terms so as
to approximate a level rate of return on the investment.
OPERATING LEASES - Leases that do not meet the criteria for finance leases are
accounted for as operating leases. The partnership's undivided interests in
aircraft subject to operating leases are recorded at cost which includes
acquisition fees paid to an affiliate of the general partner. Aircraft are
depreciated over the related lease terms, generally five to nine years on a
straight-line basis to an estimated residual value, or over their useful lives
for aircraft held for lease or sale, on a straight- line basis to an estimated
salvage value.
NET INCOME PER LIMITED PARTNERSHIP UNIT is computed by dividing the net income
allocated to the limited partners by the weighted average units outstanding
(4,625,000).
CONCENTRATION OF CREDIT RISK - At December 31, 1995, all fifteen aircraft
owned by the partnership (either directly or through joint ventures) were
leased to commercial airlines and a major freight carrier.
2. FINANCE LEASES
The partnership owns five aircraft which are leased to USAir, Inc. The lessee
is required to pay a substantial additional amount if it does not renew the
lease for three years at the end of the initial 12-year term (1998);
accordingly, the lease is accounted for as a 15-year lease. In 1995, 1994, and
1993, leases with USAir, Inc. resulted in finance lease revenues of $8,007,000,
$8,409,000, and $8,768,000, respectively.
A sixth aircraft subject to a finance lease expiring in 2002 is held jointly
with USL Capital and leased to Trans World Airlines.
In April 1993, the partnership leased two aircraft held jointly with USL
Capital (which were previously off-lease) to FedEx under a 13-year finance
lease which expires in 2006. In September 1993, the partnership exchanged its
50% interest in the two aircraft for a 100% ownership interest in one aircraft.
No gain or loss was recognized on this exchange.
The finance leases at December 31, 1995 and 1994, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Receivable in installments $92,183 $103,771
Residual valuation 41,950 41,950
Unearned lease income (42,569) (52,024)
------- -------
NET INVESTMENT $91,564 $93,697
======= =======
</TABLE>
Residual valuation, which is reviewed annually, represents the estimated amount
to be received from the disposition of aircraft after lease termination. If
necessary, residual adjustments are made which result in an immediate charge to
earnings and/or a reduction in earnings over the remaining term of the lease.
Finance lease receivables at December 31, 1995, are due in installments of
$17,307,000 in 1996, $14,348,000 annually through 1999, and $31,832,000
thereafter.
A-8
<PAGE> 38
3. OPERATING LEASES
The partnership, jointly with USL Capital and PS Group, Inc., owns an undivided
1/3 interest in six aircraft, subject to an operating lease with Continental
Airlines. A seventh aircraft was damaged and declared a casualty loss in July
1995 which resulted in a net gain of $21,000. Operating lease revenues to the
partnership were $1,347,500 in 1995 and $1,470,000 each in 1994 and 1993.
In April 1992, the partnership, jointly with USL Capital, purchased an
individual 50% interest in one aircraft for $8,526,000, and placed it on lease
to Finnair OY for a seven-year term. Finnair resulted in operating lease
revenues to the partnership of $1,197,000 in 1995 and 1994.
In December 1994, the partnership leased one aircraft held jointly with USL
Capital (which was previously off lease) to Sun Jet International, Inc. under a
three-year operating lease which expires in 1997, and resulted in operating
lease revenues to the partnership of $339,000 in 1995 and $14,000 in 1994.
The operating leases at December 31, 1995 and 1994, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Leased aircraft (at cost) $27,492 $29,830
Accumulated depreciation (17,344) (17,200)
Rentals receivable 111 223
------- -------
NET INVESTMENT $10,259 $12,853
======= =======
</TABLE>
Future minimum rentals on operating leases at December 31, 1995, are due in
installments of $2,685,000 in 1996, $1,396,000 in 1997, $1,077,000 in 1998 and
$269,000 in 1999.
During 1995 and 1994, the partnership incurred capital expenditures of $66,000
and $668,000, respectively, for repair work on the DC-9-51 aircraft.
4. NOTES RECEIVABLE
At December 1995 and 1994, the partnership had outstanding notes receivable of
$933,000 and $673,000, respectively, from Continental Airlines for certain
aircraft modifications pursuant to the restructured lease agreement on the
aircraft.
The weighted average interest rate at December 31, 1995 and 1994, was 11.11%
and 10.81%, respectively, and the principal is due in subsequent years as
follows: 1996, $691,000; 1997, $65,000; 1998, $73,000; 1999, $81,000, and
$14,000 thereafter.
5. LONG-TERM NOTES PAYABLE
At December 31, 1995 and 1994, the partnership had outstanding borrowings of
$13,059,000 and $15,828,000, respectively, under an 8.75% note payable through
September 30, 1998. The note is collateralized by three of the aircraft leased
to USAir, Inc. under a finance lease with no other recourse to the partnership.
A-9
<PAGE> 39
The partnership has a non-recourse revolving variable interest rate loan
facility which is collateralized by one of the aircraft leased to USAir, Inc.
The partnership may borrow up to $7,178,000 which amount declines through 1998.
At December 31, 1995 and 1994, $7,381,000 and $6,836,000 were outstanding,
respectively. The partnership has entered into an interest rate swap agreement
which effectively fixes the interest rate at 7.36% on substantially all the
borrowing through November 1998. See Note 6.
In April 1993, the partnership entered into a non-recourse revolving declining
loan agreement collateralized by the 50% interest in the aircraft leased to
Finnair OY. Borrowings under this facility will bear interest at LIBOR plus
2.5%. The partnership has entered into an interest-rate cap agreement which
caps the LIBOR rate at 8.5%. At December 31, 1995, $2,910,000 was available
under this facility, and this amount declines through 1998. At December 31,
1995 and December 1994, $575,000 and $0 were outstanding, respectively.
In November 1993, the partnership entered into a non-recourse fixed interest
rate loan facility collateralized by its 100% interest in the aircraft leased
to FedEx. At December 31, 1995 and 1994, $6,467,000 and $6,861,000,
respectively, were outstanding under a 7.4% note payable through 2006.
Based upon amounts outstanding at December 31, 1995, the minimum future
principal payments on all outstanding long-term notes payable are due as
follows (in thousands):
<TABLE>
<S> <C>
1996 $ 7,202
1997 6,639
1998 8,543
1999 529
2000 568
Thereafter 4,002
-------
TOTAL $27,483
=======
</TABLE>
6. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements involve the exchange of interest obligations on
fixed and floating interest rate debt without the exchange of the underlying
principal amounts. The agreements generally mature at the time the related
debt matures. The differential paid or received on interest rate swap
agreements is recognized as an adjustment to interest expense over the life of
the agreements. Notional amounts are used to express the volume of interest
rate swap agreements. The notional amounts do not represent cash flows and are
not subject to risk of loss. In the unlikely event that a counterparty fails to
meet the terms of an interest rate swap agreement, the partnership's exposure
is the termination value of the contracts. At December 31, 1995, the
partnership had one interest rate swap agreement outstanding, which was in a
payable position, with a notional principal amount of $5,990,000 and a
termination value of $208,000.
Under interest rate cap agreements, the partnership pays a premium for the
right to receive interest in excess of the capped rates. At December 31, 1995,
the partnership had one interest rate cap agreement with a notional principal
amount of $2,910,000 and a termination value of $0.
A-10
<PAGE> 40
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents carrying amounts and fair values of the
partnership's financial instruments at December 31, 1995. The fair value of a
financial instrument is defined as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
<TABLE>
<CAPTION>
1995
(In thousands) Carrying Amount Fair Value
--------------- ----------
<S> <C> <C>
Notes receivable (Note 4) $ 933 $ 958
Long-term debt (Note 5) $27,483 $27,602
Derivatives relating to debt (Note 6)
Interest rate swaps-net pay position n/a $ (208)
Interest rate caps n/a 0
</TABLE>
The carrying amounts presented in the table are included in the balance sheet
under the indicated captions.
The following notes summarize the major methods and assumption used in
estimating the fair values of financial instruments:
NOTES RECEIVABLE are estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
LONG-TERM DEBT is estimated by discounting the future cash flows using
assumed rates that would be charged to the partnership for debt with
similar terms and remaining maturities.
DERIVATIVES are estimated as the amount that the partnership would receive
or pay to terminate the agreements at the reporting date, taking into
account current market interest rates and corresponding borrowing spreads.
8. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
In accordance with the Agreement of Limited Partnership, the general partner
and its affiliates receive expense reimbursement, fees and other compensation
for services provided to the partnership.
Amounts earned by the general partner and affiliates for the years ended
December 31, 1995, 1994, and 1993, were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Management fees $718 $735 $744
Disposition and remarketing fees 66 65 0
Reimbursement of other costs 79 79 72
Reimbursement of interest costs 15 39 14
---- ---- ----
TOTAL $878 $918 $830
==== ==== ====
</TABLE>
A-11
<PAGE> 41
The general partner was allocated its 1% share of the partnership net income
and cash distributions. Holding, a limited partner and an affiliate of the
general partner, was also allocated its share of income and cash distributions.
9. FEDERAL INCOME TAX STATUS
The partnership is considered a publicly traded partnership ("PTP") under the
Revenue Act of 1987 and therefore will be subject to Federal income tax on any
taxable income at regular corporate rates beginning in 1998. At that time the
partners would no longer be entitled to take into account their distributive
shares of deductions, income or credits, and would be subject to tax on their
share of dividends to the extent distributed (1) out of current or accumulated
earnings and profits or (2) as a return of capital in excess of their tax
basis.
The partnership has seven aircraft on finance leases which expire after 1997.
The partnership's use of different accounting methods for income tax and
financial statement purposes, which may cause the partnership's taxable income
to exceed financial statement income for years subsequent to 1997 by an
estimated $70 million, would result in tax liabilities at the partnership level
of approximately $28 million based upon current tax rates. The partnership is
considering several tax planning strategies including the sale of the aircraft
prior to 1998. These strategies may have the effect of accelerating the
recognition of taxable income to years before 1998. Such taxable income would
then be allocated to the partners and not taxed at the partnership level. In
January 1993, the partnership adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes.". This standard requires
income taxes to be recorded on the liability method. This accounting change
did not have a material effect on the partnership.
10. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The USAir aircraft were purchased subject to a tax benefit transfer lease
("TBT") which provided for the transfer of Federal income tax ownership of the
USAir aircraft to a tax lessor until 1991. The transfer was accomplished by
the sale, for tax purposes only, of the aircraft to the tax lessor for cash and
a note and a leaseback of the aircraft for rental payments which equalled the
payments on the note. The rental payments resulted in tax deductions and the
interest was included in taxable income. In 1991, the TBT lease agreement
terminated and the tax attributes transferred under the TBT lease reverted to
the partnership.
The difference between the method of accounting for income tax reporting and
the method of accounting used in the accompanying financial statements are as
follows (in thousands except per unit amounts):
A-12
<PAGE> 42
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements: $ 6,822 $ 6,331 $ 6,083
Increases (decreases) resulting from
Casualty gain 109 - -
Lease rents less earned finance lease income 5,207 4,530 3,480
Depreciation and amortization (7,949) (6,577) (10,303)
----------------------------------
Income (loss) per income tax method 4,189 4,284 (740)
Allocable to general partner (42) (43) (7)
----------------------------------
TAXABLE INCOME (LOSS) ALLOCABLE TO LIMITED PARTNERS $ 4,147 $ 4,241 $ (733)
Taxable income (loss) per limited partnership unit after giving
effect to taxable income allocable to general partner (amount
based on a unit owned from October 10, 1986) $ 0.90 $ 0.92 $ (0.16)
Partner's equity per financial statements $ 71,712 $ 74,562 $ 76,874
Increases (decreases) resulting from
Casualty gain 109 - -
Lease rents less earned finance lease income 28,273 23,066 18,536
Deferred underwriting discounts and commissions
and organization costs 5,351 5,351 5,351
Accumulated depreciation and amortization (45,089) (37,140) (30,563)
TBT interest income less TBT rental expense (54,030) (54,030) (54,030)
----------------------------------
PARTNERS' EQUITY PER INCOME TAX METHOD $ 6,326 $ 11,809 $ 16,168
</TABLE>
A-13
<PAGE> 43
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1995 and 1994 (in thousands, except per unit amounts):
<TABLE>
<CAPTION>
1995 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ---- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Total Revenues $ 3,103 $ 3,221 $ 3,179 $ 3,010
Net Income $ 1,656 $ 1,793 $ 1,725 $ 1,648
Net Income Per Limited Partnership Unit $ 0.35 $ 0.38 $ 0.37 $ 0.36
Unit Trading Data:
Unit Prices (high-low) on NYSE $15 - $13 3/8 $16 - $14 $18 - $15 1/8 $17 7/8 - $16 1/4
Unit Trading Volumes on NYSE 236 338 284 213
</TABLE>
<TABLE>
<CAPTION>
1994 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ---- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Total Revenues $ 3,191 $ 3,194 $ 3,180 $ 2,973
Net Income $ 1,663 $ 1,675 $ 1,621 $ 1,372
Net Income Per Limited Partnership Unit $ 0.36 $ 0.36 $ 0.35 $ 0.29
Unit Trading Data:
Unit Prices (high-low) on NYSE $16 1/8 - $15 1/4 $16 7/8 - $14 3/4 $17 - $15 1/2 $16 1/8 - $10 7/8
Unit Trading Volumes on NYSE 430 297 219 475
</TABLE>
A-14
<PAGE> 44
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
---------- ----------------------------
<S> <C>
3.5 Amendments to Amended and Restated Partnership Agreement.
4.2 Loan and Security Agreement dated as of March 20, 1987
between Meridian Trust Company, as Trustee, as Borrower
and The World Wing Company Limited, as Lender.
4.3 8.75% Secured Non-recourse Note of Meridian Trust Company
dated March 31, 1987 in favor of The World Wing Company
Limited.
4.4 Instructions and Consent Agreement dated as of March 31,
1987 between the Registrant and The World Wing Company
Limited.
10.9 Lease Agreement dated as of November 6, 1986, between GATX,
as lessor and NYA, as lessee, with respect to aircraft
N7379F.
10.17 Trust Agreement dated as of December 30, 1986, with
respect to aircraft N7379F together with related trust
certificate.
10.40 Trust Agreement dated as of August 15, 1988, between
Trust Company for USL, Inc., as Trustee, United States
Airlease, Inc., and the Registrant, with respect to
aircraft N913TW.
10.45 Trust Agreement dated as of July 27, 1993 among Airlease
Ltd., A California Limited Partnership, as Owner
Participant, United States Leasing International, Inc.,
as Agent, and Trust Company for USL, Inc. as Trustee,
with respect to one (1) Boeing 727-204 Aircraft with FAA
Registration No. N362PA leased to Federal Express
Corporation.
27. Financial Data Schedule.
</TABLE>
A-15
<PAGE> 1
Exhibit 3.5
1. PROPOSED AMENDMENT TO MAKE CERTAIN CHANCES IN THE
MANNER IN WHICH PARTNERSHIP INVESTMENTS ARE MADE.
Section 3.5(A)-(C) of the Partnership Agreement is amended and restated in
full as follows and a new Section (D) is added to Section 3-5 to read as
follows:
3.5 Participation in Aircraft Investment with Affiliates.
(A) So long as Airlease Management Services, Inc. or another Related
Entity is the General, Partner, the Partnership may only make Aircraft leasing
investments offered to it in accordance with this Section.
(B) Until September 30, 1991, the General Partner and Airlease hereby
agree to offer the Partnership the right to acquire a 50% participation interest
in all Aircraft leasing investments to be made by any Related Entity where the
aggregate Aircraft Cost in such investment is greater than $10 million. The
Partnership shall acquire such interest subject to the determination by the
General Partner that the investment is suitable for the Partnership. If, after
allocating an investment in accordance with the first two sentences above, the
total investment made by Related Entities (including through their interest in
the Partnership either as a General Partner or a Limited Partner) would exceed
U.S. Leasing's then existing credit policy regarding maximum permissible
investment for a single lessee, the General Partner and Airlease shall offer
and, subject to a determination of suitability, the Partnership shall accept an
additional participation interest in an amount necessary to reduce the total
investment by Related Entities to an amount in compliance with U.S. Leasing's
credit policy. Any offer required to be made by this subsection (i) is only
required to be made at the time of the commitment (but may be made at a later
time in the sole discretion of the General Partner or Airlease) to enter into
the transaction and (ii) must be accepted by the Partnership at the time that
the offer is made. Notwithstanding anything in this paragraph (B) to the
contrary, if the Aircraft leasing investment to be made by Airlease or any
Related Entity is a leveraged lease, as defined in Statement of Financial
Accounting Standards No. 13, then Airlease may, in its discretion, decline to
offer the Partnership a participation interest in such investment.
(C) After September 30, 1991, neither the General Partner nor Airlease
shall be under any obligation to offer the Partnership any investment
opportunities. However, the General Partner and Airlease may continue to offer
investment opportunities to the Partnership, and the Partnership shall accept
opportunities deemed suitable by the General Partner, provided one or more
Related Entities makes at least 20% (including the interest in the Partnership
then owned by the General Partner and all Related Entities) of the total
investment made by Related Entities and the Partnership in such transactions.
(D) Notwithstanding anything in paragraphs (A), (B) or (C) of this
Section 3.5 to the contrary, the Partnership may make Aircraft leasing
investments in which Related Entities do not participate (i) where the
investment committee of the board of directors of U.S. Leasing determines that
such investment would cause U.S. Leasing or the affiliated group with which it
files consolidated federal income tax returns to forego current utilization of
foreign tax credits or would increase their foreign assets, or (ii) where the
investment is in an Aircraft which is subject to a tax benefit transfer lease
under the safe harbor lease rules enacted under the Economic Recovery Tax Act of
1981, or (iii) where the Aircraft investment is made by the Partnership after or
in anticipation of the disposition of the Partnership's interest in another
Aircraft in which a Related Entity does not or did not have an interest, and the
board of directors of the General Partner determines that such new Aircraft
investment is for the purpose of replacing the Partnership's interest in such
other Aircraft.
Page 5 of 7
<PAGE> 2
2. PROPOSED AMENDMENT GIVING THE GENERAL PARTNER DISCRETION
REGARDING DISTRIBUTION OF CERTAIN SALES PROCEEDS.
Section 10.3 of the Partnership Agreement is amended and restated in
full as follows:
10.3 Distributions of Cash Available From Sale or Refinancing.
(A) Deleted.
(B) Through December 31, 2004, any Cash Available From Sale or
Refinancing may, at the discretion of the General Partner, be retained for use
in the Partnership's business.
(C) After December 31, 2004, subject to Section 3.3(B)(2), any Cash
Available From Sale or Refinancing shall be distributed 99% of the Unitholders
and 1 % to the General Partner.
(D) Cash Available From Sale or Refinancing shall be distributed at
such time as the General Partner in its discretion may determine to the holders
of record on the first business day in the month during which such sale or
refinancing occurs, unless a different Record Date is determined by the General
Partner.
3. PROPOSED AMENDMENT TO CLARIFY THE MANNER IN WHICH THE
PARTICIPATION IN AN INVESTMENT BY THE PARTNERSHIP
AND A RELATED ENTITY IS DETERMINED.
Section 3.5 is amended by adding a new Section (E) thereto to read in
full as follows:
(E) For purposes of this Section 3.5, a 50% participation interest in
an Aircraft leasing investment by the Partnership and a Related Entity shall
include, in the case of two Similar Aircraft, the acquisition of one Similar
Aircraft by the Partnership and one Similar Aircraft by a Related Entity. As
used herein, a Similar Aircraft shall mean substantially similar aircraft leased
to the same lessee pursuant to substantially similar leases and acquired by the
Partnership or a Related Entity at a substantially Similar Aircraft Cost (the
difference not to exceed 5% of the lesser Aircraft Cost), all as determined by
the General Partner at the time of acquisition.
Page 6 of 7
<PAGE> 3
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF AIRLEASE LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
Section 9.4(A) of the Partnership Agreement is hereby amended to read in full as
follows:
(A) Except as otherwise provided herein, the General Partner shall, in
its sole discretion, determine whether to make any available election
under the Code. The General Partner shall, in the Partnership's 1988
tax year, make the election under Section 754 of the Code in accordance
with applicable regulations thereunder to cause the basis of
Partnership Assets to be adjusted for Federal income tax purposes as
provided by Sections 734 and 743 of the Code. In making Section 754
elections, the General Partner is authorized to make simplifying
assumptions for computational purposes, in its sole discretion. Such
election may also be made, in the General Partner's discretion, for the
reconstituted Partnership upon any termination of the Partnership
pursuant to Section 708 of the Code. The General Partner shall elect to
deduct expenses incurred in organizing the Partnership ratably over a
60-month period as provided in Section 709 of the Code.
Page 7 of 7
<PAGE> 1
Exhibit 4.2
================================================================================
LOAN AND SECURITY AGREEMENT
dated as of March 20, 1987
between
MERIDIAN TRUST COMPANY, as Trustee,
as Borrower
and
THE WORLD WING COMPANY LIMITED,
as Lender
Three McDonnell Douglas DC-9 - Series 80 Airframes
Six Pratt & Whitney JT8D-217 Turbofan Engines
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Loan and Security Agreement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Loan and Security Agreement.............................................. 1
Granting Clause.......................................................... 2
ARTICLE I
Definitions
Section 1.01. Certain Definitions.................................... 6
Section 1.02. Terms Defined in the Lease............................. 10
Article II
The Note
Section 2.01. Form of Note........................................... 10
Section 2.02. Terms of Note.......................................... 17
Section 2.03. Payment From Collateral Only........................... 17
Section 2.04. Method of Payment; Payments on
Non-Business Days........................... 17
Section 2.05. Application of Payments to
Principal Amount, Interest
and Prepayment Premium...................... 18
Section 2.06. Termination of Interest in
Collateral.................................. 18
Section 2.07. Transfer of Notes...................................... 18
Section 2.08. Mutilated, Destroyed, Lost or
Stolen Note................................. 18
Section 2.09. Payment of Transfer Taxes.............................. 19
Section 2.10. Prepayments............................................ 19
Section 2.11. Prepayment Premium..................................... 21
Section 2.12. United States Withholding Taxes........................ 21
Article III
Receipt, Distribution and Application of
Income From the Collateral
Section 3.01. Payments Under Loan and Security
Agreement................................... 22
Section 3.02. Payments for Loss or Terminated
Aircraft.................................... 22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 3.03. Payments After Loan Default.............................. 23
Section 3.04. Other Payments........................................... 24
Section 3.05. Distribution to Airlease................................. 24
Section 3.06. Distribution of Excepted Property........................ 24
Article IV
Remedies of Lender Upon a Loan Default
Section 4.01. Loan Defaults............................................ 24
Section 4.02. Remedies with Respect to
Mortgaged Property............................ 26
Section 4.03. Return of Aircraft, etc.................................. 27
Section 4.04. Right To Cure Certain Events of Default.................. 28
Section 4.05. Rights of Lessee......................................... 29
Section 4.06. Waiver of Borrower....................................... 29
Article V
Additional Duties
Section 5.01. Action Upon Loan Default................................. 30
Section 5.02. Actions by Lender........................................ 30
Section 5.03. Indemnification.......................................... 31
Section 5.04. No Duties Except as Specified
in Loan and Security Agreement.................. 31
Section 5.05. Replacement Aircraft, Airframes
and Engines..................................... 31
Section 5.06. Replacements After Default............................... 31
Section 5.07. Documents for Replacements............................... 32
Section 5.08. Effect of Replacements................................... 32
Article VI
Borrower
Section 6.01. Acceptance of Trust and Duties........................... 32
Section 6.02. Absence of Duties........................................ 33
Section 6.03. No Representations or Warranties
as to the Aircraft.............................. 33
Section 6.04. [Reserved]............................................... 34
Section 6.05. Reliance; Agents; Advice of
Counsel......................................... 34
Section 6.06. Not Acting in Individual Capacity........................ 34
Section 6.07. No Compensation From Lender or
Collateral...................................... 34
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Article VII
Indemnification of Lender
Section 7.01. Scope of Indemnification................................. 35
Article VIII
Successor Borrower
Section 8.01. Notice of Successor Borrower............................. 35
Section 8.02. Resignation of Borrower;
Appointment of Successor........................ 35
Article IX
Supplements and Amendments to this Loan
and Security Agreement and Other Documents
Section 9.01. Consent of Lender; Limitations........................... 36
Section 9.02. Lender Protected......................................... 36
Section 9.03. Amendment to Loan and Security
Agreement....................................... 36
Article X
Representations and Warranties
of Lender
Section 10.01. Representations and Warranties of
Lender.......................................... 36
Section 10.02. Covenants of Lender...................................... 37
Article XI
Representations and Warranties
of Borrower............................. 37
Article XII
Conditions Precedent to Borrower's
obligations.............................. 39
Article XIII
Conditions Precedent to Funding.................... 39
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Article XIV
Other Covenants
Section 14.01. Other Covenants........................................... 43
Section 14.02. Borrower's Citizenship.................................... 44
Article XV
Miscellaneous
Section 15.01. Termination of Loan and Security
Agreement........................................ 45
Section 15.02. Sale of Aircraft by Lender Is
Binding.......................................... 45
Section 15.03. Remedies Cumulative....................................... 45
Section 15.04. Discontinuance of Proceeding.............................. 45
Section 15.05. Loan and Security Agreement and
Note for Benefit of Lender, Holders
of Note, Borrower, Airlease
and Lessee Only.................................. 46
Section 15.06. Notices................................................... 46
Section 15.07. Severability.............................................. 48
Section 15.08. Separate Counterparts..................................... 48
Section 15.09. Successors and Assigns.................................... 48
Section 15.10. Headings.................................................. 49
Section 15.11. Governing Law............................................. 49
Exhibit A
</TABLE>
iv
<PAGE> 6
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of March 20, 1987,
by and between MERIDIAN TRUST COMPANY, a trust company organized under the laws
of the Commonwealth of Pennsylvania, not in its individual capacity except as
provided herein, but solely as trustee under that certain Trust Agreement (as
hereinafter defined) and any successor appointed in accordance with the terms
hereof and of the Trust Agreement (herein in such capacity called the
"Borrower"), and THE WORLD WING COMPANY LIMITED, a corporation formed and
existing under the laws of the Bahamas ("Lender");
W I T N E S S E T H:
Whereas Borrower and Airlease Ltd., A California Limited
Partnership ("Airlease") entered into the Trust Agreement whereby, among other
things, (i) Borrower established a certain trust for the use and benefit of
Airlease, (ii) provision was made for the payment by Borrower to Airlease of
amounts distributable to Airlease thereunder and (iii) Borrower is directed and
authorized to take any action as Airlease may request through written
instructions; and
Whereas Borrower, PSA (as hereinafter defined), Airlease and
PSA, Inc. (as hereinafter defined), entered into that certain Purchase Agreement
(as hereinafter defined) whereby Borrower acquired all right, title and interest
in and to the Aircraft (as hereinafter defined); and
Whereas Borrower has leased the Aircraft to Lessee (as
hereinafter defined) pursuant to that certain Lease (as hereinafter defined);
and
Whereas the Aircraft are subject to the terms and conditions
of that certain TBT Lease (as hereinafter defined); and
Whereas Lender has agreed to lend to Borrower, subject to the
terms and conditions hereof, and Borrower desires to borrow from Lender
thirty-six million dollars ($36,000,000); and
Whereas to induce Lender to enter into this Loan and Security
Agreement and the transactions contemplated hereby, Borrower shall grant to
Lender a security interest in all of Borrower's right, title and interest in and
to the Collateral (as hereinafter defined) to secure the obligations of
Borrower:
N o w, T h e r e f o r e, in consideration of the premises and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned parties hereto agree as follows:
1
<PAGE> 7
GRANTING CLAUSE
A. To secure the prompt payment of the principal of and
interest and Prepayment Premium, if any, on the Note and all other amounts
payable hereunder and the performance and observance by Borrower of all the
agreements, covenants and provisions herein for the benefit of Lender, and for
the uses and purposes and subject to the terms and provisions hereof, and in
consideration of the acceptance of the Note by Lender, Borrower does hereby
assign, transfer, pledge, grant and confirm, unto Lender, its successors and
assigns, a security, interest in and lien on all right, title and interest of
Borrower in and to the following (other than Excepted Property) (all such
property other than Excepted Property being referred to as "Collateral"):
(1) the Lease, including, without limitation, all amounts of
Basic Rent, Supplemental Rent, insurance proceeds and other payments of any kind
for or with respect to the Aircraft, Airframes, Engines and Parts and the right
to make all waivers, amendments and agreements, to give and receive duplicate
copies of all notices and other instruments or communications, to take such
action upon the occurrence of a Default or an Event of Default, including the
commencements conduct and consummation of legal, administrative or other
proceedings, as shall be permitted by the Lease or by law, and to do any and all
other things whatsoever which Borrower or any lessor is or may be entitled to do
under the Lease;
(2) the Aircraft, Airframes, Engines and Parts whether now
owned by Borrower or hereafter acquired, leased or intended to be leased under
the Lease, and in the case of such Engines, whether or not any such Engine shall
be installed in or attached to the Airframe or any other airframe, together with
all substitutions, renewals and replacements of and additions, improvements,
accessions, accumulations, modifications and alterations to the Airframe and
Engines;
(3) all the estate, right, title and interest of Borrower in
and to the Assignment Agreement;
(4) all the estate, right, title and interest of Airlease and
Borrower in and to the Purchase Agreement;
(5) all estate, right, title and interest of Borrower in and
to the TBT Note and the TBT Lease; and
(6) all Proceeds of the foregoing.
The term "Proceeds" shall include, without limitation, all accounts, chattel
paper, deposit accounts, instruments, equipment (excluding motor vehicles),
inventory, documents, general intangibles and other proceeds which arise from
the sale, lease, transfer or other use or disposition of any kind of any
collateral or proceeds and all proceeds of any, type
2
<PAGE> 8
described above acquired with cash proceeds. The words used herein have the
meaning specified in the California Uniform Commercial Code.
B. It is expressly agreed that anything herein contained to
the contrary notwithstanding, Borrower shall remain liable under the Lease, TBT
Lease, the Purchase Agreement and the Assignment Agreement to perform all of the
obligations, if any, assumed by it thereunder, all in accordance with and
pursuant to the terms and provisions thereof, and Lender shall have no
obligation or liability in respect of any such obligations under the Lease, the
Purchase Agreement, the Assignment Agreement and the TBT Lease by reason of or
arising out of this assignment, nor shall Lender be required or obligated in any
manner to perform or fulfill any obligations of either Borrower or Airlease
under or pursuant to the Lease, the Purchase Agreement, the Assignment Agreement
or the TBT Lease or, except as herein expressly provided, to make any payment,
or to make any inquiry as to the nature or sufficiency of any payment received
by it, or present or file any claim, or take any action to collect or enforce
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
C. Notwithstanding this Granting Clause or any of the
preceding paragraphs, there is hereby excluded from the foregoing sale,
transfer, assignment, grant, pledge and security interest all Excepted Property.
D. Borrower hereby constitutes and appoints Lender the true
and lawful attorney of Borrower, irrevocably, with an interest and full power
(in the name of Borrower or otherwise) to (i) ask, require, demand, receive and
compound any and all Basic Rent, Supplemental Rent, insurance proceeds and any
other monies and claims for money due and to become due under or arising out of
the Lease, to endorse any checks or other instruments or orders in connection
therewith, and to ask, demand, require and receive all rights to the property,
rights, interests granted to Borrower and Airlease pursuant to the terms of the
Purchase Agreement, the Assignment Agreement, the TBT Note and TBT Lease, and
(ii) without limiting the provisions of the foregoing clause (i) hereof, during
the continuance of any Loan Default, except as provided in Section 4.04 hereof,
to sue for, compound and give acquittance for, to settle, adjust or compromise
any claim for any and all such Rents, income and other sums and any and all
other rights which are assigned under this Granting Clause as fully as Borrower
could itself do, to accept any offer of Lessee to purchase the Aircraft,
Airframes, Engines or Parts as provided in the Lease and upon any purchase to
execute and deliver in the name of and on behalf of Borrower an appropriate bill
of sale and other instruments of transfer relating to the Aircraft, Airframes,
Engines or Parts, when purchased by Lessee in accordance with the Lease, and to
perform all other necessary or appropriate acts with respect to any such
purchase, and in its discretion to file any claims or take any action or
institute any proceedings which Lender may deem to be necessary or advisable in
the performance of its duties hereunder, all to the extent provided in this Loan
and Security Agreement.
E. Airlease has the right, power and authority under the Trust
Agreement to cause Borrower to grant a lien on and security interest in the
Aircraft, Airframes,
3
<PAGE> 9
Engines, Parts, Lease, Assignment Agreement, Purchase Agreement, TBT Lease and
TBT Note to Lender for the uses and purposes herein set forth; and Borrower has
the right, power and authority under the Trust Agreement to grant a lien on and
security interest in the Aircraft, Airframes, Engines, Parts, Lease, Assignment
Agreement, Purchase Agreement, TBT Lease and TBT Note to Lender for the uses and
purposes herein set forth. Borrower will warrant and defend such lien and
security interest in the Collateral against all Lessor's Liens (as hereinafter
defined). Borrower warrants that there is no financing statement or other filed
or recorded instrument in which Borrower is named as debtor now on file in any
public office covering any of the Collateral, except the financing statements or
other instruments filed or to be filed in respect of and for the lien and
security interest provided for herein.
F. Borrower agrees that at any time and from time to time,
upon the written request of Lender, Borrower will promptly and duly execute and
deliver any and all such further instruments and documents as Lender may deem
desirable in obtaining the full benefits of this assignment and of the rights
and powers herein granted.
G. Borrower will not without the prior written consent of
Lender:
(a) declare a default or exercise any remedies under, or
terminate, modify or accept a surrender of, or offer or agree to any
termination, modification or surrender of, any Assigned Agreement (except as
otherwise expressly provided herein) or by affirmative act consent to the
creation or existence of any security interest or other Lien (other than the
security interest and Lien of this Loan and Security Agreement) to secure
payment of indebtedness upon the leasehold estate created by the Lease or any
part thereof, or upon any of Borrower's rights under the Assignment Agreement,
Purchase Agreement, TBT Note and TBT Lease; or
(b) receive or collect or permit the receipt or collection of
any Rent or any other payment to be Made pursuant to the Lease to be made to
Borrower prior to the date for the payment thereof provided for by the Lease or
assign, transfer or hypothecate (other than to Lender hereunder) (except as
otherwise expressly provided herein or in the Instructions and Consent
Agreement) any Rent or any other payment to be made pursuant to the Lease, then
due or to accrue in the future under the Lease; or
(c) sell, mortgage, transfer, assign or hypothecate (other
than to Lender hereunder) (except as otherwise expressly provided herein or in
the Instructions and Consent Agreement) its interest in the Aircraft, Airframes,
Engines, Parts or any part thereof or in any amount to be received by it from
the use or disposition of the Aircraft, Airframes, Engines or Parts; or
(d) sell, mortgage, transfer, assign or hypothecate (other
than to Lender hereunder) (except as otherwise expressly provided herein or in
the Instructions and Consent Agreement) Borrower's interest in the Assignment
Agreement, Purchase Agreement, TBT Note and TBT Lease.
4
<PAGE> 10
Notwithstanding any other provision of this Loan and Security
Agreement, (a) unless and until a Loan Default shall have occurred and be
continuing, all rights, powers, authorizations, approvals, privileges, benefits,
notices and consents under or with respect to the Assigned Agreements,
including, without limitation, the right to give waivers, consents and
approvals, shall be exercised or given, as the case may be, by the Borrower,
with the prior written consent of the Lender, which shall not be unreasonably
withheld (Lender hereby agreeing to respond promptly to any request therefor by
Borrower), provided that no consent shall be required for the exercise of
rights, powers, privileges and notices of an administrative nature, and (b)
after a Loan Default under Section 4.01(a) has occurred and is continuing when
no other Loan Default (excepting an Event of Default) has occurred and is
continuing:
(i) Lender shall not enter into any modification, waiver or
amendment to the Lease the effect or result of which is to extend the Term of
the Lease, or alter the amount of any Rent or alter the terms and provisions of
the Lease, or exercise or enforce any other of its rights and remedies under the
Lease, prior to the expiration of the period during which Borrower may cure said
default pursuant to Section 4.04, and
(ii) in the event Borrower shall make the payments set forth
in the first sentence of Section 4.04, then, subject to the conditions set forth
below, Borrower shall be entitled, to the exclusion of Lender, notwithstanding
the existence of one or more other Events of Default, to exercise in good faith
having due regard for the interests of Lender, all of the remedies of the lessor
under the Lease, including without limitation, the right to declare the Lease in
default under Article 18 thereof, to terminate the Lease with Lessee, and to
re-lease the Aircraft pursuant to a lease reasonably satisfactory in form and
substance to Lender to one or more successive third party lessees each of which
shall be an air carrier certificated by the Federal Aviation Administration and
be capable of maintaining the Aircraft pursuant to a maintenance program
reasonably satisfactory to Lender, and each of which lessee or lessees shall be
approved in writing by Lender.
Borrower's right to exercise the foregoing rights and powers
is conditional upon (1) there being no existing Loan Default other than under
Section 4.01(a) and (2) compliance by Borrower or a third party lessee approved
by Lender pursuant to the preceding paragraph with all requirements of the
Lease, to the extent that noncompliance could have a material adverse affect on
the value of the Collateral including, without limitation, Section 6.05
(maintenance) and Sections 12.01 and 12.02 (insurance) of the Lease.
Notwithstanding the foregoing, Lender reserves the right to
call the Note pursuant to Section 2.10 (a) (iv).
ARTICLE I
DEFINITIONS
5
<PAGE> 11
Section 1.01. Certain Definitions. For all purposes of this
Loan and Security Agreement, the following terms shall have the meanings set
forth below (such definitions to be equally applicable to both the singular and
plural forms of the terms defined):
"Agent" means Management when acting as agent for Borrower.
"Aircraft" means (i) each of the Airframes delivered and
leased under the Lease (or any replacement thereto), together with the Engines
initially delivered and leased therewith under the Lease (or any replacement or
substitution thereto), whether or not any of such initial or substituted Engines
may from time to time be installed on such Airframe or may be installed on any
other airframe or on any other aircraft, and (ii) any aircraft which may from
time to time be substituted or be a replacement or addition in accordance with
the terms of this Loan and Security Agreement for any such Aircraft. Except as
otherwise set forth herein, at such time as a replacement Aircraft shall be so
substituted and the Aircraft for which the substitution is made shall be
released from the Lien of this Loan and Security Agreement, such replaced
Aircraft shall cease to be an Aircraft hereunder. The term "Aircraft" also
means, as of any date of determination if the context so requires, all Aircraft
then leased under the Lease or in accordance with the terms of this Loan and
Security Agreement and, if the context so requires, the Aircraft Records
applicable to any Aircraft.
"Airframe" means (i) each of the used McDonnell Douglas DC-9
Series 80 Aircraft designated in Lease Supplements Numbers 3, 4, and 5 (except
the Engines and engines from time to time installed on an Airframe) leased under
the Lease to Lessee and having the manufacturer's serial numbers 48040, 48041,
and 48042 and the FAA registration numbers N932PS, N933PS and N934PS, (ii) any
airframe which may from time to time be substituted or be a replacement or
addition in accordance with the terms of the Lease or this Loan and Security
Agreement for any such Airframe, and (iii) any and all Parts so long as the same
shall be incorporated or installed in or attached to an Airframe, or so long as
title thereto shall remain vested in Borrower in accordance with the terms of
the Lease. "Airframe" also means, as of any date of determination, if the
context so requires, all Airframes then leased under the Lease. Except as
otherwise set forth herein, at such time as a replacement Airframe shall be so
substituted and the Airframe for which the substitution is made shall be
released from the Lien of this Loan and Security Agreement, such replaced
Airframe shall cease to be an Airframe hereunder.
"Airlease" means Airlease Ltd., A California Limited
Partnership, of which Management is managing general partner.
"Assigned Agreements" shall mean and include the Lease, the
Purchase Agreement, the Assignment Agreement, the TBT Lease and the TBT Note.
6
<PAGE> 12
"Assignment Agreement" means that certain Assignment Agreement
No. 1 dated as of March 31, 1987 by and between Airlease and Borrower.
"Borrower" means Meridian Trust Company, a trust company
organized under the laws of the Commonwealth of Pennsylvania, not in its
individual capacity, except as otherwise expressly provided herein, but solely
as trustee under the Trust Agreement, and its successors and permitted assigns
in accordance with the provisions of the Trust Agreement and this Loan and
Security Agreement.
"Code" means the United States Internal Revenue Code of 1986.
"Collateral" is defined in the Granting Clause hereof.
"Consent Agreement" shall mean that certain consent of PSA,
dated as of March 31, 1987.
"Default" shall mean any event which with a lapse of time or
giving of notice, or both, would constitute an Event of Default.
"Engine" means (i) each of the Pratt & Whitney JTBD-217
engines leased under the Lease to Lessee and having manufacturer's serial
numbers P708117D, P708118D, P708115D, P708116D, P708113D and P708114D (each of
which engine has 750 or more rated takeoff horsepower or the equivalent of such
horsepower), whether or not from time to time installed on any Airframe or
installed on any other airframe or on any other aircraft (ii) any engine which
may from time to time be substituted or be a replacement or addition in
accordance with the terms of the Lease or this Loan and Security Agreement for
any such Engine, and (iii) any and all Parts incorporated or installed in or
attached thereto or any and all Parts removed therefrom so long as title thereto
shall remain vested in Borrower in accordance with the terms of the Lease after
removal from such Engine. Except as otherwise set forth in the Lease, at such
time as an Engine shall be so substituted or replaced and the Engine for which
the substitution or replacement is made shall be released from the Lien of this
Loan and Security Agreement, such replaced Engine shall cease to be an Engine
hereunder. An aircraft engine which is not an Engine, but which is installed on
an Aircraft, shall not be subject to the Lien of this Loan and Security
Agreement except with respect to the rights, if any, of the Borrower relating
thereto. The term "Engines" means, as of any date of determination if the
context so requires, all Engines then leased under the Lease.
"Event of Default" shall mean each of the events constituting
an "Event of Default" under Article 17 of the Lease.
"Excepted Property" shall mean (i) all rights of Airlease and
Borrower to public liability insurance maintained by Lessee pursuant to Article
12 of the Lease and public liability insurance proceeds payable pursuant thereto
as a result of public liability insurance claims paid or losses suffered by
Airlease or Borrower, (ii) proceeds of insurance
7
<PAGE> 13
separately maintained by and for the benefit of Borrower, Airlease or Lessee, so
long as the separate maintenance of such insurance does not reduce the coverage
or any amount payable under any insurance constituting part of the Collateral,
(iii) any indemnity under Articles 10 and 13 and, to the extent Lender suffers
no loss, Section 21.02 of the Lease which by their terms are payable to the
account of Airlease or Borrower, or their respective officers and employees,
whether or not included within the definition of Supplemental Rent, (iv) any
indemnity under Section 13(a) and 13(b) of the Purchase Agreement, and (v) the
rights of Airlease and Borrower to demand, collect and sue for any of the
foregoing amounts provided that in no event shall the rights referred to in this
definition of Excepted Property be deemed to include the exercise of any rights
or remedies provided for in Article 18 of the Lease.
"IBM" shall mean International Business Machines Corporation,
a New York corporation, its successors and permitted assigns in accordance with
the provisions of the TBT Lease and this Loan and Security Agreement.
"IBM Consent Agreement" shall mean that certain Notice and
Agreement Regarding Lessee's Interest in Safe Harbor Lease dated as of March 31,
1987 among Lender, Borrower, Airlease, PSA and IBM.
"Instructions and Consent Agreement" shall mean that certain
Instructions and Consent Agreement between Airlease and Lender dated as of March
31, 1987.
"Lease" shall mean that certain Amended and Restated Lease
Agreement No. 1 relating to the Aircraft dated as of March 31, 1987 between
Borrower and Lessee, as said Lease Agreement may from time to time be
supplemented or amended. The term "Lease" shall also include Lease Supplement
Nos. 3, 4 and 5, evidencing delivery and acceptance of the Aircraft under the
Lease pursuant to the terms of the Lease.
"Lender" shall mean The World Wing Company Limited, a
corporation formed and existing under the laws of the Bahamas, and its
successors and assigns hereunder.
"Loan and Security Agreement" shall mean this Loan and
Security Agreement as it may from time to time be supplemented or amended as
herein provided.
"Loan Default" shall mean any event or condition described in
Section 4.01 hereof.
"Loan Value" of each Aircraft shall mean twelve million
dollars ($12,000,000) less any principal payments deducted from such Loan Value
during the term of the Note. Principal payments shall (contemporaneously with
their payment to Lender) be deducted from the Loan Values of each Aircraft on an
equal basis, except that any principal payment made on the termination of the
Lease as to any Aircraft pursuant to
8
<PAGE> 14
Sections 11.01 or 11.03(A) of the Lease shall be allocated solely to the payment
of the Loan Value of the Aircraft as to which the Event of Loss has occurred.
"Management" shall mean Airlease Management Services, Inc., a
Delaware corporation.
"Mortgaged Property" shall have the meaning specified in
Section 4.02 hereof.
"Note" shall mean the certificate, substantially in the form
set forth in Section 2.01 hereof, issued by Borrower to Lender pursuant to
Article II hereof in the principal amount, bearing interest at the rate and
payable as to principal, interest and Prepayment Premium, if any, as provided in
such Article II and secured as provided in the Granting Clause, and shall
include any certificate issued in exchange therefor or in replacement thereof
pursuant to Section 2.07 or 2.08 hereof. The term "Note" shall also mean, as of
any date of determination if the context so requires, all Notes issued by
Borrower pursuant to this Loan and Security Agreement then outstanding.
"Parts" shall mean any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, seats and other equipment of whatever
nature (other than complete Engines or engines), which (a) are from time to time
incorporated or installed in or attached to an Airframe or Engines, or (b)
having been so installed or attached, are later removed therefrom, so long as
title thereto remains vested in Borrower in accordance with Article 9 of the
Lease after such removal from an Airframe or Engines. "Part" means any one of
the Parts.
"Prepayment Premium" shall have the meaning specified in
Section 2.11 hereof.
"Prorated Portion of the Note" shall mean that portion of the
outstanding principal amount of the Note equal to the Loan Value of the Aircraft
as to which an Event of Loss has occurred.
"PSA" shall mean Pacific Southwest Airlines, a California
corporation.
"PSA, Inc." shall mean PS Group Inc., a Delaware corporation.
"Purchase Agreement" shall mean that certain Purchase
Agreement dated as of July 10, 1986 among Borrower, as purchaser, PSA, as
seller, Airlease and PSA, Inc., as it may be amended from time to time, solely
to the extent such agreement relates to the Aircraft, Airframe, Engines and
Parts.
"TBT Lease" shall mean that certain Transfer and Lease
Agreement dated as of November 12, 1981 between IBM, as lessor, and PSA, as
lessee, as it may be
9
<PAGE> 15
amended from time to time, solely to the extent such lease relates to the
Aircraft, Airframes, Engines and Parts.
"TBT Note" shall mean that certain Nonrecourse Promissory Note
dated November 12, 1981 in the original principal amount of $75,768,673.40 by
IBM to Borrower, solely to the extent such note relates to the Aircraft,
Airframes, Engines and Parts.
"Term" means, collectively, the Basic Term and any Renewal
Term unless sooner terminated in accordance with the provisions of the Lease.
"Trust Agreement" means that certain Trust Agreement dated as
of July 10, 1986, as the same has been supplemented by Trust Agreement
Supplements Nos. 3, 4 and 5 and may be supplemented or amended from time to
time, solely to the extent such agreement relates to the Aircraft, Airframes,
Engines, Parts and the Assigned Agreements.
Section 1.02. Terms Defined in the Lease. For all purposes of
this Loan and Security Agreement, the following terns shall have the meanings
specified in the Lease: "Aircraft Records," "Basic Rent," "Business Day," "Event
of Loss," "Lease Supplement," "Lessee," " Liens," "Lien," "Person," "Rent,"
"Stipulated Loss Value," "Supplemental Rent" and "Termination Payment."
ARTICLE II
THE NOTE
Section 2.01. Form of Note. The Note shall be substantially in
the form set forth below:
8.75% SECURED NOTE
(Secured by Lease Obligations of
Pacific Southwest Airlines, the Aircraft,
Airframes, Engines and Parts,
the Purchase Agreement, the Assignment
Agreement, the TBT Note and the TBT Lease)
Issued in Connection with the Aircraft containing Airframes
having manufacturer's serial numbers 48040, 48041 and 48042 and FAA registration
numbers N932PS, N933PS and N934PS.
No. ________________ San Francisco, California
$36,000,000 _______________ 1987
10
<PAGE> 16
Meridian Trust Company, a trust company organized under the laws of the
Commonwealth of Pennsylvania, not in its individual capacity, but solely as
trustee under the Trust Agreement, hereby promises to pay to The World Wing
Company Limited, or its registered assigns, the principal sum of $36,000,000 in
lawful currency of the United States of America, in quarterly installments
commencing June 30, 1987 payable on the last day of each March, June, September
and December of each year thereafter to and including September 30, 1998, each
such installment to be in an amount corresponding to the percentage of the
original principal amount hereof payable on such payment date and based upon the
amortization schedule attached hereto as Exhibit A, together with interest from
and including the date hereof until such principal sum is due and payable,
payable on June 30, 1987 and the last day of each March, June, September and
December thereafter to the maturity date hereof at an interest rate of 8.75% per
annum (computed on the basis of a 360-day year of 12 30-day months), and to pay
interest at the rate of 10-1/2% per annum (computed on the same basis) on any
overdue principal and (to the extent permitted by applicable law) overdue
interest from the due date thereof until paid, payable on demand, all pursuant
to the terms of the Loan and Security Agreement referred to below.
All payments of principal and interest to be made hereunder
and under the Loan and Security Agreement dated as of March 20, 1987 (herein
called the "Loan and Security Agreement", the defined terms therein not
otherwise defined herein being used herein with the same meanings) between
Borrower and Lender shall be made only from the income and proceeds from the
Lease and the security interests in the Aircraft, Airframes, Engines, Parts, the
Purchase Agreement, the Assignment Agreement, the TBT Note and the TBT Lease and
only to the extent of Borrower's and Airlease's interest thereto, except for
Excepted Property. Each holder hereof agrees that it will look solely to the
income and proceeds from the Lease and the security interests described above to
the extent available for distribution to the holder hereof as provided in the
Loan and Security Agreement, that this Note shall be nonrecourse to Airlease and
Borrower, and that Airlease and Borrower shall not be personally liable to the
holder hereof for any amount payable under this Note or the Loan and Security
Agreement.
Payments with respect to the principal amount hereof and
interest and Prepayment Premium, if any, thereon shall be payable in U.S.
dollars in immediately available funds in such manner as the registered owner of
the Note may direct pursuant to Section 2.04 of the Loan and Security Agreement.
Each such payment shall be made on the date such payment is due and without any
presentment or surrender of this Note. Whenever the date scheduled for any
payment to be made hereunder or under the Loan and Security Agreement shall not
be a Business Day, then such payment need not be made on such scheduled date but
shall be made on the next succeeding Business Day with the same force and effect
as if made on such scheduled date and (provided such payment is made on such
next succeeding Business Day) no interest shall accrue on the amount of such
payment from and after such scheduled date to the time of such payment on such
next succeeding Business Day. If, however, the next succeeding Business Day
shall be two or more days after the scheduled date of payment, such payment
shall be made on the
11
<PAGE> 17
immediately preceding Business Day of the scheduled payment date, provided no
adjustment of interest shall be made due to such early payment.
Each holder hereof, by its acceptance of this Note, agrees
that each payment received by it hereunder shall be applied, first, to the
payment of accrued interest on this Note to the date of such payment, second, to
the payment of the unpaid principal amount of this Note then due, and third to
the payment of any Prepayment Premium, if any, on this Note then due. The
balance, if any, remaining thereafter shall be applied to the payment of the
installment or installments of principal next becoming due on the Note.
This Note is issued by Borrower pursuant to the terms of the
Loan and Security Agreement. The Collateral is held by Lender as security for
the Note. The rights of Borrower under the Loan and Security Agreement in and to
the Collateral are subject and subordinate to the rights of the holder of this
Note to the extent provided for in the Loan and Security Agreement. Reference is
hereby made to the Loan and Security Agreement for a statement of the rights of
the holder of, and the nature and extent of the security for, this Note and the
rights of Airlease and Borrower (including the right of Borrower under certain
circumstances stated therein to prepay the Note) to all of which terms and
conditions in the Loan and Security Agreement each holder hereof agrees by its
acceptance of this Note.
This Note is not subject to prepayment except as provided in
Section 2.10 of the Loan and Security Agreement. Without limiting the foregoing,
the holder hereof agrees to surrender this Note for a new Note pursuant to
Section 2.08 of the Loan and Security Agreement.
This Note is a registered Note and is transferable, as
provided in the Loan and Security Agreement, only upon surrender of this Note
for registration of transfer duly endorsed by, or accompanied by a written
statement of transfer duly executed by, the registered holder hereof or his
attorney duly authorized in writing. Prior to the due presentation for
registration of transfer of this Note, Borrower may deem and treat the
registered holder of this Note as the Absolute owner and holder hereof for the
purpose of receiving payment of all amounts payable with respect hereto and for
all other purposes and shall not be affected by any notice to the contrary.
Unless the certificate of authentication hereon has been
executed by or on behalf of Borrower by manual signature, this Note shall not be
entitled to any benefit under the Loan and Security Agreement or be valid or
obligatory for any purpose.
12
<PAGE> 18
IN WITNESS WHEREOF, Borrower has caused this Note to be
executed by one of its authorized officers as of the date hereof.
MERIDIAN TRUST COMPANY, not in its
individual capacity, but solely as trustee
By _______________________________________
Its ___________________________
13
<PAGE> 19
[FORM OF BORROWER'S CERTIFICATE OF AUTHENTICATION]
This is the Note referred to in the within-mentioned Loan and
Security Agreement.
MERIDIAN TRUST COMPANY, not in its
individual capacity, but solely as trustee
By _______________________________________
Authorized Officer
14
<PAGE> 20
EXHIBIT A
<TABLE>
<CAPTION>
Payment Beginning
Date Balance Payment Interest Principal
---- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
57,461,221 21,461,221 36,000,000
0 03/31/87 36,000,000
1 06/30/87 36,000,000 1,249,157 787,500 461,657
2 09/30/87 35,538,343 1,249,157 777,401 471,756
3 12/31/87 35,066,587 1,249,157 767,082 482,075
4 03/31/88 34,584,512 1,249,157 756,536 492,621
5 06/30/88 34,091,891 1,249,157 745,760 503,397
6 09/30/88 33,588,494 1,249,157 734,748 514,409
7 12/31/88 33,074,086 1,249,157 723,496 525,661
8 03/31/89 32,548,424 1,249,157 711,997 537,160
9 06/30/89 32,011,264 1,249,157 700,246 548,911
10 09/30/89 31,462,354 1,249,157 688,239 560,918
11 12/31/89 30,901,436 1,249,157 675,969 573,188
12 03/31/90 30,328,248 1,249,157 663,430 585,727
13 06/30/90 29,742,521 1,249,157 650,618 598,539
14 09/30/90 29,143,982 1,249,157 637,525 611,632
15 12/31/90 28,532,349 1,249,157 624,145 625,012
16 03/31/91 27,907,337 1,249,157 610,473 638,684
17 06/30/91 27,268,653 1,249,157 596,502 652,655
18 09/30/91 26,615,998 1,249,157 582,225 666,932
19 12/31/91 25,949,066 1,249,157 567,636 681,521
20 03/31/92 25,267,545 1,249,157 552,728 696,429
21 06/30/92 24,571,116 1,249,157 537,493 711,664
22 09/30/92 23,859,452 1,249,157 521,926 727,231
23 12/31/92 23,132,220 1,249,157 506,017 743,140
24 03/31/93 22,389,081 1,249,157 489,761 759,396
25 06/30/93 21,629,685 1,249,157 473,149 776,008
26 09/30/93 20,853,677 1,249,157 456,174 792,983
27 12/31/93 20,060,695 1,249,157 438,828 810,329
28 03/31/94 19,250,365 1,249,157 421,102 828,055
29 06/30/94 18,422,310 1,249,157 402,988 846,169
30 09/30/94 17,576,141 1,249,157 384,478 864,679
31 12/31/94 16,711,462 1,249,157 365,563 883,594
32 03/31/95 15,827,869 1,249,157 346,235 902,922
33 06/30/95 14,924,946 1,249,157 326,483 922,674
34 09/30/95 14,002,272 1,249,157 306,300 942,857
35 12/31/95 13,059,415 1,249,157 285,675 963,482
36 03/31/96 12,095,933 1,249,157 264,599 984,558
37 06/30/96 11,111,375 1,249,157 243,061 1,006,096
</TABLE>
15
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C>
38 09/30/96 10,105,279 1,249,157 221,053 1,028,104
39 12/31/96 9,077,175 1,249,157 198,563 1,050,594
40 03/31/97 8,026,581 1,249,157 175,581 1,073,576
41 06/30/97 6,953,006 1,249,157 152,097 1,097,060
42 09/30/97 5,855,946 1,249,157 128,099 1,121,058
43 12/31/97 4,734,887 1,249,157 103,576 1,145,581
44 03/31/98 3,589,306 1,249,157 78,516 1,170,641
45 06/30/98 2,418,665 1,249,157 52,908 1,196,249
46 09/30/98 1,222,417 1,249,157 26,740 1,222,417
</TABLE>
Interest rate = 8.75%
Average life = 6.81 years
16
<PAGE> 22
Section 2.02. Terms of Note.
(a) There shall be issued and delivered to Lender one Note in
connection with the funding under this Loan and Security Agreement duly
authenticated by Borrower and dated as of March 31, 1987. The Note issued to
Lender shall be in an aggregate principal amount equal to thirty-six million
dollars ($36,000,000). The principal amount of, Prepayment Premium, if any, and
interest on this Note shall be payable as set forth in the form thereof
contained in Article II hereof.
(b) No Note shall be entitled to any benefit under this Loan
and Security Agreement or be valid or obligatory for any purpose, unless it
shall have been authenticated by or on behalf of Borrower by manual signature.
Section 2.03. Payment From Collateral Only. All payments to be
made on the Note and under this Loan and Security Agreement shall be made only
from the income and the proceeds from the Collateral and, with respect to the
Lease, only to the extent that Borrower shall have received sufficient income or
proceeds from Lessee to make such payments in accordance with the terms of
Article 11 hereof. Lender, by its acceptance of such Note, agrees that it will
look solely to the income and proceeds from the Collateral to the extent
available for distribution as herein provided and that neither Airlease,
Borrower, PSA nor PSA, Inc. are nor shall be personally liable to Lender for any
amount payable under such Note or this Loan and Security Agreement.
Section 2.04. Method of Payment; Payments on Non-Business
Days.
(a) The principal of, interest on and Prepayment Premium, if
any, on the Note will be payable in U.S. dollars. Notwithstanding the foregoing
or any provision in the Note to the contrary, Borrower will pay, or cause to be
paid, if so requested by Lender by written notice to Borrower, all amounts
payable by Borrower hereunder to Lender or a nominee therefor (including all
amounts distributed pursuant to Article IV of this Loan and Security Agreement)
either (i) by transferring by wire in immediately available funds to an account
maintained by such holder with a bank in the United States or Japan the amount
to be distributed to Lender or (ii) by mailing a check denominated in U.S.
dollars to Lender at such address as Lender shall have specified in such notice,
in any case without any presentment or surrender of the Note. In the event that
Lender-requests that payments be made by wire transfer, immediately available
funds shall be transferred to Lender no later than close of business San
Francisco time on the date that payment is due.
(b) Whenever the date scheduled for any payment to be made
hereunder or under the Note shall not be a Business Day, then such payment need
not be made on such scheduled date but shall be made on the next succeeding
Business Day with the same force and effect as if made on such scheduled date
and (provided such payment is made on such next succeeding Business Day) no
interest shall accrue on the amount of such payment from and after such
scheduled date to the time of such payment on such next succeeding
17
<PAGE> 23
Business Day. If the next succeeding Business Day shall be two or more days
after the scheduled payment date, such payment shall be made on the immediately
preceding Business Day of the scheduled payment date, provided no adjustment of
interest shall be made due to such early payment.
Section 2.05. Application of Payments to Principal Amount,
Interest and Prepayment Premium. Each payment on the Note shall be applied,
first, to the payment of accrued but unpaid interest on the Note then due
thereunder and second, to the payment of the unpaid principal amount of the Note
then due thereunder and, third, to the payment of any, Prepayment Premium then
due. The balance, if any, remaining thereafter shall be applied to the payment
of the installment or installments of principal next becoming due on the Note.
Section 2.06. Termination of Interest in Collateral. Lender
shall have no further interest in, or other right with respect to, the
Collateral when and if the principal amount of, interest and any Prepayment
Premium, if any, on the Note and all other sums payable to Lender hereunder and
under the Note shall have been paid in full.
Section 2.07. Transfer of Notes. Management, as Agent, shall
maintain at its offices in San Mateo, California, a register for the purpose of
registering transfers and exchanges of the Note. The holder of the Note
intending to transfer such Note to a new payee, or to exchange any Note held by
it for a Note or Notes of a different denomination or denominations, and, in the
case of a surrender for the registration of transfer, may surrender such Note to
Agent at its corporate office, together with a written request from such holder
for the issuance of a new Note or Notes, specifying the denomination or
denominations of the same, and the name and address of the transferee or
transferees. Promptly upon receipt of such documents, Agent will issue and
authenticate a new Note or Notes in the same aggregate principal amount and
dated the same date as the Note surrendered, and payable to such payee as shall
be specified in the written request from such holder. Any Note issued upon any
registration of transfer or exchange of a Note shall be the valid obligation of
Borrower evidencing the same obligations, and entitled to the same security and
benefits under this Loan and Security Agreement, as the Note surrendered upon
such registration of transfer or exchange. Agent shall make a notation on each
new Note of the amount of all payments or prepayments of principal and interest
previously made on the old Note with respect to which such new Note is issued.
From time to time, Agent will provide Lessee with such information as it may
request as to the registered holder of the Note. Agent shall not be required to
exchange any surrendered Note as above provided during the 10-day period
preceding the due date of any payment on such Note.
Prior to the due presentment for registration of transfer of a
Note, Borrower and Agent may deem and treat the registered holder of such Note
as the absolute owner and holder of the Note for the purpose of receiving
payment of all amounts payable with respect to the Note and for all other
purposes and shall not be affected by any notice to the contrary.
18
<PAGE> 24
Agent will promptly notify Airlease and Lessee of each request
for a registration of transfer of a Note.
Section 2.08. Mutilated, Destroyed, Lost or Stolen Note. If
the Note shall become mutilated, destroyed, lost or stolen, Agent shall, upon
the written request of the holder of such Note, issue, authenticate and deliver
in replacement thereof, a new Note, payable to the same holder in the same
principal amount and dated the same date as the Note so mutilated, destroyed,
lost or stolen. If the Note being replaced has become mutilated, such Note shall
be surrendered to Agent. If the Note being replaced has been destroyed, lost or
stolen, the holder of such Note shall furnish to Agent such security or
indemnity as may be required by it to save Agent harmless and evidence
satisfactory to Agent of the destruction, loss or theft of such Note and of the
ownership thereof. If Lender or its affiliate or nominee is the owner of any
destroyed, lost or stolen Note then the affidavit of its president, vice
president, assistant vice president, cashier, assistant cashier, secretary or
assistant secretary in form reasonably satisfactory to Agent setting forth the
fact of destruction, loss or theft and Lender's or such affiliate's or nominee's
ownership of the Note at the time of such destruction, loss or theft shall be
accepted as satisfactory evidence thereof and no indemnity shall be required as
a condition to execution and delivery of a new Note other than the written
agreement of Lender or such affiliate or nominee, in form reasonably
satisfactory to Agent, to indemnify Agent from all risks resulting from the
authentication and delivery of the substitute Note.
Agent will promptly cancel the Note surrendered for transfer,
exchange or replacement pursuant to Section 2.07 hereof or this Section.
In the event Agent fails to perform any of its duties set
forth in Sections 2.07 and 2.08 hereof, Borrower will perform those duties or
otherwise cause such duties to be performed.
Section 2.09. Payment of Transfer Taxes. Upon the transfer of
any Note pursuant to Section 2.07 hereof, Borrower may require from the party
requesting such new Note payment of a sum to reimburse Borrower for, or to
provide funds for the payment of, any tax or other governmental charge in
connection herewith.
Section 2.10. Prepayments. No prepayment of the Note may be
made except to the extent and in the manner expressly permitted by this Loan and
Security Agreement. Every prepayment of the Note required to be made pursuant to
Section 3.02 shall be made in accordance with the provisions of this Section
2.10.
(a) Mandatory Prepayments.
(i) On the date of termination of the Lease as to any Aircraft
pursuant to Sections 11.01 and 11.03(A) thereof, the Prorated Portion of the
Note shall become due and payable and shall be prepaid at a price, in addition
to any other amounts payable to
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Lender under this Loan and Security Agreement or the Lease, equal to the unpaid
principal amount of the Prorated Portion of the Note together with all accrued
interest on such Prorated Portion of the Note and Prepayment Premium, if any,
thereon to the date of prepayment.
(ii) If an Event of Default has occurred and is continuing and
Borrower has not cured said Event of Default, Lender must call for prepayment by
Borrower (no later than one (1) year after the date such Event of Default shall
have occurred and continued) of the Note, and the Note shall become due and
payable and shall be prepaid at a price, in addition to any other amounts
payable to Lender under this Loan and Security Agreement or the Lease, equal to
the unpaid principal amount thereof together with all accrued interest and
Prepayment Premium, if any, thereon to the date of prepayment.
(iii) In the event that Lessee shall elect to terminate the
Lease pursuant to Section 20.04 of the Lease, then and in such event the Note
shall become due and payable on the date of termination of the Lease pursuant to
said Section 20.04 of the Lease, and shall be prepaid at a price, in addition to
any other amounts payable to Lender under this Loan and Security Agreement or
the Lease, equal to the unpaid principal amount thereof together with all
accrued interest and Prepayment Premium, if any, thereon to the date of
prepayment.
(iv) If an Event of Default has occurred and is continuing and
no other Loan Default (other than an Event of Default) shall have occurred and
be continuing, Borrower may exercise any remedy under Article 18 of the Lease as
provided in the portion of the Granting Clause following Paragraph G hereof, but
should Lender six months after such Event of Default shall have initially
occurred deem itself insecure as a result of said actions taken by Borrower,
then and in such event the Note shall become due and payable on the date Lender
shall elect to accelerate the payment on the Note, and shall be prepaid at a
price, in addition to any other amounts payable to Lender under this Loan and
Security Agreement or the Lease, equal to the unpaid principal amount thereof
together with all accrued interest and Prepayment Premium, if any, thereon to
the date of prepayment.
(b) Optional Prepayments.
(i) At any time a Loan Default under Section 4.01(a) has
occurred and is continuing, Borrower may effect a redemption of the Note, and
the Note shall become due and payable and shall be prepaid at a price, in
addition to any other amounts payable to Lender under this Loan and Security
Agreement or the Lease, equal to the unpaid principal amount thereof together
with all accrued interest and Prepayment Premium, if any, thereon to the date of
prepayment.
(ii) Provided Lender complies with the requirements of Section
881(c)(2)(B)(ii) of the Code, (x) all payments of principal, interest and
Prepayment Premium, if any, payable to Lender under this Loan and Security
Agreement and the Note shall be payable net of and after payment of all United
States withholding taxes; and (y)
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should any such payment be made subject to United States withholding taxes,
Borrower agrees to pay to Lender such additional amounts as may be necessary to
ensure that Lender receives a net amount equal to the full amount which it would
have been entitled to receive had payment not been made subject to such United
States withholding taxes, whether or not such taxes are covered by Section 7.01.
If any or all of the payments to be made on the Note become subject to United
States withholding taxes, Borrower may effect a redemption of the Note and the
Note shall become due and payable and shall be prepaid at a price, in addition
to any other amounts payable to Lender under this Loan and Security Agreement or
the Lease, equal to the unpaid principal amount thereof together with all
accrued interest and Prepayment Premium, if any, thereon to the date of
prepayment.
(c) Notice of Prepayment. Borrower shall give prompt written
notice of any prepayment of the Note to Lender and Lessee as soon as Borrower
shall have actual knowledge that such prepayment is to occur, which notice shall
specify the principal amount of the Note to be prepaid, the date of prepayment
and the section or sections of this Loan and Security Agreement or of the Lease
under which the prepayment is to be made. Such notice of prepayment shall also
certify all facts which are conditions precedent to any such prepayment and
shall be accompanied by any certificate or other instruments required by the
Lease.
Section 2.11. Prepayment Premium. Any prepayment of the Note
for whatsoever reason is subject to the Prepayment Premium as defined herein.
The Prepayment Premium shall be equal to the aggregate of the present values,
discounted at each applicable Treasury Yield, of the Earnings Difference (stated
as a percentage) applied to each Prepaid Installment of the Note. "Earnings
Difference" for each Prepaid Installment of the Note is defined as the interest
rate on the Note (i.e., 8.75%) less the applicable Treasury Yield as applied to
such Prepaid Installment of the Note. Each "Prepaid Installment" of the Note
shall be determined to be that principal amount of the Note being prepaid which
would have been paid on each payment date under the amortization schedule
originally contemplated (as set forth in Exhibit A hereto). The applicable
"Treasury Yield" for each Prepaid Installment of the Note means the interest
rate on a United States Treasury Note purchasable by Lender at the time of the
prepayment of the Note, the term of which shall be equal, as nearly as possible,
to the period commencing on such date of prepayment and ending on the payment
date for such Prepaid Installment of the Note. If the aggregate amount
determined as set forth above is less than zero ($O), then Borrower may subtract
from the amount of the prepayment such aggregate amount.
Section 2.12. United States Withholding Taxes. As further
discussed in and subject to Section 2.10(b)(ii) above, Borrower shall withhold
and deduct from all payments made under this Loan and Security Agreement and the
Note all requisite withholding and other taxes payable pursuant to the laws of
the United States and shall provide evidence thereof to Lender to enable Lender
to file all requisite tax returns with respect thereof, including, but not
limited to, the United States withholding taxes payable on interest
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payments made to Lender where such income is not effectively connected with the
conduct of a United States trade or business.
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION
OF INCOME FROM THE COLLATERAL
Section 3.01. Payments Under Loan and Security Agreement.
(a) Basic Rent Distribution. Except as otherwise provided in
Section 3.03 hereof, each installment of Basic Rent as well as any installment
of interest on overdue installments of Basic Rent, and any other monies paid
over to Borrower for such purposes, shall be distributed as promptly as possible
(it being understood that any payments of Basic Rent received by Borrower on a
timely basis and in accordance with the provisions of Section 4.01 of the Lease
shall be distributed on the date received in the funds so received) in the
following order of priority: first, so much of such installment as shall be
required for the purpose shall be distributed and paid to Lender to pay in full
the aggregate amount of the payment or payments of principal and interest (as
well as any interest on overdue principal or interest (to the extent permitted
by applicable law)) then due; second, so much of such payment or amount as shall
be required to reimburse Borrower for any reasonable fees or expenses not
otherwise paid or reimbursed by Airlease as to which Borrower is entitled to be
paid or reimbursed pursuant to Section 5.01 of the Trust Agreement; and third,
the balance, if any, of such installment remaining thereafter shall be
distributed to Airlease. Each such installment distributed to Lender shall be
applied by Lender in payment of such Note in accordance with the terms of
Section 2.05 hereof.
(b) Supplemental Rent Distribution. Except as otherwise
provided in Section 3.03 hereof, the amounts, if any, from time to time received
by Borrower which constitute payments of Supplemental Rent pursuant to Section
4.02 of the Lease (other than Stipulated Loss Value payments and Termination
Payments) shall be paid to or upon the order of the Person owed the same.
Section 3.02. Payments for Lost or Terminated Aircraft.
(a) Except as otherwise provided in Section 3.02(b) and
Section 3.03 hereof, any amount received or receivable pursuant to Article 11 of
the Lease with respect to the Aircraft shall in each case be distributed and
paid in the following order of priority; first, to the Lessee to the extent
required by the Lease; second, in the manner provided in clause "first" of
Section 3.03 hereof; third, so much of such amount remaining as shall be
required to pay in full the aggregate unpaid principal amount of the Prorated
Portion of the Note plus the accrued but unpaid interest on such Prorated
Portion of the Note and Prepayment Premium, if any, on such Note to the date of
distribution, shall be distributed to Lender; fourth, so much of such amount as
shall be required to reimburse the Borrower for any expenses not reimbursed by
the Lessee in
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connection with the collection or distribution of such amount shall be applied
in reimbursement of such expenses; and fifth, in the manner provided in clause
"fourth" of Section 3.03 hereof.
(b) Except as otherwise provided in Section 3.03 hereof, any
amounts received directly or through Lessee from any governmental authority or
other party pursuant to Sections 11.02, 11.03(B) and 11.04 of the Lease with
respect to the Airframe or the Airframe and the Engines or engines then
installed on the Airframe, to the extent that such amounts are not at the time
required to be paid to Lessee pursuant to said Sections 11.02, 11.03(B) or
11.04, and any amounts of insurance proceeds for damage to the Aircraft,
Airframes, Engines or Parts received directly or through Lessee from any insurer
pursuant to Article 12 of the Lease with respect thereto as the result of an
Event of Loss, to the extent such amounts are not at the time required to be
paid to Lessee pursuant to said Article 12, shall (unless Lessee has agreed to
enter into a lease supplement pursuant to the terms of this Loan and Security
Agreement and the Lease for the substitution or replacement of the Aircraft,
Airframe or Engine subject to the Event of Loss), except as otherwise provided
in the next sentence, be applied in reduction of Lessee's obligation to pay
Stipulated Loss Value payments and Termination Payments as provided in the
Lease. Any portion of any such amount referred to in the preceding sentence
which is not required to be so paid to Lessee pursuant to the Lease, solely
because a Default or an Event of Default shall have occurred, shall be held by
Borrower as security for the obligations of Lessee under the Lease and at such
time as there shall not be continuing any Default or Event of Default, such
portion shall be paid to Lessee, unless Borrower shall have theretofore declared
the Lease to be in default pursuant to Article 18 thereof, in which event such
portion shall be distributed forthwith upon such declaration in accordance with
the provisions of Section 3.03 hereof.
Section 3.03. Payments After Loan Default. Subject only to the
provision clause of this Section 3.03, all payments received and amounts (other
than Excepted Property) realized by Borrower after a Loan Default shall have
occurred and be continuing, as well as all payments or amounts then held or
thereafter received by Borrower as part of the Collateral while such Loan
Default shall be continuing, shall be distributed forthwith by Borrower in the
following order of priority: first, so much of such payments or amounts as shall
be required to reimburse Lender for costs, expenses and payments made by it or
to pay such amounts payable to it pursuant to the provisions of the Lease or
this Loan and Security Agreement, shall be distributed to Lender; second, so
much of such payments or amounts as shall be required to pay in full the
aggregate unpaid principal amount of the Note, plus the accrued but unpaid
interest and Prepayment Premium, if any, thereon to the date of distribution,
shall be distributed to Lender; third, so much of such payments or amounts as
shall be required to reimburse Borrower for any tax, expense or other loss
incurred by Borrower (to the extent not previously reimbursed and to the extent
incurred in connection with its duties as Borrower); and fourth, the balance, if
any, of such payments or amounts remaining thereafter shall be promptly
distributed to, or as directed by, Airlease or Lessee if due and payable to
Lessee pursuant to the terms of the Lease, or as otherwise provided by law, as
the case may be.
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Section 3.04. Other Payments. Except as otherwise provided in
Sections 3.01, 3.02 and 3.03 hereof,
(a) any payments received by Borrower for which no provision
as to the application thereof is made in the Lease or elsewhere in this Article
III, and
(b) all payments received and amounts realized by Borrower
under the Lease or otherwise with respect to the Aircraft to the extent received
or realized at any time after payment in full of the principal of, interest and
Prepayment Premium, if any, on the Note, as well as any other amounts remaining
as part of the Collateral after payment in full of the principal of, interest
and Prepayment Premium, if any, on the Note issued hereunder, shall be
distributed forthwith by Borrower in the order of priority set forth in Section
3.03 hereof, except that in the case of any payment described in clause (b)
above, such payment shall be distributed omitting clause "second" of such
Section 3.03.
Section 3.05. Distribution to Airlease. All amounts from time
to time distributable under this Loan and Security Agreement by Borrower to
Airlease shall be paid, by Borrower (in such funds as were received by Borrower)
directly to Airlease, or retained by Borrower, in accordance with the provisions
of the Trust Agreement.
Section 3.06. Distribution of Excepted Property. All amounts
constituting Excepted Property received by Borrower shall be paid by Borrower to
the Person or Persons entitled thereto.
ARTICLE IV
REMEDIES OF LENDER
UPON A LOAN DEFAULT
Section 4.01. Loan Defaults. The following events shall
constitute "Loan Defaults" (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(a) an Event of Default (other than an Event of Default by
reason of a default by Lessee to pay any amounts which are part of the Excepted
Property); or
(b) any failure by Airlease to observe or perform any covenant
or obligation under the Instructions and Consent; or
(c) any failure by Borrower, Airlease or IBM to observe or
perform any covenant or obligation under the IBM Consent Agreement; or
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(d) any default by Borrower in making any payment when due of
principal of or interest on the Note and the continuance of such default
unremedied for ten (10) days after the same shall have become due and payable;
or
(e) any failure by Borrower to observe or perform any covenant
or obligation under this Loan and Security Agreement or the Note, if, but only
if, such failure is not remedied within a period of thirty (30) days after there
has been given to Borrower and Lessee by Lender a written notice specifying such
failure and requiring it to be remedied; provided, however, that, to the extent
that obligations of Borrower are also obligations of Lessee under the Lease,
then, to the extent that Lessee performs or observes such obligations under the
Lease, such obligations of Borrower contained in this Loan and Security
Agreement shall be deemed to have been performed or observed and, to the extent
that Lessee is excused from performing or observing such obligations, Borrower
will be likewise excused; or,
(f) any representation or warranty made by Borrower hereunder,
by Airlease under the Instructions and Consent, by PSA under the Consent
Agreement, or by Borrower, PSA, Airlease and IBM under the IBM Consent
Agreement, or by Borrower or Airlease or Management or PSA or IBM in any
document or certificate furnished to Lender in connection herewith or therewith
or pursuant hereto or thereto, shall prove at any time to have been incorrect in
any material respect as of the date made and shall continue to be incorrect for
a period of thirty (30) days after written notice from Lender; or
(g) Borrower or Airlease or Management shall consent to the
appointment of a receiver, trustee or liquidate of itself or of a substantial
part of its property or shall make a general assignment for the benefit of
creditors; or
(h) Borrower or Airlease or Management shall file, or consent
by answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
Jurisdiction; or
(i) an order, judgment or decree shall be entered by any court
of competent jurisdiction appointing, without the consent of Borrower or
Airlease or Management, a receiver, trustee or liquidate of Borrower or Airlease
or Management, or of any substantial part of its property, or granting any order
for relief in respect of Borrower or Airlease or Management under the Federal
bankruptcy laws, and any such order, judgment or decree of appointment shall
remain in force undismissed, unstayed or unvacated for a period of 90 days after
the date of entry thereof; or
(j) a petition against Borrower or Airlease or Management, in
a proceeding under the Federal bankruptcy laws or other insolvency law, as now
or hereafter in effect, shall be filed and shall not be withdrawn or dismissed
within 90 days thereafter, or if, under the provisions of any law providing for
reorganization or winding-up of corporations which may apply to Borrower or
Airlease or Management, any court of
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competent jurisdiction shall assume jurisdiction, custody or control of Borrower
or Airlease or Management or of any substantial part of its property and such
jurisdiction, custody or control shall remain in force unrelinquished, unstaved
or unterminated for a period of 90 days.
Upon the occurrence of any Loan Default and at any time
thereafter so long as the same shall be continuing, Lender may declare the
unpaid principal amount of the Note with accrued interest and Prepayment
Premium, if any, thereon to be due and payable, and at any time thereafter, so
long as Borrower shall not have remedied all outstanding Loan Defaults to the
extent permitted by Section 4.04 hereof, Lender may exercise, and Borrower shall
comply with, the remedies referred to in Sections 4.02, 4.03 and 4.06 hereof
(subject to Section 4.05 hereof). In addition, in the event Lender shall at any
time declare the Lease to be in default pursuant to Article 18 thereof or shall
elect to foreclose or otherwise enforce this Loan and Security Agreement, the
unpaid principal amount of the Note with accrued interest and Prepayment
Premium, if any, thereon shall immediately be accelerated and become due and
payable without further act or notice of any kind.
Section 4.02. Remedies With Respect to Mortgaged Property.
(a) After a Loan Default shall have occurred and so long as
such Loan Default shall be continuing, then and in every such case Lender, as
assignee hereunder of the Lease, Purchase Agreement, Assignment Agreement, TBT
Note and TBT Lease or as mortgagee hereunder of the Aircraft, Airframes, Engines
and Parts or otherwise, may, subject to the rights, if any, of Lessee under the
Lease, and when required pursuant to the provisions of Article IV hereof shall,
exercise subject to Sections 4.04 and 4.05, any or all of the rights and powers
and pursue any and all of the remedies pursuant to Article 18 of the Lease and
this Article IV and may take possession of all or any part of the properties
(herein called the "Mortgaged Property") covered or intended to be covered by
the Lien created hereby or pursuant hereto (in the case of the Aircraft,
Airframes, Engines or Parts after declaring the Lease in default pursuant to
Article 18 of the Lease) and may exclude Borrower and Airlease and all Persons
claiming under any of them wholly or partly therefrom.
(b) Subject to Sections 4.04 and 4.05, Lender may, if at the
time such action may be lawful and always subject to compliance with any
mandatory legal requirements, either with or without taking possession, and
either before or after taking possession, and without instituting any legal
proceedings whatsoever, and having first given notice of such sale by registered
mail to Borrower, Airlease and Lessee once at least thirty days prior to the
date of such sale, and any other notice which may be required by law, sell and
dispose of the Mortgaged Property, or any part thereof, or interest therein, at
public auction or private sale to the highest bidder, in one lot as an entirety
or in separate lots, and either for cash or on credit and on such terms as
Lender may determine, and at any place (whether or not it be the location of the
Mortgaged Property or any part thereof) designated in the notice above referred
to. Any such sale or sales may be adjourned from
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time to time by announcement at the time and place appointed for such sale or
sales, or for any such adjourned sale or sales, without further notice, and
Lender may bid and become the purchaser at any such sale. Borrower hereby
irrevocably constitutes Lender the true and lawful attorney-in-fact of Borrower
(in the name of the Borrower or otherwise) for the purpose of effecting any
sale, assignment, transfer or delivery for enforcement of the Lien of this Loan
and Security Agreement, whether pursuant to foreclosure or power of sale or
otherwise, to execute and deliver all such bills of sale, assignments and other
instruments as Lender may consider necessary or appropriate, with full power of
substitution, Borrower hereby ratifying and confirming all that such attorney or
any substitute shall lawfully do by virtue hereof. Nevertheless, if so requested
by Lender or any purchaser, Borrower shall ratify and confirm any such sales
assignment, transfer or delivery, by executing and delivering to Lender or such
purchaser all bills of sale, assignments, releases and other proper instruments
to effect such ratification and confirmation as may be designated in any such
request. If, pursuant to applicable law, prior notice of any such sale is
required to be given to Borrower, Borrower hereby acknowledges that the minimum
time required by such applicable law, or if no minimum is specified, ten
Business Days, shall be deemed a reasonable notice period.
(c) Subject to Sections 2.03, 4.04 and 4.05, Lender may
proceed to protect and enforce this Loan and Security Agreement and the Note by
suit or suits or proceedings in equity, at law or in bankruptcy, and whether for
the specific performance of any covenant or agreement herein contained or in
execution or aid of any power herein granted; or for foreclosure hereunder, or
for the appointment of a receiver or receivers for the Mortgaged Property or any
part thereof, or for the recovery of judgment for the indebtedness secured by
the Lien of this Loan and Security Agreement or for the enforcement of any other
proper legal or equitable remedy available under applicable law.
Section 4.03. Return of Aircraft, etc. Subject to Sections
4.02, 4.04 and 4.05, in case one or more of the Loan Defaults shall have
occurred and be continuing, then, in every such case, Lender may take possession
of all or any part of the Mortgaged Property and may exclude Borrower and
Airlease and all Persons claiming under any of them wholly or partly therefrom.
At the request of Lender, Borrower shall promptly execute and deliver to Lender
such instruments of title and other documents as Lender may deem necessary or
advisable to enable Lender or an agent or representative designated by Lender,
at such time or times and place or places as Lender may specify, to obtain
possession of all or any part of the Mortgaged Property. If Borrower shall fail
for any reason to execute and deliver such instruments and documents to Lender,
Lender may, subject to Section 4.05, (a) obtain a judgment conferring on Lender
the right to immediate possession and collection and requiring Borrower to
deliver such instruments of title and other documents as Lender may deem
necessary or advisable to enable Lender or an agent or representative designated
by Lender, at such time or times and place or places as Lender may specify, to
obtain possession of all or any part of the Mortgaged Property, and (b) pursue
all or part of the Mortgaged Property wherever it may be found and may enter any
of the premises of Lessee or Borrower wherever the Mortgaged Property may be or
be supposed to be and search for the Mortgaged Property and, subject to Section
4.05, take
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possession of and remove the Mortgaged Property. Upon every such taking of
possession, Lender may, from time to time, at the expense of Borrower, make all
such commercially reasonable expenditures for maintenance, insurance, repairs,
replacements, alterations, additions and improvements to any of the Mortgaged
Property. In each such case, Lender shall have the right to use, operate, store,
control or manage the Mortgaged Property, and to carry on the business and to
exercise all rights and powers of Borrower and Airlease relating to the
Mortgaged Property, as Lender shall deem best, including the right to enter into
any and all such agreements with respect to the maintenance, operation, leasing
or storage of the Mortgaged Property or any part thereof as Lender may
determine; and Lender shall be entitled to collect and receive all tolls, rents,
revenues, issues, income, products and profits of the Mortgaged Property and
every part thereof, without prejudice, however, to the right of Lender under any
provision of this Loan and Security Agreement to collect and receive all cash
held by, or required to be deposited with, Borrower hereunder. Such tolls,
rents, revenues, issues, income, products and profits shall be applied to pay
the expenses of holding and operating the Mortgaged Property and of conducting
the business thereof, and of all maintenance, repairs, and replacements,
alterations, additions and improvements to make all payments which the Lender
may be required or may elect to make, if any, for taxes, assessments, insurance
or other proper charges upon the Mortgaged Property or any part thereof
(including the employment of engineers and accountants to examine, inspect and
make reports upon the properties and books and records of Borrower and
Airlease), and all other payments which Lender may be required or authorized to
make under any provision of this Loan and Security Agreement, as well as just
and reasonable compensation for the services of Lender and of all Persons
properly engaged and employed by Lender.
Section 4.04. Right To Cure Certain Events of Default.
If Lessee shall fail to make any payment of Basic Rent within
five days after the same shall become due, and if such failure of Lessee to make
such payment of Basic Rent shall not constitute the fourth consecutive such
failure or the eighth cumulative such failure, then as long as no other Loan
Default (other than an Event of Default) shall have occurred and be continuing
Borrower may (but need not) pay to Lender, at any time prior to the expiration
of a period of five days (the "Five-Day Period") after the expiration of such
five-day period (prior to the expiration of which Five-Day Period Lender shall
not declare the Lease in default pursuant to Article 18 thereof or exercise any
of the rights, powers or remedies pursuant to such Article 18 or this Article
IV), an amount equal to the full amount of the principal payment due and
interest accrued hereunder, together with any interest due thereon on account of
the delayed payment thereof, and such payment by Borrower shall be deemed to
cure any Loan Default which arose from such failure of Lessee (but such cure
shall not relieve Lessee of any of its obligations). If Lessee shall fail to
perform or observe any other covenant, condition or agreement to be performed or
observed by it under the Lease, then as long as no other Loan Default (other
than an Event of Default) shall have occurred and be continuing, Borrower may
(but need not) cure such failure to perform or observe such other covenant,
condition or agreement, and such curing of such failure to perform or observe
any other covenant, condition or agreement by
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<PAGE> 34
Borrower shall be deemed to cure any Loan Default which arose from such failure
of Lessee (but such cure shall not relieve Lessee of any of its obligations).
Upon any payment of principal and interest by Borrower in accordance with the
first sentence of this Section 4.04, or upon any curing of any of Lessee's
defaults by Borrower in accordance with the second sentence of this Section
4.04, Borrower shall, to the extent of its payments, or actions to cure Lessee's
defaults, be subrogated, in the case of any such payment in accordance with such
first sentence, to the rights of Lender, as assignee hereunder of Borrower; or,
in the case of any action to cure Lessee's defaults in accordance with such
second sentence, to the rights of Lender or such other person, as the case may
be, which actually received such benefits of the curing of Lessee's defaults
(but in each case only if all amounts of principal, interest and Prepayment
Premium, if any, at the time due and payable on the Note shall have been paid in
full), provided that Borrower shall not attempt to recover any such amount paid
by it on behalf of Lessee pursuant to this Section 4.04 through the exercise of
any rights or remedies provided for in Article 18 of the Lease except pursuant
to the portion of the Granting Clause following Paragraph G thereof.
Section 4.05. Rights of Lessee. Notwithstanding the provisions
of this Loan and Security Agreement, including, without limitation, Sections
4.01, 4.02 and 4.03 hereof, neither Lender nor Borrower shall take any action
contrary to, or disturb, Lessee's rights under the Lease, except in accordance
with the provisions of the Lease, including, without limitation, (i) the right
to receive all monies due and payable to it in accordance with the provisions of
the Lease and (ii) Lessee's rights to possession and use of, and of quiet
enjoyment of, the Aircraft, Airframes, Engines or Parts.
Notwithstanding the provisions of this Loan and Security
Agreement, including, without limitation, Sections 4.01, 4.02 and 4.03 hereof,
Lender shall not be entitled to exercise any remedy hereunder solely as a result
of a Loan Default occurring under Section 4.01(a) hereof unless Lender shall
have declared the Lease to be in default in accordance with Article 18 thereof.
Section 4.06. Waiver of Borrower. To the extent now or at any
time hereafter enforceable under applicable law, Borrower covenants that it will
not at any time insist upon or plead, or in any manner whatsoever claim or take
any benefit or advantage of, any stay or extension law now or at any time
hereafter in force, nor claim, take or insist upon any benefit or advantage of
or from any law now or hereafter in force providing for the valuation or
appraisement of the Mortgaged Property or any part thereof, prior to any sale or
sales thereof to be made pursuant to any provision herein contained, or to the
decree, judgment or order of any court of competent jurisdiction; nor, after
such sale or sales, claim or exercise any right under any statute now or
hereafter made or enacted by any state or otherwise to redeem the property so
sold or any part thereof, and hereby expressly waives for itself and on behalf
of each and every Person, except decree or judgment creditors of Borrower
acquiring any interest in or title to the Mortgaged Property or any part thereof
subsequent to the date of this Loan and Security Agreement, all benefit and
advantage of any such law or laws, and covenant that they will not invoke or
utilize any such law or laws or otherwise hinder, delay or impede the execution
of any power
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herein granted and delegated to Lender, but will suffer and permit the execution
of every such power as though no such law or laws had been made or enacted.
ARTICLE V
ADDITIONAL DUTIES
Section 5.01. Action Upon Loan Default. In the event Borrower
shall have knowledge of a Loan Default or an event or condition which after
notice or lapse of time or both would constitute a Loan Default, Borrower shall
give notice of such Loan Default or such event or condition in the same manner
to Lessee, Airlease and Lender. Lender shall give written notice to Airlease,
Borrower and Lessee of any action with respect to such Loan Default prior to or
concurrently with such actions. For all purposes of this Loan and Security
Agreement, in the absence of actual knowledge, Lender shall not be deemed to
have knowledge of a Loan Default (except the failure to receive any scheduled
quarterly principal or interest payment within five days after the same shall
become due or the failure of Lessee to maintain insurance as required under
Article 12 of the Lease if Lender shall receive notice thereof from an insurer
or insurance broker) unless notified in writing by Lessee, Borrower or Airlease;
and "actual knowledge" (as used in the foregoing clause) of Lender shall mean
actual knowledge of an officer of Lender.
Section 5.02. Actions by Lender. Subject to the terms of
Sections 5.01 and 5.03 hereof, Lender shall take such of the following actions
as it may deem reasonable or in its best interest: (i) give such notice,
direction or consent, or exercise such right, remedy or power hereunder or under
the Lease in respect of any part or all of the Collateral; and (ii) approve as
satisfactory to it all matters required by the terms of the Lease to be
satisfactory to Borrower.
Upon the expiration or earlier termination of the Term with
respect to any or all Aircraft under the Lease or the transfer by Borrower to
Lessee of any or all Aircraft pursuant to Article 11 or Section 20.04 of the
Lease, and in either such case after payment in full of the principal of the
Prorated Portion of the Note and interest and Prepayment Premium, if any, on
such Prorated Portion of the Note issued hereunder and of all other sums due and
owing hereunder or, in the case of the substitution of any Engine pursuant to
Article 11 of the Lease, satisfaction of the terms and provisions of said
Article 11 relating thereto, or, in the case of the substitution of any Aircraft
or Airframe in accordance with Article V hereof, satisfaction of the terms and
provisions of this Article V hereof and said separate agreement regarding the
replacement or substitution of such Aircraft or Airframe, Lender shall in each
case, upon the written request of Borrower (provided that no Event of Default or
Loan Default shall have occurred and be continuing), execute and deliver to, or
as directed in writing by, Borrower an appropriate instrument (in due form for
recording) releasing such property from the Lien of this Loan and Security
Agreement.
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Section 5.03. Indemnification. Lender shall not be required to
take any action or refrain from taking any action under Article IV or V hereof
unless it shall have been indemnified in manner and form reasonably satisfactory
to Lender pursuant to Section 7.01. Lender shall not be required to take any
action under Article IV or V hereof, nor shall any other provision of this Loan
and Security Agreement be deemed to impose a duty on Lender to take any action,
if Lender shall have been advised by independent counsel that such action is
contrary to the terms hereof or of the Lease, the Purchase Agreement, the
Assignment Agreement, the TBT Lease or the TBT Note, or is otherwise contrary to
law.
Section 5.04. No Duties Except as Specified in Loan and
Security Agreement. Lender shall not have any duty or obligation to manage,
control, use, sell, dispose of or otherwise deal with the Aircraft or any other
part of the Collateral, or to otherwise take or refrain from taking any action
under, or in connection with, this Loan and Security Agreement, the Purchase
Agreement, the Assignment Agreement, the TBT Note, the TBT Lease or the Lease,
except as expressly provided by the terms of this Loan and Security Agreement.
Borrower agrees that it will, at its own cost and expense,
promptly take such action as may be necessary duly to discharge any liens or
encumbrances on any part of the Collateral, or on any properties of Borrower
assigned, pledged or mortgaged as part of the Collateral, which result from
claims against it in its individual capacity not related to the ownership of the
Aircraft, administration of the Collateral or any other transaction under this
Loan and Security Agreement or any document included in the Collateral.
Section 5.05. Replacement Aircraft, Airframes and Engines. At
any time and from time to time prior to the expiration of the Term any Engine is
replaced pursuant to Sections 11.02 or 11.03(B) of the Lease or any Aircraft or
Airframe is replaced pursuant to a separate written agreement among Lender,
Borrower and Lessee, Borrower may, from time to time, direct Lender to execute
and deliver to it, or as directed in writing by Borrower, an appropriate
instrument releasing such Aircraft, Airframe or Engine from the Lien of this
Loan and Security Agreement, but only in respect of such Aircraft, Airframe or
Engine and Lender shall execute and deliver such instrument as aforesaid, but
only upon receipt by or deposit with Lender of all of the required documentation
set forth in Section 11.02 of the Lease with regard to any replacement Engine,
and with regard to any replacement Aircraft or Airframe, Lender may request
receipt of all documentation it may deem reasonable under the circumstances
prior to the execution and delivery of any instrument releasing such Aircraft or
Airframe from the Lien of this Loan and Security Agreement.
Section 5.06. Replacements After Default.
a) In case a Default or Event of Default under the Lease shall
have occurred and be continuing, Lessee, while in possession of the Aircraft and
other property covered by the Lease, may take the actions enumerated in Section
5.05 hereof (to the
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extent set forth therein) if any Event of Loss with respect to any Engine shall
have occurred under Sections 11.02 or 11.03(B) of the Lease. With regard to any
replacement Aircraft or Airframe, Lessee shall comply with all requirements
found in the separate written agreement among Lessee, Borrower and Lender
regarding such replacement.
(b) In case the Collateral shall be in the possession of a
trustee, debtor in possession or receiver lawfully appointed, the powers
hereinbefore conferred upon Lessee with respect to the disposition and release
of any Engine in Section 5.05 (to the extent set forth therein) may be exercised
by such trustee, debtor in possession or receiver, in which case the required
documentation under Section 11.02 of the Lease and the requirements of Section
5.05 hereof may be signed by said receiver, debtor in possession or trustee.
Section 5.07. Documents for Replacements. In the event an
Engine is replaced or substituted as contemplated by Sections 11.02 or 11.03(B)
of the Lease, or an Aircraft or Airframe is replaced or substituted pursuant to
a separate written agreement among Lessee, Borrower and Lender, Borrower and
Lender agree for the benefit of Lessee, subject to fulfillment of the conditions
precedent and compliance by Lessee with its obligations set forth in Sections
11.02 or 11.03(B) of the Lease or in the separate written agreement of Lessee,
Borrower and Lender, as applicable, provided no Default or Event of Default
shall have occurred and be continuing, to execute and deliver to Lessee an
appropriate instrument releasing the Engine, Aircraft or Airframe being replaced
from the Lien of this Loan and Security Agreement.
Section 5.08. Effect of Replacements. In the event of the
replacement or substitution of an Engine as contemplated by Sections 11.02 or
11.03(B) of the Lease, or an Aircraft or Airframe pursuant to a separate written
agreement among Lessee, Borrower and Lender, all provisions of this Loan and
Security Agreement relating to the Engine, Engines, Aircraft, Airframe or
Airframes being replaced shall be applicable to such Engine, Engines, Aircraft,
Airframe or Airframes replacing the same, with the same force and effect as if
such replacement Engine, Engines, Aircraft, Airframe or Airframes were the same
Engine or Engines, Aircraft, Airframe or Airframes as the Engine Engines,
Aircraft, Airframe or Airframes being replaced but for the Event of Loss with
respect to the Engine or Engines being replaced or the separate agreement
allowing for the replacement of the Aircrafts, Airframe or Airframes.
ARTICLE VI
BORROWER
Section 6.01. Acceptance of Trust and Duties. Borrower has
accepted the trust created pursuant to the Trust Agreement and applicable to it
and agrees to perform the same but only upon the terms of the Trust Agreement
and subject to this Loan and Security Agreement and agrees to receive and
disburse all monies received by it constituting part of the Collateral in
accordance with the terms thereof and hereof. Borrower shall not be answerable
or accountable in its individual capacity under any circumstances, except for
its
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own willful misconduct, gross negligence or breach of any of its representations
or warranties set forth herein or in the Trust Agreement, or the performance of
its obligations under the last sentence of Section 5.04 hereof; and Borrower
shall not be liable for any action or inaction of Airlease.
Section 6.02. Absence of Duties. Except in accordance with
written instructions or requests furnished pursuant to Section 5.01 or Section
5.02 hereof and except as provided in, and without limiting the generality of,
Section 5.04 hereof, Borrower shall have no duty (i) to see to any registration
of the Aircraft or any recording or filing of the Lease, or of this Loan and
Security Agreement or any other document, or to see to the maintenance of any
such registration, recording or filing, (ii) to see to any insurance on the
Aircraft or to effect or maintain any such insurance, whether or not Lessee
shall be in default with respect thereto, (iii) to see to the payment or
discharge of any tax, assessment or other governmental charge or any lien or
encumbrance of any kind owing with respect to, or assessed or levied against,
any part of the Collateral, (iv) to confirm, verify or inquire into the failure
to receive any financial statements of Lessee, or (v) to inspect the Aircraft at
any time or ascertain or inquire as to the performance or observance of any of
Lessee's covenants under the Lease with respect to the Aircraft. Notwithstanding
the foregoing, (a) Borrower will furnish to Lender, promptly upon receipt
thereof, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and other instruments furnished to Borrower
under the Lease, including, without limitation, a copy of each report or notice
from an insurer received pursuant to Section 12.07 of the Lease, to the extent
that the same shall not have been furnished to Lender pursuant to the Lease, (b)
Borrower will promptly give written notice to Lessee, Lender and Airlease as to
any matters with respect to the Lease of which Borrower has notice, including
notice of any matter which with notice or the passage of time would constitute
an Event of Default, (c) Borrower will at the written request of Lender promptly
give written notice to Lessee as to any matters with respect to the Lease of
which Borrower has actual knowledge, including notice of any matter which with
notice or the passage of time will constitute an Event of Default and (d)
Borrower will furnish to Lender promptly upon receipt thereof, duplicates or
copies of all reports, notices, requests, demands, certificates, financial
statements and other instruments furnished to Borrower, to the extent that the
same shall not have been otherwise furnished to Lender pursuant to this Loan and
Security Agreement.
Section 6.03. No Representations or Warranties as to the
Aircraft. BORROWER DOES NOT MAKE NOR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE VALUE, AIRWORTHINESS,
CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT
OR AS TO ITS TITLE THERETO, OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT
TO THE AIRCRAFT WHATSOEVER, except that Borrower hereby represents and warrants
that Borrower received whatever title was conveyed to it by PSA pursuant to the
Purchase Agreement and Airlease pursuant to the Trust Agreement.
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Section 6.04. [Reserved].
Section 6.05. Reliance; Agents; Advice of Counsel. Borrower
shall incur no liability to anyone acting upon any signature, instrument,
notice, resolution, request, consent, order, certificate, report, opinion, bond
or other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. Borrower may accept a copy of a
resolution of the board of directors of any party hereto, certified by the
secretary or an assistant secretary of such party as duly adopted and in full
force and effect, as conclusive evidence that such resolution has been duly
adopted by said board of directors and that the same is in full force and
effect. As to any fact or matter the manner of ascertainment of which is not
specifically described herein, Borrower may for all purposes hereof rely, in the
absence of bad faith on the part of Borrower, on a certificate, signed by an
officer of Lessee, as to such fact or matter, and such certificate shall
constitute full protection to Borrower for any action taken or omitted to be
taken by it in good faith in reliance thereon. Lender shall furnish to Borrower
upon request such information and copies of such documents as Lender may have
and as are necessary for Borrower to perform its duties under Article II hereof.
Lender shall assume, and shall be fully protected in assuming, that Borrower is
authorized by the Trust Agreement to enter into this Loan and Security Agreement
and to take all action permitted to be taken by it pursuant to the provisions
hereof, and shall not inquire into the authorization of Borrower with respect
thereto. In the administration of the trust hereunder, Borrower may execute any
of the trusts or powers thereof and perform its powers and duties hereunder
directly or through agents or attorneys and may, subject to and in compliance
with the Trust Agreement, at the expense of Airlease, consult with independent
counsel, accountants and other experts to be selected and employed by it, and
Borrower shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written advice or opinion of any such
independent counsel, accountants or other experts acting within such persons'
area of competence (so long as Borrower shall have exercised reasonable care in
selecting such persons).
Section 6.06. Not Acting in Individual Capacity. Borrower acts
hereunder solely as trustee under the Trust Agreement and not in its individual
capacity except as expressly provided herein; and all Persons, other Lender to
the extent expressly provided in this Loan and Security Agreement, having any
claim against Borrower or Airlease by reason of the transactions contemplated
hereby shall, subject to the lien and priorities of payment as herein provided,
look only to the Collateral for payment or satisfaction thereof.
Section 6.07. No Compensation From Lender or Collateral.
Borrower agrees that it shall have no right against Lender, except as provided
in Sections 3.03 and 4.03 hereof, or the Collateral, for any fee as compensation
for its services hereunder.
ARTICLE VII
INDEMNIFICATION OF LENDER
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Section 7.01. Scope of Indemnification. Borrower hereby
agrees, whether or not any of the transactions contemplated hereby shall be
consummated, except as to matters covered by the indemnity furnished pursuant to
Section 5.03 hereof, to assume liability for, and do hereby indemnify, protect,
save and keep harmless Lender and its successors, assigns, agents and servants,
from and against any and all liabilities (including strict tort liability),
obligations, losses, damages, penalties, taxes (excluding any taxes, fees or
other charges on, based on, or measured by, its gross or net receipts or its
gross or net income, or any business or similar taxes, any transfer taxes, or
any withholding taxes related to the payment of principal, Prepayment Premium,
if any, or interest on the Note to Lender), claims, actions, suits, costs,
expenses or disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Collateral or Lender (whether or not also indemnified against by any
other Person under any other document) in any way relating to or arising out of
this Loan and Security Agreement, the Note, the Lease or the enforcement of any
of the terms of any thereof, or in any way relating to or arising out of the
manufacture, purchase, acceptance, nonacceptance, rejection, ownership,
delivery, lease, registration, possession, use, operation, condition, sale,
return or other disposition of the Aircraft (including, without limitation,
latent and other defects, whether or not discoverable, and any claim for patent,
trademark or copyright infringement), or in any way relating to or arising out
of the administration of the Collateral or the action or inaction of Borrower or
Lender hereunder except only in the case of willful misconduct or gross
negligence of Lender in the performance of its duties hereunder or the breach of
any of its representations and warranties set forth herein; provided that Lender
shall not make any claim under this Section 7.01 for any claim or expense
indemnified against by Lessee under the Lease.
ARTICLE VIII
SUCCESSOR BORROWER
Section 8.01. Notice of Successor Borrower. In the case of any
appointment of a successor to Borrower pursuant to the Trust Agreement or any
merger, conversion, consolidation or sale of substantially all the business
involving Borrower pursuant to the Trust Agreement, the successor Borrower shall
give prompt written notice thereof to Lender and Lessee.
Section 8.02. Resignation of Borrower; Appointment of
Successor. Borrower or any successor thereto may resign and be succeeded
pursuant to Article 10 of the Trust Agreement. Any Borrower hereunder shall
comply with all requirements set forth in Article 10 of the Trust Agreement.
ARTICLE IX
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SUPPLEMENTS AND AMENDMENTS
TO THIS LOAN AND SECURITY AGREEMENT AND OTHER DOCUMENTS
Section 9.01. Consent of Lender; Limitations. Borrower shall
not enter into any amendment of, or supplement to, the Lease, the Trust
Agreement, the Purchase Agreement, the Assignment Agreement, the TBT Lease or
the TBT Note, or execute and deliver any waiver or modification of, or consent
or approval under, the terms of any such agreement, unless such supplement,
amendment, waiver, modification, consent or approval is consented to in writing
by Lender, which consent shall not be unreasonably withheld. Lender shall give
or deny such request promptly after receipt of written request therefor.
Section 9.02. Lender Protected. If in the opinion of Lender
any document required to be executed pursuant to the terms of Section 9.01
hereof adversely affects any right, duty, immunity or indemnity in favor of
Lender under this Loan and Security Agreement, the Assignment Agreement, the
Purchase Agreement, the TBT Note, the TBT Lease or the Lease, Lender may in its
discretion decline to execute such document.
Section 9.03. Amendment to Loan and Security Agreement. No
amendment, modification or waiver of, or supplement to, any term of this Loan
and Security Agreement shall be effective without written consent of both
parties hereto; and no waiver or modification of the terms hereof shall alter or
modify the provisions of this Section or Section 4.05 hereof. The party
initiating such amendment, modification or waiver of, or supplement to, this
Loan and Security Agreement shall send a copy of the final version of any such
amendment, modification, waiver or supplement to Lessee.
ARTICLE X
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LENDER
Section 10.01. Representations and Warranties of Lender.
Lender hereby represents and warrants that:
(a) The Note to be issued to it pursuant to this Loan and
Security Agreement is being acquired for its own account and with its own assets
and not with a view to any resale or distribution thereof, provided that the
disposition of such Note shall at all times be within its control.
(b) Neither it nor anyone acting on its behalf has directly or
indirectly offered the Note, or any interest in and to the Collateral for sale
to, or solicited any offer to acquire any of the same from, anyone.
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(c) Lender is not a bank within the meaning of Section 881 (c)
(3) (A) of the Code.
Section 10.02. Covenants of Lender. Lender hereby covenants
that:
(a) Lender shall transfer or assign all or any interest in the
Note (other than a transfer or assignment for security purposes only) only to a
Person (i) who, as of the date of such transfer, is a "qualified person" within
the meaning of Section 46(c)(8)(D)(iv) of the Code, (ii) who complies with the
requirements of Section 881(c)(2)(B)(ii) or Section 871(h)(2)(B)(ii) of the
Code, and (iii) who is not a bank within the meaning of Section 881(c)(3)(A) of
the Code. Lender covenants and agrees that it shall not transfer or assign the
Note to any Person if the effect of such a transfer is to increase the costs to
Borrower under Section 2.10(b)(ii) or Section 2.12 hereof.
(b) It shall from time to time upon written request of
Borrower, cooperate and execute and deliver any and all such further instruments
and documents and take such further action as Borrower may reasonably request in
order to split the TBT Note such that a resulting note shall be solely and
exclusively attributable to the Aircraft, Airframes, Engines and Parts.
(c) It shall cause the TBT Note (or any Note held by Lender
resulting from a split as described in Section 10.02(b) above) to be kept in the
custody of Lender's American counsel.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower covenants, warrants and represents that:
(a) Borrower is a trust company duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania;
(b) Borrower has the corporate power and authority to enter
into and perform its obligations under the Trust Agreement;
(c) Borrower has full corporate right, power and authority
under the Trust Agreement to enter into and (assuming the due authorization,
execution and delivery of the Instructions and Consent Agreement by Airlease) to
perform its obligations, as Borrower, under this Loan and Security Agreement,
the Assignment Agreement, the Purchase Agreement, the Lease and the Note, and to
perform its obligations under the TBT Lease;
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(d) There are no proceedings pending, or to the knowledge of
Borrower threatened, and to the knowledge of Borrower there is no existing basis
for any such proceedings, against or affecting Borrower in any court or before
any governmental authority or arbitration board or tribunal which, if adversely
determined, might materially and adversely affect the collateral or would call
into question the right, power and authority of Borrower to enter into or
perform this Loan and Security Agreement, the Lease, the Purchase Agreement, the
Assignment Agreement, the Trust Agreement, the TBT Lease and the Note;
(e) The Collateral is free and clear of any Lessor's Liens
attributable to Borrower. Borrower has by affirmative act conveyed any interest
in the Collateral to any Person or subjected the Collateral to any Lien except
as contemplated by this Loan and Security Agreement;
(f) Borrower is not in violation in any material respect of
any term of any of this Loan and Security Agreement, the Lease, the Trust
Agreement, the Purchase Agreement, the Assignment Agreement, the TBT Lease or
the Note;
(g) Borrower has no notice or knowledge of any Default or
Event of Default by Lessee or any other condition or event which may adversely
affect Lessee's ability to comply with any of the terms of the Lease;
(h) This Loan and Security Agreement, the Trust Agreement, the
Purchase Agreement, the Assignment Agreement, the Lease and the Note each has
been duly authorized by all necessary corporate action on the part of Borrower,
has been duly executed and delivered by Borrower, and constitutes (assuming the
due authorization, execution and delivery of such agreements by the other
parties thereto) the valid and binding obligation of Borrower to undertake to
perform as provided therein enforceable against it with regard to such
undertaking to perform in accordance with its terms;
(i) Borrower is a "citizen of the United States" as defined
in section 101 of the Federal Aviation Act;
(j) The execution and delivery of this Loan and Security
Agreement, the Trust Agreement, the Lease, the Purchase Agreement, the
Assignment Agreement and the Note and compliance by Borrower with all of the
provisions thereof do not and will not contravene any law of the United States
or the Commonwealth of Pennsylvania governing the trust powers of Borrower, or
any order of any court or governmental authority or agency applicable to or
binding on Borrower or its Articles of Incorporation or its By-laws; and
(k) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body of the
United States or the Commonwealth of Pennsylvania governing the trust powers of
Borrower is required for the due execution, delivery and performance of this
Loan and Security Agreement, the
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Assignment Agreement, the Purchase Agreement, the Trust Agreement, the Lease,
the TBT Lease and the Note by Borrower.
ARTICLE XII
CONDITIONS PRECEDENT TO BORROWER'S OBLIGATIONS
Borrower's obligations under this Loan and Security Agreement
are subject to the fulfillment, prior to or on March 31, 1987, of the following
conditions precedent:
(a) Orrick, Herrington & Sutcliffe, counsel to Airlease, shall
have advised Airlease that the provisions of the Loan and Security Agreement
contain the terms of the commitment letter dated February 20, 1987 between
Lender and Airlease and such other terms as negotiated between the parties to
this Loan and Security Agreement.
(b) Orrick, Herrington & Sutcliffe shall have provided
Borrower with a opinion satisfactory to Borrower as to such matters with respect
to United States tax law as Borrower may reasonably request.
ARTICLE XIII
CONDITIONS PRECEDENT TO FUNDING
Lender shall fund the Loan, subject to the terms and
conditions hereof, on March 31, 1987. Lender's obligations under this Loan and
Security Agreement are subject to the fulfillment to the satisfaction of Lender,
prior to or on March 31, 1987, of the following conditions precedent:
(a) Lender shall have received a Note in the amount of
thirty-six million dollars ($36,000,000).
(b) The following documents shall have been duly authorized,
executed and delivered by the respective party or parties thereto, shall be in
full force and effect and copies thereof shall have been delivered to Lender or
its American special counsel:
(i) this Loan and Security Agreement;
(ii) the Consent Agreement, in form and substance
satisfactory to PSA, Borrower and Lender;
(iii) the IBM Consent Agreement, in form and substance
satisfactory to Borrower, Lender and IBM;
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(iv) the Assignment Agreement, in form and substance
satisfactory to Lender, PSA and Borrower; and
(v) the Instructions and Consent Agreement, in form
and substance satisfactory to Lender and Borrower.
(c) Lender or its American special counsel shall have received
the original Lease marked to indicate chattel paper copies.
(d) Borrower has issued a receipt to Lender for the loan
funds.
(e) An independent insurance broker's report together with
certificates of insurance from such broker, in form and substance satisfactory
to Lender, as to the due compliance with the terms of Article 12 of the Lease.
(f) A Uniform Commercial Code financing statement or
statements covering all the security interests created by or pursuant to the
Granting Clause shall have been executed and delivered by Borrower, as debtor,
and by Lender, as secured party, or by Lessee, as debtor, and by Lender, as
secured party, and by Airlease, as debtor, and by Lender, as secured party, with
regard to the Collateral except the Assignment Agreement, and such financing
statement or statements shall have been duly filed in Pennsylvania and
California, and all other actions shall have been taken, which in the opinion of
American special counsel for Lender are necessary and desirable to perfect such
security interests, and a Uniform Commercial Code financing statement or
statements describing the Lease as a lease and naming Lender as assignee of
Borrower shall have been executed and delivered by Borrower and by Lessee, and
shall have been duly filed in Pennsylvania and California and in all places in
which in the opinion of American special counsel for Lender such filing is
necessary or desirable.
(g) Lender or its American special counsel shall have received
letters as to the number of investors to whom debt and equity interests were
offered.
(h) Lender or its American special counsel shall have
received:
(i) Certificate of the Secretary of State of
Pennsylvania listing all corporate documents and copies of the articles of
incorporation of Borrower;
(ii) Certificate from the Secretary of State of
Pennsylvania certifying that Borrower is duly incorporated and in good standing
and has paid all of its franchise taxes;
(iii) Certificate of the Secretary of Borrower as to
the changes in organizational documents, by-laws resolutions of its board of
directors and the incumbency and signatures of the officers of Borrower; and
40
<PAGE> 46
(iv) Officer's Certificate of Borrower as to the
accuracy of representations and warranties and other matters.
(i) Lender or its American special counsel shall have
received:
(i) Certificate of the Secretary of State of
California as to organization of Airlease and good standing and payment of
franchise taxes;
(ii) Certificate showing authorization of Airlease to
enter into transaction; and
(iii) Officer's Certificate of Management, certifying
as to the accuracy of representations and warranties made by Airlease and as to
other matters.
(j) Lender or its American special counsel shall have
received:
(i) Certificate of the Secretary of State of Delaware
listing all corporate documents and copies of the certificate of incorporation
of Management and other documents filed with the Secretary of State of Delaware;
(ii) Certificate of the Secretary of State of Delaware
certifying that Management is duly incorporated and in good standing and has
paid all of its franchise taxes;
(iii) Certificate of the Secretary of State of
California that Management is qualified as a foreign corporation authorized to
transact business therein;
(iv) Certificate of the Franchise Tax Board of
California that management is in good standing as a foreign corporation and has
paid its franchise taxes;
(v) Certificate of the Secretary of Management as to
changes in its charter in organizational documents, by-laws, resolutions of its
board of directors, and incumbency and signatures of the officers of Management;
and
(vi) Officer's Certificate of Management as to the
accuracy of representations and warranties and other matters.
(k) Lender or its American special counsel shall have
received:
(i) Certificate of the Secretary of State of
California listing all corporate documents relating to PSA, copies of the
articles of incorporation of PSA, and other documents and stating that PSA is in
good standing in the State of California;
(ii) Certificate of the Franchise Tax Board of
California that PSA is in good standing and has paid its franchise taxes;
41
<PAGE> 47
(iii) Certificate of the Secretary of PSA as to
changes in its organizational documents, its by-laws, any applicable resolutions
of its board of directors, and incumbency and signatures of its officers; and
(iv) Officer's Certificate of PSA as to the accuracy
of representations and warranties and other matters.
(1) All approvals and consents of any trustees or holders of
any indebtedness or obligations of Lessee, which are required in connection with
any transaction contemplated by this Loan and Security Agreement, shall have
been duly obtained.
(m) Borrower has good and marketable title to the Aircraft,
Airframes, Engines and Parts free and clear of Liens, except the rights of IBM
under the TBT Lease, the Lien of the Lease and this Loan and Security Agreement,
and all Permitted Liens under Article 14 of the Lease.
(n) The Aircraft has received a Standard Certificate of
Airworthiness, and Lender or its American special counsel has received copies of
said Certificates certified by Borrower or Lessee.
(o) This Loan and Security Agreement shall have been duly
filed for recordation with the Federal Aviation Administration pursuant to the
Federal Aviation Act of 1958 as amended (the "Federal Aviation Act").
(p) No material adverse change shall have occurred in the
financial condition of Lessee from that shown in the balance sheet of Lessee as
of December 31, 1986.
(q) Nothing shall have occurred since the signing of the Loan
and Security Agreement which will materially adversely affect the ability of
Lessee to carry on its business or to perform its obligations under the Lease.
(r) No event shall have occurred and be continuing, which
constitutes an Event of Default or Default under the Lease.
(s) Lender shall have received possession of the TBT Note.
(t) Opinion of Counsel for Airlease. Lender shall have
received a favorable opinion addressed to it from Airlease's general counsel and
from Orrick, Herrington & Sutcliffe, special counsel for Airlease.
(u) Opinion of Counsel for Borrower. Lender shall have
received a favorable opinion addressed to it from Stevens & Lee, Pennsylvania
counsel for Borrower,
42
<PAGE> 48
and shall have received a favorable opinion addressed to it from Orrick,
Herrington & Sutcliffe, California counsel for Borrower.
(v) Opinion of Counsel for PSA. Lender shall have received a
favorable opinion addressed to it from O'Melveny and Meyers, counsel for PSA.
(w) Opinion of Counsel for Management. Lender shall have
received a favorable opinion addressed to it from Stanley Gutman, Esq., counsel
for Management.
(x) Opinion of FAA Counsel. Lender shall have received a
favorable opinion addressed to it from Zuckert, Scoutt, Rasenberger & Johnson,
special FAA Counsel.
(y) Appraisal. Lender shall have received a report prepared by
Avmark Inc., or another independent expert approved by Lender, substantially
confirming the valuation in the report prepared by Avmark Inc. and furnished to
Airlease dated as of August 20, 1986 regarding the Aircraft.
(z) Lender's American and Japanese special counsel shall have
advised Lender that the provisions of the Loan and Security Agreement contain
the terms of the commitment letter dated as of February 20, 1987 between Lender
and Airlease and the terms negotiated between the parties to this Loan and
Security Agreement.
(aa) Such other documents and evidence with respect to
Airlease, Lessee or Borrower as Lender may reasonably request.
Promptly upon the recording of this Loan and Security
Agreement and the Lease, pursuant to the Federal Aviation Act, Borrower will
cause Zuckert, Scoutt, Rasenberger & Johnson, special counsel in Washington,
D.C. to deliver to Lender, Borrower, Lessee and Airlease an opinion as to the
due recording of the Loan and Security Agreement and the Lease and the lack of
filing of any intervening documents with respect to the Aircraft, Airframes and
Engines.
All of the foregoing certificates and opinions of this Article
XIII shall cover such matters reasonably requested by Lender and shall be in
form and substance reasonably satisfactory to Lender.
ARTICLE XIV
OTHER COVENANTS
Section 14.01. Other Covenants. Regardless of whether the
transactions contemplated by this Loan and Security Agreement are consummated,
Borrower agrees
43
<PAGE> 49
promptly to pay or, if previously paid by Lessee or Lender, to reimburse Lessee
or Lender for, (x) the initial fees of Lender in connection with the
transactions contemplated hereby and (y) all the reasonable out-of-pocket costs
and expenses incurred by Lender in connection with the preparation, execution
and delivery of this Loan and Security Agreement, the Consent Agreement, the IBM
Consent Agreement, the Instructions and Consent Agreement and any other
documents or instruments referred to herein or therein, including, without
limitation,
(i) the reasonable fees, expenses and disbursements of (A)
Pillsbury, Madison & Sutro, American special counsel for Lender, (B) Tomita &
Kanazawa, Japanese special counsel for Lender, and (C) Zuckert, Scoutt,
Rasenberger & Johnson, special FAA counsel in Washington, D.C.; and
(ii) all other reasonable expenses incurred in connection with
such actions and transactions, including, without limitation, the fees and
expenses of one aircraft appraiser, printing and document production or
reproduction expenses and all fees, taxes and other charges payable in
connection with the recording or filing of the instruments and financing
statements described in this Loan and Security Agreement, the Consent Agreement,
the Instructions and Consent Agreement and the IBM Consent Agreement.
Notwithstanding the foregoing, Borrower or Airlease shall pay the reasonable
fees, expenses and disbursements of Orrick, Herrington & Sutcliffe, counsel for
Airlease.
In the event that the transactions contemplated by this Loan
and Security Agreement, the Consent Agreement, the Instructions and Consent
Agreement and the IBM Consent Agreement and the agreements referred to herein or
therein are not consummated, Borrower shall bear and pay all costs, expenses and
fees referred to above and if requested to do so by Lender shall pay all
reasonable costs, expenses and fees and any actual out-of-pocket losses and
damages incurred by Lender in canceling any funding or hedging transaction
initiated or entered into by Lender in contemplation of the provisions herein or
as a result of any such transaction and any additional transaction entered into
by Lender to counter any such transaction; provided that, if the transaction
fails to be consummated as a result of Lender's breach of the terms hereof or of
the commitment letter dated February 20, 1987 between Lender and Airlease,
Lender shall be responsible for all costs, expenses and fees otherwise payable
by Airlease pursuant to this Section 14.01. Lender shall provide Borrower with
documents evidencing all fees, expenses, losses or damages for which Borrower
may be liable hereunder.
Section 14.02. Borrower's Citizenship. Borrower covenants that
if at any time it shall cease to be a "citizen of the United States" within the
meaning of section 101(16) of the Federal Aviation Act, it will resign
immediately as Trustee under the Trust Agreement (if and so long as such
citizenship is necessary under the Federal Aviation Act as in effect at such
time or, if it is not necessary, if and so long as Borrower's citizenship would
have any adverse effect on Lessee or Lender); and Borrower shall promptly
transfer, pursuant to the Trust Agreement and Article VIII hereof, such of its
right, title and interest
44
<PAGE> 50
in and to the Collateral and this Loan and Security Agreement, or shall take
such other action, as may be necessary to prevent any deregistration of the
Aircraft. Borrower agrees that it will at its own cost and expense promptly take
such action as may be necessary to duly discharge and satisfy in full (i) all
Lessor's Liens attributable to Borrower in its individual capacity and (ii) any
other liens or encumbrances attributable to Borrower in its individual capacity
on any part of the Collateral which result from claims against Borrower in its
individual capacity not related to the ownership of the Aircraft or the
administration of the Collateral pursuant to the Trust Agreement.
ARTICLE XV
MISCELLANEOUS
Section 15.01. Termination of Loan and Security Agreement.
This Loan and Security Agreement shall terminate and shall be of no further
force or effect upon the payment in full of the principal amount of the Note,
Prepayment Premium, if any, and interest on the Note hereunder, and all other
sums payable to Lender hereunder, under the Note, the Lease, the Assignment
Agreement, the Purchase Agreement, the TBT Note, the TBT Lease, the Instructions
and Consent Agreement and the IBM Consent Agreement.
Section 15.02. Sale of Aircraft by Lender Is Binding. Any sale
or other conveyance of the Aircraft by Lender made pursuant to the terms of this
Loan and Security Agreement, the Lease or the Consent Agreement shall bind
Borrower, Airlease and Lessee and shall be effective to transfer or convey all
right, title and interest of Lender and Borrower in and to the Aircraft. No
purchaser or other grantee shall be required to inquire as to the authorization,
necessity, expediency or regularity of such sale or conveyance or as to the
application of any sale or other proceeds with respect thereto by Lender.
Section 15.03. Remedies Cumulative. Each and every right,
power and remedy herein specifically given to Lender or otherwise in this Loan
and Security Agreement or the Consent Agreement or the Instructions and Consent
Agreement or the IBM Consent Agreement shall be cumulative and shall be in
addition to every other right, power and remedy herein specifically given or now
or hereafter existing at law, in equity or by statute, and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed
expedient by Lender, and the exercise or the beginning of the exercise of any
power or remedy shall not be construed to be a waiver of the right to exercise
at the time or thereafter any other right, power or remedy. No delay or omission
by Lender in the exercise of any right, remedy or power or in the pursuance of
any remedy shall impair any such right, power or remedy or be construed to be a
waiver of any default on the part of Borrower, Airlease or Lessee or to be an
acquiescence therein.
45
<PAGE> 51
Section 15.04. Discontinuance of Proceeding. In case Lender
shall have proceeded to enforce any right, power or remedy under this Loan and
Security Agreement or the Instructions and Consent Agreement by foreclosure,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely to Lender, then
and in every such case Lender, Airlease, Borrower and Lessee shall be restored
to their former positions and rights hereunder with respect to the Mortgaged
Property, and all rights, remedies and powers of Lender shall continue subject
to the resolutions of such proceedings.
Section 15.05. Loan and Security Agreement and Note for
Benefit of Lender, Holders of Note, Borrower, Airlease and Lessee only. Nothing
in this Loan and Security Agreement, whether express or implied, shall be
construed to give to any Person other than Lender, any holder of the Note,
Borrower (individually and as trustee), Airlease (as set forth herein) and
Lessee (as set forth herein) any legal or equitable right, remedy or claim under
or in respect of this Loan and Security Agreement or the Note. Nevertheless it
is hereby agreed that, subject to the terms hereof, Lender may assign, transfer
or pledge to its lenders all or part of the security interest in and lien on all
right, title and interest of Borrower in and to the Collateral granted hereby.
Section 15.06. Notices. Unless otherwise expressly specified
or permitted by the terms hereof, all notices required or permitted under the
terms and provisions hereof shall be in writing, and shall become effective
three days after deposit in the United States mail, with proper postage for
first class registered or certified mail prepaid, when delivered personally, or,
if promptly confirmed by mail as provided above, when dispatched by telegram,
telex, telecopier or other written telecommunication addressed (i) if to Lender,
at its office at:
The World Wing Company Limited
Nassau, Bahamas
c/o Mr. Taketoshi Watanabe
All Nippon Airways Co., Ltd.
Yasumigaseki Building, 3-2-5
Kasumigaseki, Chiyoda-ku, Tokyo 100
Japan
Telecopier: 011 81 3 5923239
with a copy to:
Pillsbury, Madison & Sutro
225 Bush Street
P.O. Box 7880 San Francisco, California 94120
Attn: George P. Haley, Esq. Telex: 34743
Telecopier: (415) 398-2096
46
<PAGE> 52
(ii) if to Borrower, at its office at:
Meridian Trust Company
35 North Sixth Street
Reading, Pennsylvania 19603
Attn: Corporate Trust Division
Telex: 173702 ABT UT
with a copy to:
United Staes Airlease, Inc.
615 Battery Street
San Francisco, California 94111
Attn: President
Telex: 278031
Telecopier: (415)398-7029
(iii) if to Lessee, at its office at:
Pacific Southwest Airlines
3225 North Harbor Drive
San Diego, California 92101
Attn: Chief Financial officer
(iv) if to Airlease, at its office at:
Airlease Ltd.,
A California Limited Partnership
2988 Campus Drive
San Mateo, California 94405
Attn: President,
Airlease Management Services, Inc.
with a copy to:
United States Airlease, Inc.
733 Front Street
San Francisco, California 94111
Attn: President
Telex: 278031
Telecopier: (415) 398-7029
47
<PAGE> 53
and (v) if to any of the foregoing Persons, at such other address as such Person
shall from time to time designate by written notice to the other parties hereto
in accordance with this Section 15.06.
Notwithstanding the foregoing provisions, for purposes of
Sections 4.01, 4.02, 5.01 and 5.02 hereof, written notice shall be deemed given
when it is in fact received (by mail or otherwise) by an addressee at the
respective addresses specified above.
Notwithstanding any other provision hereof, if an installment
of any payment of principal of, Prepayment Premium, if any, and interest on the
Note or any other amounts payable hereunder or under the Lease is not received
by Lender when due, Lender shall on the next succeeding Business Day use its
reasonable best efforts to give immediate written notice by telex or its
equivalent or by telephone (confirmed in writing) to Borrower, Airlease and
Lessee, which shall be effective when given.
Notice herein shall not become effective unless notice shall
have been made as to all appropriate parties noted above at the addresses stated
under this Section 15.06.
Section 15.07. Severability. Any provision of this Loan and
Security Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or enforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. In the event of
any inconsistency or conflict between any provision of this Loan and Security
Agreement and any provision of the instructions and Consent Agreement, except as
explicitly stated in the Instructions and Consent Agreement, such provision in
this Loan and Security Agreement shall govern and control.
Section 15.08. Separate Counterparts. This Loan and Security
Agreement may be executed in any number of counterparts (and each of the parties
hereto shall not be required to execute the same counterpart). Each counterpart
of this Loan and Security Agreement including a signature page executed by each
of the parties hereto shall be an original counterpart of this Loan and Security
Agreement, but a11 of such counterparts together shall constitute one
instrument.
Section 15.09. Successors and Assigns. All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
Lender and its successors and permitted assigns and Borrower and its successors
and permitted assigns, all as herein provided. Notwithstanding any other
provision of this Loan and Security Agreement, no transfer of any beneficial
interest in the Collateral by foreclosure or in lieu of foreclosure may occur
unless the Person succeeding to Borrower's or Airlease's interest in the
Collateral first executes an agreement substantially in the form of the IBM
Consent Agreement where such Person undertakes the obligations of Lender
thereunder.
48
<PAGE> 54
Section 15.10. Headings. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define,
limit or expand any of the terms or provisions hereof.
Section 15.11. Governing Law. This Loan and Security Agreement
shall in all respects be governed by, and construed in accordance with, the laws
of the State of California, including all matters of construction, validity and
performance. This Loan and Security Agreement is being delivered in the State of
California.
IN WITNESS WHEREOF, the parties hereto have caused this Loan
and Security Agreement to be duly executed by their respective officers,
thereunto duly authorized, as of the day and year first above written.
BORROWER:
MERIDIAN TRUST COMPANY, not in its
individual capacity but solely as trustee under the
Trust Agreement
By AIRLEASE MANAGEMENT SERVICES, INC.,
as Agent
By /s/Douglas C.Kay
----------------
Title: President
LENDER:
THE WORLD WING COMPANY LIMITED, a
corporation formed and existing under the laws of the
Bahamas
By /s/ Taketoshi Watanabe
----------------------
Title: General Manager
All Nippon Airways Co. Ltd.
49
<PAGE> 55
EXHIBIT A
<TABLE>
<CAPTION>
Payment Beginning
Date Balance Payment Interest Principal
---- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
57,461,221 21,461,221 36,000,000
0 03/31/87 36,000,000
1 06/30/87 36,000,000 1,249,157 787,500 461,657
2 09/30/87 35,538,343 1,249,157 777,401 471,756
3 12/31/87 35,066,587 1,249,157 767,082 482,075
4 03/31/88 34,584,512 1,249,157 756,536 492,621
5 06/30/88 34,091,891 1,249,157 745,760 503,397
6 09/30/88 33,588,494 1,249,157 734,748 514,409
7 12/31/88 33,074,086 1,249,157 723,496 525,661
8 03/31/89 32,548,424 1,249,157 711,997 537,160
9 06/30/89 32,011,264 1,249,157 700,246 548,911
10 09/30/89 31,462,354 1,249,157 688,239 560,918
11 12/31/89 30,901,436 1,249,157 675,969 573,188
12 03/31/90 30,328,248 1,249,157 663,430 585,727
13 06/30/90 29,742,521 1,249,157 650,618 598,539
14 09/30/90 29,143,982 1,249,157 637,525 611,632
15 12/31/90 28,532,349 1,249,157 624,145 625,012
16 03/31/91 27,907,337 1,249,157 610,473 638,684
17 06/30/91 27,268,653 1,249,157 596,502 652,655
18 09/30/91 26,615,998 1,249,157 582,225 666,932
19 12/31/91 25,949,066 1,249,157 567,636 681,521
20 03/31/92 25,267,545 1,249,157 552,728 696,429
21 06/30/92 24,571,116 1,249,157 537,493 711,664
22 09/30/92 23,859,452 1,249,157 521,926 727,231
23 12/31/92 23,132,220 1,249,157 506,017 743,140
24 03/31/93 22,389,081 1,249,157 489,761 759,396
25 06/30/93 21,629,685 1,249,157 473,149 776,008
26 09/30/93 20,853,677 1,249,157 456,174 792,983
27 12/31/93 20,060,695 1,249,157 438,828 810,329
28 03/31/94 19,250,365 1,249,157 421,102 828,055
29 06/30/94 18,422,310 1,249,157 402,988 846,169
30 09/30/94 17,576,141 1,249,157 384,478 864,679
31 12/31/94 16,711,462 1,249,157 365,563 883,594
32 03/31/95 15,827,869 1,249,157 346,235 902,922
33 06/30/95 14,924,946 1,249,157 326,483 922,674
34 09/30/95 14,002,272 1,249,157 306,300 942,857
35 12/31/95 13,059,415 1,249,157 285,675 963,482
36 03/31/96 12,095,933 1,249,157 264,599 984,558
37 06/30/96 11,111,375 1,249,157 243,061 1,006,096
</TABLE>
50
<PAGE> 56
<TABLE>
<S> <C> <C> <C> <C> <C>
38 09/30/96 10,105,279 1,249,157 221,053 1,028,104
39 12/31/96 9,077,175 1,249,157 198,563 1,050,594
40 03/31/97 8,026,581 1,249,157 175,581 1,073,576
41 06/30/97 6,953,006 1,249,157 152,097 1,097,060
42 09/30/97 5,855,946 1,249,157 128,099 1,121,058
43 12/31/97 4,734,887 1,249,157 103,576 1,145,581
44 03/31/98 3,589,306 1,249,157 78,516 1,170,641
45 06/30/98 2,418,665 1,249,157 52,908 1,196,249
46 09/30/98 1,222,417 1,249,157 26,740 1,222,417
</TABLE>
Interest rate = 8.75%
Average life = 6.81 years
51
<PAGE> 1
Exhibit 4.3
8.75% SECURED NONRECOURSE NOTE
(Secured by Lease Obligations of
Pacific Southwest Airlines, the
Aircraft, Airframes, Engines and Parts,
the Purchase Agreement,the Assignment
Agreement, the TBT Note and
the TBT Lease)
Issued in Connection with the Aircraft
containing Airframes having
manufacturer's serial numbers 48040,
48041 and 48042 and FAA registration
numbers N932PS, N933PS and N934PS.
No. 1 San Francisco, California
$36,000,000 March 31, 1987
Meridian Trust Company, a trust company organized under the
laws of the Commonwealth of Pennsylvania, not in its individual capacity, but
solely as trustee under the Trust Agreement, hereby promises to pay to The World
Wing Company Limited, or its registered assigns, the principal sum of
$36,000,000 in lawful currency of the United States of America, in quarterly
installments commencing June 30, 1987 payable on the last day of each March,
June, September and December of each year thereafter to and including September
30, 1998, each such installment to be in an amount corresponding to the
percentage of the original principal amount hereof payable on such payment date
and based upon the amortization schedule attached hereto as Exhibit A, together
with interest from and including the date hereof until such principal sum is due
and payable, payable on June 30, 1987 and the last day of each March, June,
September and December thereafter to the maturity date hereof at an interest
rate of 8.75% per annum (computed on the basis of a 360-day year of 12 30-day
months), and to pay interest at the rate of 10-1/2% per annum (computed on the
same basis) on any overdue principal and (to the extent permitted by applicable
law) overdue interest from the due date thereof until paid, payable on demand,
all pursuant to the terms of the Loan and Security Agreement referred to below.
All payments of principal and interest to be made hereunder
and under the Loan and Security Agreement dated as of March 20, 1987 (herein
called the "Loan and Security Agreement", the defined terms therein not
otherwise defined herein being used herein with the same meanings) between
Borrower and Lender shall be made only from the income and proceeds from the
Lease and the security interests in the Aircraft, Airframes, Engines, Parts, the
Purchase Agreement,
1
<PAGE> 2
the Assignment Agreement, the TBT Note And the TBT Lease and only to the extent
of Borrower's and Airlease's interest thereto, except for Excepted Property.
Each holder hereof agrees that it will look solely to the income and proceeds
from the Lease and the security interests described above to the extent
available for distribution to the holder hereof as provided in the Loan and
Security Agreement, that this Note shall be nonrecourse to Airlease and
Borrower, and that Airlease and Borrower shall not be personally liable to the
holder hereof for any amount payable under this Note or the Loan and Security
Agreement.
Payments with respect to the principal amount hereof and
interest and Prepayment Premium, if any, thereon shall be payable in U.S.
dollars in immediately available funds in such manner as the registered owner of
the Note may direct pursuant to Section 2.04 of the Loan and Security Agreement.
Each such payment shall be made on the date such payment is due and without any
presentment or surrender of this Note. Whenever the date scheduled for any
payment to be made hereunder or under the Loan and Security Agreement shall not
be a Business Day, then such payment need not be made on such scheduled date but
shall be made on the next succeeding Business Day with the same force and effect
as if made on such-scheduled date and (provided such payment is made on such
next succeeding Business Day) no interest shall accrue on the amount of such
payment from and after such scheduled date to the time of such payment on such
next succeeding Business Day. If, however, the next succeeding Business Day
shall be two or more days after the scheduled date of payment, such payment
shall be made on the immediately preceding Business Day of the scheduled payment
date, provided no adjustment of interest shall be made due to such early
payment.
Each holder hereof, by its acceptance of this Note, agrees
that each payment received by it hereunder shall be applied, first, to the
payment of accrued interest on this Note to the date of such payment, second, to
the payment of the unpaid principal amount of this Note then due, and third to
the payment of any Prepayment Premium, if any, on this Note then due. The
balance, if any, remaining thereafter shall be applied to the payment of the
installment or installments of principal next becoming due on the Note.
This Note is issued by Borrower pursuant to the terms of the
Loan and Security Agreement. The Collateral is held by Lender as security for
the Note. The rights of Borrower under the Loan and Security Agreement in and to
the Collateral are subject and subordinate to the rights of the holder of this
Note to the extent provided for in the Loan and Security
2
<PAGE> 3
Agreement. Reference is hereby made to the Loan and Security Agreement for a
statement of the rights of the holder of, and the nature and extent of the
security for this Note and the rights of Airlease and Borrower (including the
right of Borrower under certain circumstances stated therein to prepay the Note)
to all of which terms and conditions in the Loan and Security Agreement each
holder hereof agrees by its acceptance of this Note.
This Note is not subject to prepayment except as provided in
Section 2.10 of the Loan and Security Agreement. Without limiting the foregoing,
the holder hereof agrees to surrender this Note for a new Note pursuant to
Section 2.08 of the Loan and Security Agreement.
This Note is a registered Note and is transferable, as
provided in the Loan and Security Agreement, only upon surrender of this Note
for registration of transfer duly endorsed by, or accompanied by a written
statement of transfer duly executed by, the registered holder hereof or his
attorney duly authorized in writing. Prior to the due presentation for
registration of transfer of this Note, Borrower may deem and treat the
registered holder of this Note as the absolute owner and holder hereof for the
purpose of receiving payment of all amounts payable with respect hereto and for
all other purposes and shall not be affected by any notice to the contrary.
Unless the certificate of authentication hereon has been
executed by or on behalf of Borrower by manual signature, this Note shall not be
entitled to any benefit under the Loan and Security Agreement or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, Borrower has caused this Note to be
executed by one of its authorized officers as of the date hereof.
MERIDIAN TRUST COMPANY, not in
its individual capacity, but
solely as trustee
By AIRLEASE MANAGEMENT SERVICES,
INC., as Agent
By /s/ Douglas C. Kay
-----------------------------
Its President
-------------------------
3
<PAGE> 4
[BORROWER'S CERTIFICATE
OF AUTHENTICATION]
This is the Note referred to in the within-mentioned Loan and
Security Agreement.
MERIDIAN TRUST COMPANY, not in
its individual capacity, but
solely as trustee
By AIRLEASE MANAGEMENT SERVICES,
INC., as Agent
By /s/ Douglas C. Kay
-----------------------------
Its President
-------------------------
4
<PAGE> 1
EXHIBIT 4.4
INSTRUCTIONS AND CONSENT AGREEMENT
THIS INSTRUCTIONS AND CONSENT AGREEMENT, dated as of March 31, 1987, by
and between AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP, of which Airlease
Management Services, Inc. is general partner ("Airlease"), and THE WORLD WING
COMPANY LIMITED, a corporation formed and existing under the laws of the Bahamas
("Lender");
W I T N E S S E T H:
Whereas MERIDIAN TRUST COMPANY, a trust company organized under the
laws of the Commonwealth of Pennsylvania, not in its individual capacity except
as provided in the Loan and Security Agreement referred to below, but solely as
trustee under that certain Trust Agreement (as defined in the Loan and Security
Agreement) ("Borrower") and Lender have entered into that certain Loan and
Security Agreement dated as of March 20, 1987 (the "Loan Agreement") (all terms
defined in the Loan Agreement shall have the same meaning when used herein); and
Whereas Borrower and Airlease have entered into the Trust Agreement
whereby, among other things, (i) Borrower established a certain trust for the
use and benefit of Airlease, (ii) provision was made for the payment by Borrower
to Airlease of amounts distributable to Airlease thereunder and (iii) Borrower
is directed and authorized to take any action as Airlease may request through
written instructions; and
Whereas execution of this Instructions and Consent Agreement by
Airlease is a condition precedent to the loan under the Loan Agreement;
N o w, T h e r e f o r e, in consideration of the premises and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, and in order to induce Lender to make the loan provided for in the
Loan Agreement, the parties hereto agree as follows:
1. Instructions to Borrower. Airlease acknowledges and agrees that it
has the right, power and authority under the Trust Agreement to cause Borrower
to grant a lien on and security interest in the Aircraft, Airframes, Engines,
Parts, Lease, Assignment Agreement, Purchase Agreement, TBT Note and TBT Lease
to Lender for the uses and purposes set forth in the Loan Agreement, and that
Borrower has the right, power and authority
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<PAGE> 2
under the Trust Agreement to grant a lien on and security interest in the
Aircraft, Airframes, Engines, Parts, Lease, Assignment Agreement, Purchase
Agreement, TBT Note and TBT Lease to Lender for the uses and purposes set forth
in the Loan Agreement. Airlease hereby ratifies the Loan Agreement and instructs
Borrower to enter into the Loan Agreement and to perform al1 obligations under
the Loan Agreement undertaken by the Borrower thereunder and ratifies any action
previously taken by Borrower in entering into and performing its obligations
under the Loan Agreement. Airlease acknowledges that its interest in the
Collateral is bound by and subject to the Loan Agreement. Lender shall assume,
and shall be fully protected in assuming, that Borrower is authorized by the
TRUST Agreement to enter into the Loan Agreement and to take all action
permitted to be taken by it pursuant to the provisions thereof, and need not
inquire into the authorization of Borrower with respect thereto. In the
administration of the trust pursuant to the Loan Agreement, Borrower may execute
any of the trusts or powers thereof and perform its powers and duties thereunder
directly or through agents or attorneys and may, subject to and in compliance
with the Trust Agreement, at the expense of Airlease, consult with independent
counsel, accountants and other experts to be selected and employed by it, and
Borrower shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written advice or opinion of any such
independent counsel, accountants or other experts acting within such persons'
area of competence (so long as Borrower shall have exercised reasonable care in
selecting such persons).
2. Airlease Liens. Airlease will warrant and defend the lien and
security interest in all Collateral against all Liens arising out of acts of or
claims against Airlease. Airlease warrants that there is no financing statement
or other filed or recorded instrument in which Airlease is named as debtor now
on file in any public office covering any of the Collateral except the financing
statements or other instruments filed or to be filed in respect of and for the
lien and security interest provided for in the Loan Agreement. Airlease agrees
that it will at its own cost and expense promptly take such action as may be
necessary to duly discharge and satisfy in full all liens or encumbrances
attributable to Airlease on any part of the Collateral.
3. Lender as Airlease's Attorney-in-Fact. Airlease hereby constitutes
and appoints Lender the true and lawful attorney of Airlease, irrevocably, with
an interest and full power (in the name of Airlease or otherwise) to ask,
demand, require and
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<PAGE> 3
receive all rights to the property, rights and interests granted to Airlease and
Borrower pursuant to the terms of the Purchase Agreement, Assignment Agreement,
TBT Note and TBT Lease and without limiting the provisions of the foregoing,
during the continuance of any Loan Default, to sue for, give acquittance for,
settle, adjust or compromise any claim for any and all rights which are assigned
under the Granting Clause of the Loan Agreement as fully as Airlease could
itself do.
Notwithstanding any other provision of these Instructions and Consent
Agreement, (a) unless and until a Loan Default shall have occurred and be
continuing, all rights, powers, authorizations, approvals, privileges, benefits,
notices and consents under or with respect to the Assigned Agreements,
including, without limitation, the right to give waivers, consents and
approvals, shall be exercised or given, as the case may be, by the Borrower (at
the direction of Airlease), with the prior written consent of the Lender, which
shall not be unreasonably withheld (Lender hereby agreeing to respond promptly
to any request therefor by Borrower or Airlease), provided that no consent shall
be required for the exercise of rights, powers, privileges and notices of an
administrative nature, and (b) after a Loan Default under Section 4.01(a) of the
Loan Agreement has occurred and is continuing when no other Loan Default
(excepting an Event of Default) has occurred and is continuing:
(i) Lender shall not enter into any modification, waiver or
amendment to the Lease the effect or result of which is to extend the
Term of the Lease, or alter the amount of any Rent or alter the terms
and provisions of the Lease, or exercise or enforce any other of its
rights and remedies under the Lease, prior to the expiration of the
period during which Borrower (at the direction of Airlease) may cure
said default pursuant to Section 4.04 of the Loan Agreement, and
(ii) in the event Borrower (at the direction of Airlease) shall
make the payments set forth in the first sentence of Section 4.04 of
the Loan Agreement, then, subject to the conditions set forth below,
Borrower (at the direction of Airlease) shall be entitled, to the
exclusion of Lender, notwithstanding the existence of one or more other
Events of Default, to exercise in good faith having due regard for the
interests of Lender, all of the remedies of the lessor under the Lease,
including
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<PAGE> 4
without limitation, the right to declare the Lease in default under
Article 18 thereof, to terminate the Lease with Lessee, and to re-lease
the Aircraft pursuant to a lease reasonably satisfactory in form and
substance to Lender to one or more successive third party lessees each
of which shall be an air carrier certificated by the Federal Aviation
Administration and be capable of maintaining the Aircraft pursuant to a
maintenance program reasonably satisfactory to Lender, and each of
which lessee or lessees shall be approved in writing by Lender.
Airlease's right to direct Borrower to exercise the foregoing rights
and powers is conditional upon (1) there being no existing Loan Default other
than under Section 4.01(a) of the Loan Agreement and (2) compliance by Borrower,
Airlease or a third party lessee approved by Lender pursuant to the preceding
paragraph with all requirements of the Lease, to the extent that noncompliance
could have a material adverse affect on the value of the Collateral including,
without limitation, Section 6.05 (maintenance) and Sections 12.01 and 12.02
(insurance) of the Lease.
Notwithstanding the foregoing, Lender reserves the right to call the
Note pursuant to Section 2.10(a)(iv) of the Loan Agreement.
4. Further Assurances. Airlease agrees that at any time and from time
to time, upon the written request of Lender, Airlease will promptly and duly
execute and deliver any and all such further instruments and documents as Lender
may deem desirable in obtaining the full benefits of this Instructions and
Consent Agreement and the Loan Agreement and of the rights and powers herein or
therein granted.
5. Action by Airlease. Except as provided herein, Airlease will not
without the prior written consent of Lender:
(a) declare a default or exercise any remedies under, or terminate, modify
or accept a surrender of, or offer or agree to any termination, modification or
surrender of, any Assigned Agreement or by affirmative act consent to the
creation or existence of any security interest or other Lien (other than the
security interest and Lien of the Loan Agreement) to secure payment of
indebtedness upon the leasehold estate created by the
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<PAGE> 5
Lease or any part thereof, or upon any of Airlease's and Borrower's rights under
the Assignment Agreement, Purchase Agreement, TBT Note and TBT Lease; or
(b) sell, mortgage, transfer, assign or hypothecate (other than to Lender)
Airlease's and Borrower's interests in the Aircraft, Lease, Assignment
Agreement, Purchase Agreement, TBT Note and TBT Lease, provided that Airlease
may sell, transfer or assign (other than any sale, transfer or assignment for
security) all of Airlease's interest in any Aircraft or portion thereof and the
Assigned Agreements to the extent related to such Aircraft owned through the
Trust to any affiliate of Airlease or, with Lender's consent (which consent
shall not be unreasonably withheld, and which shall be given or denied promptly
after any request) to any Person organized under the law of any state of the
United States, which has a consolidated net worth of $25 million or more, so
long as (i) such purchaser, transferee or assignee (the "Transferee") assumes
all obligations of Airlease under this Instructions and Consent Agreement, the
Trust Agreement and the Assigned Agreements to the extent any such agreements
relate to the Aircraft or portion thereof being transferred, (ii) Airlease
transfers all interest in the Trust Agreement and each of the Assigned
Agreements to the extent an,7 such agreements relate to the Aircraft or portion
thereof being transferred, and (iii) no Loan Default has occurred and is
continuing; and provided further, Airlease may remove the Trustee and appoint a
successor Trustee under the Trust Agreement without regard to any net worth
requirements so long as such successor Trustee is an affiliate of Airlease. Upon
a transfer of all, but not less than all, of Airlease's right, title and
interest in the Aircraft and the Assigned Agreements to a Person which is not an
affiliate of Airlease in compliance with this Section 5, Airlease shall be
released of all obligations under this Instructions and Consent Agreement.
6. Notice of Default. In the event Airlease shall have actual knowledge
of a Loan Default or an event or condition which after notice or lapse of time
or both would constitute a Loan Default, Airlease shall give notice of such Loan
Default or such event or condition to Lender, Borrower and Lessee.
7. Indemnification. Airlease hereby agrees, whether or not any of the
transactions contemplated hereby shall be consummated, to assume liability for,
and does hereby indemnify, protect, save and keep harmless Lender and its
successors, assigns, agents and
5
<PAGE> 6
servants, from and against any and all liabilities (including strict tort
liability), obligations, losses, damages, penalties, taxes (excluding any taxes,
fees or other charges on, based on, or measured by, its gross or net receipts or
its gross or net income, or any business or similar taxes, any transfer taxes,
or any withholding taxes related to the payment of principal, Prepayment
Premium, if any, or interest on the Note to Lender), claims, actions, suits,
costs, expenses or disbursements (including reasonable legal fees and expenses)
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Collateral or Lender (whether or not also indemnified
against by any other Person under any other document) in any way relating to or
arising out of this Instructions and Consent Agreement, the Loan Agreement, the
Note, the Lease or the enforcement of any of the terms of any thereof, or in any
way relating to or arising out of the manufacture, purchase, acceptance,
nonacceptance, rejection, ownership, delivery, lease, registration, possession,
use, operation, condition, sale, return or other disposition of the Aircraft
(including, without limitation, latent and other defects, whether or not
discoverable, and any claim for patent, trademark or copyright infringement), or
in any way relating to or arising out of the administration of the Collateral or
the action or inaction of Borrower, Airlease or Lender except only in the case
of willful misconduct or gross negligence of Lender, or in any way relating to
or arising out of the TBT Lease or the IBM Consent Agreement (including, without
limitation, any breach by Lender of the TBT Lease or the IBM Consent Agreement
or the last sentence of Section 15.09 of the Loan Agreement); provided that
Lender shall not make any claim under this section for any claim or expense
indemnified against by Lessee under the Lease or Purchase Agreement.
8. Consent of Lender. Neither Borrower nor Airlease shall enter into
any amendment of, or supplement to, the Lease, the Trust Agreement, the Purchase
Agreement, the Assignment Agreement, the TBT Note or the TBT Lease, or execute
and deliver any waiver or modification of, or consent or approval under, the
terms of any such agreement, unless such supplement, amendment, waiver,
modification, consent or approval is consented to in writing by Lender, which
consent shall not be unreasonably withheld. Lender shall give or deny such
request promptly after receipt of written instructions therefor.
9. Lender Protected. If in the opinion of Lender any document required
to be executed pursuant to the terms of Section
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<PAGE> 7
9.01 of the Loan Agreement adversely affects any right, duty, immunity or
indemnity in favor of Lender under this Instructions and Consent Agreement, the
Loan Agreement, the Assignment Agreement, the Purchase Agreement, the Lease, the
TBT Note or the TBT Lease, Lender may in its discretion decline to execute such
document.
10. Representations and Warrants of Airlease. Airlease covenants,
warrants and represents that:
(a) Airlease is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of California;
(b) Airlease has the full power and authority to enter into and perform
its obligations under this Instructions and Consent Agreement, the Purchase
Agreement, the Trust Agreement and the Assignment Agreement, and has full power
and authority to perform its obligations under the TBT Lease;
(c) There are no proceedings pending, or to the knowledge of Airlease
threatened, and to the knowledge of Airlease, there is no existing basis for any
such proceedings, against or affecting Airlease in any court or before any
governmental authority or arbitration board or tribunal which, if adversely
determined, might materially and adversely affect the Collateral or would call
into question the right, power and authority of Airlease to enter into or
perform this Instructions and Consent Agreement, the Assignment Agreement, the
Trust Agreement, the TBT Lease or the Purchase Agreement;
(d) The Collateral is free and clear of any Liens attributable to
Airlease. Airlease has not by affirmative act conveyed any interest in the
Collateral to any Person or subjected the Collateral to any Lien except as
contemplated by the Loan Agreement;
(e) Airlease is not in violation in any material respect of any term of
this Instructions and Consent Agreement, the Trust Agreement, the Assignment
Agreement, the TBT Lease or the Purchase Agreement;
(f) Airlease has no actual knowledge of any Default or Event of Default
by Lessee or any other condition or event which may materially adversely affect
Lessee's ability to comply with
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<PAGE> 8
any of the terms of the Lease; Airlease has no notice or knowledge of any other
Loan Default;
(g) This Instructions and Consent Agreement, the Assignment Agreement,
the Purchase Agreement and the Trust Agreement have been duly authorized by all
necessary action on the part of Airlease, have been duly executed and delivered
by Airlease, and constitute (assuming the due authorization, execution and
delivery of such agreements by the other parties thereto) the valid and binding
obligations of Airlease enforceable against it with regard to any undertakings
by Airlease pursuant to the terms thereof;
(h) The execution and delivery of this Instructions and Consent
Agreement, the Assignment Agreement, the Trust Agreement and the Purchase
Agreement and compliance by Airlease with all of the provisions hereof and
thereof do not and will not contravene any law of the United States or the State
of California governing the powers of Airlease, or any order of any court or
governmental authority or agency applicable to or binding on Airlease or the
provisions of its limited partnership agreement; and
(i) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body of the United
States or the State of California governing the powers of Airlease is required
for the due execution, delivery and performance of this Instructions and Consent
Agreement, the Purchase Agreement, the Trust Agreement or the Assignment
Agreement by Airlease.
11. Payments to Borrower. Airlease agrees to pay and deliver all Rent
and any other monies due under or arising out of the Lease actually received by
Airlease under the Lease to Borrower to the extent necessary to allow Borrower
to perform its obligations under the Note and the Loan Agreement.
Notwithstanding any other provisions of this Instructions and Consent Agreement,
all payments of principal and interest to be made under the Note and under the
Loan Agreement shall be made only from the income and proceeds from the Lease
and the security interests in the Aircraft, Airframes, Engines, Parts, the
Purchase Agreement, the Assignment Agreement, the TBT Lease and the TBT Note and
only to the extent of Borrower's and Airlease's interest thereto, except for
Excepted Property. Lender agrees that it will look solely to the income and
proceeds from the Lease and the security interests described above to the extent
available for
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distribution to the Lender as provided in the Loan Agreement, that the Note
shall be nonrecourse to Airlease and Borrower, and that Airlease and Borrower
shall not be personally liable to the holder of the Note for any amount payable
under the Note or the Loan Agreement.
12. Successors and Assigns. All covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, Lender and its
successors and permitted assigns, Airlease and its successors and permitted
assigns, and Borrower and its successors, all as herein provided.
13. Headings. The headings of the various Sections herein are for
convenience of reference only and shall not define, limit or expand any of the
terms or provisions hereof.
14. Severability. Any provision of this Instructions and Consent
Agreement which is prohibited and unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
15. Governing Law. This Instructions and Consent Agreement shall in all
respects be governed by, and construed in accordance with, the laws of the State
of California, including all matters of construction, validity and performance.
This Instructions and Consent Agreement is being delivered in the State of
California.
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IN WITNESS WHEREOF, the parties hereto have caused this Instructions
and Consent Agreement to be duly executed by their duly authorized officers, as
of the day and year first above written.
AIRLEASE:
AIRLEASE LTD., A CALIFORNIA
LIMITED PARTNERSHIP
By AIRLEASE MANAGEMENT
SERVICES, INC., as General
Partner
By /s/ Douglas C. Kay
---------------------------------
Title President
------------------------------
LENDER:
THE WORLD WING COMPANY LIMITED, a
corporation formed and existing under the
laws of the Bahamas
By /s/ T. Watanabe
---------------------------------
Title Treasurer
------------------------------
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Exhibit 10.9
================================================================================
LEASE AGREEMENT
(N7379F)
Dated as of November 6, 1986
between
GATX LEASING CORPORATION,
as Lessor
and
NEW YORK AIRLINES, INC.,
as Lessee
One Boeing 737-2CO
Passenger Aircraft
Manufacturer's Serial Number 20071
FAA Registration Number N7379F
Two Pratt & Whitney JT8D-9 Engines
================================================================================
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article/Section Page
- --------------------
<S> <C> <C>
1. Definitions......................................................... 2
2. Effective Date; Commencement of Term................................ 7
2.01 Time and Place................................................. 7
2.02 A Letting Only................................................. 7
2.03 Conditions to Delivery......................................... 7
3. Term ............................................................... 10
4. Rent ............................................................... 10
4.01 Basic Rent.................................................... 10
4.02 Supplemental Rent............................................. 10
4.03 Prohibition Against Setoff, Counterclaim, etc................. 11
4.04 Waiver of Certain Rights of Lessee............................ 11
4.05 Manner and Place of Payment................................... 11
5. Representation and Warranties: Covenants of Lessee.................. 11
5.01 Lessor's Representations and Warranties; Delivery Condition... 11
5.02 Lessee's Representations and Warranties....................... 12
6 Possession; Use; Lawful Insured Operations; Maintenance;
Registration and Insignia .......................................... 13
6.01 Possession.................................................... 13
6.02 Assignment by Lessee.......................................... 16
6.03 Use........................................................... 16
6.04 Lawful Insured Operaitions.................................... 16
6.05 Maintenance................................................... 16
6.06 Registration and Insignia..................................... 16
7. Inspection: Financial Information................................... 17
7.01 Inspection.................................................... 17
7.02 Financial Information......................................... 17
8. Lessee's Covenants.................................................. 18
8.01 Corporate Existence........................................... 18
8.02 Merger........................................................ 19
8.03 Certificated Air Carrier...................................... 20
8.04 .............................................................. 20
9. Replacement and Pooling of Parts; Alterations, Modifications
and Additions....................................................... 20
9.01 Replacement of Parts.......................................... 20
9.02 Title to Replaced and Replacement Parts....................... 20
9.03 Pooling....................................................... 21
9.04 Alterations, Modifications and Additions...................... 21
9.05 Credit for Approved Modifications............................. 22
</TABLE>
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<TABLE>
<S> <C> <C>
10. Tax Indemnity....................................................... 22
10.01 Scope....................................................... 23
10.02 Contest..................................................... 24
10.03 After-Tax Nature of Indemnity .............................. 24
10.04 Payment..................................................... 24
11. Assignment.......................................................... 24
11.01 Assignment of Lease to Continental.......................... 24
12. Loss; Destruction, Requisition Etc. ................................ 24
12.01 Event of Loss with Respect to the Aircraft................. 24
12.01(A) Replacement of Airframe and Engines........................ 24
12.01(B) Payment of Stipulated Loss Value and Rent.................. 25
12.01(C)............................................................ 25
12.01(D) Payment of Basic Rent Pending Replacement.................. 25
12.01(E) Conditions to Replacement of Aircraft...................... 26
12.01(F) Recordation and Opinions................................... 27
12.01(G) Conveyance................................................. 27
12.02 Event of Loss with Respect to an Engine....................... 27
12.02(A) Event of Loss.............................................. 27
12.02(B) Conditions; Lessee's Obligations........................... 27
12.02(C) Recordation and Opinions................................... 28
12.02(D) Conveyance; Replacement Engine............................. 28
12.02 (E) No Reduction of Basic Rent............................... 28
12.03 Application of Payments from Governmental Authorities for
Requisition of Title...................................... 28
12.03 (A) Replacement of Airframe and Engines...................... 29
12.03 (B) Replacement of Engine.................................... 29
12.03 (C) Nonreplacement........................................... 29
12.04 Requisition for Use by the United States Government of
the Airframe and the Engines Installed Thereon.............. 29
12.05 Requisition for Use by Government of an Engine.............. 30
12.06 Application of Payments During Existence of Event of
Default..................................................... 30
13. Insurance .......................................................... 30
13.01 Public Liability and Property Damage Liability Insurance... 30
13.02 Insurance Against Loss or Damage to the Aircraft............ 31
13.03 War-Risk Insurance.......................................... 32
13.04 Application of Proceeds in an Event of Loss................. 32
13.05 Application of Proceeds in the Absence of an Event of Loss.. 33
13.06 Reports, etc................................................ 33
13.07 Governmental Indemnification in Lieu of Insurance........... 33
13.08 Lessor's Additional Insurance............................... 33
14. General Indemnification............................................. 34
14.01 Scope....................................................... 34
14.02 Exceptions.................................................. 34
14.03 Lessee's Release............................................ 34
</TABLE>
ii
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<TABLE>
<S> <C> <C>
14.04 Contest..................................................... 35
14.05 Repayment................................................... 35
14.06 Payment..................................................... 35
15. Liens ............................................................ 35
16. FAA Recordation and Further Assurances.............................. 36
16.01 FAA Recordation............................................. 36
16.02 Further Assurances.......................................... 36
17. Return of Items and Records......................................... 36
17.01 Time and Place.............................................. 36
17.02 Condition................................................... 36
17.03 Time and Cycle Adjustment-Airframe.......................... 37
17.04 Time and Cycle Adjustment-Engine............................ 37
17.05 Special Markings............................................ 38
17.06 Inspection Upon Redelivery.................................. 38
17.07 Return Delivery Flight...................................... 38
17.08 Manuals; Service Bulletins, Etc............................. 38
17.09 Return of Other Engines..................................... 38
17.10 Fuel........................................................ 39
17.11 Storage Upon Return......................................... 39
17.12 Certain Airworthiness Directives............................ 39
17.13 Maintenance at Lessor's Request............................. 39
17.14 Failure to Return Aircraft.................................. 39
17.15 Aid in Disposition.......................................... 40
18. Events of Default................................................... 40
19. Rights and Remedies................................................. 42
19.01 Remedies.................................................... 42
19.02 Further Rights.............................................. 43
19.03 Definition of Fair Market Value............................. 43
19.04 Remedies Cumulative......................................... 43
20. Miscellaneous....................................................... 44
20.01 Construction and Applicable Law............................. 44
20.02 Notices..................................................... 44
20.03 Lessor's Right to Perform................................... 45
20.04 Counterparts................................................ 45
20.05 Transfer of Interest by Lessor.............................. 45
20.06 Assignment of Warranties.................................... 45
20.07 Surviva..................................................... 46
20.08 Successors and Assigns...................................... 46
21. Renemal and Purchase Options........................................ 46
21.01 Lessor's Election........................................... 46
21.02 Renewal Options............................................. 46
21.03 Purchase Option............................................. 47
</TABLE>
iii
<PAGE> 5
ATTACHMENTS TO LEASE AGREEMENT:
Exhibit A - Lease Supplement
Exhibit B - Stipulated Loss Values
Exhibit C - Permitted Foreign Air Carriers
Exhibit D - FAA Recording Information
1
<PAGE> 6
LEASE AGREEMENT
(N7379F)
LEASE AGREEMENT, dated as of November 6. 1986 (this "Lease"), between
GATX LEASING CORPORATION, a Delaware corporation ("Lessor"), and NEW YORK
AIRLINES, INC. a Delaware corporation ("Lessee").
RECITALS
1. Lessor, as successor in interest to GATX Second Aircraft
Corporation, and Frontier Airlines, Inc., a Nevada corporation ("Frontier") are
parties to a Lease dated November 7. 1969, which has been amended by an
Extension and Option Agreement and Amendment of Lease dated October 1, 1981, an
Amendatory Agreement to Extension and Option Agreement and Amendment of Lease
dated September 23. 1982, a Second Amendatory Agreement to Extension and Option
Agreement and Amendment of Lease dated as of August 22, 1984, and a Restated
Second Amendatory Agreement to Extension and Option Agreement and Extension of
Lease dated as of January 15, 1985, covering, among others, one Boeing Model
737-2CO aircraft, Manufacturer's Serial No. 20071, FAA Registration No. N7379F,
and two Pratt & Whitney JT8D-9 engines, Manufacturer's Serial Nos. P674314B and
P674384B, respectively (each of which has more than 750 takeoff rated horsepower
or the equivalent thereof). (Such Lease, as amended, is hereafter called the
"GATX/Frontier Lease");
2. The GATX/Frontier Lease was duly recorded by the Federal Aviation
Administration as indicated on Exhibit D hereto;
3. Frontier, Frontier Leaseco One, Inc., a Nevada corporation, and
Frontier Leaseco Two, Inc., a Nevada corporation, (collectively, the "Frontier
Companies") are presently debtors and debtors-in-possession in Chapter 11 cases
pending in the United States Bankruptcy Court for the District of Colorado (the
"Bankruptcy Court").
4. Pursuant to that certain Asset Purchase Agreement dated September
15, 1986 between Texas Air Corporation ("TAC") and the Frontier Companies (the
"Asset Purchase Agreement"), the GATX/Frontier Lease is to be assumed by
Frontier and assigned to the Lessee.
5. The Asset Purchase Agreement was approved by order of the Bankruptcy
Court, dated October 17, 1986.
6. All conditions precedent to closing required to be satisfied on or
before the Closing Date under the Asset Purchase Agreement have been satisfied
or waived by the parties thereto.
7. Pursuant to the terms of an Assumption and Assignment Agreement
("Assignment Agreement") and an Agreement Concerning Assumption of New Leases
("Assumption Agreement") with respect to the Aircraft, (collectively the
"Assignment and
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<PAGE> 7
Assumption Agreements"), the obligations of Frontier with respect to the
Aircraft under the GATX/Frontier Lease have been assumed by the Lessee.
8. Lessor and Lessee have agreed that, effective upon the Closing Date,
the GATX/Frontier Lease will be amended and restated as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein set forth, Lessor and Lessee hereby agree that the
GATX/Frontier Lease with respect to the Aircraft (as defined below) is hereby
amended and restated as follows:
SECTION 1
Definitions
Unless context requires otherwise, the following terms shall have the
following meanings for all purposes of this Lease and such meanings shall be
equally applicable to both the singular and the plural forms of the terms
defined:
"Aircraft" means the Airframe (as defined below) together with the two
Engines initially installed on the Airframe when delivered and leased hereunder
or any Engine substituted for any such Engine, whether or not such initial or
substituted Engine may from time to time no longer be installed on the Airframe
or may be installed on any other airframe or on any other aircraft.
"Airframe" means (i) the Boeing 737-2CO passenger aircraft more
specifically described in the Lease Supplement (except for any engines or
Engines from time to time installed thereon); (ii) any Replacement Airframe; and
(iii) any and all Parts incorporated or installed therein or attached thereto
or, so long as title thereto shall remain vested in the Lessor or a Transferee
in accordance with the terms of Section 9 hereof, removed therefrom.
"Basic Rent" means the rent payable pursuant to Section 4.01 hereof, or
during any Renewal Term, the rent payable pursuant to Section 21.01.
"Basic Rent Payment Date" means each date on which Basic Rent is
payable pursuant to Section 3 of the Lease Supplement.
"Business Day" means any day other than a Saturday, Sunday or day on
which commercial banking institutions in Houston, Texas, New York, New York or
San Francisco, California are authorized by law to be closed.
"Code" means the Internal Revenue Code of 1954, as amended from time to
time, and analogous provisions of any successor statute.
"Commencement Date" means the effective date of this Lease Agreement,
which date shall be the date of the Lease Supplement covering the Aircraft.
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<PAGE> 8
"Continental" means Continental Airlines, Inc., a Delaware corporation,
and its successors and permitted assigns.
"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.
"Engine" means: (i) each of the two Pratt & Whitney JTBD-9 turbofan
engines listed by manufacturers' serial numbers in the Lease Supplement whether
or not from time to time thereafter installed on the Airframe or on any other
airframe or on any other aircraft; (ii) any engine which may from time to time
be substituted or be a replacement for any such engine pursuant to Section 12 or
17 hereof; and (iii) any and all Parts incorporated or installed in or attached
thereto or, so long as title thereto shall remain vested in the Lessor or a
Transferee in accordance with the terms of Section 9 hereof, removed therefrom;
provided, however, that the term "Engine" shall not include any engine with
respect to which this Lease shall have been terminated.
"Event of Default" has the meaning specified in Section 18.
"Event of Loss" means, with respect to any Item of Equipment, any of
the following: (i) loss of such Item or the use thereof due to theft,
disappearance for a period of 30 consecutive days or more, destruction, damage
beyond repair or rendition of such Item permanently unfit for normal use for any
reason whatsoever; (ii) any damage to such Item which results in an insurance
settlement with respect to such Item on the basis of a total loss; (iii) the
condemnation, confiscation, seizure, or requisition of title to such Item, (iv)
the confiscation or seizure of, or requisition of use of, such Item for a period
in excess of 180 consecutive days, other than a requisition for use by the
Government (unless and until such Item shall have been modified or adapted
during such requisition in such a manner as would render conversion of such Item
for use in normal commercial passenger service impractical or uneconomical); (v)
as a result of any rule, regulation, order or other action by the FAA or other
governmental body having jurisdiction, the use of such Item in the normal course
of interstate air transportation of persons shall have been prohibited for a
period of six consecutive months unless Lessee, prior to the expiration of such
six-month period, shall have caused to be undertaken and diligently carried
forward all steps which are necessary or desirable to permit the use of such
property in the normal course of interstate air transportation or in any event,
if such use shall have been prohibited for a period of twelve consecutive
months: or (vi) any divestiture of title to an Engine treated as an Event of,
Loss Pursuant to Section 6.01 or other provision hereof: or (vii) the operation
or location of the Aircraft, while under requisition for use be the Government
in any area excluded from coverage by any insurance policy in effect with
respect to the Aircraft required by Section 13, if Lessee shall be unable to
obtain an indemnity in lieu thereof from the Government. An Event of Loss with
respect to the Aircraft shall be deemed to have occurred if an Event of Loss
occurs with respect to the Airframe.
"FAA" means, as context requires, the United States Federal Aviation
Administration and/or the Administrator of the United States Federal Aviation
Administration, or
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<PAGE> 9
any person, governmental department, bureau, commission or agency succeeding to
the functions of either of the foregoing.
"Federal Aviation Act" means the United States Federal Aviation Act of
1958, as amended, as in effect on the date of this Lease, or any successor or
substituted legislation at the time in effect and applicable.
"Flight Hour" means each hour or portion thereof during each period
commencing with the start of the takeoff run and concluding when the Aircraft
touches down upon landing.
"Foreign Air Carrier" means a "foreign air carrier" as such term is
defined in the Federal Aviation Act as to which there is in force a permit
issued pursuant to Section 402 of such Act.
"Government" means the government of the United States of America or
any instrumentality or agency thereof (provided the credit of such
instrumentality or agency is backed by the full faith and credit of the
government of the United States of America).
"Guaranty" means a guaranty of Texas Air Corporation of the Lessee's
obligations under this Lease, in form and scope satisfactory to Lessor.
"Hereby", "herein", "hereof", "hereunder", and other like words shall
refer to this Lease as originally executed or as amended, modified or
supplemented pursuant to the applicable provisions of this Lease, including,
without limitation, as supplemented by the Lease Supplement.
"Incentive Rate" with respect to any amount means a rate of interest
equal to the Prime Rate plus 2%, in each case computed on the basis of actual
days elapsed over a 360 day year but in no event greater than the maximum rate
permitted by applicable.
"Independent Appraisal" with respect to the determination of the fair
market value or fair market rental value of the Aircraft means an appraisal
conducted by three nationally recognized independent appraisers, one of which
shall be chosen by the Lessor, one by the Lessee, and a third appraiser chosen
by the mutual consent of the first two appraisers, which three appraisals shall
be averaged and such average shall be deemed to be the fair market value or fair
market rental value of the Aircraft as the case may be.
"Initial Sublease" means the Sublease Agreement, dated the date Lessee
and Continental, in form and scope satisfactory to Lessor.
"Initial Sublease Assignment" means an assignment to Lessor of all
Lessee's right, title, and interest in and to the Initial Sublease, in form and
scope satisfactory to Lessor.
"Item of Equipment" or "Item" means the Aircraft, the Airframe, and of
the Engines or any Part.
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<PAGE> 10
"Lease" means this agreement, as supplemented by the Lease Supplement,
and as the same may be modified, amended or supplemented from time to time
pursuant to the applicable provisions hereof.
"Lease Supplement" means the Lease Supplement, substantially in the
form of Exhibit A hereto, to be entered into by Lessor and Lessee on the
Commencement Date for the purpose of leasing the Aircraft pursuant to the terms
of this Lease."
"Lessor's Cost" for the Aircraft means $6,750,000.
"Lessor's Liens" means liens arising as a result of (i) claims against
or affecting Lessor (or a Transferee) not related to the transactions
contemplated by this Lease; or (ii) acts or omissions of Lessor (or a
Transferee) not related to the transactions contemplated by this Lease or not
contemplated thereunder; or (iii) taxes imposed against Lessor (or a Transferee)
not indemnified against by Lessee pursuant to Section 10 hereof; or (iv) claims
against Lessor (or a Transferee) arising out of the voluntary transfer, without
the consent of Lessee, of its interest in the Aircraft, other than transfers
pursuant to Sections 12 or 19 of this Lease.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
exercise of rights, security interest or claim.
"Manufacturer" means the Boeing Company, a Delaware corporation, and
its successors and assigns.
"Parts" means any and all appliances, parts, instruments, accessories,
furnishings, seats and other equipment of whatever nature (other than complete
Engines or engines), which are from time to time incorporated or installed in or
attached to the Airframe or any Engines, or having been so installed or
attached, are later removed therefrom, so long as title thereto remains vested
in the Lessor or a Transferee, in accordance with Section 9 hereof.
"Permitted Air Carrier" means (i) any solvent United States Air Carrier
which is not in default in the payment of or otherwise in material default in
connection with its obligations for borrowed money or the deferred purchase
price of aircraft or lease of aircraft and is meeting its material financial
obligations as and when they fall due or (ii) any Foreign Air Carrier listed on
Exhibit C hereto, provided, however, that Lessor may, in the exercise of its
reasonable business judgment, by written notice to Lessee, remove any Foreign
Air Carrier from Exhibit C and provided, further, that Foreign Air Carrier be
added to Exhibit C, subject to Lessor's being understood and agreed that no such
consent shall be required to be given to any Foreign Air Carrier which does not
perform maintenance, preventive maintenance and inspection for the Aircraft
and/or any Engine to standards which are approved by, or which are substantially
equivalent to those required by the FAA.
"Permitted Sublessee" means a sublessee meeting the qualifications set
forth in Sections 6.01 (G) and (H).
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<PAGE> 11
"Prime Rate" means a fluctuating rate equal to the rate of interest
publicly announced from time to time by Wells Fargo Bank, N.A.. San Francisco,
California, as its prime rate.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Replacement Airframe" means a Boeing model 737-200 passenger aircraft
or an improved model airframe of the same manufacturer (except Engines or
engines from time to time installed thereon) which shall have been leased
hereunder pursuant to Section 12.01 (A), together with all Parts relating
thereto so long as the same shall be incorporated or installed therein or
attached thereto or, so long as title thereto shall remain vested in the Lessor
or a Transferee, in accordance with the terms of Section 9 hereof, removed
therefrom.
"Replacement Engine" means a Pratt & Whitney model JT8D-9 engine (or an
improved model engine of the same manufacturer which is suitable for
installation and use on the Airframe and fully compatible with the other Engine
installed on the Airframe) which shall have been substituted for an Engine
leased hereunder pursuant to Section 12.02 or 17.09, together with all Parts
relating thereto so long as the same, shall be incorporated-or installed therein
or attached thereto or, so long as title thereto shall remain vested in the
Lessor or a Transferee, in accordance with the terms of Section 9 hereof,
removed therefrom.
"Stipulated Interest Rate" means a fluctuating rate per annum equal to
the Prime Rate plus 1%, computed on the basis of actual days elapsed over a 365-
or 366-day year, as the case may be.
"Stipulated Loss Value" for the Aircraft means, as of any date of
determination, the amount determined by multiplying the Lessor's Cost for the
Aircraft by the percentage set forth in Exhibit B hereto opposite the Basic Rent
Payment Date next preceding such date of determination (or, if such date of
determination is a Basic Rent Payment Date, by the percentage set forth opposite
such Basic Rent Payment Date). "Stipulated Loss Value" as of any date of
determination for the Airframe, any Engine, or part thereof means a portion of
the Stipulated Loss Value for the Aircraft, computed as of such date, which
bears the same ratio to such Stipulated Loss Value for the Aircraft as the
original cost to the Lessor of the Airframe or such Engine or part bears to
Lessor's Cost for the Aircraft.
"Supplemental Rent" shall mean all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay hereunder to
Lessor or others.
"Term" shall mean the period for .which the Aircraft is leased pursuant
to Section 3 hereof. If such period is extended pursuant to Section 21.01
hereof, the word "Term" shall be deemed to refer to such period as so extended,
and all provisions of this Lease shall apply until the expiration date of such
period, except as may be otherwise specifically provided herein.
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<PAGE> 12
"Texas Air" means Texas Air Corporation, a Delaware corporation, and
its successors and permitted assigns.
"Transferee" means any person to whom Lessor shall have transferred all
or any portion of its interest in the Items of Equipment, this Lease, or any
proceeds thereof, pursuant to Section 20.05 hereof.
"United States Air Carrier" means any "air carrier" as defined in the
Federal Aviation Act as to which there is in force a certificate issued pursuant
to Section 401 of such Act.
SECTION 2
Effective Date; Commencement of Term
2.01. Time and Place. Subject to the satisfaction of the conditions set
forth in Section 2.03 hereof, Lessor agrees to deliver and lease the Aircraft to
Lessee hereunder, and upon such delivery, Lessee shall accept the Aircraft
hereunder, as evidenced by the execution by Lessor and Lessee of the Lease
Supplement. Lessor shall authorize one or more employees of Lessee as the
authorized representative of Lessor to accept delivery of the Aircraft on
Lessor's behalf. Lessee hereby agrees that such acceptance of delivery by such
authorized representative shall, without further act, irrevocably constitute
acceptance by Lessee of the Aircraft for all purposes of this Lease, and
thereupon the Aircraft shall be deemed subject to this Lease.
2.02. A Letting Only. At all times during the Term, full legal title to
the Items of Equipment shall remain vested in the Lessor (or a Transferee, as
the case may be), to the exclusion of Lessee, notwithstanding the delivery of
the Items of Equipment to, and the possession and use thereof by, Lessee.
2.03. Conditions to Delivery. Lessor's obligation to deliver and lease
the Items of Equipment to Lessee hereunder shall be subject to satisfaction of
the following conditions:
(A) On the Commencement Date, the following statements shall be
correct, and Lessor shall have received evidence satisfactory to it that:
(1) The GATX/Frontier Lease covering the Aircraft shall have been
assumed by Frontier, and assigned to Lessee, with the approval of the Bankruptcy
Court, and the obligations of Frontier thereunder shall have been assumed by
Lessee pursuant to the terms of the Assignment and Assumption Agreements, and
all monetary defaults thereunder as of the Closing Date shall have been cured by
payment of the amounts set forth in the Consent Agreement dated the Closing Date
with respect to the Aircraft.
(2) either (i) Lessor shall have good and marketable title to the
Engines or engines installed on the Aircraft, free and clear of all Liens other
than Permitted Liens, (ii) Lessee shall have acquired title to, or the right to
lease, any engine not owned by Lessor which is currently installed on the
Airframe, or (iii) Lessee shall have made arrangements reasonably
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<PAGE> 13
satisfactory to Lessor with respect to the purchase or leasing by Lessee of any
airframe on which any Engine may be installed;
(B) On or before the Commencement Date. Lessor shall have received:
(1) written evidence of appropriate corporate action, certified
by the Secretary or an Assistant Secretary of Lessee, duly authorizing or
ratifying the lease of the Items of Equipment hereunder and the execution,
delivery and performance of this Lease, together with an incumbency certificate
as to the person or persons authorized to execute and deliver said,
certification and said documents on behalf of Lessee;
(2) the Lease Supplement, the Initial Sublease, the Initial
Sublease Assignment, and the Guaranty, each duly executed by the parties
thereto;
(3) certificates executed by independent aircraft insurance
brokers as to Lessee's compliance with the insurance provisions of Section 13
hereof:
(4) an opinion of special counsel to Lessee, or other counsel
(who may be in-house counsel) satisfactory to Lessor, dated the Commencement
Date, to the effect that:
(a) Lessee (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware, (ii) is a "citizen of
the United States" within the meaning of Section 101(16) of the Federal Aviation
Act, (iii) is duly certificated as an air carrier of passengers under the laws
of The United States, and (iv) holds a certificate of convenience and necessity
for purposes of 11 U.S.C. Section 1110;
(b) the execution, delivery and performance by Lessee of this
Lease, the Lease Supplement, the Initial Sublease, and the Initial Sublease
Assignment, the consummation by Lessee of the transactions contemplated herein
and therein and compliance by Lessee with the terms and provisions hereof and
thereof are within Lessee's corporate powers, will not result in a violation of
Lessee's charter or by-laws as in effect on the date of such opinion; and, to
the knowledge of such counsel, will not conflict with, or result in a breach of
any term or provision of, or constitute a default under, or result in the
imposition of any Lien upon the Lease or any Item of Equipment under, any
indenture, mortgage, or other agreement or instrument to which Lessee is a party
or by which it or any of its properties is or may be bound, or contravene or
result in the violation of any existing applicable law, rule or regulation, or
any judgment, order or decree, of any government, governmental instrumentality
or court having jurisdiction over Lessee or any of its properties;
(c) this Lease, the Lease Supplement, the Initial Sublease and
the Initial Sublease Assignment have each been duly authorized, executed and
delivered by Lessee, and each such instrument is a legal, valid and binding
obligation of Lessee, enforceable against Lessee in accordance with its terms,
except as its enforceability may be limited by general principles of equity and
by bankruptcy, insolvency, reorganization and other laws of general application
affecting the enforcement of creditors' rights;
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<PAGE> 14
(d) no authorization or approval of, giving of notice to, or
filing or recording with, any regulatory body or authority is a condition to the
validity or enforceability of this Lease or Lessee's performance of the terms
hereof; and
(e) such other matters as Lessor may reasonably request.
(5) an opinion of special counsel to Texas Air, or other counsel (who
may be in-house counsel) satisfactory to Lessor, dated the Commencement Date, to
the effect that:
(a) Organization and Qualification. Texas Air (I) is a
corporation duly incorporated and validly existing in good standing
under the laws of the State of Delaware; (ii) is a "citizen of the
United States" within the meaning of Section 101(16) of the Act; (iii)
has the corporate power and authority to carry on its business as
presently conducted, to own or hold under lease its properties and to
enter into and perform its obligations under the Guaranty; and (iv) is
duly qualified to do business as a foreign corporation in good standing
in each state in which the conduct of its business makes such
qualification necessary;
(b) Corporate Authority, Etc. The execution, delivery and
performance of the Guaranty have been duly authorized by all necessary
corporate action on the part of Texas Air, do not require any
stockholder approval or approval or consent of any trustee or holders
of indebtedness or obligations of Texas Air or any of its subsidiaries
or of any lessor under any lease to Texas Air or any of its
subsidiaries, except such as have been duly obtained, and do not and
will not contravene any law, judgment, governmental rule, regulation or
order applicable to or binding on Texas Air or any of its subsidiaries
or the Certificate of Incorporation or by-laws of Texas Air or
contravene or result in any breach of, or constitute a default under,
or result in the creation of any Lien upon any Property of Texas Air or
any of its subsidiaries under any indenture, mortgage, chattel
mortgage, deed of trust, conditional sales contract, lease, note or
bond purchase agreement, license, bank loan or other credit agreement
or other contract, agreement or instrument to which Texas Air or any of
its subsidiaries is a party or by which Texas Air or any of its
subsidiaries or their respective properties may be bound or affected;
(c) Government Approvals. Neither the execution and delivery by
Texas Air of the Guaranty, nor the consummation of any of the
transactions contemplated thereby, requires the consent or approval of,
the giving of notice to, or the registration with, or the taking of any
other action in respect of, any Federal, state or foreign governmental
authority or agency or court;
(d) Valid and Binding Agreements. The Guaranty has been duly
executed an delivered by Texas Air and constitutes a legal, valid and
binding obligation of Texas Air enforceable against Texas Air in
accordance with its terms, except as its enforceability may be limited
by general principle of equity and by
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<PAGE> 15
bankruptcy, insolvency, reorganization and other laws of general
application affecting the enforcement of creditor's rights;
(6) an opinion of special counsel to Continental, or other counsel (who
may be in-house counsel) satisfactory to Lessor, dated the Commencement Date,
satisfactory in form and scope to Lessor.
(7) a certificate of a duly authorized officer of Lessee, dated the
Commencement Date, to the effect that:
(a) the representations and warranties contained in Section 5.02
hereof are true and correct on and as of such date as though made on and as of
such date, and all authorizations and approvals of, givings of notice to, and
filings and recordings with, all regulatory bodies and authorities which may be
conditions to the validity or enforceability of this Lease or Lessee's
performance of the terms hereof have been duly accomplished; and
(b) no Default or Event of Default has Occurred and is continuing,
or would result from the lease of the Items of Equipment;
(8) evidence satisfactory to Lessor confirming that this Lease and the
Lease Supplement, the Initial Sublease and the Initial Sublease Assignment have
each been duly filed with the FAA;
(9) such other documents as Lessor may reasonably request, in form and
substance satisfactory to Lessor.
SECTION 3
Term
The Term of this Lease shall commence on the Commencement Date and
shall expire on the date set forth in the Lease Supplement.
SECTION 4
Rent
4.01. Basic Rent. Lessee hereby agrees to pay Lessor Basic Rent for the
Aircraft throughout the Term, in eighty-three (83) monthly installments, in
advance, on each Basic Rent Payment Date which shall each be in an amount equal
to $115,000.
4.02. Supplemental Rent. Lessee shall also pay to Lessor or, at
Lessor's direction to whomsoever shall be entitled thereto, any and all
Supplemental Rent promptly as the same shall become due and payable. Lessee
shall pay to Lessor, as Supplemental Rent, interest at the
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<PAGE> 16
Incentive Rate on any part of any installment of Rent not paid on the due date
thereof for any period for which the same shall be overdue.
4.03. Prohibition Against Setoff, Counterclaim. Etc. Except as
expressly provided herein. Lessee's obligation to pay Rent hereunder shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation: (A) any setoff, counterclaim, recoupment, defense
or other right or claim which Lessee may have against Lessor. (B) any defect in
the title, condition, design, operation or fitness for use of, or any damage to
or loss or destruction of, any Item of Equipment or any interruption or
cessation-in the use or possession thereof by Lessee, (C) any insolvency,
bankruptcy, reorganization or similar proceeding brought by or against Lessor or
Lessee, or (D) any breach or alleged breach by Lessor of any representation,
warranty or covenant of Lessor made herein or in connection herewith, including,
without limitation, the representations, warranties and covenants of Lessor
contained in Section 5.01 hereof.
4.04. Waiver of Certain Rights of Lessee. Lessee hereby waives, to the
extent permitted by law, all rights (other than those expressly provided for
herein) now or hereafter conferred upon it by statute or otherwise to terminate
or surrender this Lease or any Item of Equipment or to any abatement,
suspension, deferment, diminution or reduction of Rent. Each payment of Rent
shall be absolutely final and net to Lessor, so that this Lease will yield to
Lessor the full amount of the installments of Rent throughout the term without
deduction.
4.05. Manner and Place of Payment. All amounts to be paid by Lessee
hereunder shall be paid by wire transfer of immediately available funds,
consisting of lawful currency of the United States of America, to Lessor's
account (No. 4075-013060: Route 2AU371) at Wells Fargo Bank, N.A., Market and
Montgomery Branch, San Francisco, California, or to such other account as Lessor
shall designate in writing. Whenever any payment of Basic Rent or Supplemental
Rent is due on a day other than a Business Day such payment shall be made on the
next succeeding Business Day.
SECTION 5
Representations and Warranties: Covenants of Lessee
5.01. Lessor's Representations and Warranties: Delivery Condition.
LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-IS", AND LESSOR DOES
NOT MAKE NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN,
OPERATION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY ITEM OF
EQUIPMENT OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT THERETO, and any risks with respect thereto shall be
assumed by Lessee, except that Lessor represents that it has the lawful right to
lease the Aircraft to Lessee in accordance with the terms hereof.
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<PAGE> 17
5.02. Lessee's Representations and Warranties. Lessee represents,
warrants and covenants that:
(A) Lessee (i) is a corporation duly organized, validly existing and in
good standing under the laws of Delaware; (ii) is duly certificated as an air
carrier of passengers under the laws of the United States; and (iii) holds a
"certificate of convenience and necessity issued by the Civil Aeronautics Board"
within the meaning of 11 U.S.C. Section 1110;
(B) the execution and delivery by Lessee of this Lease, the Lease
Supplement, the Initial Sublease and the Initial Sublease Assignment, the
consummation by Lessee of the transactions contemplated herein and therein and
compliance by Lessee with the terms and Provisions hereof are within Lessee's
corporate powers, will not result in a violation of Lessee's charter or by-laws
as currently in effect; and will not conflict with, or result in a breach of any
term or provision of, or constitute a default under, or result in the imposition
of any Lien upon the Lease or any Item of Equipment under, any indenture,
mortgage, or other agreement or instrument to which Lessee is a party or by
which it or any of its properties, is or may be bound, or any existing
applicable law, rule or regulation, or any judgment, order or decree, of any
government, governmental instrumentality or court having jurisdiction over
Lessee or any of its properties;
(C) upon its delivery hereunder no Item of Equipment shall become
subject to any Lien except for such, if any, as is permitted by Section 15
hereof;
(D) this Lease, the Lease Supplement, the Initial Sublease and the
Initial Sublease Assignment have each been duly authorized, executed and
delivered by Lessee, and are the legal, valid and binding obligations of Lessee,
enforceable against Lessee in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization and
other laws of general application affecting the enforcement of creditors'
rights;
(E) neither the execution and delivery by Lessee of this Lease, Lease
Supplement, the Initial Sublease or the Initial Sublease Assignment, nor the
consummation of any of the transactions by Lessee contemplated hereby or
thereby, requires the consent or approval of, or the giving of notice to, or the
registration with, or the taking of any other action in respect of, the FAA, the
Department of Transportation, the SEC, any court (including any bankruptcy
court) or any other federal or state or foreign governmental authority or
agency, except for the filings referred to in Section 2.03 (B)(7), and filings
pursuant to any routine recording or regulatory requirements applicable to
Lessee.
(F) except as disclosed in the prospectus dated October 30, 1986 of
Texas Air, there are no suits or proceedings pending or, to the knowledge of
Lessee, threatened before any court or regulatory commission, board or other
governmental agency which, in Lessee's opinion, might have a material adverse
effect on the financial condition or business of Lessee, or the ability of
Lessee to perform its obligations under this Agreement.
SECTION 6
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<PAGE> 18
Possession; Use; Lawful Insured Operations;
Maintenance; Registration and Insignia
6.01. Possession. Lessee shall not without Lessor's prior written
consent sublease or otherwise deliver, relinquish or transfer Possession of the
Aircraft or any Engine or Item of Equipment or install any Engine, or permit any
Engine to be installed, on any airframe other than the Airframe, provided,
however, that, so long as no Default or Event of Default shall have occurred and
be continuing, and so long as all applicable approvals of the FAA and the
Department of Transportation have been obtained for such purpose Lessee may:
(A) subject or permit a Permitted Sublessee to subject the Airframe
to normal interchange agreements or any Engine to normal interchange or pooling
agreements or arrangements in each case customary in the United States
commercial airline industry and entered into by Lessee or such Permitted
Sublessee in the ordinary course of its business, provided that (i) no such
agreement or arrangement contemplates, requires or results in the transfer or
divestiture of title to or encumbrance of, the Aircraft, the Airframe or any
Engine and (ii) if Lessor's (or its Transferee's) title to the Aircraft, the
Airframe or any Engine shall be transferred or divested under any such agreement
or arrangement, such transfer or divestiture shall be deemed to be an Event of
Loss with respect thereto and Lessee shall comply with Section 12.01 or 12.02 in
respect thereof;
(B) deliver or permit a Permitted Sublessee to deliver possession of
the Airframe or any Engine or Part to the manufacturer thereof for testing or
other similar purposes or to any organization for service, repair, maintenance
or overhaul work on the Airframe or such Engine or such Part or for alterations
or modifications in or additions to the Airframe or such Engine or such Part to
the extent required or permitted by the terms of Sections 9.01 and 9.04;
(C) transfer or permit any Permitted Sublessee, if required by law to
do so, to transfer possession of the Aircraft, Airframe or any Engine to the
Government pursuant to the Civil Reserve Air Fleet Program administered pursuant
to Executive Order No. 10999, as amended, or any similar or substitute programs,
so-long as such transfer of possession does not continue beyond the end of the
Term and so long as Lessee shall (A) promptly notify Lessor upon the subjection
of the Airframe or any Engine to such program and provide Lessor with the name
and address of the appropriate party to whom notice must be given pursuant to
Section 20 hereof, and (B) promptly notify Lessor upon transferring possession
of the Airframe or any Engine to the Government pursuant to such program;
(D) install or permit a Permitted Sublessee to install any Engine on
an airframe owned by Lessee free and clear of all Liens, except (i) those of the
type permitted by Section 15 hereof and those which apply only to the engines
(other than Engines), appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment (other than Parts) installed on
such airframe (but not to the airframe as an entirety) and (ii) the rights of
other air carriers under normal interchange agreements which are customary in
the United States
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commercial airline industry and do not contemplate, permit or require the
transfer of title to the airframe or engines installed thereon;
(E) install or permit a Permitted Sublessee to install any Engine on an
airframe registered under the laws of the United States and leased to Lessee or
such Permitted Sublessee or purchased by Lessee or such Permitted Sublessee
subject to a conditional sale or other security agreement, but only if (i) such
airframe is free and clear of all Liens except the rights of the parties to the
lease or conditional sale or other security agreement covering such airframe and
except Liens of the type permitted by clauses (i) and (ii) of Section 6.01 (C),
and (ii) Lessee or such Permitted Sublessee shall have received from the lessor
or secured party of such airframe a written agreement (which may be the lease or
conditional sale or other security agreement covering such airframe), in form
and substance satisfactory to such parties, whereby such lessor or secured party
expressly agrees that neither it nor its successors or assigns will acquire or
claim any right, title or interest in any Engine by-reason of such Engine being
installed on such airframe at any time while such Engine is subject to this
Lease, or owned by Lessor (or a Transferee);
(F) install or permit a Permitted Sublessee to install an Engine on an
airframe owned by Lessee or such Permitted Sublessee, leased to Lessee or such
Permitted Sublessee or purchased by Lessee or such Permitted Sublessee subject
to a conditional sale or other security agreement under circumstances where
neither subparagraph (C) nor subparagraph (D) of this Section 6.01 is
applicable, provided that such installation shall be deemed an Event of Loss
with respect to such Engine and Lessee shall comply with Section 12.02 in
respect thereof;
(G) sublease the Aircraft in the ordinary course of business to any
Permitted Air Carrier, and under arrangements which provide for the use of such
property for a total period not exceeding 36 months during any 48-month period;
provided that (i) the term (including any option of the sublessee to renew or
extend) of any such sublease shall not continue beyond the fourteenth
anniversary of the Commencement Date, and (ii) such Permitted Air Carrier shall
not have the right to further sublease the Aircraft;
(H) sublease the Aircraft in the ordinary course of business to a
United States Air Carrier which is a Permitted Air Carrier owned or controlled
by Texas Air, provided that (i) the term of such sublease (including any option
of the sublessee to renew or extend) shall not continue beyond the expiration of
the Term, (ii) such sublessee shall not have the right to further sublease the
Aircraft, (iii) such sublessee shall remain owned or controlled by Texas Air,
and (iv) neither Texas Air nor such sublessee shall then be the subject of any
bankruptcy or insolvency proceedings and none of the events specified in Section
18 (H), (1) or (J) shall have occurred and be continuing.
Provided, further with respect to this Section 6.01, that:
(1) the rights of any transferee who receives possession by reason of a
transfer permitted by this Section 6.01 (other than the transfer of an Engine
which is deemed an Event of Loss) shall be subject and subordinate to, and any
sublease permitted by this Section 6.01 shall be made expressly subject and
subordinate to, all the terms of this Lease, and to Lessor's rights,
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<PAGE> 20
powers and remedies thereunder, including the rights to repossession pursuant to
Section 19 and to terminate and avoid such sublease upon such repossession and
to require such sublessee to forthwith deliver the Aircraft, Airframe and
Engines subject to such sublease upon such repossession:
(2) Lessee shall remain primarily liable hereunder for the performance
of all the terms of this Lease to the same extent as if such sublease or
transfer had not occurred;
(3) any such sublease shall be consistent with the requirements of this
Lease and the applicable requirements of the Indemnity Agreement, and shall
include appropriate provisions for the continued registration, maintenance,
operation, insurance and return of the subleased property as required hereunder,
and for the avoidance of such sublease or any use of the subleased property
thereunder if the same would result in Lessor (or a Transferee) losing any
portion of the tax benefits which would otherwise be available to Lessor (or a
Transferee):
(4) no permitted interchange agreement, transfer, sublease or other
relinquishment of possession permitted hereunder shall affect the United States
registration of the Aircraft;
(5) in the case of any such sublease, Lessee shall have duly executed
and delivered to Lessor an assignment of such sublease in favor of Lessor in
form and substance reasonably satisfactory to Lessor;
(6) in connection with any such sublease, all necessary action shall be
taken which is required to continue the perfection of Lessor's (or any
Transferee's) title and interest in and to the Aircraft, Airframe and Engines
and in such sublease, Lessor's rights under this Lease, Airframe and Engines and
in and to such sublease; in and to the Aircraft, such sublease, sublease
assignment and all other necessary documents shall be duly filed, registered or
recorded in such public offices as may be required or advisable fully to
preserve the title of, and the priority of the interest of, Lessor (or any
Transferee) in and to the Aircraft, Airframe and Engines and in and to such
sublease and this Lease; and Lessor and any Transferee shall have received a
favorable opinion of counsel for Lessee to such effect; and
(7) Lessee shall give written notice to Lessor at least 10 days prior
to the commencement of a sublease permitted by this Section 6.01 naming the
Permitted Air Carrier which will be the Permitted Sublessee under such Sublease.
Lessee shall deliver to Lessor promptly after execution thereof a duly executed
copy of any sublease or interchange or pooling agreement permitted hereunder. No
interchange agreement, sublease, transfer or other relinquishment of possession
of the Aircraft, Airframe or any Engine shall in any way discharge or diminish
any of Lessee's obligations to Lessor hereunder, or under the Indemnity
Agreement. In the event Lessee shall have received from the lessor, conditional
seller, indenture trustee or secured party of any airframe lease to, or
purchased by, Lessee or any Permitted Sublessee subject to a lease, conditional
sale, trust indenture or other security agreement a written agreement complying
with clause (E) of Section 6.01, Lessor hereby agrees for the
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benefit of such lessor, conditional seller, indenture trustee or secured party
that Lessor will not acquire or claim, as against such lessor, conditional
seller, indenture trustee or secured party, any right, title or interest in any
engine as the result of such engines being installed on the Airframe at any time
while such engine is subject to such lease, conditional sale, trust indenture or
other security agreement and owned by such lessor or conditional seller or
subject to a trust indenture or security interest in favor of such indenture
trustee or secured party.
6.02. Assignment by Lessee. Except as expressly permitted herein,
Lessee shall not assign this Lease or any interest in this Lease or any of its
rights hereunder or in any item of Equipment, and any such purported assignment
shall be void ab initio.
6.03. Use. Lessee shall use the Items of Equipment solely in commercial
operations for which Lessee is duly authorized. Lessee shall not use, or permit
the use of, any Item of Equipment for any purpose for which it is not suitable.
Lessee shall strictly enforce FAA regulations relating to the transport of
restricted articles. As between Lessor and Lessee. Lessee shall pay for and
provide all electric power, oil, fuel and lubricant consumed by and required for
the operation of the Aircraft.
6.04. Lawful Insured Operations. Lessee will not cause or permit any to
be maintained, used or operated in violation of any law, treaty, statute, rule,
regulation or order of any government or governmental authority having
jurisdiction or contrary to any manufacturer's operating manuals and
instructions, or, in the case of the Aircraft and the Engines, in violation of
any airworthiness certificate or registration relating thereto, except to the
extent Lessee is contesting in good faith the validity or application of such
law, rule, regulation or order in any reasonable manner which does not
materially adversely affect Lessor's interest in the Aircraft. Lessee agrees not
to operate any Item, or suffer such Item to be operated, (A) unless such Item is
covered by insurance as required by the provisions of Section 13 hereof, or (B)
contrary to the terms of the insurance required by the provisions of Section 13
hereof.
6.05. Maintenance. Lessee, at its own expense, shall: (A) cause the
Items of equipment to be serviced, repaired, overhauled and maintained (i) by
FAA-certificated personnel, (ii) in accordance with Lessee's FAA approved Part
121 maintenance program and the operations and maintenance manuals of the
manufacturers thereof, (iii) so as to keep such Item in as good operating
condition and appearance as when delivered to Lessee hereunder, ordinary wear
and tear excepted, and (iv) so as to keep such Item in such operating condition
as may be necessary to enable the air worthiness certificate of such Item to be
maintained in good standing at all times under the applicable rules and
regulations of the FAA, except to the extent Lessee is contesting in good faith
the validity or applicability of such rule or regulation in any reasonable
manner which does not materially adversely affect Lessor's interest in the
Aircraft. Lessee, at its own expense, shall also maintain all records, logs and
other materials required by the FAA to be maintained in respect of each Item of
Equipment and promptly furnish to Lessor upon Lessor's written request such
information as may be required to enable Lessor to file any reports required to
be filed with any governmental authority because of Lessor's interest in the
Aircraft.
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6.06. Registration and Insignia. Lessee shall not take or abet any
action inconsistent with the continued registration of the Aircraft in the name
of the Lessor under the Federal Aviation Act. Lessee shall on or before the
Commencement Date, affix (A) in the cockpit of the Airframe, in a prominent
location adjacent to the airworthiness certificate for the Aircraft, and (B) on
each Engine, in a prominent location, a metal nameplate bearing the inscription
"GATX Leasing Corporation, Owner and Lessor," or such other inscription
reflecting the interests of the Lessor and any Transferee as Lessor may request.
Lessee shall not allow the name of any other person association or corporation
to be placed on the Airframe or any Engine as a designation that might be
interpreted as a claim of ownership or of any interest therein; provided,
however, that Lessee may cause the Airframe to be, lettered or otherwise marked
in an appropriate manner for convenience of identification of the interest of
Lessee or any permitted sublessee therein.
SECTION 7
Inspection: Financial Information
7.01. Inspection. During the Term, Lessee shall furnish to Lessor such
information concerning the location, condition, use and operation of the Items
of Equipment as Lessor may reasonably request. Lessee shall permit any person
designated in writing by Lessor to, at Lessor's expense, visit and inspect (at
any reasonable time, provided that such inspection shall not interfere with
Lessee's operational commitments) the Items of Equipment, their condition, use
and operation and the records maintained in connection therewith and, at
Lessee's expense, to make copies of such records as Lessor may reasonably
designate. Lessor 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.
7.02. Financial Information. The Lessee also agrees to furnish to the
Lessor during the Term:
(A) as soon as possible and in any event within ten (10) days after
the occurrence of a Default or an Event of Default, a certificate of the Lessee,
signed by a vice president of the Lessee, setting forth in detail the nature of
such Default or Event of Default and the action which the Lessee proposes to
take with respect thereto;
(B) as soon as available, and in any event within sixty (60) days
after the end of each of the first three (3) fiscal quarters, an unaudited
balance sheet of the Lessee and its consolidated subsidiaries, as of the end of
such quarter and related unaudited statements of income and retained earnings of
the Lessee and its consolidated subsidiaries, setting forth in each case in
comparative form the corresponding figures for the corresponding period of the
proceeding fiscal year:
(C) as soon as available, and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Lessee, a financial report
for the Lessee for such year, including therein a balance sheet of the Lessee as
of the end of such fiscal year and related
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<PAGE> 23
statements of income and retained earnings and changes in financial position of
the Lessee for such fiscal year, setting forth in each case in comparative form
corresponding figures for the preceding fiscal year, all in reasonable detail
and as certified by the Lessee's independent public accountants, including their
certificate and accompanying comments;
(D) within 120 days after the close of each fiscal year of Lessee, a
certificate, of a responsible financial officer of Lessee to the effect that the
signer has reviewed the relevant terms of the Lease and the Indemnity Agreement
and has made, or caused to be made, under his supervision, a review of the
transactions and condition of Lessee and its subsidiaries during the accounting
period covered by the financial statements referred to in clause (ii) above, and
that such review has not disclosed the existence during such accounting period,
nor does the signer have knowledge of the existence as at the date of such
certificate, of any condition or event which constitutes an Event of Default or
Default, or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action Lessee has taken or is
taking or proposes to take with respect thereto;
(E) within thirty days after receiving service of process or equivalent
notice, written notice of any litigation, including arbitrations, involving any
claim in excess of $10,000,000 and of any proceeding by or before any
governmental agency which litigation or proceeding is not frivolous in nature
and which, if adversely determined, could materially adversely affect the
properties, business, prospects or financial condition of Lessee and its
subsidiaries on a consolidated basis;
(F) promptly upon the sending or filing thereof, copies of all proxy
statements, financial statements and reports which the Lessee may file with the
Securities and Exchange Commission or any person, governmental bureau,
commission or agency succeeding to the functions thereof so long as the same is
available for review by the public;
(G) from time to time such information as the Lessor may reasonably
request with respect to the financial condition and operations of the Lessee in
order to determine whether the covenants, terms and provisions of this Lease
have been complied with by the Lessee.
Section 8
Lessee's Covenants
Lessee covenants and agrees that, during the Term:
8.01. Corporate Existence. Except as permitted by Section 8.02, Lessee
shall at all times maintain its corporate existence. Lessee will do or cause to
be done all things necessary to preserve and keep in full force and effect its
rights (charter and statutory) and franchises; except that Lessee shall not be
required to preserve any right or franchise if its board of directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of Lessee and if the loss thereof does not materially adversely
affect or diminish the rights of Lessor
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or any Transferee or the ability of Lessee to perform its obligations under the
Lease and the Indemnity Agreement.
8.02. Merger. Lessee shall not consolidate with or merge into any other
corporation, or convey, transfer or lease all of substantially all of its assets
as an entirety to any person, unless:
(A) Certain Conditions. The corporation formed by such consolidation
or merger or the person which acquires by conveyance, transfer or lease all or
substantially all of the assets of Lessee as an entirety (the "Successor") (i)
shall be a corporation organized and existing under the laws of the United
States of America or any State or the District of Columbia, (ii) shall be a
"citizen of the United States" as defined in Section 101(16) of the Act (iii)
shall be an air carrier (as defined in Section 101(13) of the Act) certificated
under Sections 401 and 604(b) of the Act, (iv) shall execute and deliver to
Lessor and each Transferee an agreement in form and substance satisfactory to
Lessor and each Transferee containing an assumption by the Successor of the due
and punctual performance and observance of each covenant and condition of the
Lease and any sublease assignment and (v) shall make such filings and
recordings, including any filing or recording with the FAA pursuant to the Act,
as shall be necessary or desirable to evidence such consolidation, merger,
conveyance, transfer or lease with or to the Successor;
(B) No Default. Immediately after giving effect to such transaction,
(i) no Default or Event of Default shall have occurred and be continuing and
(ii) the ability of Lessee to perform its obligations under this Lease shall not
be materially adversely affected by such transaction;
(C) Certificate and Opinion. Lessee shall have delivered to Lessor
and each Transferee an officer's certificate and an opinion of counsel
satisfactory to each of them, each stating that such consolidation, merger,
conveyance, transfer or lease and the assumption agreement described in Section
8.02 (A) comply with this Section 8.02 that the agreements entered into to
affect such consolidation, merger, conveyance, transfer or lease and such
assumption agreement are legal, valid and binding obligations of the Successor,
enforceable in accordance with their respective terms, and that all conditions
precedent herein provided for relating to such transaction have been complied
with.
Upon any such consolidation, merger, conveyance, transfer or lease, the
Successor shall succeed to be substituted for, and may exercise every right and
power of Lessee under the Lease and Indemnity Agreement to which Lessee is a
party with the same effect as if the Successor had been named as Lessee therein.
No such conveyance transfer or lease of substantially all the assets of Lessee
as an entirety shall have the effect of releasing Lessee or any Successor which
shall theretofore have become such in the manner prescribed in this Section 8.02
from its liability hereunder. Nothing contained herein shall permit any lease,
sublease or other arrangement for the use, operation or possession of the
Aircraft except in compliance with the applicable provisions of the Lease.
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8.03. Certificated Air Carrier. Lessee will continue to be a
certificated air carrier authorized to engage in scheduled domestic passenger
air transportation under the Act and Lessee shall be otherwise certified or
registered to the extent necessary to fall within the purview of, and to provide
to Lessor the benefits contemplated by, 11 U.S.C. Section 1110 or any analogous
section of the federal bankruptcy laws, as amended from time to time.
8.04. Lessee will pay or cause to be paid all taxes, assessments and
governmental charges or levies imposed upon it or upon its income and profits,
or upon any property belonging to it, prior to the date on which penalties
attach thereto and all lawful claims, which, if not paid, might become a lien or
charge upon the property of Lessee; provided, however, that Lessees shall not be
required to pay any such tax, assessment, charge, levy or claim the payment of
which is being contested in good faith and by appropriate proceedings, but only
so long as such proceedings do not involve any material danger of material
adverse impact on business interests of Lessor or of the sale, forfeiture or
loss of any Item of Equipment or interest therein.
SECTION 9
Replacement and Pooling of Parts;
Alterations, Modifications and Additions
9.01. Replacement of Parts. Lessee, at its cost and expense, shall
promptly replace all Parts which may from time to time become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever. In addition, in the ordinary
course of maintenance, service, repair, overhaul or testing, Lessee may remove
any Part, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use; provided that
Lessee shall replace such Part as promptly as practicable. All replacement Parts
shall be free and clear of all Liens, except Liens permitted by Section 15 and
pooling arrangements permitted under Section 9.03 hereof 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.
9.02. Title to Replaced and Replacement Parts. All Parts removed or any
Engine shall remain the property of the Transferee) and subject to this Lease,
no matter where located, until such time as such Parts shall be replaced by
Parts which have been Incorporated or installed in or attached to the Airframe
or such Engine and which meet the requirements for replacement Parts specified
above. Immediately upon any replacement Part becoming incorporated, installed or
attached to the Airframe or an Engine as above provided, without further act,
(A) title to the replaced Part shall thereupon vest in Lessee, free and clear of
all rights of the Lessor (and any Transferee); (B) such replaced Part shall no
longer be deemed a Part hereunder; (C) title to the replacement Part shall
thereupon vest in the Lessor (or its Transferee), (subject to no Lien other than
Liens permitted by Section 15 and pooling arrangements permitted by Section
9.03); and (D) such replacement Part shall become subject to this Lease and be
deemed to be a Part hereunder to the same extent as the Parts originally
incorporated or installed in or attached to the Airframe or such Engine.
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9.03. Pooling. Any Part removed from the Airframe or Engine as provided
in Sections 9.01 and 9.02 may be subjected to a normal pooling arrangement
customary in the United States commercial airline industry entered into by
Lessee or a Permitted Sublessee in the ordinary course of its business, provided
that the Part replacing such removed Part shall be incorporated or installed in
or attached to the Airframe or such Engine in accordance with this Section as
promptly as possible after the removal of such removed Part. Any replacement
Part when incorporated or installed in or attached to the Airframe or an Engine
in accordance with such Sections may be owned by an air carrier subject to such
a normal pooling arrangement, provided that Lessee, at its expense, as promptly
thereafter as possible, either (i) causes title to such replacement Part to vest
in the Lessor (or its Transferee) in accordance with such Section by Lessee
acquiring title thereto for the benefit of, and transferring such title to, the
Lessor (or its Transferee) free and clear of all Liens (except Liens permitted
by Section 15) or (ii) replaces such replacement Part by causing to be
incorporated or installed in or attached to the Airframe or such Engine a
further replacement Part owned by Lessee free and clear of all Liens (except
Liens permitted by Section 15) and by causing title to such further replacement
Part to vest in the Lessor (or its Transferee) in accordance with such Sections.
9.04. Alterations, Modifications and Additions. Lessee, at its own
expense, will make such alterations and modifications in and additions to the
Airframe and the Engines as may be required from time to time to meet the
standards of the FAA or other governmental authority having jurisdiction and to
maintain the Standard Certificate of Airworthiness for the Aircraft provided,
however, that Lessee may in good faith and by appropriate procedures contest the
validity or application of such requirements in any reasonable manner which does
not materially adversely affect the Lessor's (or any Transferee's) interest in
the Aircraft. In addition, Lessee, at its own expense, may, from time to time,
make such alterations and modifications in and additions to the Airframe or any
Engine as Lessee may deem desirable in the proper conduct of its business,
including, without limitation, removal of Parts which Lessee deems obsolete, or
no longer suitable or appropriate for use in the Airframe or such Engine;
provided that no such alteration, modification, addition or removal shall
diminish the value or utility of the Airframe or such Engine, or impair the
condition or airworthiness thereof below the value, Utility, condition and
airworthiness thereof immediately prior to such alteration, modification,
addition or removal, assuming the Airframe or such Engine was then of the value
and utility and in the condition and airworthiness
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<PAGE> 27
required to be maintained by the terms of this Lease. Title to all Parts
incorporated or installed in or attached or added to the Airframe or such Engine
as the result of such alteration, modification or addition shall, without
further act, vest in the Lessor (or its Transferee), notwithstanding the
foregoing sentence of this Section 9.04., so long as no Default or Event of
Default shall have occurred and be continuing, Lessee may, at any time during
the Term, remove any Part, provided that (i) such Part is in addition to, and
not in replacement of or substitution for (x) any Part originally incorporated
or installed in or attached to the Airframe or such Engine at the time of
delivery thereof hereunder, or (y) any Part in replacement of, or substitution
for any such Part (ii) such Part is not required to be incorporated or installed
in or attached or added to the Airframe or such Engine pursuant to the terms of
this Section 9.04, and (iii) such Part can be removed from the Airframe or such
Engine without causing material damage to the Airframe or such Engine and
without diminishing or impairing the value, utility, condition or airworthiness
required to be maintained by the terms of this Lease which the Airframe or such
Engine would have had at such time had such alteration, modification or addition
not occurred. Upon the removal by Lessee of any Part as provided in the
immediately preceding two sentences, title thereto shall, without further act,
vest in Lessee and such Part shall no longer be deemed part of the Airframe or
the Engine from which it was removed. Any Part not removed by Lessee as provided
in such sentence prior to the return of the Airframe or Engine to Lessor
hereunder shall remain the property of the Lessor (or its Transferee).
9.05. Credit for Approved Modifications. At the option of Lessee,
Lessor will allow a credit for Approved Modifications (as defined below) to the
Aircraft in an amount not to exceed $150.000. The credit will be available
against invoices endorsed by Lessee evidencing completion of Approved
Modifications. As used herein an "Approved Modification" means a change in
equipment approved by Lessor that enhances the value of the Aircraft by an
amount substantially equivalent to the cost of such change (such as replacement
of hatracks with wide-body overhead luggage bins).
SECTION 10
Tax Indemnity
10.01. Scope. Lessee shall hold Lessor and any Transferee and their
successors and assigns (each an "Indemnitee") harmless from liability for any
and all license and registration fees, taxes, levies, imposts, duties, charges,
assessments or withholdings of any nature whatsoever together with any
penalties, additions to tax, fines or interest thereon (collectively, "Taxes")
imposed against Lessor or any Item of Equipment, by any Federal, state or local
government or taxing authority in the United States, or by any taxing authority
or governmental subdivision of a foreign country, upon or with respect to any
Item of Equipment or interest therein, or upon the purchase, ownership,
delivery, leasing, possession, use, operation (including, but not limited to,
landings and take-offs), return or other disposition thereof, or upon the
rentals, receipts or earnings arising therefrom; provided, however, Lessee shall
have no such obligation with respect to:
(a) Taxes imposed on any Indemnitee which are imposed on, measured
by, or based upon the net income of such Indemnitee and Taxes that are, in
effect, similar to, in lieu of, or in substitution for such Taxes, including any
gross income taxes imposed by any jurisdiction in a foreign country and any
withholding Taxes: provided, however, that, notwithstanding the foregoing
exclusions, there shall not be excluded any Taxes imposed by any jurisdiction
(other than the United States or a jurisdiction in which such Indemnitee has its
principal place of business or is incorporated) which would not have been
imposed but for the activities in the jurisdiction of Lessee or any sublessee or
other user of the Aircraft;
(b) Taxes which are imposed upon a sale, transfer or other
disposition (whether voluntary or involuntary) by any Indemnitee of any interest
of such Indemnitee in the Aircraft, the Airframe, any Engine, any Part, or the
Lease, unless such sale, transfer or other disposition shall have occurred at
any time while an Event of Default shall be continuing or results from any
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exercise of any of the remedies as provided in or permitted by Section 19 of the
Lease or applicable law;
(c) So long as no Event shall be continuing, Taxes to the extent
incurred or imposed in respect of any period after (i) the expiration or earlier
termination of the Lease with respect to the Aircraft (other than pursuant to
Section 19 of the Lease or applicable law), and (ii) delivery of possession of
the Aircraft, as the case may be, to Lessor (or its Transferee), or placement in
storage of the Aircraft at the request of Lessor (or its Transferee) (if such
delivery or placement is required under the terms of the Lease), in each case
pursuant to Section 19 of the Lease upon such expiration or termination;
(d) Taxes which have been included in Lessor's Cost;
(e) Taxes imposed on any Indemnitee which result from the gross
negligence or willful misconduct of such Indemnitee.
10.02. Contest. If written claim is made against an Indemnitee for any
Taxes indemnified against in this Section 10, Lessor shall promptly notify
Lessee. If requested by Lessee in writing, the Indemnitee shall, upon receipt of
an indemnity satisfactory to such Indemnitee for the expenses of contest
(including, without limitation, all costs, expenses, legal and accountants' fees
and disbursements, penalties and interest) and for any liability or loss which
such Indemnitee may incur as a result of its contesting any Tax., in good faith
contest in the name of such Indemnitee (or if the contest with respect to such
Taxes concerns an aspect of such Taxes that is applicable to the possession,
maintenance, situs, lease or use of aircraft and such Taxes are not generally
applicable to the properties or assets (other than aircraft and engines) owned
or leased by such Indemnitee or any members of its consolidated group for United
States Federal income tax purposes, such Indemnitee shall, to the extent
permitted by applicable law, permit Lessee to contest in the name of such
Indemnitee) the validity, applicability or amount of such Taxes by (i) resisting
payment thereof if practicable in the Indemnitee's sole discretion. (ii) not
paying the same except under protest, if protest is necessary and proper, and
(iii) if payment is made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and judicial proceedings. If an Indemnitee shall
obtain a refund of all or any part of such Taxes paid by Lessee, such Indemnitee
shall pay Lessee the amount of such refund; provided that such amount shall not
be payable before such time as Lessee shall have made all payments of
indemnities to such Indemnitee then due under this Section 10. If in addition to
such refund an Indemnitee shall receive an amount representing interest on the
amount of such refund, Lessee shall be paid that proportion of such interest
which is fairly attributable to the Taxes paid by Lessee prior to the receipt of
such refund. Lessee shall not be deemed to be in default under any of the above
indemnification provisions so long as it or Lessor shall diligently prosecute
such contest. In case any report or return is required to be made with respect
to any obligation of Lessee under this Section 10 or arising out of this Section
10, Lessee will either make such report or return in such manner as will show
the interest of the Indemnitee in each Item of Equipment, and send a copy of
such report or return to Lessor and such Indemnitee or will notify Lessor and
such Indemnitee of such requirement and make such report or return in such
manner as shall be satisfactory to Lessor and such Indemnitee. In the event of a
contest of any Taxes hereunder, whichever of the
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Indemnitee or Lessee is prosecuting such contest shall apprise the other of all
material developments with respect to such contest, shall forward to the other
copies of all material submissions made in such contest, shall consider in good
faith any request by the other concerning the conduct of any such contest
(including with respect to the submission of materials provided by the other and
any participation by the other in the proceeding) and shall not settle or
concede any such contest without the consent of the other.
10.03. After-Tax Nature of Indemnity. Lessee further agrees that, with
respect to any payment or indemnity hereunder, such payment or indemnity shall
include any amount necessary to hold the Indemnitee harmless on an after-tax
basis from all taxes required to be paid by such Indemnitee, with respect to
such payment or indemnity under the laws of any Federal, state or local
government or taxing authority in the United States, or under the laws of any
taxing authority or governmental subdivision of a foreign country; provided
that, if such Indemnitee realizes a tax benefit by reason of such payment or
indemnity, such Indemnitee shall pay Lessee an amount equal to the sum of such
tax benefit plus any tax benefit realized as the result of any payment made
Pursuant to this provision, when, as, if and to the extent realized; but not
before Lessee shall have made all payments or indemnities to such Indemnitee
required pursuant to this Section 10; provided further, however, that if such
Indemnitee loses such tax benefit subsequent to any payment to Lessee with
respect thereto, Lessee shall indemnify such Indemnitee with respect to such
loss pursuant to the provision of this Section 10.
10.04 Payment. Subject to the provisions of Section 10.02 hereof.
Lessee shall, to the extent permissible, pay all Taxes directly and shall
reimburse an Indemnitee for all Taxes paid or payable by such Indemnitee within
30 days of receipt of notice that reimbursement is due.
SECTION 11
Assignment
11.01. Assignment of Lease to Continental. So long as (i) no Default or
Event of Default shall have occurred and be continuing, and (ii) Continental
qualifies as a Permitted Sublessee, Lessee may assign all of its right, title
and interest in the Aircraft and this Lease to Continental, provided that
Continental concurrently assumes all of Lessee's obligations under this Lease
pursuant to a written assignment and assumption agreement in form and substance
reasonably satisfactory to Lessor.
SECTION 12
Loss, Destruction, Requisition Etc.
12.01 (A). Replacement of Airframe and Engines. As promptly as
practicable, and in any event on or before the Business Day next preceding the
120th day following the date of occurrence of such Event of Loss, Lessee shall
convey or cause to be conveyed to Lessor (or its Transferee), to be leased by
Lessee hereunder in replacement thereof, a Replacement Airframe
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(which need not be a new Replacement Airframe), together with the same number of
Replacement Engines as the Engines, if any, installed on the Airframe at the
time such Event of Loss occurred, which Replacement Airframe and Replacement
Engines shall be free and clear of all Lien: (except Liens permitted by Section
15 and shall have in Lessor's sole opinion a value and utility and performance
and durability characteristics at least equal to, and which shall be in as good
operating condition as, the Airframe and Engines, if any, so replaced (for such
purpose, it shall be assumed that the Airframe and such Engines were in the
condition and repair required by the terms of this Lease). If Lessee shall not
perform its obligation to effect such replacement hereunder during the period of
time provided herein, then Lessee shall pay to Lessor, on the 120th day
following the date of occurrence of such Event of Loss in the manner and in
funds of the type specified in Section 4.06, the stipulated Loss Value for the
Aircraft in accordance with Section 12.01 (B); or
12.01 (B). Payment of Stipulated Loss Value and Rent. On or before the
Business Day next preceding the earlier of (I) the 91st day following the date
of the occurrence of such Event of Loss, or (ii) five days following the receipt
of insurance proceeds with respect to such occurrence, (the "Loss Payment Date")
Lessee shall pay to Lessor, in the manner and in funds of the type specified in
Section 4.06, an amount equal to the sum of (i) the Stipulated Loss Value
calculated as of the Basic Rent Payment Date next preceding the Event of Loss
(the "Loss Computation Date"), (ii) the installment of Basic Rent due on ,the
Loss Computation Date, (iii) all installments of Basic Rent due and unpaid as of
the Loss Computation Date, (iv) all Supplemental Rent due and owing on the Loss
Payment Date, and (v) interest on the amounts described in clause (i) and (ii)
hereof at the Stipulated Interest Rate, Lessee shall be entitled to a credit
against the amount determined in accordance with the preceding sentence an
amount equal to the sum of any amounts of Basic Rent paid by Lessee for any
period commencing after the Loss Computation Date plus (v) interest on each such
amount of Basic Rent at the Stipulated Interest Rate from the date of the
respective Rent Payment Date to the Loss Payment Date.
12.01 (C). Upon payment in full of the amounts due pursuant to Section
12.01 (B), and provided no Default or Event of Default shall have occurred and
be continuing, (i) the obligation of Lessee to pay Basic Rent hereunder with
respect to the Aircraft for any period commencing after the Loss Payment Date
shall terminate (but Lessee shall remain liable for all payments of Rent,
including Basic Rent or Renewal Rent for the Aircraft, due through and including
the date of such payment, subject, however, to the credit provided for in
Section 12.01 (B)), (ii) the Term for the Aircraft shall end, and (iii) Lessor
will (or will cause its Transferee to) transfer all of its right, title and
interest in the Aircraft to Lessee, "as-is, where-is," free and clear of
Lessor's Liens but otherwise without recourse or warranty, express or implied.
12.01 (D). Payment of Basic Rent Pending Replacement. In the event of
the replacement of the Airframe and Engines pursuant to Section 12.01 (A),
during the period between the occurrence of the Event of Loss and the date of
such replacement, the obligation of Lessee to pay Basic Rent or Renewal Rent
shall continue unchanged, except that upon such replacement, it shall become an
obligation to pay Basic Rent in respect of the Replacement Aircraft or the
Replacement Engine.
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12.01 (E). Conditions to Replacement of Aircraft. Lessee's right to
exercise the replacement options contemplated by Section 12.01. (A) with respect
to the Aircraft shall be subject to the fulfillment, in addition to the
requirements contained in Section 12.01 (A), of the conditions precedent set
forth below:
(i) No Event of Default or Default shall have occurred and be
continuing.
(ii) Lessee will promptly (all writings referred to below to be
satisfactory in form and substance to Lessor):
(a) furnish Lessor (or its Transferee) with a bill or bills of
sale duly conveying to Lessor (or its Transferee) the Replacement
Airframe and Replacement Engines, if any, together with such evidence
of title as Lessor may reasonably request;
(b) cause a Lease Supplement subjecting such Replacement Airframe
and Replacement Engines to this Lease, duly executed by Lessee, to be
delivered to Lessor for execution and, upon such execution, to be duly
filed for recordation with the FAA;
(c) furnish Lessor with such evidence of compliance with the
insurance provisions of Section 13 with respect to the Replacement
Airframe and Replacement Engines as Lessor may reasonably request.
(d) furnish Lessor with an opinion or opinions
(e) furnish Lessor with an officer's certificate stating that,
upon consummation of such replacement, no Event of Default or Default
will exist hereunder;
(f) furnish Lessor with a certificate or certification of
qualified independent aircraft engineers reasonably satisfactory to
Lessor certifying that the Replacement Airframe and Replacement Engines
have performance and durability characteristics and a value and utility
at least equal to, and are in at least as good operating condition as,
the Airframe and Engines so replaced (assuming the Airframe and Engines
were in the condition and repair required by the terms hereof
immediately prior to the occurrence of such Event of Loss); and
(g) take such other actions and furnish such other certificates
and documents as Lessor may reasonably request in order that the
Replacement Airframe and Replacement Engines be duly and properly
titled in Lessor (or its Transferee) and leased hereunder to the same
extent as the Airframe and Engines replaced thereby.
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12.01 (F). Recordation and Opinions. In the case of the Replacement
Airframe and Replacement Engines conveyed to Lessor (or a Transferee) under this
Section 12.01, promptly upon the registration of the Replacement Aircraft and
the recordation of the Lease Supplement covering the Replacement Airframe and
Replacement Engines pursuant to the Act, Lessee will cause to be delivered to
Lessor an opinion of counsel satisfactory to Lessor as to the due registration
of the Replacement Aircraft and the due recordation of such Lease Supplement and
Indenture Supplement.
12-01 (G). Conveyance. Upon compliance by Lessee of all of the terms of
this Section 12.01, Lessor will (or will cause its Transferee to) transfer all
of its right, title and interest in the replaced Airframe and Engines (if any)
installed thereon at the time such Event of Loss occurred to Lessee, "as-is,
where-is," free and clear of Lessor's Liens but otherwise without recourse or
warranty, express or implied.
12.02. Event of Loss With Respect to an Engine.
12.02 (A). Event of Loss. Upon the occurrence of an Event of Loss with
respect to an Engine under circumstances in which there has not occurred an
Event of Loss with respect to the Airframe, Lessee shall give Lessor prompt
written notice thereof and shall, as promptly as possible and in any event
within 60 days after the occurrence of such Event of Loss, convey or cause to be
conveyed to Lessor (or its Transferee), as replacement for the Engine with
respect to which such Event of Loss occurred, title to a Replacement Engine free
and clear of all Liens, other than Liens permitted by Section 15, and having
performance and durability characteristics and a value and utility at least
equal to, and being in as good operating condition as, the Engine with respect
to which such Event of Loss occurred, assuming such Engine was of the value and
utility and in the condition and repair required by the terms hereof immediately
prior to the occurrence of such Event of Loss.
12.02 (B). Conditions: Lessee's obligations. Prior to or at the time of
any such conveyance. Lessee will promptly:
(i) furnish Lessor with a bill of sale duly conveying to Lessor (or
its Transferee) such Replacement Engine, together with such evidence of
title as Lessor may reasonably request;
(ii) cause a Lease Supplement, in form and substance satisfactory to
Lessor, subjecting such Replacement Engine to this Lease, duly executed by
Lessee, to be delivered to Lessor for execution and, upon such execution,
to be duly filed for recordation with the FAA:
(iii) furnish Lessor with such evidence of compliance with the
insurance provisions of Section 13 with respect to such Replacement Engine
as Lessor may reasonably request;
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(iv) furnish Lessor with an opinion or opinions of Lessee's counsel,
in form, substance and scope satisfactory to Lessor, to the effect that,
upon such conveyance, Lessor (or its Transferee) will acquire good and
marketable title to such Replacement Engine free and clear of all Liens
other than such Liens as are permitted by Section 13, and that such
Replacement Engine will be leased hereunder to the same extent as the
Engine replaced thereby and to such further effect as Lessor may reasonably
request;
(v) furnish Lessor with an Officer's Certificate certifying that,
upon consummation of such replacement, no Event of Default or Default will
exist hereunder;
(vi) furnish Lessor with a certificate of a qualified aircraft
engineer (who may be an employee of Lessee) certifying that such
Replacement Engine has performance and durability characteristics and a
value and utility at least equal to, and is in at least as good operating
condition as, the Engine so replaced assuming such Engine was in the
condition and repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss; and
(vii) take such other actions and furnish such other certificates and
documents as Lessor may reasonably request in order that such Replacement
Engine be duly and properly titled in Lessor (or its Transferee) and leased
hereunder to the same extent as the Engine replaced thereby.
12.02 (C). Recordation and Opinions. In the case of any Replacement
Engine conveyed to any Lessor under this Section 12.02, promptly upon the
recordation of the Lease Supplement and Indenture Supplement covering such
Replacement Engine pursuant to the Act, Lessee will cause to be delivered to
Lessor an opinion of counsel satisfactory to Lessor as to the due recordation of
such Lease Supplement and Indenture Supplement.
12.02 (D). Conveyance; Replacement Engine. Upon full compliance by
Lessee with the terms of this Section 12.02, Lessor will (or will cause its
Transferee to transfer all of its right, title and interest in the Engine with
respect to which such Event of Loss occurred to Lessee, "as-is, where-is,"
free-and-clear of Lessor's Liens but otherwise without recourse or warranty,
express or implied.
12.02 (E). No Reduction of Basic Rent. No Event of Loss with respect to
an Engine under the circumstances contemplated by the terms of this Section
12.02 shall result in any reduction of basic Rent or Renewal Rent.
12.03. Application of Payments from Governmental Authorities for
Requisition of Title. Any payments (other than insurance proceeds the
application of which is provided for in Section 13) received at any time by
Lessor, Lessee or any Permitted Sublessee from any governmental authority or
other Person with respect to any Event of Loss, other than a requisition for use
by the Government not constituting an Event of Loss, will be applied as follows:
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12.03 (A). Replacement of Airframe and Engines, if such payments are
received with respect to the Airframe and the Engines (or engines) installed on
the Airframe that have been or are being replaced by Lessee pursuant to Section
12.01, such payments shall be paid over to, or retained by, Lessor, and
concurrently with such replacement be paid over to Lessee.
12.03 (B). Replacement of Engine. If such payments are received with
respect to an Engine under circumstances contemplated by Section 12.02, so much
of such payments remaining after reimbursement of Lessor and any Transferee for
costs and expenses shall be paid over to, or retained by, Lessee, but only if
Lessee shall have fully performed or concurrently therewith shall fully perform
the terms of Section 12.02 with respect to the Event of Loss for which such
payments are made.
12.03 (C). Nonreplacement. If such payments are received with respect
to the Airframe or the Airframe and the Engines or engines installed on the
Airframe, that has not or have not been and will not be replaced pursuant to
Section 12.01 or 12.02., so much of such payments remaining after reimbursement
of Lessor and any Transferee for costs and expenses as shall not exceed the
amounts payable pursuant to 12.01 (B) (in the case of the Aircraft) or the
Stipulated Loss Value (in the case of an Engine) shall be applied in reduction
of Lessee's obligation to pay such amount or such Stipulated Loss Value, if not
already paid by Lessee, or, if already paid by Lessee, shall be applied to
reimburse Lessee for its payment of such amount or such Stipulated Loss Value.
The balance, if any, of such payment remaining thereafter shall be divided
between Lessor and Lessee by (i) paying to Lessee an amount which bears the same
proportion to such balance as the value of Lessee's leasehold interest in the
Airframe or the Airframe and the Engines or engines installed thereon bears to
the fair market sales value (determined by Independent Appraisal) of the
Airframe or the Airframe and the Engines or engines installed thereon without
subtracting the value of such leasehold interest and assuming that the Event of
Loss had not occurred and (ii) paying to Lessor, or by Lessor retaining the
remaining portion of such balance. The value of Lessee's leasehold interest in
the Airframe or the Airframe and the Engines or engines installed thereon shall
be deemed to be an amount equal to the excess, if any, of (x) the fair market
rental value (determined by Independent Appraisal) of the Airframe or the
Airframe and the Engines or engines installed thereon for the remainder of the
Base Lease Term or the applicable Renewal Lease Term, as the case may be, after
discounting such fair market rental value monthly (effective on each Rental
Payment Date) by a rate equal to two percent per annum above the rate applicable
to U.S. Treasury notes maturing at the expiration of the Term (or as nearly as
possible thereto) in effect on the date of determination to present value as of
the date of the Event of Loss over (y) the value of all future installments of
Basic Rent or Renewal Rent payable with respect to the Airframe or the Airframe
and the Engines or engines installed thereon during the Base Lease Term or the
Renewal Lease Term, as the case may be, discounted to present value as of the
date of the Event of Loss in the same manner and at the same rate.
12.04. Requisition for Use by the United States Government of the
Airframe and the Engines Installed Thereon. In the event of the requisition for
use by the United States Government (the "Government") of the Airframe and the
Engines or engines installed on the Airframe during the Term, Lessee shall
promptly notify Lessor of such requisition and all of
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Lessee's obligations under this Lease shall continue to the same extent as if
such requisition had not occurred, that if the Airframe and such Engines or
engines are not returned by the Government prior to the end of the Term, then
either (x) such event will be deemed to constitute an Event of Loss and Lessee
will be obligated upon expiration of the Term to pay the amounts provided in
Section 12.01, or (y) at the option of Lessor, upon notice given by it to Lessee
not less than 30 days before the end of the Term, such event shall not be
treated as an Event of Loss and Lessee shall be obligated to return the Airframe
and such Engines or engines to Lessor pursuant to, and in all other respects to
comply with the provisions of, Section 17 promptly upon their return by the
Government. All payments received by Lessor or Lessee from the Government for
the use of the Airframe and such Engines or engines during the Term (so long as
no Event of Default shall have occurred and be continuing) shall be paid over
to, or retained by, Lessee; and all payments received by Lessor or Lessee from
the Government for the use of the Airframe and such Engines or engines after the
Term (or so long as an Event of Default shall have occurred and be continuing)
shall be paid over to, or retained by, Lessor, unless such requisition for use
by the Government is treated as an Event of Loss in which case all such payments
shall be applied in accordance with Section 12.03 (C).
12.05. Requisition for Use by Government of an Engine. In the event of
the requisition for use by the Government of any Engine (but not the Airframe),
Lessee will replace such Engine hereunder by complying with the terms of Section
12.02 to the same extent as if an Event of Loss had occurred with respect to
such Engine, and any payments received by Lessor or Lessee from the Government
with respect to such requisition shall be paid over to, or retained by, Lessee.
12.06. Application of Payments During Existence of Event of Default.
Any amount referred to in this Section 12 which is payable to lessee shall not
be paid to Lessee, or, if it has been previously paid directly to Lessee, shall
be held in trust by Lessee and shall not be retained by lessee, if at the time
of such payment a Default or Event of Default shall have occurred and be
continuing, but shall be paid to Lessor and applied against the obligations of
Lessee under this Lease, Default or Event of Default, such amount shall be paid
to Lessee.
SECTION 13
Insurance
13.01. Public Liability and Property Damage Liability Insurance.
Lessee, at its own expense, shall maintain in effect third party aircraft public
liability insurance (providing inter alia coverage with respect to liabilities
arising while the Items of Equipment are not in operation), passenger legal
liability insurance, contractual liability and property damage liability
insurance during the Term of the type, insuring against such risks, and in such
amounts as are customarily carried and maintained by corporations engaged in
interstate air transportation and in the same or similar business and similarly
situated with Lessee and with respect to aircraft and engines similar to the
Aircraft and Engines, but not less than that carried by Lessee on similar
equipment owned or leased by Lessee, provided that such liability insurance
shall in no event be less than $350,000,000 for any one accident, or series of
accidents arising out of any one event, with respect to the Items
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of Equipment. Lessee shall not self-insure with respect to any public liability
coverage except that Lessee may self-insure, by way of deductible not exceeding
the deductible which is customarily maintained by United States Air Carriers
generally, per occurrence, in respect of baggage liability insurance. In any
event all such policies shall be maintained in effect with insurers of
recognized reputation and responsibility, reasonably satisfactory to Lessor. Any
policies of insurance carried in accordance with this Section 13.01 and any
policies taken out in substitution or replacement for any of such policies
shall: (1) name Lessor and any Transferee (each an "Additional Insured") as an
additional insured as its interests may appear; (2) provide that in respect of
the interest of such Additional Insured in such policies, the insurance shall
not be invalidated by any action or inaction of the Lessee and shall insure such
Additional Insured regardless of any breach or violation of any warranty,
declarations or conditions contained in such policies by Lessee; (3) provide
that if the insurers cancel such insurance for any reason whatever, or the same
is allowed to lapse for nonpayment of premium, or if there is any substantial
change in policy terms and conditions or coverage, such cancellation, lapse or
change shall not be effective as to such Additional Insured until thirty (30)
days (7 days, or such other period as may from time to time be customarily
obtainable in the industry, in the case of war risk and allied perils coverage),
after receipt by Lessor of, written notice from such insurers of such
cancellation, lapse or change; and (4) shall provide that such Additional
Insured shall have no obligation or liability for premiums, commissions,
assessments or calls in connection with such insurance. Each liability policy
shall (i) be primary without right of contribution from any other insurance
which is carried by such Additional Insured and (ii) expressly provide that all
of the provisions thereof, except the limits of liability, shall operate in the
same manner as if there were a separate policy covering each insured.
13.02. Insurance Against Loss or Damage to the Aircraft. Lessee, at its
own expense, shall maintain in effect with insurers of recognized reputation and
responsibility reasonably satisfactory to Lessor: (A) all-risk ground and flight
aircraft hull insurance covering the Aircraft; (B) fire, transit and extended
coverage with respect to any Engine or Parts while removed from the Aircraft;
and (C) at all times that the Aircraft or any Engine is not covered by the
insurance described in Section 13.03, coverage against the perils of (i)
strikes, riots, civil commotions or later disturbance, (ii) any vandalism,
malicious act or act of sabotage, and (iii) hijacking, or any unlawful seizure
or wrongful exercise of control of the Aircraft or crew in flight made by any
person or persons on board the Aircraft without the consent of the insured other
than hijacking committed by persons engaged in a program of irregular warfare
for terrorist purposes. All such insurance shall be in full force and effect
throughout any geographical areas at any time traversed by the Aircraft, shall
be payable in dollars in the United States and shall be of the type and in such
amount as is customarily carried and maintained by United States Air Carriers
engaged in interstate and foreign air transportation and in the same or similar
business and similarly situated with Lessee; provided that such insurance shall
be for an amount not less than the Stipulated Loss Value (plus all other amounts
due and payable pursuant to Section 12) per occurrence (the "Insured Value").
Lessee may self-insure, by way of deductible or premium adjustment provisions in
insurance policies, in respect of damage not constituting an Event of Loss, the
risks required to be insured against pursuant to the preceding two sentences in
such reasonable amounts as are from time to time in effect in the aviation
insurance industry generally with respect to other similar aircraft or engines,
and which are customarily maintained by major United States commercial air
carriers generally; provided, however, such deductibles shall not be
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more than the deductibles generally maintained by Lessee with respect to its
fleet of Boeing 737 aircraft generally. Any policies carried in accordance with
this Section 13.02 shall (1) name each Additional Insured, as a loss payee as
its interests may appear; (2) provide that insurance proceeds for any loss in
excess of $1,500,000, up to the Incurred Value, shall be payable to the Lessor
for application pursuant to the provisions of this Lease: (3) provide that if
such insurance is canceled for any reason whatever, or any substantial change is
made in policy terms, conditions or coverage, or the same is allowed to lapse
for non-payment of premium, such cancellation, change or lapse shall not be
effective as to an Additional Insured for thirty (30) days (7 days, or such
other period as may from time to time be customarily obtainable in the industry,
in the case of war risk and allied perils coverage) after receipt by such
Additional Insured of written notice from such insurers of such cancellation or
lapse or change in policy terms conditions or coverage; (4) shall provide that
losses shall be adjusted with Lessee, subject to the reasonable approval of the
Lessor; (5) shall provide that in respect of the interest of such Additional
Insured in such policies the insurance shall not be invalidated by any action or
inaction of Lessee and shall insure such parties regardless of any breach or
violation of any warranties, declarations or conditions contained in such
policies by Lessee; (6) shall provide that the insurers shall waive all rights
of subrogation against such Additional Insured; (7) shall be primary without
right of contribution from any other insurance which is carried by such
Additional Insured with respect to its interest in the Aircraft; and (8) shall
provide that such Additional Insured shall have no obligations or liability for
premiums, commissions, assessments or calls in connection with such insurance.
13.03. War-Risk Insurance. If at any time the Aircraft, Airframe or any
Engine shall be operated or is proposed to be operated in any area in which
war-risk insurance is maintained by Lessee or any Permitted Sublessee subleasing
the Aircraft or any Engine with respect to other aircraft owned or operated by
Lessee or such Permitted Sublessee on the same routes, or if the Aircraft or any
other aircraft owned or operated by Lessee or such Permitted Sublessee is
operated on routes where the custom in the industry is to carry war-risk
insurance, Lessee shall maintain war-risk insurance of the type and in
substantially the amounts carried by major United States commercial air carriers
operating the same or comparable models of aircraft in such areas; such
insurance shall be in an amount not less than prudent industry practice nor less
than that specified in Sections 13.01 and 13.02 and shall cover the perils of
(i) war, invasion, acts of foreign enemies, hostilities (whether war be declared
or not), civil war, rebellion, revolution, insurrection, martial law, military
or usurped power or attempts at usurpation of power, (ii) strikes, riots, civil
commotions or labor disturbances, (iii) any act of one or more persons, whether
or not agents of a sovereign power, for political or terrorist purposes, and
whether the loss or damage resulting therefrom is accidental or intentional,
(iv) any vandalism, malicious act or act of sabotage, (v) confiscation,
nationalization, seizure, restraint, detention, diversion, requisition for title
or use by or under the order of any government (whether civil, military or de
facto) or public or local authority, and (vi) hijacking, or any unlawful seizure
or wrongful exercise of control of the Aircraft or crew in flight (including any
attempt at such seizure or control) made by any person or persons on board the
Aircraft acting without the consent of the insured.
13.04. Application of Proceeds in an Event of Loss. Provided no Default
or Event of Default occurred and be continuing, all insurance payments received
under policies required to
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be maintained by Lessee pursuant to Section 13 as the result of the occurrence
of an Event of Loss shall be applied in accordance with Section 12.03 (A), 12.03
(B), or 12.03 (C), as the case may be (except that the balance referred to in
Section 12.03 (C) shall be paid over to, or retained by, Lessee).
In any event, Lessor shall be entitled to receive all insurance
proceeds derived from insurance coverage paid for by Lessor and to apply the
same in Lessor's sole discretion.
13.05. Application of Proceeds in the Absence of an Event of Loss. As
between Lessor and Lessee, the insurance payments of any property damage loss to
the Aircraft or any Engine not constituting an Event of Loss with respect
thereto will be applied in payment for repairs or for replacement property in
accordance with the terms of Sections 6 and 9 hereof, if not already paid for by
Lessee (or to reimburse Lessee for such repairs or replacements already paid for
by Lessee), and any balance remaining after compliance with such Sections with
respect to such loss shall be paid to Lessee. Any amount referred to in the
preceding sentence or in Section 13.04 which is payable to Lessee shall not be
paid to Lessee if at the time of such payment a Default or an Event of Default
shall have occurred and be continuing, but shall be held by Lessor as security
for the obligations of Lessee under this Lease and such amount shall be paid to
Lessee at such time as there no longer exists any Default or Event of Default.
13.06. Reports, etc. On or before the Commencement Date, and annually
on the anniversary thereof, Lessee will furnish to Lessor a report signed by a
firm of independent insurance brokers, appointed by Lessee and not objected to
by the Lessor, stating that in the opinion of such firm the insurance then
carried and maintained on the Aircraft complies with the terms hereof. Lessee
will cause such firm to advise Lessor in writing promptly of any default in the
payment of any premium and of any other act or omission on the part of Lessee of
which they have knowledge which might invalidate or render unenforceable, in
whole or in part, any insurance on the Aircraft. Lessee shall also cause such
firm to advise Lessor in writing at least thirty (30) days (seven days in the
case of war risk and allied perils coverage) prior to the expiration or
termination date of any insurance policy maintained with respect to the Aircraft
pursuant to this Section 13 and of the details of the replacement policy of
insurance obtained by Lessee.
13.07. Governmental Indemnification in Lieu of Insurance. In the event
of the requisition for use by the Government of the Aircraft during the Term or
any Renewal Term. Lessee shall maintain or cause to be maintained such insurance
as would otherwise be required hereunder: provided that Lessor shall accept, in
lieu of insurance coverage, indemnification or insurance from the Government
which is substantially the same as that required hereunder.
13.08. Lessor's Additional Insurance. The Lessor at its option and at
its sole expense may obtain insurance with respect to its interest in the
Aircraft; provided that such insurance does not prevent Lessee from obtaining
the insurance required by this Section 13 and that no such insurance shall be
subject to this Section 13 nor provide for or result in a reduction in the
coverage of or the proceeds payable under any insurance required to be provided
and maintained by Lessee pursuant to this Section 13.
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SECTION 14
General Indemnification
14.01. Scope. Lessee hereby agrees to pay, assume liability for and
indemnify, protect, defend, save and keep harmless Lessor and any Transferee
(each an "Indemnitee") from and against any and all liabilities, obligations,
losses, damages, settlements, claims, actions, suits, penalties, costs and
expenses (including but not limited to legal and investigative fees and
expenses) of whatsoever kind and nature, including but not limited to
negligence, strict or absolute liability and liability in tort (any of the
foregoing being called a "Loss") which may from time to time be imposed on,
incurred by or asserted against any Indemnitee or the Aircraft, Airframe, any
Engine or Any Part (whether or not any such Loss is also indemnified or insured
against by any other person or such Indemnitee has also indemnified any other
person against such Loss) in any way relating to or arising out of (a) this
Lease, the enforcement thereof or any of the transactions contemplated thereby,
(b) the purchase, sale acceptance or rejection of the Aircraft or (c) the
Aircraft, the Airframe any Engine, or any Part, any data or any other thing
delivered or to be delivered under this Lease, including without limitation the
purchase, ownership, delivery, nondelivery, lease, sublease, assignment,
registration, reregistration, deregistration, rental, possession, use, presence,
operation, condition, storage, preparation, installation, testing, manufacture,
design, modification, alteration, maintenance, repair, re-lease, sale, return,
transportation, transfer, abandonment or other disposition thereof (including,
without limitation, latent and other defects, whether or not discoverable, and
any claim for patent, trademark or copyright infringement).
14.02. Exceptions. The indemnity set forth in Section 14.01 shall not
extend to any Loss with respect to such Indemnitee (a) to the extent that such
Loss is caused by acts or events which occur after full and final compliance by
Lessee with all the terms of the Lease (b) to the extent such Loss is caused by
acts or events which occur after the Aircraft, Airframe, Engine or Part is no
longer subject to the Lease, (c) which is a Tax, whether or not Lessee is
required to indemnify therefor pursuant to Section 10, (d) with respect to any
Loss which is directly attributable to the willful misconduct or gross
negligence of such Indemnitee or any material misrepresentation or violation or
breach of any obligations of such Indemnitee contained herein or (c) resulting
from the failure of the Lessor or a Transferee (in the event the Indemnified
Party is the Lessor or such Transferee to discharge any Lessor Liens
attributable to it. This Section 14.02 does not constitute a guarantee of the
useful life or residual value of the Aircraft.
14.03. Lessee's Release. Lessee hereby waives and releases any claim
now or hereafter existing against any Indemnitee on account of any and all
claims, demands, suits, causes of action and all legal proceedings, whether
civil or criminal, damages, losses, liabilities (including, but not limited to,
strict liability in tort), obligations, penalties, judgments, fines and other
sanctions, and any costs and expenses in connection therewith, including legal
fees and expenses of whatever kind and nature, which may result from or arise
out of injury to or death of personnel of Lessee or loss or damage to property
of Lessee or the loss of use of any property which may result from or arise out
of (A) the condition, use or operation during the Term of any
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Item of Equipment, either in the air or on the ground, or (B) any maintenance,
service, repair, overhaul or testing of any Item during the Term, whether or not
such Item is at the time in the possession of Lessee or in the United States of
America.
14.04. Contest. If requested by Lessee in writing, an indemnitee shall
upon receipt of (A) an indemnity from Lessee satisfactory to such Indemnitee for
the expenses of contest (including, without limitation, all costs, expenses,
legal and accountants' fees and disbursements, penalties and interest) and for
any liability or loss which Lessor may incur as a result of indemnified
occurrence (an "indemnified Amount"), and (B) an opinion of Lessee's counsel
stating that reasonable grounds exist to take the action requested, in good
faith and to the extent permitted by applicable law, contest (after consultation
with Lessee and a determination by such Indemnitee that the action to be taken
will not result in the imposition of a Lien upon any Item of Equipment or any
interest therein (other than a Lien permitted by Section 15 hereof) will not
result in a risk of the sale, forfeiture or other loss of any Item of Equipment
or any interest therein, and will not involve the potential imposition of
criminal liability on such Indemnitee or materially compromise or jeopardize any
substantial interest of such Indemnitee) the validity, applicability or amount
of such Indemnified Amount in such Indemnitee's sole discretion by (1) resisting
payment thereof. (2) not paying the same except under protest if protest is
necessary and proper, or (3) if payment is made, use reasonable efforts to
obtain a refund in appropriate administrative or judicial proceedings; provided,
however, that such Indemnitee need not contest the applicability of any such
Indemnified Amount, if the matter in question is of a continuing nature and has
previously been resolved against the interests of such Indemnitee following a
contest pursuant to the provisions of this Section 14.04.
14.05. Repayment. If an Indemnitee shall obtain a repayment of any
Indemnified Amount paid by Lessee, such Indemnitee shall, so long as there
exists no Default or Event of Default, promptly pay to Lessee the amount of such
repayment, together with the amount of any interest received by such Indemnitee
on account of such repayment.
14.06. Payment. Subject to the provisions of Section 14.04 hereof,
Lessee shall pay directly to each party indemnified hereunder all amounts due
under this Section 14 within 30 days of the receipt of notice that such payment
is due.
SECTION 15
Liens
Lessee shall not, directly or indirectly, create, incur, assume or
suffer to exist any Lien on or with respect to any Item of Equipment or any
interest therein, except (i) the respective rights of Lessor, any Transferee and
Lessee as herein provided, including the rights of Lessee and others permitted
by Sections 6 and 9 hereof; (ii) Lessor's Liens; (iii) Liens for taxes,
assessments or other governmental charges, either not yet due or being contested
in good faith (and for the payment of which adequate reserves have been
provided) and by appropriate proceedings so long as such proceedings do not
involve any danger of the sale, forfeiture or loss of the Airframe or any
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Engine or interest therein; and (iv) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like liens arising in the ordinary course of
business and for amounts the payment of which is either not yet delinquent or is
being contested in good faith (and for the payment of which adequate reserves
have been provided) by appropriate proceedings so long as such proceedings do
not involve any danger of sale, forfeiture or loss of any Item of Equipment or
any interest therein; (v) Liens arising out of any judgment or award against
Lessee, unless the judgment secured shall not, within 45 days after entry
thereof, have been discharged, vacated or reversed or unless execution thereof
shall not have been stayed pending appeal or unless such judgment shall not have
been discharged, vacated or reversed within 45 days after the expiration of such
stay, and (vi) any other Lien with respect to which Lessee shall have provided a
bond adequate in the reasonable judgment of Lessor. Lessee shall promptly, at no
expanse to Lessor, take (or cause to be taken) such action as may be necessary
to duly discharge any such Lien not excepted above if the same shall arise at
any time with respect to any Item of Equipment.
SECTION 16
Recordation and Further Assurances
16.01 FAA Recordation. Lessee shall, at its own expense, cause this
Lease, the Lease Supplement and any and all additional instruments which shall
be executed pursuant to the terms hereof so far as permitted by applicable law
or regulations, to be duly kept, filed and recorded in the office of the FAA.
16.02. Further Assurances. Each party hereto shall, at its respective
expense, promptly and duly execute and deliver to the other party such further
documents and promptly take such further action not inconsistent with the terms
hereof as the other party may from time to time reasonably request in order to
more effectively carry out the intent and purpose of this Lease or to perfect
and protect the rights and, with respect to Lessor, remedies created or intended
to be created hereunder.
SECTION 17
Return of Items and Records
17.01. Time and Place. At the expiration of the Term or upon the
termination of this Lease pursuant to Section 19 hereof, Lessee, at its own
expense, shall return the items of Equipment by delivering the Same forthwith to
Lessor at Oakland International Airport or at such other airport in the United
States as may reasonably be designated by Lessor. At the time of return, each
Airframe shall have installed thereon two Engines, or other Pratt & Whitney
JT8D-9 engines (or two engines of an improved model suitable for installation
and use on the Aircraft) owned by Lessee.
17.02. Condition. When returned to Lessor at the expiration or earlier
termination of this Lease the Aircraft shall be clean by airline operating
standards, shall be returned with the Parts installed thereon on the
Commencement Date or replacements therefor incorporated,
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installed, or attached pursuant to Section 9 hereof, and shall be in as good
operating condition and appearance as when delivered to Lessee, ordinary wear
and tear and such alterations and modifications as may be authorized or required
hereby excepted, shall be airworthy with all pilot discrepancies cleared from
the log book, shall possess a currently effective Airworthiness Certificate
issued by the FAA, shall have all systems operating properly, shall comply with
any then applicable rules and regulations imposed by the FAA and shall be free
and clear of all Liens and righted of others except Lessor's Liens. Lessee will
have caused to be performed, at its expense, within the lesser of (i) 30 days or
(ii) 200 Flight Hours prior to such return, all phases of a C-Check, or its
equivalent, of the Aircraft, together with the segment of a P Check (or
equivalent major overhaul segment) falling due at the time of such C Check or
within 5,000 hours of such C Check under Lessee's maintenance program (such C
Check and P Check segments are herein called the "Return Inspection"). Lessee
will also cause to be Performed, at its expense, during such Return Inspection,
all work required as a result of such Return Inspection to assure that the
Aircraft is in compliance with applicable service bulletins of the Manufacturer,
Airworthiness Directives issued by the FAA, and for all work, repair and
services that may be determined to be necessary by the FAA approved repair
facility which conducted such Return inspection to enable Lessee to return the
Aircraft to Lessor as herein required. In addition, at the time of such return:
(A) the Engines shall not together have less than 6,000 hours or cycles
(whichever may be applicable) remaining to the next scheduled limiting factor
for removal (no single Engine having less than 2,000 hours or cycles, whichever
may be applicable, remaining) and shall have been maintained in accordance with
the Lessee's then current approved engine maintenance program, authorized by and
performed to FAA requirements applicable to the Lessee; and (B) no life-limited
Part shall have less than one-half of the allowable hours or cycles remaining
(other than landing gear Parts, which will have at least 4,000 cycles remaining)
prior to the normally scheduled replacement of such Part. In the event any
required work, repairs or services should delay the return of the Aircraft to
Lessor beyond the expiration date of the Term of this Lease, Lessee shall
continue to pay Rent on a prorated daily basis in the same manner as if there
had been no expiration of the Term of this Lease until such required work,
repair or servicing has been completed and the Aircraft returned to Lessor as
provided hereinabove. Such payments shall be made when the Aircraft is returned
to Lessor (but no less frequently than monthly).
17.03 Time and Cycle Adjustment - Airframe. In the event that the
Lessee does not meet the conditions Of Section 17.02 hereof with respect to the
Airframe and its life-limited Parts, the Lessee shall pay the Lessor an amount
per hour (or cycle) for each hour (or cycle) by which the then remaining time
with respect to such items shall be less than the Lessee's allowable time under
such Section; such amount to be based upon the Lessee's average current rates
for airframe maintenance (or the rates charged by a reputable FAA approved
repair facility designated by Lessor, if Lessee does not perform airframe
maintenance) and the manufacturer's cost for such Part.
17.04. Time and Cycle Adjustment - Engine. In the event that the
Engines have been operated for more than the allowable hours or cycles set forth
in Section 17.02, the Lessee shall pay the Lessor an amount per hour or cycle
(whichever is the limiting factor) with respect to each Engine for which said
requirements are not met the dollar amount which reflects the product of (1) the
ratio that the time (or cycles) in excess of the Lessee's allowable time (or
cycles) bears to
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the time (or cycles) allowable under such Section and (2) the current rates
charged by the engine manufacturer (or such other repair agency as may be
mutually agreed between Lessor and Lessee) for such maintenance.
17.05. Special Markings. Prior to Lessee's return of the Items of
Equipment as aforesaid, Lessee shall, at its own expense, sand and overpaint the
exterior of the Aircraft to remove all insignias and other distinctive markings
of Lessee.
17.06. Inspection Upon Redelivery. During the seven (7) days prior to
the expiration of this Lease, Lessee shall provide up to three (3) days for a
ground functional inspection, including engine runs. Such inspections shall be
conducted at Lessee's base of operations during normal working hours, unless
otherwise agreed by both parties. Any equipment noted during such inspections
not complying with normal airline standards for continued usage in passenger
service shall be corrected by Lessee. All costs associated therewith shall be
for the account of Lessee.
17.07. Return Delivery Flight. During the return delivery flight, a
pilot and other personnel appointed by Lessor or its designee, in conjunction
with Lessee's flight crew, will accomplish a flight functional to demonstrate
the airworthiness of the Aircraft and proper functioning of all systems and
components. Any discrepancy or malfunction detected of an airworthiness or
operational nature by normal airline standards shall be corrected. All costs
associated therewith shall be for the account of Lessee.
17.08. Manuals; Service Bulletins, Etc. Seven (7) days prior to the
return of the Aircraft at the expiration or termination of this Lease, Lessee
shall make available and at the expiration or termination of this Lease Lessee
shall deliver or cause to be delivered to Lessor all logs, manuals, drawings and
data and inspection, modification and overhaul records in respect of the
Aircraft, including but not limited to those required to be maintained under
applicable rules and regulations of the FAA, updated through the date of return.
All "no-charge" service bulletin kits received by or on behalf of Lessee, the
manufacturers or vendors for the Aircraft and Engines and not incorporated
therein shall be returned at no charge to Lessor as cargo on board the Aircraft
at the time of its return. At the time the Aircraft is returned, Lessor shall
have the option to purchase from Lessee, at Lessee's cost therefor, any "charge"
service bulletin kits purchased by Lessee which have not been incorporated in
the Aircraft. All such items shall thereupon become the property of Lessor.
17.09. Return of Other Engines. In the event that any engine not owned
by the Lessor shall be delivered with the Airframe as set forth in Section
17.01, Lessee, concurrently with such delivery, will, at its own expense and at
no cost to Lessor, furnish the Lessor or its Transferee with a full warranty
bill of sale, in form and substance satisfactory to the Lessor, with respect to
each such engine and with an opinion of Lessee's counsel to the effect that,
upon such delivery, the Lessor or its Transferee will acquire full title to such
engine free and clear of all Liens and Lessee shall take such other action as
Lessor may reasonably request, and thereupon Lessor will transfer (or cause its
Transferee to transfer) to Lessee, without recourse or warranty (except as to
Lessor's
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Liens) all Lessor's right, title and interest in and to any Engine constituting
part of the Aircraft but not installed on the Airframe at the time of the return
of the Airframe.
17.10. Fuel. Upon the return of the Airframe at the end of the Term,
each fuel tank and oil tank shall contain the same quantity of fuel or oil as
was contained in the fuel and oil tanks when the original Airframe was delivered
to Lessee on the Commencement Date, or, in the case of differences in any such
quantities, an appropriate adjustment will be made by payment at the then
current market price of fuel or oil, as the case may be, at the location of
return.
17.11. Storage Upon Return. Upon written request of Lessor received on
or prior to the end of the Term, Lessee will provide Lessor with storage
facilities for the Aircraft for a period not exceeding 60 days after the end of
the Term at a location in the continental United States selected by Lessee.
Lessee will bear the expenses of storage for the first 30 days; Lessor will bear
the expenses (calculated at Lessee's incremental cost) for the remainder of such
period. Lessee will, at its expense, cause the Aircraft to be flown at any time
during or after such storage period to a reasonable location selected by Lessor
in the continental United States. Lessee, at its expense, will maintain all
insurance required by Section 13 hereof during the first 30 days of such storage
period and during such ferry flight. Lessee shall maintain such other insurance
on the Aircraft as Lessor may request during such storage period and Lessor
shall bear the expenses thereof.
17.12. Certain Airworthiness Directives. In the event the FAA shall
issue any directive which would require modifications to the Aircraft in order
for the airworthiness certificate of the Aircraft to be maintained in good
standing, and which by its terms or by the terms of any extension thereof is not
applicable to the Aircraft prior to the return thereof pursuant to this Section
17, Lessee shall nevertheless cause such directive to be complied with with
respect to the Aircraft prior to such return, (x) United States air carriers
similarly situated with Lessee have commenced compliance with such directive
with respect to aircraft affected by such directive and in use by such air
carriers and (y) subsequent to any such commencement the Aircraft is subjected
to a maintenance check of the type at which such modifications is made, in
accordance with the maintenance program Lessee has caused to be adopted with
respect to the Aircraft.
17.13 Maintenance at Lessor's Request. Upon receipt of written notice
from the Lessor not less than 60 (nor more than 120) days prior to any
expiration or termination of this Lease, the Lessee agrees to perform
maintenance to the Airframe and/or the Engines. Such maintenance shall be done
in the same manner and with the same care as used by the Lessee with similar
airframes and engines of its own and shall be completed as promptly as possible
after any such termination of this Lease as to the Airframe or Engines, and the
Lessor shall reimburse the Lessee in an amount equal to (1) the lesser of (x)
the sum of 120% of the Lessee's direct costs for materials plus 200% of the
Lessee's direct hourly labor costs incurred in connection with such maintenance,
or (y) the Lessee's standard contract rates, if any, therefor, or (2) if such
maintenance is performed by someone other than the Lessee, the actual amount
paid therefor by the Lessee.
17.14. Failure to Return Aircraft. If Lessee shall, for any reason
whatsoever, return the Aircraft or any Engine at the time specified herein, the
obligations of Lessee as provided
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in this Lease shall continue in effect with respect to the Aircraft or such
Engine until the Aircraft or such Engine is returned to Lessor; but this Section
17.14 shall not be construed as permitting Lessee to fail to meet its obligation
to return the Aircraft or such Engine in accordance with the requirements of
this Lease or constitute a waiver of a Lease Event of Default.
17.15. Aid in Disposition. Lessee agrees that during the last year of
the Term (and during the storage period set forth in Section 17.11) it will
cooperate in all reasonable respects with the efforts of Lessor to lease or sell
the Aircraft, including without limitation permitting potential lessees or
purchasers to inspect the Aircraft and the records relating thereto, provided
that Lessee shall not be required for such purpose to interfere unreasonably
with the use of the Aircraft or incur out-of-pocket expenses for which it is not
reimbursed.
SECTION 18
Event of Default
The following events shall constitute Events of Default:
(A) Lessee shall fail to make any payment of Rent within five days
after the same shall have become due hereunder; or
(B) Lessee shall fail to procure and maintain any insurance required
by Section 12 hereof; or
(C) Lessee shall fail to perform or observe any of the covenants,
conditions or agreements to be performed or observed by it under, or sublease
the Aircraft in a manner not permitted by, Section 6.01 (G) or (H) hereof; or
(D) Lessee shall fail to perform or observe any of the surviving
obligations (as such term is defined in the Assumption Agreement dated the
Closing Date with respect to the Aircraft between Lessee and Frontier), and such
failure shall continue for a period in excess of thirty (30) days after written
notice; or
(E) Lessee shall fail to perform or observe in any material respect
any other of the covenants, conditions, or agreements to be performed or
observed by it hereunder and such failure shall continue for a period in excess
of thirty (30) days after written notice; or
(F) Any representation or warranty made by Lessee herein or in any
document or certificate furnished Lessor in connection herewith or pursuant
hereto (other than the Indemnity Agreement) shall prove to be incorrect in any
material respect when made; or
(G) Lessee consents to the appointment of a custodian, receiver,
trustee or liquidator of itself or of a substantial part of its property, or
Lessee shall be unable to pay its debts generally as they become due, or makes a
general assignment for the benefit of creditors, or Lessee
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files a voluntary petition in bankruptcy or a voluntary Petition or an answer
seeking reorganization in a proceeding under any bankruptcy law (as now or
hereafter in effect) or an answer admitting the material allegation of a
petition filed against Lessee in any such proceeding, or Lessee by voluntary
petition, answer or consent seeks relief under the provisions of any other now
existing or future bankruptcy 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; or
(H) Lessee shall fail to make any payment when due in respect of any
indebtedness for which it is liable (contingently or otherwise), or for the
payment of the deferred purchase price of any property, or for payment of any
obligation under any lease of aircraft or aircraft-related equipment shall not
be paid when the same becomes due, in each case after giving effect to any grace
period applicable thereto, or the Lessee fails to perform or observe any other
provision of any such obligation or in any agreement relating to such
obligation, provided that the obligation in respect of which such failure has
occurred shall be in an aggregate amount then outstanding in excess of
$5,000,000 or more and, as a result of such failure to pay or perform, the other
party to, or the beneficiary of or trustee or agent acting in accordance with
such instrument or agreement shall have accelerated payment of the amounts owing
thereunder; or
(I) An order, judgment or decree is entered in any proceedings by any
court of competent jurisdiction appointing with or without the consent of
Lessee, a custodian, receiver, trustee or liquidator of Lessee or of any
substantial part of its property or of the Aircraft, or the Aircraft or any
substantial part of the property of Lessee is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in force undismissed,
unstayed or unvacated for a period of sixty (60) days after the date of entry
thereof; or
(J) A petition against Lessee in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) is filed, and any decree or
order adjudging Lessee a bankrupt or insolvent in such proceeding remains in
force undismissed or unstayed for a period of sixty (60) days after such
adjudication or, in case the approval of such petition by a court of competent
jurisdiction is required, the petition as filed or amended shall be approved by
such a court as properly filed and such approval shall not be withdrawn or the
proceeding dismissed within sixty (60) days thereafter, or if, under the
provisions of any law providing for reorganization or winding-up of corporations
which may apply to Lessee, any court of competent jurisdiction shall assume
jurisdiction, custody or control of Lessee or of any substantial part of its
property and such jurisdiction, custody or control remains in force
unrelinquished, unstayed or unterminated for a period of sixty (60) days;
provided, however that this clause (I) shall not apply to the Bankruptcy Case;
or
(K) Judgment for the payment of money in excess of $5,000,000 is
rendered against Lessee and the same shall remain undischarged for a period of
sixty (60) days during which execution of such judgment shall not be effectively
stayed.
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SECTION 19
Rights and Remedies
19.01. Remedies. Upon the occurrence of any Event of Default Lessor
may, at its option, declare this Lease to be in default and at any time
thereafter, so long as Lessee shall not have remedied all outstanding Events of
Default, Lessor may exercise one or more of the following remedies as Lessor, in
its sole discretion, shall elect:
(A) Terminate this Lease.
(B) Demand that Lessee, and Lessee shall upon written demand of
Lessor and at Lessee's expense, forthwith return the Items of Equipment to
Lessor in the manner and condition required by, and otherwise in accordance with
all of the provisions of, Section 17 hereof as if the Items of Equipment were
being returned at the end of the Term; or Lessor may enter upon the premises
where the Items of Equipment are located and take immediate possession of and
remove the same (together with any engine or any part which is not an Engine or
a Part but which is installed on the Airframe, subject to all of the rights of
the owner, lessor, lienor or secured party of such engine or part, provided that
such engine or part shall be held for the account of any such owner, lessor,
lienor or secured party or, if owned by Lessee, may, at the option of Lessor, be
exchanged for an Engine or Part in accordance with the provisions of Sections 9
and 12) by summary proceedings or otherwise, all without liability for or by
reason of such entry or taking of possession whether for the restoration of
damage to property caused by such taking or otherwise.
(C) Proceed by appropriate court action or actions, either at law or
in equity, to enforce performance by Lessee of the applicable covenants of this
Lease and to recover damages for the breach thereof.
(D) Sell or cause to be sold any Airframe, any Engine or any Item of
Equipment at public or private sale, as the Lessor may determine, or otherwise
dispose of, hold, use, operate, lease to others or keep idle any Aircraft or any
item of Equipment as the Lessor in its sole discretion may determine, all free
of any rights of the Lessee and, without any duty to account to the Lessee with
respect to such action or inaction or for any proceeds with respect thereto.
(E) Whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights specified above with respect
to the Aircraft or any item the Lessor, by written notice to the Lessee
specifying a payment date not earlier than ten (10) days from such written
notice, may demand that the Lessee 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 (in lieu of the Basic Rent for the
Aircraft due for periods commencing on or after the date specified for payment
in such notice), any unpaid Basic Rent for the Aircraft due for periods prior to
the payment date specified in such notice plus whichever of the following
amounts the Lessor, in its sole discretion, shall specify in such notice: (i) an
amount equal to the excess, if any, of the present worth of the aggregate unpaid
Rent due under this Lease for such Item discounted at the rate of eight and
one-half percent (8.5%) per annum to the date specified in said
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notice over the aggregate fair market rental value (computed as hereafter in
this Section provided) of such Item for the remainder of the Term for such Item
after discounting such fair market rental value to present worth as of the
payment date specified in such notice at the rate of eight and one-half percent
(8.5%) per annum; or (ii) an amount equal to the excess, if any, of the
Stipulated Loss Value for such Item computed as of the date specified for
payment in such notice over the fair market sales value (computed as hereafter
in this Section provided) as of the date specified in the notice. The amount
specified in said notice shall bear interest at the Incentive Rate from the
payment date specified in said notice until receipt of payment by the Lessor.
Lessor and Lessee agree that it is difficult or impossible to ascertain,
estimate or prove the entire or exact cost, damage or injury that may result
from a breach by Lessee of its obligations under this Lease and that liquidated
damages as provided hereby bear a reasonable proportion to the probable loss
occasioned by such a breach.
(F) In the event the Lessor, pursuant to subparagraph (E) above,
shall have sold or caused to have sold, any Item, the Lessor in lieu of
exercising its rights under subparagraph (E) above with respect to such Item,
may, if it shall so elect, demand that the Lessee pay the Lessor and the Lessee
shall pay to the Lessor, as liquidated damages for loss of a bargain and not as
a penalty (in lieu of the Basic Rent for such Item due after such sale occurs),
any unpaid Basic Rent for such Item due for periods up to the time of sale plus
the amount by which the Stipulated Loss Value of such item computed as of the
date of such sale exceeds the net cash proceeds of such sale, together with
interest at the Incentive Rate on the sum of such excess and such unpaid Rent
from date of sale to the date such payment is received by the Lessor.
19.02 Further Rights. Lessee shall be liable for any and all unpaid
Rent and for all legal fees and other costs and expenses incurred by reason of
the occurrence of any Event of Default or the exercise of Lessor's remedies with
respect thereto, including all costs and expenses incurred in connection with
the return of any Item in accordance with the terms of Section 17 hereof or in
placing such Item in the condition and with airworthiness certificates as
required by said Section.
19.03. Definition of Fair Market Value. For the purpose of Section
19.01 above, the "fair market rental value" or the "fair market sales value" of
any Item shall be as specified in an appraisal by a recognized independent
aircraft appraiser, chosen by the Lessor, who shall determine such value(s) on
the basis of the actual location and condition of the Item. At any sale of any
Item pursuant to this Section 19, Lessor, or any assignee, successor or
affiliate of Lessor, may, but the Lessee may not, bid for and purchase such
property.
19.04. Remedies Cumulative. No remedy referred to in this Section 19 is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Lessor at law or in
equity; and the exercise or beginning of exercise by Lessor or any one or more
of such remedies shall not preclude the simultaneous or later exercise by Lessor
of any or all of such other remedies. No express or implied waiver by Lessor of
any Event of Default shall in any way be, or be construed to be, a waiver of any
future or further Event of Default. To the extent permitted by applicable law,
Lessee hereby waives any and all rights to notice and to a judicial hearing with
respect to the repossession of any Item by Lessor upon the
43
<PAGE> 49
occurrence of an Event of Default and agrees that, except as may be required by
law, no profit accruing to Lessor by virtue of Lessee's default and Lessor's
subsequent sale or reletting of the Items of Equipment shall reduce, offset or
mitigate the damages for which Lessee is liable hereunder.
SECTION 20
Miscellaneous
20.01. Construction and Applicable Law. Any provision of this Lease
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, Lessee hereby waives any provision of law which
renders any provisions hereof prohibited or unenforceability in any respect. No
term or provision of this Lease may be changed, waived, discharged or terminated
orally, but only by a written instrument signed by the party against which the
enforcement of the change, waiver, discharge or termination is sought. The
captions in this Lease are for convenience of reference only and shall not
define or limit any of the term or provisions hereof. This Lease shall in all
respects be governed by, and construed in accordance with the laws of the State
of New York, including all matters of construction, validity and performance.
20.02. Notices. All notices provided for herein shall be in writing and
shall be deemed to have been given when delivered personally, when telexed or
when deposited in the United States mail, postage prepaid, addressed as follows:
If to Lessee: New York Airlines, Inc.
Hangar No. 5
LaGuardia Airport
Flushing, NY 11371
Attn: Chief Financial Officer
with a copy to: Continental Airlines, Inc.
2929 Allen Parkway
Houston, TX 77014
Attn: Chief Financial Officer
Telex:
If to Lessor: GATX Leasing Corporation
Four Embarcadero Center
San Francisco, CA 94111
Attn: Contracts Administration
Telex: 171064
44
<PAGE> 50
or to any party at such other address as the party may designate by notice duly
given in accordance with this Section 20.02.
20.03. Lessor's Right to Perform. If Lessee fails to perform any of its
obligations hereunder, Lessor may (but shall not be obligated to) discharge such
obligation, and the amount of the expenses of Lessor incurred in connection with
such discharge shall be deemed Supplemental Rent, payable by Lessee upon demand.
20.04 Counterparts. This Lease and each Lease Supplement may be
executed in several counterparts, each of which shall be deemed an original, and
all such counterparts shall constitute one and the same instrument.
20.05. Transfer of Interest by Lessor. Lessor shall have absolute right
to transfer or assign to any Transferee (as hereinafter defined) any or all of
Lessor's rights, obligations, benefits and interest in the Equipment and under
this Lease, including, without limitation, the right to receive Rent or any
other payment due under this lease, including, without limitation, the right to
receive Rent or any other payment due under this Lease, the right to sell or
assign its interest in any Item of Equipment or to transfer or assign the right
to purchase any Item and the right to make all waivers and agreements, to give
all notices, consents and releases, to take all action upon the occurrence of an
Event of Default, or to do any and all other things which Lessor is or may
become entitled to do under this Lease, Lessee agrees that if Lessor should sell
the Item of Equipment to a Transferee or Transferees the provisions of this
Lease with respect to transfer of title to any Items, payment of proceeds of
insurance, and indemnification shall apply to and are made expressly for the
benefit of such Transferee, mutatis mutandis, as if such Transferee were
originally the Lessor and Lessee agrees to do such other acts and execute such
other further documents and instruments as may be required by law or reasonably
requested by Lessor to perfect and preserve the rights and interests of any such
Transferee on the Items of Equipment as contemplated by the terms hereof. Any
assignment, pledge or other conveyance, for security or otherwise, of this Lease
by Lessor shall be subject to Lessee's rights-under this Lease, so long as no
Default or Event of Default shall have occurred and be continuing, and shall not
be effective unless and until Lessee shall have been given notice of such
assignment identifying the transferee hereof. All expenses incurred in
connection with any such transfer shall be for the account of Lessor.
As used herein, the term "Transferee" shall mean and include any
person, firm, corporation or other entity, except that so long as no Default or
Event of Default shall have occurred and be continuing, Lessor agrees not to
transfer all or any portion of its interest in the Items of Equipment to any
person whose ownership of the Items of Equipment would cause Lessee to lose the
benefits of United States registration of the Aircraft.
20.06. Assignment of Warranties.
(a) Assignment to Lessee. If and so long as an Event of Default
shall not have occurred and be continuing, Lessor authorizes Lessee, to the
exclusion of Lessor, to exercise in Lessor's name any warranty, aircraft
performance guarantee or indemnity against the
45
<PAGE> 51
manufacturers of the Airframe or Engines, or any Part, and any recovery in
respect thereof shall be paid to Lessee for distribution between the Lessee and
Lessor as their respective interests may appear. Any payments or amounts which,
pursuant to the preceding sentence, would have been required to be paid to
Lessee but for the existence of an Event of Default shall be held by Lessor or
paid over to Lessor and may be applied by Lessor to cure any Event of Default or
as otherwise provided in the Lease and shall, at such time as there shall not be
existing any Event of Default and to the extent not used to cure any Event of
Default, be paid over to Lessee.
(b) Notices to the Seller. For all purposes of this Section 20.06,
the Seller shall not be deemed to have knowledge of and need not recognize nor
take any action with respect to the existence of any Event of Default the Seller
shall have received from the Lessor written notice thereof. If the Lessor shall
have notified the Seller of the existence of an Event of Default under this
Agreement, the Lessor shall also give written notice to the Seller when such
Event of Default has been cured or waived.
20.07. Survival. The representations, warranties, covenants, agreements
and indemnities of Lessee set forth in this Lease, and Lessee's obligations
hereunder, shall survive the expiration or other termination of this Lease to
the extent required for full performance and satisfaction thereof.
20.08. Successors and Assigns. This Lease shall be binding on and shall
inure to the benefit of Lessee, Lessor and their respective successors and
permitted assigns.
SECTION 21
Renewal and Purchase Options
21.01. Lessor's Election. Not less than twelve months prior to the end
of the original Term or any renewal Term, Lessor shall send written notice to
Lessee stating either (i) Lessor intends to sell the Aircraft at the end of such
Term, or (ii) Lessor intends to retain ownership of the Aircraft at the end of
such Term. Not less than nine months prior to the end of such Term, Lessor
shall, by irrevocable written notice to Lessee, inform Lessee of Lessor's
decision to sell or retain the Aircraft. Upon receipt of such notice, Lessee may
elect, upon written notice, to (a) purchase the Aircraft pursuant to the terms
of Section 21.03 if Lessor has elected to sell the Aircraft or (b) to renew this
Lease for a renewal Term pursuant to the terms of Section 21.02 if Lessor has
elected to retain ownership of the Aircraft provided, however, if Lessee so
elects to renew or purchase its rights to either thereof shall expire at the
close of business on the date which is six months prior to the expiration of the
original Term or renewal Term, as the case may be, unless Lessee and Lessor
shall have theretofore entered into a definitive agreement for such lease or
sale (it being agreed that Lessor and Lessee shall negotiate such agreement in
good faith). If Lessee makes no such election, Lessee shall return the Aircraft
to Lessor at the end of the original Term or such renewal Term, as the case may
be, as provided herein.
21.02. Renewal Options. If Lessee has elected to renew this Lease for a
renewal Term so long as no Event of Default or Default has occurred and is
continuing on the date of such
46
<PAGE> 52
notice of the date of renewal, this Lease shall be renewed at the end of the
original Term or renewal Term, as the case may be, for a renewal Term mutually
agreed to by Lessor and Lessee. The Basic Rent payable for such renewal Term
hereunder shall be the fair market rental value of the Aircraft calculated as of
the commencement of such renewal Term. Such fair market rental value shall be
determined not later than nine months prior to the commencement of such renewal
Term by mutual consent of Lessor and Lessee or, if they shall be unable so to
agree, by Independent Appraisal. If either Lessor or Lessee shall fail to
appoint an appraiser by the date which is eight months prior to the commencement
of such renewal Term or if such two appraisers cannot agree on the amount of
such appraisal and fail to appoint a third appraiser by the date which is seven
months before the commencement of such renewal Term, then either Lessor or
Lessee may apply to any court having jurisdiction to make such appointment. Fair
market rental value shall be the cash rental obtainable in an arm's length lease
between an informed and willing lessee (under no compulsion to lease) and in
informed and willing lessor (under no compulsion to lease) and shall be
determined on the assumption that the Aircraft is in the United States,
available for use by the Lessee and in the return condition required by Section
17 of this Lease and otherwise in compliance with the requirements of this
Lease. Stipulated Loss Value amounts that are payable during such renewal Term
shall be calculated as of the date of commencement of such renewal Term and
shall be the fair market sales value of the Aircraft on such date determined in
accordance with Section 21.03.
21.03. Purchase Option. If Lessee has elected to purchase the Aircraft
at the end of the original Term or any renewal Term and provided no Event of
Default or Default shall have occurred and be continuing on the date of such
notice or by the closing date of the purchase, Lessee shall purchase the
Aircraft on the last Business Day of the original Term or renewal Term, as the
case may be, at a purchase price equal to the fair market sales value thereof as
of such last Business Day. Such fair market sales value shall be determined not
later than nine months prior to such last Business Day by mutual consent of
Lessor and Lessee or, if they shall be unable so to agree by Independent
Appraisal. If either Lessor or Lessee shall fail to appoint an appraiser by the
date which is eight months prior to such last Business Day or if such two
appraisers cannot agree on the amount of such appraisal and fail to appoint a
third appraiser by the date which is seven months before such last Business Day,
then either Lessor or Lessee may apply to any court having jurisdiction to make
such appointment. Fair market sales value shall be the cash price obtainable in
an arm's-length sale between an informed and willing buyer (under no compulsion
to buy) and an informed and willing seller (under no compulsion to sell) and
shall be determined on the assumption that the Aircraft is in the United States
of America, available for use by the buyer and in the return condition required
by Section 17 of this Lease and otherwise in compliance with the requirements of
this Lease. Upon receipt of such purchase price from Lessee and all Rent and
other amounts due hereunder and under any other Operative Agreement, Lessor will
transfer (or cause its Transferee to transfer) the Aircraft to Lessee without
recourse or warranty (except as to Lessor's Liens).
47
<PAGE> 53
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed by their authorized officers on the date first above written.
GATX LEASING CORPORATION
as Lessor
By:
Title: VICE PRESIDENT
---------------
NEW YORK AIRLINES, INC.
as Lessee
By:
Title: VICE PRESIDENT
---------------
48
<PAGE> 54
LEASE SUPPLEMENT
(N7379F)
THIS LEASE SUPPLEMENT, dated __________, 1986 (this "Lease
Supplement"), between GATX LEASING CORPORATION ("Lessor") and NEW YORK AIRLINES,
INC., ("Lessee");
W I T N E S S E T H:
WHEREAS, Lessor and Lessee have executed a certain Lease Agreement
(N7379F), dated as of November 6. 1986 (the "Lease"), which provides for the
execution and delivery of a Lease Supplement in substantially the form hereof
for the purpose of leasing the Items of Equipment in accordance with the terms
thereof;
NOW, THEREFORE, in consideration of the premises, and pursuant to
Article 2 of the Lease, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used herein which are defined in the Lease
shall have, for all purposes hereof, the respective meanings given them in the
Lease.
2. Lessor hereby delivers and leases to Lessee, and Lessee hereby
accepts and leases from Lessor under the Lease, as hereby supplemented, the
Items of Equipment as follows:
A. Aircraft: One (1) Boeing 737-2CO aircraft, consisting of the
following:
(i) Airframe: FAA Registration No. N7379F; Manufacturer's Serial No.
20071;
(ii) Engines: Two (2) Pratt & Whitney JT8D-9 engines (each of which
engines has 750 or more rated takeoff horsepower or the equivalent thereof),
bearing, respectively, Manufacturer's Serial Nos.:
Engine No. Manufacturer's Serial No.
---------- -------------------------
1 P674314B
2 P674384B
<PAGE> 55
Lessee confirms that the Items of Equipment have been examined by its
duly appointed and authorized representatives and conform to the information set
forth above.
3. Basic Rent shall be payable in 83 monthly installments, in advance,
commencing on December 1, 1986, and on the same day of each month thereafter
throughout the Term.
4. Lessor hereby delivers and Lessee hereby accepts the manuals, log
books, records and other documents relating to the Aircraft.
5. The Commencement Date of the Lease is the date of this Lease
Supplement, as set forth in the opening paragraph hereof, and the Items of
Equipment are hereby delivered and accepted on such date at Denver, Colorado.
6. Unless renewed or extended pursuant to Section 21.02, the expiration
dated of this Lease shall be October 31, 1993.
7. This Lease Supplement shall in all respects be governed by, and
construed in accordance with, the laws of the State of New York, including all
matters of construction, validity and performance.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease
Supplement to be duly executed by their authorized officers on the date first
above written.
GATX LEASING CORPORATION
as Lessor
By:
------------------------
Title:
---------------------
NEW YORK AIRLINES, INC.
as Lessee
By:
------------------------
Title:
---------------------
<PAGE> 56
EXHIBIT B
STIPULATED LOSS VALUES
(N7379F)
<TABLE>
<CAPTION>
Basic Rent
Payment Date Percentage
------------ ----------
<S> <C>
November 1986 98.296296
December 1986 97.880630
January 1987 97.459517
February 1987 97.032886
March 1987 96.600664
April 1987 96.162779
May 1987 95.719155
June 1987 95.269719
July 1987 94.814394
August 1987 94.353102
September 1987 93.885765
October 1987 93.412305
November 1987 92.932641
December 1987 92.446691
January 1988 91.954373
February 1988 91.455605
March 1988 90.950301
April 1988 90.438375
May 1988 89.919742
June 1988 89.394312
July 1988 88.861997
August 1988 88.322708
September 1988 87.776351
October 1988 87.222835
November 1988 86.662066
December 1988 86.093950
January 1989 85.518388
February 1989 84.935285
March 1989 84.344541
April 1989 83.746056
May 1989 83.139729
June 1989 82.525457
July 1989 81.903135
August 1989 81.272659
September 1989 80.633921
October 1989 79.986814
</TABLE>
<PAGE> 57
STIPULATED LOSS VALUES (Cont.)
<TABLE>
<CAPTION>
Basic Rent
Payment Date Percentage
------------ ----------
<S> <C>
November 1989 79.331227
December 1989 78.667050
January 1990 77.994169
February 1990 77.312471
March 1990 76.621841
April 1990 75.922160
May 1990 75.213312
June 1990 74.495175
July 1990 73.767628
August 1990 73.030547
September 1990 72.283808
October 1990 71.527284
November 1990 70.760846
December 1990 69.984366
January 1991 69.197711
February 1991 68.400747
March 1991 67.593341
April 1991 66.775355
May 1991 65.946650
June 1991 65.107086
July 1991 64.256521
August 1991 63.394810
September 1991 62.521808
October 1991 61.637366
November 1991 60.741335
December 1991 59.833563
January 1992 58.913896
February 1992 57.982177
March 1992 57.038250
April 1992 56.081954
May 1992 55.113127
June 1992 54.131604
July 1992 53.137221
August 1992 52.129807
September 1992 51.109192
October 1992 50.075204
November 1992 49.027667
December 1992 47.966403
January 1993 46.891233
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
February 1993 45.801974
March 1993 44.698442
April 1993 43.580450
May 1993 42.447808
June 1993 41.300324
July 1993 40.137804
August 1993 38.960051
September 1993 37.766865
October 1993 36.558044
</TABLE>
<PAGE> 59
EXHIBIT C
to
Lease Agreement
Permitted Foreign Air Carriers
Aero Transporti Italiani S.A.F.E.
Aerolineas Argentinas Saudia
Air Canada Scandinavian Airline System (SAS)
Air Inter Singapore Airlines Ltd-
Air Micronesia South African Airways
Alitalia Swissair
All Nippon Airways Company Ansett Transport Thai Airways International Ltd.
Austrian Airlines TOA-Domestic Airlines Co. Ltd.
British Airways Trans-Australia
British Caledonian Airways Transavia Holland
BWIA Trans European Airways
CAAC UTA
Cathay Pacific Airways, Ltd. Varig, S.A.
China Airlines
CP Air
Dan-Air
Finnair Oy
Air France
Garuda Indonesian Airways, P.D.
Hapag-Lloyd
Iberia International Airlines Icelandair
Indian Airlines
Japan Air Lines. Inc.
KLM - Royal Dutch Airlines Korean Air Lines
Kuwait Airways Corporation Malaysian Airline System BHD MartinAir
Mexicana
Air New Zealand Ltd.
Olympic Airways, S.A.
Phillipine Airways
Qantas Airways Ltd.
Lufthansa German Airlines
Sabena (Belgium World Airlines)
<PAGE> 60
EXHIBIT D
FAA Recording Information
(N7379F)
<TABLE>
<CAPTION>
Lease Dated FAA Recording Date Conveyance No.
- ----------- ------------------ --------------
<S> <C> <C>
November 7, 1969 2/9/70 D49657
November 7, 1969 2/24/70 D50105
(Acceptance
Supplement No. 2
dated January 11.
1970)
November 7, 1969 2/26/70 D50192
(Acceptance
Supplement No. 3
dated January 27,
1970)
Extension and 2/5/82 Z41387
Option Agreement
and Amendment of
Lease dated
October 1. 1981
Amendatory 12/8/82 P57635
Agreement to
Extension and
Option Agreement
and Amendment of
Lease dated
September 23, 1982
</TABLE>
<PAGE> 61
LEASE SUPPLEMENT
(N7379F)
THIS LEASE SUPPLEMENT, dated November 6, 1986 (this "Lease
Supplement"), between GATX LEASING CORPORATION ("Lessor") and NEW YORK AIRLINES,
INC., ("Lessee");
W I T N E S S E T H:
WHEREAS, Lessor and Lessee have executed a certain Lease Agreement
(N7379F), dated as of November 6, 1986 (the "Lease"), which provides for the
execution and delivery of a Lease Supplement in substantially the form hereof
for the purpose of leasing the Items of Equipment in accordance with the terms
thereof;
NOW, THEREFORE, in consideration of the premises, and pursuant to
Article 2 of the Lease, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used herein which are defined in the Lease
shall have, for all purposes hereof, the respective meanings given them in the
Lease.
2. Lessor hereby delivers and leases to Lessee, and Lessee hereby
accepts and leases from Lessor under the Lease, as hereby supplemented, the
Items of Equipment as follows:
A. Aircraft: One (1) Boeing 737-2CO aircraft, consisting of the
following:
(i) Airframe: FAA Registration No. N7379F; Manufacturer's Serial No.
20071;
(ii) Engines: Two (2) Pratt & Whitney JT8D-9 engines (each of which
engines has 750 or more rated takeoff horsepower or the equivalent thereof),
bearing, respectively, Manufacturer's Serial Nos.:
Engine No. Manufacturer's Serial No.
---------- -------------------------
1 P674314B
2 P674384B
Lessee confirms that the Items of Equipment have been examined by its
duly appointed and authorized representatives and conform to the information set
forth above.
3. Basic Rent shall be payable in 83 monthly installments, in advance,
commencing on December 1, 1986, and on the same day of each month thereafter
throughout the Term.
<PAGE> 62
4. Lessor hereby delivers and Lessee hereby accepts the manuals, log
books, records and other documents relating to the Aircraft.
5. The Commencement Date of the Lease is the date of this Lease
Supplement, as set forth in the opening paragraph hereof, and the Items of
Equipment are hereby delivered and accepted on such date at Denver, Colorado.
6. Unless renewed or extended pursuant to Section 21.02, the expiration
dated of this Lease shall be October 31, 1993.
7. This Lease Supplement shall in all respects be governed by, and
construed in accordance with, the laws of the State of New York, including all
matters of construction, validity and performance.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease
Supplement to be duly executed by their authorized officers on the date first
above written.
GATX LEASING CORPORATION
as Lessor
By:
----------------------
Title:
-------------------
NEW YORK AIRLINES, INC.
as Lessee
By:
----------------------
Title:
-------------------
<PAGE> 63
Aircraft Sublease Agreement
between
New York Airlines, Inc., Sublessor
and
Continental Airlines, Inc., Sublessee
(Aircraft No. N 7379F)
To the extent that this Sublease constitutes chattel paper (as defined in the
Uniform Commercial Code) no security interest in this Sublease may be created
through the transfer or possession of any counterpart other than the original
executed counterpart, which shall be identified as the counterpart containing
the receipt therefor executed by the Lessor on the signature page thereof.
1
<PAGE> 64
Aircraft Sublease Agreement
between
New York Airlines, Inc., Sublessor
and
Continental Airlines, Inc., Sublessee
(Aircraft No. N 7379F)
THIS AIRCRAFT SUBLEASE AGREEMENT (hereinafter called the "Sublease")
made this 6th day of November, 1986 by and between NEW YORK AIRLINES, INC., a
Delaware Corporation, having its principal place of business in the City of New
York State of New York, U.S.A. (hereinafter referred to as ("Sublessor") and
CONTINENTAL AIRLINES, INC., a Delaware corporation, having its principal place
of business in the City of Houston, State of Texas, U.S.A. (hereinafter referred
to as "Sublessee")
W I T N E S S E T H:
WHEREAS Sublessor has leased that certain aircraft together with the
engines initially installed thereon, each described in Exhibit A hereto
(collectively, the "Aircraft"), pursuant to a Lease Agreement (the "Lease")
between Sublessor and GATX Leasing Corporation (the "Lessor"), dated as of
November 6, 1986.
WHEREAS, Sublessee desires to sublease the Aircraft which is the
subject of the Lease and Sublessor is willing to sublease said Aircraft to
Sublessee upon the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the parties hereto agree as follows:
1. Definitions. Except as otherwise defined herein, capitalized terms
used herein shall have the meanings set forth in the Lease.
2. Sublease of Aircraft. Sublessor hereby agrees to sublease to
Sublessee, and Sublessee hereby agrees to sublease from Sublessor the Aircraft.
3. Delivery, Acceptance and Return.
2
<PAGE> 65
(a) Sublessor hereby delivers the Aircraft for sublease hereunder by delivery of
same to Sublessee in a mutually satisfactory location in Wichita, Kansas and
Sublessee hereby accepts such delivery.
(b) The parties agree that the Aircraft shall be returned by Sublessee to
Sublessor at a location designated by Sublessor on the route system of
Sublessee.
4. Sublease Term. The term of this Sublease shall be for successive one
month periods unless one of the parties hereto gives the other party hereto on
at least 24 hours' notice prior to the termination of any given month term of
its intention to terminate this Sublease.
5. Rent and Supplemental Rent. Sublessee promises to pay to Sublessor,
with respect to the Aircraft, without any deduction, counterclaim, set-off,
further notice or demand, 105% of all of the amounts of rent specified in the
Lease and such rent shall be payable in advance, at the times and places and in
the manner specified by the Sublessor. Sublessee promises to pay Sublessor (or
to such parties as Sublessor directs) with respect to the Aircraft without any
deduction, counterclaim, set-off, further notice or demand, the amount of
Supplemental Rent specified in the Lease payable at the times and places and in
the manner specified in the Lease and by the Sublessor.
6. Applicability of Lease Provisions to Sublease Agreement. Sublessee
acknowledges receipt of a copy of the Lease. Sublessee hereby agrees, during the
term of this Sublease, to be bound by the terms of and to perform each of the
obligations of Sublessor as set forth in the Lease, which Lease is incorporated
herein by reference in its entirety, as though, unless the context otherwise
requires, each reference therein to "Lessee" were to Sublessee, each reference
therein to "Lease" were to this Sublease and each reference therein to
Commencement Date were to the Sublease delivery date hereunder. Sublessee
further agrees that upon the failure of Sublessee to perform or observe any of
its obligations under the Sublease, Sublessor shall be entitled to exercise, to
the extent permitted by the Lease, all the rights and remedies conferred by
Section 19 of the Lease (other than the right to sell the Aircraft) as though
Sublessor were the Lessor and Sublessee were the Lessee thereunder.
7. Sublease Subject to Lease. Sublessee expressly agrees and
acknowledges that this Sublease and the rights of Sublessee hereunder are
expressly made subject to and subordinate to all the terms of the Lease,
including, without limitation, the covenants contained in the Lease and the
Lessor's rights to repossession pursuant to the Lease. Sublessee further agrees
that it will commit no act which would constitute an Event of Default under the
Lease.
8. Notices. All communications and notices provided for herein shall be
addressed as follows: (a) if to Sublessor, at La Guardia Airport Station,
Flushings New York 11371, Attention: Senior Vice President, Finance and
Administration, and (b) if to Sublessee, at Continental Airlines, Inc., 2929
Allen Parkway, Houston, Texas 77029, Attention: Vice President, General Counsel
and Vice President, Chief Financial Officer.
3
<PAGE> 66
IN WITNESS WHEREOF, Sublessor and Sublessee have each caused this
Sublease to be duly executed by their officers thereunto duly authorized as of
the date first set forth above.
NEW YORK AIRLINES, INC.
By:
-----------------------
Title:
--------------------
CONTINENTAL AIRLINES, INC.
By:
-----------------------
Title:
--------------------
Receipt of the original
counterpart of this Sublease
is acknowledged this 6th
day of November, 1986.
- --------------------------
GATX Corporation
4
<PAGE> 67
Exhibit A
One (1) Boeing 737-2CO Aircraft which consists of the following components:
a) airframe: FAA Registration Mark M-7379T Manufacturer's Serial No. 20071
b) engines: two (2) Pratt a Whitney JT8D-9 engines bearing, respectively,
Manufacturer's Serial Nos.P674314B and P 6743849
5
<PAGE> 68
ASSIGNMENT OF SUBLEASE dated as of November
6, 1986, from NEW YORK AIRLINES, INC., a
Delaware corporation ("Assigner"), to GATX
LEASING CORPORATION, a Delaware corporation.
Assignor and Assignee have entered into that certain Lease Agreement,
dated as of November 6, 1986 (as at any time amended, supplemented or modified,
the "Lease"), pursuant to which Assignee has agreed to lease to Assignor a
certain Boeing Model 737-2CO aircraft bearing manufacturer's Serial No. 20071
and FAA Registration No. N7379F (together with the two Pratt & Whitney engines
initially installed thereon, the "Aircraft").
Pursuant to the terms and conditions of the Sublease Agreement, dated
as of November 6, 1986 (as at any time amended, supplemented or modified, the
"Sublease"), Assignor has agreed to sublease the Aircraft to Continental
Airlines, Inc. ("Sublessee"), subject and subordinate to the Lease.
It is a condition precedent to the sublease of the Aircraft by Assignor
to Sublessee that Assignor execute and deliver to Assignee this Assignment,
together with the Consent and Agreement of Sublessee attached hereto.
Capitalized terms used in this Assignment which are not otherwise
defined in this Assignment are used as they are defined in the Lease.
Accordingly, the parties hereto hereby agree as follows:
1. Assignment of Sublease. For value received and to secure the due and
punctual payment and performance of all of Assignor's obligations under the
Lease which obligations are hereby incorporated by this reference as fully as if
set forth in their entirety herein (the "Obligations"), including without
limitation the due and punctual payment of all Rent, Assignor hereby assigns,
transfers and conveys, to the extent provided below, to Assignee, its successors
and assigns, its right, title and interest in, to and under the Sublease,
including but not limited to:
(a) all Assignor's rights and interests in the Aircraft, Airframe,
Engines, Parts and related equipment at any time subject to the Sublease;
(b) any and all rents, insurance and condemnation proceeds, stipulated
loss value payments and other moneys due or to become due, and any and all
claims, rights, powers, remedies, title and interest of Assignor in and to or
under or arising out of the Sublease (including without limitation all claims
for damages or other sums arising upon sale or other disposition of or loss of
use of or requisition of title or use of the Aircraft, Airframe, Engines, Parts
and related equipment at any time subject to the Sublease or upon any event of
default specified therein
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(hereinafter referred to as a "Sublease Event of Default")) and all security
which Assignor now or hereafter may hold for the obligations of Sublessee under
the Sublease;
(c) except as provided in Section 10, all rights, powers, privileges,
remedies and other benefits of Assignor under the Sublease and all rights to
make determinations, exercise options or elections, give or withhold consents,
waivers and approvals, give notices and exercise remedies (including the right
to declare a Sublease Event of Default and to repossess any property), or to
take any other action under or in respect of the Sublease; and
(d) all proceeds of the foregoing.
This Assignment is a present assignment and shall be effective, and the
security interests created hereby shall attach, immediately upon execution of
this Assignment and shall not be conditioned upon the occurrence of a Sublease
Event of Default.
2. Payments. All payments made by Sublessee pursuant to the Sublease
shall be paid directly to Assignee or as Assignee shall otherwise direct from
time to time. So long as no Event of Default or Default has occurred and is
continuing, such payments shall be applied to the comparable obligation of
Lessee under the Lease and any balance remaining after such application shall be
paid promptly to Assignor or its order. Upon the occurrence of an Event of
Default or Default, all payments shall be applied as provided in the Lease; at
such time as there shall not be continuing any such Event of Default or Default,
and provided that none of the remedies under the Lease or this Assignment shall
have been exercised, such amounts, to the extent not theretofore applied, shall
be paid to Assignor or its order.
3. Performance of Lessee's Obligations. It is expressly agreed that
anything herein contained to the contrary notwithstanding, (i) Assignor shall
remain liable under the Sublease to perform all the obligations assumed by it
thereunder to the same extent as if this Assignment had not been executed, (ii)
Assignee shall have no obligation or liability under the Sublease by reason of
or arising out of this Assignment and Assignee shall not be required or
obligated in any manner to perform or fulfill any obligation of Assignor under
or pursuant to the Sublease, or to make any payment, or to make any inquiry as
to the nature or sufficiency of any payment received by it, or to present or
file any claim or to take any other action to collect or enforce the payment of
any amounts to which it or they may be entitled hereunder at any time or times
and (iii) at Assignee's option, Assignee may perform, or cause to be performed,
all or any part of the obligations and agreements of Assignor under the
Sublease, without releasing Assignor therefrom. Nothing in this Assignment shall
in any way diminish or limit the provisions of Assignor's indemnities in Section
10 or Section 14 of the Lease with respect to any actual or alleged liability of
Assignee to Sublessee in any way relating to or arising out of this Assignment
or the Sublease.
4. Event of Default. Upon the occurrence of any Event of Default and at
any time thereafter so long as the same shall be continuing, Assignee may, at
its option, exercise one or more of the remedies set forth below, in the Lease
or which may be available to it under the New York Uniform Commercial Code
whether or not applicable in the relevant jurisdiction, as
2
<PAGE> 70
Assignee in its sole discretion may determine, which remedies are cumulative and
in addition to every other right or remedy provided by law:
4.1 Collection of Sublease Payments. Assignee may collect and retain
all rents, proceeds, payments and other moneys due or to become due under the
Sublease and apply such amounts to the payment of the obligations, all as
Assignee, in its discretion, shall determine; and/or
4.2 Maintenance of Sublease. Assignee may assume all or any part of
Assignor's right, title and interest in the Sublease and maintain the Sublease
in full force and effect, with Assignee substituted for Assignor as sublessor
therein, and in any such event all of the right, title and interest of Assignor
therein shall be extinguished and Assignee shall be entitled to collect and
retain all rents and payments made by Sublessee thereunder; and/or
4.3 Sale. Assignee may sell at public or private sale, without
appraisal, for such price as it may deem fair, the Sublease and all Assignor's
right, title and interest therein.
5. Expenses and Fees. Assignor shall pay to Assignee on demand all
reasonable attorneys' fees and other reasonable expenses incurred by Assignee in
protecting its interests granted hereunder or in exercising its rights and
remedies provided hereunder.
6. Priority of Lease. The Sublease shall at all times be subject and
subordinate to the Lease. Nothing in this Assignment, including without
limitation the exercise of any rights or remedies hereunder, shall preclude or
in any way affect Assignee's right to exercise the rights, powers and remedies
provided or permitted under the Lease, including Assignee's rights to terminate
and avoid the Sublease, to repossess the Aircraft, Airframe, any Engine or any
Part as permitted by the Lease and to require Assignor and/or Sublessee to
deliver such Aircraft, Airframe, Engine or Part forthwith upon such
repossession.
7. Waiver, Invalidity of Remedies. Assignor waives any right to require
Assignee to pursue any other remedy it may have against Assignor, any guarantor
or any surety. The invalidity or unenforceability of any remedy in any
jurisdiction shall not invalidate such remedy or render it unenforceable in any
other jurisdiction. The invalidity or unenforceability of any of the remedies
provided herein in any jurisdiction shall not in any way affect the right to
enforcement in such jurisdiction or elsewhere of any of the other remedies
provided herein.
8. Power of Attorney. Assignor does hereby constitute Assignee, and its
successors and assigns, Assignor's true and lawful attorney-in-fact, with power
of substitution, irrevocably, and coupled with an interest, with full power (in
the name of Assignor or otherwise) and at the expense of Assignor but for the
use and benefit of Assignee, so long as an Event of Default has occurred and is
continuing, to enforce each and every term and provision of the Sublease, to
ask, require, demand, receive, collect, compound and give acquittance and
discharge for any and all moneys and claims for moneys due and to become due
under or arising out of the Sublease, to endorse any checks or other instruments
or orders in connection therewith, to settle, compromise, compound or adjust any
such claims, to exercise and enforce any and all claims,
3
<PAGE> 71
rights, powers or remedies of every kind and description of Assignor under or
arising out of the Sublease, to file, commence, prosecute, compromise and settle
in the name of Assignor or Assignee or otherwise any suits, actions or
proceedings at law or in equity in any court, to collect any such moneys or to
enforce any rights in respect thereto on all other claims, rights, powers and
remedies of every kind and description of Assignor under or arising out of the
Principal Sublease and generally to sell, assign, transfer, pledge or make any
agreement with respect to or otherwise deal with any of such claims, rights,
powers and remedies as fully and completely as though Assignee were the absolute
owner thereof for all purposes, and at such times and in such manner as may seem
to Assignee to be necessary or advisable or convenient or proper in its absolute
discretion.
9. Execution of Documents. Assignor agrees that at any time or from
time to time, upon the written request of Assignee, Assignor shall promptly and
duly execute and deliver any and all such further instruments, documents and
financing statements and do such other acts and things as Assignee may deem
necessary or desirable in order to obtain the full benefits of this Assignment
and of the rights and powers granted herein.
10. Exercise of Sublease Rights. Unless and until an Event of Default
shall have occurred and be continuing, Assignor shall be permitted, to the
exclusion of Assignee, to amend, modify or supplement the Sublease, to exercise
any election or option or give any notice, consents waiver or approval under or
in respect of the Sublease and to exercise all other rights, powers or remedies
thereunder. Notwithstanding the foregoing, Assignor will not, without Assignee's
consent, amend, modify or supplement the Sublease or waive any provision thereof
if such amendment, modification, supplement or waiver would materially adversely
affect the rights of Assignee in the Aircraft or the Lease or would conflict
with any provision of the Lease.
11. Assignor's Representations and Warranties. Assignor represents and
warrants that the Sublease is in full force and effect and is enforceable in
accordance with its terms, that Assignor is not in default thereunder and that
it has not assigned, transferred or pledged, and hereby covenants that it will
not assign, transfer or pledge, the whole or any part of the rents, moneys,
claims, rights, powers, remedies, titles or interests hereby assigned to anyone
other than Assignee, its successors and assigns.
12. Assignment. The Assignee may at any time sell, assign, transfer or
otherwise dispose of its interest in all or any part of the Lease, this
Assignment and in the property and security created thereby and hereby in
accordance with the provisions of the Lease. Assignor shall not assign or
delegate any or its rights or obligations hereunder, except pursuant to the
Lease.
13. Governing Law. This Assignment is being delivered in the State of
New York. This Assignment, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed in accordance
with, the laws of the State of New York applicable to contracts made in such
State by residents thereof and to be performed entirely within such State.
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<PAGE> 72
14. Counterparts. This Assignment may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one and the same instrument.
15. Miscellaneous. This Assignment may not be amended, supplemented,
modified or waived without the prior written consent of Assignee, its successors
and assigns. This Assignment shall be binding upon, and inure to the benefit of,
the parties hereto and their respective successors and assigns. Except as
otherwise provided in this Agreement, all notices hereunder shall be in writing
and shall be given by mail, cable, telex, teletype or any other customary means
of written communication at the addresses set forth on the signature pages
hereof, or at such other addresses as may be specified by written notice to the
parties hereto, and shall become effective when received by the addressee.
IN WITNESS WHEREOF, Assignor and Assignee have duly executed this
Assignment as of the date first set forth above.
NEW YORK AIRLINES, INC.
By:
-------------------------
Title:
----------------------
GATX LEASING CORPORATION
By:
-------------------------
Title:
----------------------
5
<PAGE> 73
CONSENT AND AGREEMENT
CONTINENTAL AIRLINES, INC., a Delaware corporation ("Sublessee"),
hereby acknowledges receipt of notice of and consents to all the terms of the
foregoing Assignment of Sublease (the "Assignment") and agrees that:
1. Sublessee shall be fully bound by all terms and conditions of the
Assignment. The capitalized terms used herein shall have the meanings provided
for in the Assignment.
2. All representations, warranties, indemnities, covenants and
agreements of Sublessee under the Sublease shall inure to the benefit of
Assignee, its successors and assigns, to the same extent as if originally named
the lessor therein.
3. Assignee, its successors and assigns, shall not be liable for any of
the obligations or duties of Assignor under the Sublease, nor shall the
Assignment give rise to any duties or obligations whatsoever on the part of
Assignee, its successors and assigns, owing to Sublessee.
4. The Sublease is fully subject and subordinate in all respects to the
Lease and to Assignee's rights, powers and remedies thereunder including the
right to terminate the Lease and repossess the Aircraft.
5. Notwithstanding the exercise of any rights, powers and remedies
under or in respect of the Sublease or the Lease, Sublessee shall not be
relieved of the obligation to perform any or all of the terms and provisions to
be performed by Sublessee under the Sublease and the Sublease shall not
terminate or be otherwise affected by reason of any such exercise of any such
rights and remedies, except only by termination thereof at the election of
Assignor or Assignee, its successors and assigns, in connection with the
exercise of their respective rights and remedies under the Sublease or the
Lease.
6. As provided in paragraph 2 of the Assignment, Sublessee shall pay
all amounts referred to in paragraph l(b) of the Assignment due and to become
due to Assignor under the Sublease directly to Assignee or as otherwise directed
from time to time by Assignee.
7. Sublessee's obligation to make all payments due under the Sublease
shall be absolute and unconditional and shall in no event be subject to any
rights of set-off, recoupment, deduction or counterclaim or any other defense
which Sublessee may now or hereafter have against Assignor, Assignor or any
other Person, all of which Sublessee hereby waives. All such payments so made
shall be final, and Sublessee will not seek to recover for any reason whatsoever
any payments so made.
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<PAGE> 74
8. Sublessee shall not amend, modify or supplement the Sublease or
waive any of the provisions thereof without the prior written consent of
Assignee, except that Sublessee may amend, modify or supplement the Sublease
without such prior written consent to the extent that Assignor may amend, modify
or supplement the Sublease without Assignee's prior written consent as provided
in Section 10 of the Assignment.
9. Sublessee hereby represents and warrants that (a) Sublessee is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) the making and performance of the Sublease and
this Consent and Agreement have been duly authorized by all necessary corporate
action on the part of Sublessee, do not require any stockholder approval and do
not contravene Sublessee's Certificate of Incorporation or by-laws or any
indenture, credit agreement or other contractual agreement to which Sublessee is
a party or by which it is bound, (c) the Sublease constitutes, as of the date
thereof and at all times thereafter to and including the date of this Consent
and Agreement, and this Consent and Agreement constitutes, valid and binding
obligation of Sublessee enforceable against Sublessee in accordance with its
terms, and (d) no Sublease Event of Default has occurred and is continuing.
CONTINENTAL AIRLINES, INC.
By:
------------------------
Title:
2
<PAGE> 75
GUARANTEE, dated as of November 6, 1986 from TEXAS AIR
CORPORATION, a Delaware corporation ("Guarantor"), to GATX
Leasing Corporation (the "Beneficiary") Relating to Lease of
Aircraft VII
A. Pursuant to the terms of that certain Lease Agreement, dated as of
November 7, 1969, as amended and supplemented as of the date hereof (the
"Original Lease Agreement") the Beneficiary has leased to Frontier Airlines,
Inc. ("Frontier") certain aircraft together with engines initially installed
thereon and each described in Exhibit A hereto (collectively, the "Aircraft").
One of the Aircraft bears FAA Registration No. N 737OF (hereinafter referred to
as "Aircraft V"), the second Aircraft bears FAA Registration No. N 7378F
(hereinafter referred to as "Aircraft VIII), and the third Aircraft bears FAA
Registration No. N 7379F (hereinafter referred to as "Aircraft VII").
B. Frontier Airlines, Inc., a Nevada corporation, Frontier Leaseco One,
Inc., a Nevada corporation, and Frontier Leaseco Two, Inc., a Nevada
corporation, (collectively, the "Frontier Companies") are presently debtors and
debtors-in-possession in Chapter 11 cases pending in the United States
Bankruptcy Court for the District of Colorado (the "Bankruptcy Court").
C. Pursuant to that certain Asset Purchase Agreement dated September
15, 1986 between Texas Air Corporation ("Texas Air") and the Frontier Companies
(the "Asset Purchase Agreement"), the Original Lease Agreement is to be assumed
by Frontier and assigned to New York Airlines, Inc. (the "Lessee") subject to
the terms thereof.
D. Pursuant to the Asset Purchase Agreement, Beneficiary will execute a
consent of even date herewith to the Assumption and Assignment of even date
herewith assigning the Original Lease Agreement to Lessee (the "Consent").
E. Pursuant to an Agreement Concerning Assumption of New Leases between
Beneficiary and Lessee of even date herewith, (the "Assumption Agreement"), such
parties will enter into a New Lease Agreement of even date herewith relating to
Aircraft VII (the "Lease").
F. It is a condition precedent to the execution of the Consent, the
Assumption Agreement and the Lease that the Guarantor enter into this Guarantee
(as at any time amended, supplemented and modified, the "Guarantee").
1. Definitions. Unless otherwise defined herein or otherwise required
by the context, terms used herein (including terms used in the above recitals)
which are defined in the Lease are used in this Guarantee as so defined.
2. Guarantee. For value received and to induce Beneficiary to enter
into the Consent, the Assumption Agreement and the Lease, Guarantor does hereby
absolutely, unconditionally and irrevocably guarantee to Beneficiary, its
successors and assigns: the due and punctual performance and observance by
Lessee of each and every covenant and agreement to be
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<PAGE> 76
performed or observed by Lessee under the Lease, including, without limitation,
the due and punctual payment by Lessee of Rent, including Basic Rent, Renewal
Rent, if any, and Supplemental Rent, if any, and each and every amount which
Lessee is or at any time may become obligated to pay under the Lease (all such
covenants, agreements, payments and other obligations referred to in this
Section are hereinafter referred to as the "Obligations").
3. Absolute Guarantee. This Guarantee shall be an absolute, continuing,
unconditional and irrevocable guarantee and shall remain in full force and
effect as to Guarantor until such time as the Obligations are paid, performed
and observed in full.
4. Strict Observance. Guarantor hereby agrees that the Obligations will
be paid, performed and observed strictly in accordance with their terms and
strictly in accordance with the terms and provisions of the Lease, regardless of
the enforceability thereof against Lessee and regardless of any law, regulation
or decree now or hereafter in effect which might in any manner affect the
Obligations, or the rights of Lessee with respect thereto as against
Beneficiary. The obligations of Guarantor under this Guarantee are absolute,
irrevocable and unconditional, without regard to the obligations of any other
Person, and shall not in any manner be affected by reason of any action taken or
not taken by Beneficiary, which action or inaction is herein consented and
agreed to, or of any lack of prior enforcement or retention of any rights
against Lessee, Guarantor or any other Person or any property or of the partial
or complete illegality, unenforceability or invalidity of the Obligations or the
Lease, any other guarantee or surety agreement, pledge, assignment or other
security for any Obligations, or any other circumstances or condition (whether
or not Guarantor or Lessee shall have any knowledge or notice thereof),
including without limitation: (a) any termination, amendment or modification of,
or deletion from, or addition or supplement to, or other change in any of the
Lease, or any other instrument or agreement applicable to any of the parties to
such agreements, or to the Aircraft or any part thereof, or any assignment,
mortgage or transfer of any thereof, or of any interest therein, or any sale,
leasing or subleasing of the Aircraft, or any furnishing or acceptance of
additional security, or any release of any security, for the obligations of
Lessee under the Lease , or the failure of any security or the failure of any
Person to perfect any interest in any collateral security; (b) any failure,
omission or delay on the part of Lessee or any other Person to conform or comply
with any term of the Lease, including without limitation, failure to give notice
to Guarantor of the occurrence of a default or an Event of Default under the
Lease; (c) any waiver of the payment, performance or observance of any of the
obligations, conditions, covenants or agreements contained in the Lease, or any
other waiver, consent, extension, indulgence, compromise, settlement, release or
other action or inaction under or in respect of the Lease, or any obligation or
liability of Lessee or the Beneficiary, or any exercise or nonexercise of any
right, remedy, power or privilege under or in respect of the Lease or any such
obligation or liability; (d) any extension of time for payment of Rent, or any
other Obligation, or of the time for performance of any other obligations,
covenants or agreements under or arising out of the Lease, or the extension or
the renewal of any thereof; (e) the exchange, surrender, substitution or
modification of any collateral security for any of the Obligations; (f) any
failure, omission or delay on the part of the Beneficiary to enforce, assert or
exercise any right, power or remedy conferred on it in this Guarantee, or any
such failure, omission or delay on the part of the Beneficiary in connection
with the Lease, or any other action on the part of the Beneficiary; (g) any
voluntary or involuntary bankruptcy,
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<PAGE> 77
insolvency, reorganization, arrangement, readjustment, assignment for the
benefit of creditors, composition, receivership, conservatorship, custodianship,
liquidation, marshaling of assets and liabilities or similar proceedings with
respect to Lessee, Guarantor, any other Person or any of their respective
properties or creditors, or any action taken by any trustee or receiver or by
any court in any such proceeding; (h) any limitation on the liability or
obligations of Lessee or any other Person under the Lease, or any discharge,
termination, cancellation, frustration, irregularity, invalidity or
unenforceability, in whole or in part, of the Lease; (i) any defect in the
title, compliance with specifications, condition, design, operation or fitness
for use of, or any damage to or loss or destruction of, the Aircraft, or any
interruption or cessation in the use of the Aircraft or any portion thereof by
Lessee or any other Person for any reason whatsoever (including, without
limitation, any governmental prohibition or restriction, condemnation,
requisition, seizure or any other act on the part of any governmental or
military authority, or any act of God or of the public enemy) regardless of the
duration thereof (even though such duration would otherwise constitute a
frustration of the Lease), whether or not resulting from accident and whether or
not without fault on the part of Lessee or any other Person; (j) any merger or
consolidation of Lessee or Guarantor into or with any other corporation, or any
sale, lease or transfer of any of the assets of Lessee or Guarantor to any other
Person; (k) any change in the ownership of any shares of capital stock of
Lessee, or any change in the corporate relationship between Lessee and
Guarantor, or any termination of such relationship; (1) to the extent permitted
by law, any release or discharge, by operation of law, of Guarantor from the
performance or observance of any obligation, covenant or agreement contained in
this Guarantee; or (m) any other condition or circumstance which might otherwise
constitute a legal or equitable discharge, release or defense of a surety or
guarantor, or which might otherwise limit recourse against Guarantor, it being
agreed that the obligations of Guarantor hereunder shall not be discharged
except by payment or performance as herein provided. No delay in making demand
on Guarantor for satisfaction of the obligations of Guarantor hereunder shall
prejudice the right of the Beneficiary to enforce the obligations of Guarantor
hereunder. Guarantor further agrees not to cause or permit any alteration in the
time, amount, currency or manner of payment, performance or observance by Lessee
of any of or all the Obligations.
5. Waivers of Notice, Etc. Guarantor hereby waives diligence,
presentment, demand, protest or notice of any kind whatsoever with respect to
this Guarantee or the Obligations, including without limitation, (a) notice of
acceptance of this Guarantee, notice of nonpayment or nonperformance of any of
the Obligations, notice of an Event of Default or other default and notice of
any of the matters described in Paragraph 4, (b) any right to the enforcement,
assertion or exercise against Lessee or any other Person or the Aircraft or
Spare Engine or any other collateral security for the Obligations of any right,
power, privilege or remedy conferred in the Lease or otherwise, (c) any
requirement to exhaust any remedies or to mitigate the damages resulting from a
default under the Lease, (d) any notice of any sale, transfer or other
disposition of any right, title to or interest in the Lease or the Aircraft, or
any part thereof, (e) any exoneration or release from the Obligations hereunder
resulting from any loss by Guarantor of its rights of subrogation hereunder, (f)
any requirement of promptness in commencing suit against any Person who may be
or become liable thereon and the giving of notice to or making any claim or
demand on Guarantor, Lessee or any other Person or (g) any other circumstance
whatsoever which might otherwise constitute a legal or equitable discharge,
release or defense of a guarantor or surety or
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<PAGE> 78
which might otherwise limit recourse against Guarantor. Guarantor agrees that it
shall not be required to consent to, or to receive any notice of, any supplement
to or amendment of, or waiver or modification of, the terms of the Lease.
6. Extensions, Etc. (a) Guarantor consents and agrees that the
Beneficiary, may in its sole discretion, at any time or from time to time, (i)
renew, extend, change or modify the time, manner, place or terms of payment,
performance or observance of any or all of the Obligations, (ii) apply payments
by Lessee or Guarantor to any Obligations, (iii) exchange, release or surrender
any security or property which may at any time be held by them, or any of them,
(iv) release any surety or guarantor for or of any of the Obligations, (v)
settle or compromise any or all of the Obligations with Lessee or any Person
liable thereon or (vi) subordinate the payment, performance or observance of all
or any part thereof to the payment, performance or observance of any other debts
or obligations which may be due or owing to them or any other Person, all in
such manner and upon such terms as the Beneficiary, may deem proper, without
notice to or further assent from Guarantor, who agrees to remain bound under
this Guarantee notwithstanding any such extension, change, modification,
amendment, release, surrender, settlement, compromise or subordination.
(b) The obligations of Guarantor hereunder shall terminate and be of no
force or effect upon the assumption by Continental Airlines, Inc. of all of
Lessee's obligations under the Lease, whether by merger, agreements operation of
law or otherwise so long as Continental Airlines, Inc. then qualifies as a
permitted Sublessee pursuant to Section 6.O1H of the Lease and no Event of
Default shall have occurred and be continuing.
7. No Waiver. No failure or delay in exercising any right under this
Guarantee shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right of the Beneficiary, under this Guarantee or the
Lease.
B. Guarantee of Performance. This Guarantee is a guarantee of
performance and not of collection and Guarantor waives any right to require that
any action against Lessee be taken or exhausted prior to action being taken
against Guarantor. Guarantor shall pay to Beneficiary, on demand all reasonable
attorneys' fees and other reasonable expenses incurred by the Beneficiary in
protecting its interests hereunder or in exercising its rights and remedies
provided hereunder, together with interest on such sums at the Incentive Rate,
from the date when such expenses are so incurred.
9. Bankruptcy, Etc. Guarantor agrees that if at any time all or any
part of any payment or performance theretofore applied by any Beneficiary to any
of the Obligations is or must be rescinded or returned by the Beneficiary for
any reason whatsoever (including, without limitation, the insolvency, bankruptcy
or reorganization of Lessee), such Obligations shall, for the purposes of this
Guarantee, to the extent that such payment or performance is or must be
rescinded or returned, be deemed to have continued in existence, notwithstanding
such application by the Beneficiary, and this Guarantee shall continue to be
effective or be reinstated, as the case may be, as to such Obligations, all as
though such application by the Beneficiary had not been made. If an
4
<PAGE> 79
event permitting the declaration of default under the Lease shall at any time
have occurred and be continuing, and such declaration of default shall at such
time be prevented by reason of the pendency against Lessee or any other Person
of a case or proceeding under a bankruptcy or insolvency law, Guarantor agrees
that, for purposes of this Guarantee and its obligations hereunder, the Lease
shall be deemed to have been declared in default with the same effect as if the
Lease had been enforceable in accordance with the terms thereof, and Guarantor
shall forthwith pay the amounts specified by the Beneficiary to be paid
thereunder, any interest thereon and any other amounts guaranteed hereunder
without further notice or demand.
10. Guarantor's Representations, Warranties and Covenants. The
representations, warranties and covenants of Guarantor set forth in Article V of
the Asset Purchase Agreement are hereby incorporated by reference herein as if
set forth in full at this place.
11. Assignment. The Beneficiary may at any time sell, assign, transfer
or otherwise dispose of its interest in all or any part of the Lease, this
Guarantee, and in the property and interests subject thereto and hereto, in
accordance with the provisions of the Lease. Guarantor shall not assign any of
its rights or obligations hereunder, including any claim arising by subrogation,
except pursuant to a consolidation, merger or conveyance, transfer or lease of
all or substantially all its assets.
12. Guarantor's Obligations; No Setoff. Guarantor's obligation to make
all payments due hereunder, and to perform its other obligations hereunder shall
be absolute and unconditional and shall in no event be subject to any right of
setoff, recoupment, deduction or counterclaim or any other defense which
Guarantor or any other Person may now or hereafter have against the Beneficiary
or any other Person, which Guarantor hereby waives; all such payments so made
shall be final, and Guarantor will not seek to recover for any reason whatsoever
any payments so made.
13. Subrogation. The Guarantor shall be subrogated to the rights, if
any, of the Beneficiary in respect of any ;matter with respect to which an
amount has been payable by the Guarantor hereunder; provided, however, any
subrogation rights to which Guarantor becomes entitled by reason of performance
of any of its obligations hereunder shall be subject and subordinate to the
rights of Beneficiary against Lessee under the Lease, and the exercise of any
such subrogation rights of Guarantor shall be deferred until all Obligations
have been fully performed. No payment or performance hereunder by Guarantor
shall give rise to any claim of Guarantor against the Beneficiary.
14. Governing Law. This Guarantee, including all matters of
construction, validity and performance, shall in all respects be governed by,
and construed in accordance with, the laws of the State of New York applicable
to contracts made in such state by residents thereof and to be performed
entirely within such state. Wherever possible, each provision of this Guarantee
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guarantee shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition without invalidating the remainder of such provision or the
remaining provisions of this Guarantee.
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<PAGE> 80
15. Amendments, Changes, Etc. No term or provision of this Guarantee
may be amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
amendment, change, waiver, discharge or termination is sought.
TEXAS AIR CORPORATION
By:
------------------
Title:
6
<PAGE> 81
Exhibit A
1) One (1) Boeing 737-2CO Aircraft which consists of the following
components:
a) airframe: FAA Registration Mark N-737OF Manufacturer's Serial No.
20073
b) engines: Two (2) Pratt & Whitney JT8D-9 engines bearing,
respectively, Manufacturer's Serial Nos. P674344B and P 674380B
2) One (1) Boeing 737-2CO Aircraft which consists of the following
components:
a) airframe: FAA Registration Mark N-7379F Manufacturer's Serial No.
20071
b) engines: two (2) Pratt & Whitney JT8D-9 engines bearing,
respectively, manufacturer's Serial Nos. P 674314B and P 674384B
3) One (1) Boeing 737-2CO Aircraft which consists of the following
components:
a) airframe: FAA Registration Mark N-7378F Manufacturer's Serial No.
20070
b) engines: Two (2) Pratt & Whitney JT8D-9 engines, bearing,
respectively, Manufacturer's Serials Nos. P 674250B and P 674299B
Each of the engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.
7
<PAGE> 1
EXHIBIT 10.17
TRUST AGREEMENT
(N7379F)
DATED AS OF DECEMBER 30, 1986
AMONG
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP,
as Owner Participant,
NORTH AMERICAN AIRCRAFT FINANCE CORPORATION,
as Owner Participant,
UNITED STATES AIRLEASE, INC.
as Owner Participant and Agent,
AND
TRUST COMPANY FOR USL, INC.,
as Trustee
Concerning
One (1) Boeing 737-200 Series Aircraft
with FAA Registration No. N7379F
Leased to New York Airlines, Inc. and
Subleased to Continental Airlines, Inc.
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
I Definitions 6
1.01 6
1.02 9
II Authority to Execute and Perform Various 9
Documents; Declaration of Trust by Trustee
2.01 Authority to Execute and Perform Various 9
Documents
2.02 Replacements 9
2.03 Declaration of Trust by Trustee 10
III Beneficial Interest of Owner Participants in 10
Trust Estate and Certificates
3.01. Beneficial Interest of Each Owner 10
Participant
3.02. The Certificates 10
3.03. Issuance of Certificates 11
3.04 Payments from Trust Estate Only 11
3.05 Payment to Holder of Certificate 12
3.06 Transfer of Certificate 12
3.07 Mutilated, Restored, Lost, or Stolen
Certificates 12
3.08 Payment of Expenses upon Transfer 12
3.09 Payments by Each Owner Participant 12
IV Acceptance of Lease Property 13
4.01 Acceptance of Lease Property 13
4.02 Conditions Precedent 13
4.03 Authority Without Express Instructions 13
V. Omitted 13
VI Distributions 13
6.01 Distribution of Basic Rent 14
6.02 Distribution of Payments 14
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE
- -------
<S> <C>
6.03 Distribution of Trust Estate 14
VII Duties of the Trustee 14
7.01 Notice of Event of Default 14
7.02 Action Upon Instructions 15
7.03 Indemnification 15
7.04 No Duties Except as Specified in 15
Trust Agreement or Instructions
7.05 No Action Except Under Specified 16
Documents or Instructions
7.06 Absence of Duties 16
VIII The Trustee 16
8.01 Acceptance of Trusts and Duties 16
8.02 Furnishing of Documents 16
8.03 No Representations or Warranties as to 17
Lease Property or Documents
8.04 No Segregation of Monies; No Interest 17
8.05 Reliance; Advice of Counsel 17
8.06 Not Acting in Individual Capacity 17
IX Indemnification of Trustee by 18
Owner Participants
9.01 Owner Participants to Indemnify 18
Trustee
9.02 Compensation and Expense 19
X Termination of Trust Agreement 19
10.01 Termination of Trust Agreement 19
10.02 Termination at Option of Owner 20
Participants
XI Successor Trustees, Co-Trustees and Separate 20
Trustees
11.01 Resignation of Trustee; Appointment of 20
Successor
11.02 Co-Trustees and Separate Trustees 21
XII Concerning the Agent 21
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE
- -------
<S> <C>
12.01 Appointment of Agent 21
12.02 Agent's Acceptance of Appointment 22
12.03 Agreements of the Agent 22
12.04 Standard of Care and Diligence 22
12.05 Resignation or Removal of Agent 22
12.06 Estates and Rights of Successor Agent 23
12.07 Merger or Consolidation of Agent 23
12.08 Agent's Duty to Indemnify 23
XIII Supplements and Amendments 23
XIV Sale, Transfer or Mortgage of Lease 24
Property
14.01 General 24
14.02 Permitted Transfers by the Owner 24
Participants
(a) Transfers by Airlease 24
(b) Transfers by the Partnership 24
(c) Transfer by NAF 24
14.03 Right of First Refusal as to an 24
Owner Participant's Trust Estate
Interest
(a) Offering Notice 24
(b) Requirements of Offer 25
(c) Procedure 25
(d) Acceptance of Sale Offer 25
(e) Right to Sell to Third Party 26
(f) Limitations on Exercise 26
14.04 Closings 26
(a) Location and Time Periods 26
(b) Closing Conditions 27
(c) Event of Loss 27
(d) Partial Loss 27
14.05 Termination of Obligations 27
14.06 Agreements with Transferees 27
14.07 Restraining Order 28
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE
- -------
<S> <C>
14.08 Sale by an Owner Participant of an
Owner Participant's Trust Estate 28
XV Miscellaneous 28
15.01 No Legal Title to Trust Estate in 28
Owner Participants
15.02 Sale of Aircraft, etc., by Trustee is 28
Binding
15.03 Limitations on Rights of Others 29
15.04 No Partnership for Tax Purposes 29
15.05 Notices 29
15.06 Severability 30
15.07 Limitation on Liability of Owner 30
Participants and Agent
15.08 Separate Counterparts 30
15.09 Successors and Assigns 30
15.10 Headings 30
15.11 Governing Law 30
Schedule 1
</TABLE>
5
<PAGE> 6
TRUST AGREEMENT
(for N7379F)
THIS TRUST AGREEMENT dated as of December 30, 1986, by and among Trust
Company for USL, Inc., a trust company organized under the laws of the State of
Illinois, in its individual capacity as expressly stated herein and otherwise
not in its individual capacity but solely as trustee hereunder (herein in such
capacity with its permitted successors and assigns called the "Trustee");
Airlease Ltd., A California Limited Partnership (herein referred to as the
"Partnership" or "Owner Participant"); North American Aircraft Finance
Corporation, a California corporation (herein referred to as "NAF" or "Owner
Participant"); and United States Airlease, Inc., a California corporation,
(herein sometimes referred to as "Airlease" or "Owner Participant" in its
separate capacity as Owner Participant and at other times, herein sometimes
referred to as "Agent" in its separate capacity as Agent). (The Partnership,
NAF, and Airlease are herein sometimes referred to collectively as the "Owner
Participants.")
W I T N E S S E T H
WHEREAS, the Owner Participants are entering into this Trust Agreement
with the Trustee for the purpose of acquiring an aircraft and the Trustee shall
purchase such aircraft upon the instructions of the Owner Participants; with
funds advanced by each of the Owner Participants.
WHEREAS, Each of NAF, the Partnership, and Airlease shall hold, an
undivided one-third (1/3) beneficial interest in the Lease Property (as
hereinafter defined);
WHEREAS, upon the instructions of the owner Participants, the Trustee
is entering into an agreement with GATX Leasing Corporation ("Lessor") to
acquire the Lessor's interest in seven (7) Boeing 737-200 series aircraft each
subject to a lease ("Lease") between Lessor and New York Airlines, Inc. ("NYA"),
and a sublease ("Sublease") between NYA, as Sublessor, and Continental Airlines,
Inc., as Sublessee ("Continental");
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. For all purposes of this Agreement, the following terms
shall have the following meanings (such definitions to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate" means any individual, partnership, joint venture, estate,
association, corporation, trust company, trust or other entity (collectively,
"Person") that directly or indirectly controls, is controlled by, or is under
common control with the Person in question.
6
<PAGE> 7
"Agreement" means this Trust Agreement, as it may hereafter from time
to time be supplemented, amended, waived, or modified pursuant to the applicable
provisions hereof.
"Aircraft" means the Boeing 737-200 series airframe together with the
engines pertaining thereto as more particularly described and identified in
Schedule 1 hereto. "Aircraft" also means, if the context so requires the
Aircraft Records.
"Aircraft Records" means with respect to any Aircraft, (i) the
maintenance log books, flight log book, summaries of operations or work
performed, reports of repair, alterations, rebuild, installation, modification,
removal and replacement and inspection or overhaul of the Airframe, Engine or
Part and (ii) all publications, notebooks, data, operations manuals, maintenance
manuals, Aeronautics Authority-approved maintenance program, balance loading
manuals and equipment lists.
"Airframe" means (A) the used Boeing 737-200 series Airframe having the
Manufacturer's serial number and the FAA registration number as set forth in
Schedule 1 attached hereto, and (8) any and all Parts so long as the same shall
be , incorporated or installed in or attached to the Airframe, or so long as
title thereto shall remain vested in the Trustee, after removal from the
Airframe.
"Application for Aircraft Registration" means the Application for
Aircraft Registration (AC Form 8050-1) with respect to the Aircraft.
"Assigned Contracts" means all of the agreements identified in Section
7 of Schedule 2 to the Purchase Agreement with respect to the Aircraft.
"Certificate" means a certificate substantially in the form included in
Article III hereof issued by the Trustee hereunder.
"Closing Date" means the date the Aircraft is purchased by the Trustee
pursuant to the Purchase Agreement.
"Engine" means: (i) any of the engines listed by manufacturer's serial
number in Schedule 1 attached hereto whether or not from time to time thereafter
installed on the Airframe or installed on any other airframe or any other
aircraft; (ii) any engine which may from time to time be substituted, or be a
replacement or addition pursuant to the Lease for any such Engine; and (iii) any
and all Parts incorporated or installed in or attached thereto or any and all
parts removed therefrom so long as title thereto shall remain vested in the
Trustee in accordance with the terms of the applicable Lease after removal from
any such Engine.
"FAA" shall mean the Federal Aviation Administration and/or
Administrator of the Federal Aviation Administration or any person, governmental
department, bureau, commission or agency succeeding to the functions thereof,
"FAA Bill of Sale" means the bill of sale (AC Form 8050-2), covering
the Aircraft, executed by Lessor, in favor of the Trustee, dated the Closing
Date.
7
<PAGE> 8
"Lease" means a Lease Agreement, dated as of November 6, 1986,
including the Lease Supplement executed pursuant thereto, between Lessor, as
Lessor, and NYA, as Lessee, covering the Aircraft as said Lease Agreement may
hereafter from time to time be supplemented, amended, waived or modified.
"Lease Assignment" means an Assignment and Assumption Agreement between
the Trustee and Lessor with respect to the Aircraft and the Assigned Contracts
in the form of Exhibit B to the Purchase Agreement as such Assignment and
Assumption Agreement may hereafter from time to time be supplemented, amended,
waived or modified.
"Lease Property" means the Lease, the Assigned Contracts, the Aircraft,
and all income, deductions, credits and other benefits to which an owner of
property would be entitled to as lessor under the Lease, and owner of the
Aircraft, including without limitation, all rental payments under the Lease and
Assigned Contracts, the right to possession of the Aircraft, and all proceeds
upon the sale or re-lease of the Aircraft.
"Lender" means any Person whose principal business is providing
financing and which provides financing to the Trustee or Owner Participants and
is granted a Lien on the Aircraft, or the Airframe, or an Engine or Part.
"Lessee" means NYA and its permitted successors and assigns.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
exercise of rights, security interest or claim.
"Majority in Interest of Owner Participants", as of a particular date
of determination, means the Owner Participant(s) having in excess of 75% of the
aggregate original investment of all Owner Participants paid to the Trustee for
payment of the Lease Property as of such date.
"Operative Documents" means this Agreement, the Assigned Contracts, the
Lease Assignment, the Certificates, the Purchase Agreement, the Application for
Aircraft Registration, the FAA Bill of Sale and the Warranty Bill of Sale, and
all other agreements, instruments and certificates contemplated by such
agreements.
"Parts" means any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, seats and other equipment of whatever
nature (other than complete Engines or engines), which (A) are from time to time
incorporated or installed in or attached to the Airframe or an Engine, or (B)
having been so installed or attached, are later removed therefrom, so long as
title thereto remains vested in the Trustee in accordance with the Lease. "Part"
means any one of the Parts.
"Purchase Agreement" means the Aircraft Purchase Agreement, dated as of
December 30, 1986, between the Trustee and Lessor, as such Purchase Agreement
may hereafter from time to time be supplemented, amended, waived or modified.
"Sublessee" means Continental.
8
<PAGE> 9
"Trust Estate" means all estate, right, title and interest of the Trust
in and to the Operative Documents, any funds given to the Trustee by the Owner
Participants, and the Lease Property, including, without limitation, all amounts
of rent, insurance proceeds, stipulated loss value payments, and requisition,
indemnity or other payments of any kind (1) for or with respect to the Lease
Property or (2) payable to the Trustee under the Purchase Agreement, Lease
Assignment, Lease, or Assigned Contracts, or with respect to the Lease Property,
excluding any indemnity payments paid directly to an Owner Participant.
"Warranty Bill of Sale" means the bill of sale covering the Aircraft in
the form of Exhibit A to the Purchase Agreement.
Section 1.02. For all purposes of this Agreement, any term used but not
defined herein shall have the meanings assigned to it in the Lease, including,
without limitation, the following: "Basic Rent," "Default" and, "Event of
Default."
ARTICLE II
Authority to Execute and Perform Various Documents
Declaration of Trust by Trustee
Section 2.01 Authority to Execute and Perform Various Documents-. Each
Owner Participant hereby authorizes and directs the Trustee (i) to execute and
deliver the Purchase Agreement, the Lease Assignment, the Certificates and the
Application for Aircraft Registration with respect to the Aircraft, and all
other agreements, instruments and certificates contemplated by the Operative
Documents, and to accept the FAA Bill of Sale and the Warranty Bill of Sale and
(ii) subject to the terms of this Agreement, to take other action in connection
with the foregoing as the Owner Participants may from time to time direct in
writing.
Section 2.02 Replacements. The Owner Participants hereby authorize and
direct the Trustee, and the Trustee agrees for the benefit of the Owner
Participants that, in the event of a replacement airframe or engine, if any,
being substituted pursuant to Section 12.01(A) of the Lease, it will, subject to
Section 7.02 hereof and in compliance with the terms of Section 12.01(A) of the
Lease:
(a) to the extent not previously accomplished by a prior
authorization, authorize a representative of the Trustee (who may be an employee
of the Lessee) to accept delivery of the replacement airframe or engine;
(b) accept from the Lessee or other vendor of a replacement
airframe or engine a bill of sale or bills of sale and the invoice, if any, with
respect to such replacement airframe or engine being furnished pursuant to
Section 12.01(A) of the Lease;
(c) execute and deliver a Lease Supplement covering such
replacement engine and, to the extent requested by special counsel to any Owner
Participant, execute and deliver any required amendments to this Agreement or
any other Operative Document to which the Trustee is a party and request any
required consent from the manufacturer of such replacement airframe or engine;
and
(d) transfer title to the airframe or engine being replaced to
the Lessee.
9
<PAGE> 10
Section 2.03 Declaration of Trust by Trustee. The Trustee hereby
declares that it will and does hold the Trust Estate upon the trusts set forth
herein for the sole use and benefit of the Owner Participants.
ARTICLE III
Beneficial Interest of Owner Participants in Trust Estate and Certificates
Section 3.01. Beneficial Interest of Each Owner Participant.
(a) Each Owner Participant shall have and retain an undivided
one-third (1/3) beneficial interest in the Trust Estate, such interest to be
evidenced by Certificate(s) to be issued hereunder. The Owner Participants have
jointly agreed to participate in the purchase of the Lease Property on the
Closing Date on the terms set forth in the Purchase Agreement, and each Owner
Participant shall, on the Closing Date, wire transfer to the Lessor on behalf of
the Trustee its pro-rata portion of the purchase price for the Aircraft and the
other related Lease Property.
Section 3.02. The Certificates. The Owner Participants hereby authorize
and direct the Trustee, and the Trustee agrees that it will issue to each Owner
Participant a Certificate substantially in the form set forth below as provided
in Section 3.03 hereof.
Trust Company for USL, Inc., Trustee
Under Trust Agreement Dated as of
December -, 1986
CERTIFICATE
Issued in connection with the Aircraft hereinafter described: Boeing
737-200 series aircraft, Serial No. _________________
__________________,1986.
$__________________
Trust Company for USL, Inc., not in its individual capacity but solely
as Trustee (herein in such capacity called the "Trustee") under the Trust
Agreement hereinafter referred to hereby certifies as follows: (i) this
Certificate is one of the Certificates referred to in the certain Trust
Agreement (N7379F) dated as of December 30, 1986, by and among the Trustee,
Airlease Ltd., A California Limited Partnership, United States Airlease, Inc.,
and North American Aircraft Finance Corporation (herein called "Trust
Agreement"); the defined terms therein not otherwise defined herein being herein
used with the same meaning), which Certificates have been or are to be issued by
the Trustee pursuant to the Trust Agreement; (ii) is an Owner Participant and
owns an undivided % interest in the Trust Estate; and (iii) the holder of this
Certificate has, ratably with the holders of the other Certificates, an
undivided beneficial interest in the Trust Estate and is entitled to receive,
ratably with the holders of the other Certificates issued with respect to the
Trust Estate as provided in the Trust Agreement, a share of a portion of (1) the
rental received or to be received by the Trustee with respect to the Trust
Estate, or (2) upon the sale or lease of all or any part of the Trust Estate,
any
10
<PAGE> 11
proceeds received or receivable therefrom, as well as a share of certain other
payments which may be received by the Trustee pursuant to the terms of the Trust
Agreement as more particularly set forth therein.
All amounts payable hereunder and under the Trust Agreement shall be
paid only from the income and the proceeds from the Trust Estate and only to the
extent that the Trustee shall have sufficient income or proceeds from the Trust
Estate to make such payments in accordance with the terms of the Trust
Agreement, except as specifically provided in Section 8.01 thereof; and each
holder hereof, by its acceptance of this Certificate, agrees that it will look
solely to the income and proceeds from the Trust Estate to the extent available
for distribution to such holder as above provided and that neither the Owner
Participants nor the Trustee (except to the extent provided in Section 8.01 of
the Trust Agreement) are personally liable to the holder hereof for any amounts
payable under this Certificate or the Trust Agreement.
Reference is hereby made to the Trust Agreement for a statement of the
rights of the holder of this Certificate and of the rights of the holders of the
other Certificates, as well as for a statement of the terms and conditions of
the trusts created by, and the rights, limitations of rights, obligations and
duties of the Trustee set forth in, the Trust Agreement, to all of which terms
and conditions each holder hereof agrees by its acceptance of this Certificate.
Each holder hereof, by its acceptance of this Certificate, agrees not
to transfer this Certificate except in accordance with the terms of Article XIV
and Section 3.06 of the Trust Agreement.
These Certificates have not been registered under the Securities Law of
1933, as amended, and may be transferred only in compliance with such law.
IN WITNESS WHEREOF, the Trustee has duly executed this Certificate as
of the date first above written.
--------------
TRUSTEE
Section 3.03. Issuance of Certificates. Each Certificate issued to an
Owner Participant shall contain a statement by the Trustee that the holder of
such Certificate has, ratably with the holders of the other Certificates, an
undivided beneficial interest in the Trust Estate, and is entitled to receive,
ratably with the holders of the other like Certificates as provided herein, a
share of a portion of (i) the rental received or to be received by the Trustee
for such Trust Estate, or (ii) upon the sale or lease of all or any part of the
Trust Estate, any proceeds received or receivable therefrom, as well as a share
of certain other payments which may be received by the Trustee pursuant to the
terms hereof as more particularly set forth herein.
Section 3.04. Payments from Trust Estate Only. All payments to be made
under the Certificates and under this Trust Agreement shall be made only from
the income and the proceeds from the Trust Estate and only to the extent that
the Trustee shall have sufficient income or proceeds from the Trust Estate to
make such payments in accordance with the terms of Article VI hereof, except as
specifically provided in Section 8.01 hereof. Each holder of a Certificate, by
its acceptance of such Certificate, agrees that it will look solely to the
income and proceeds from the Trust Estate, to the extent available for
distribution to such holder as above provided and that the Owner Participants
are not personally liable to the holder of any Certificates.
11
<PAGE> 12
Except as specifically provided herein, the Trustee is not liable to the Owner
Participants for any amounts payable under this Agreement and is not subject to
any liability in its individual capacity under this Agreement.
Section 3.05. Payment to Holder of Certificate. Subject to Article VI,
any amounts received by the Trustee and payable to each holder of a Certificate
pursuant to this Trust Agreement will be payable to each such holder by wire
transfer of immediately available funds to the bank for the account of each
Owner Participant as such Owner Participant shall direct in writing, without any
presentment or surrender of any Certificate. The Trustee may deem and treat the
person in whose name any Certificate shall have been issued by the Trustee as
the absolute owner and holder of such Certificate for the purpose of receiving
payment of all amounts payable by the Trustee with respect to such Certificate
and for all other purposes, and the Trustee shall not be affected by any notice
to the contrary.
Section 3.06. Transfer of Certificate. Subject to Article XIV, a holder
of a Certificate intending to transfer any Certificate held by such holder to a
new holder shall surrender such Certificate to the Trustee, together with a
written request from such holder for the issuance of a new Certificate,
specifying the name and address of the transferee and evidence that the
conditions set forth herein for such transfer have been satisfied. Promptly upon
receipt of such documents the Trustee will issue a new Certificate of the same
type, dated the same date or dates, in the amounts indicated, and designated as
issued in connection with the Aircraft as the Certificate surrendered, and
naming such transferee as shall be specified in the written request from such
holder, the Trustee shall not be required to exchange any surrendered
Certificate as above , provided during the 10-day period preceding the due date
of any payment on such Certificate.
Section 3.07. Mutilated, Destroyed, Lost, or Stolen Certificates. If
any Certificate shall become mutilated, destroyed, lost or stolen, the Trustee
shall, upon the written request of the holder of such Certificate, execute and
deliver in replacement thereof a new Certificate, in the same original amount,
dated the same date, as the Certificate so mutilated, destroyed, lost or stolen.
If the Certificate being replaced has become mutilated, such Certificate shall
be surrendered to the Trustee. If the Certificate being replaced has been
destroyed, lost or stolen the holder of such Certificate shall furnish to the
Trustee such security or indemnity as may be required by either of them to save
it harmless and evidence satisfactory to the Trustee of the destruction, loss or
theft of such Certificate and of the ownership thereof. If such holder is an
original Owner Participant, the written undertaking of such Owner Participant
shall be sufficient indemnity.
Section 3.08. Payment of Expenses Upon Transfer. Upon the issuance of a
new Certificate or Certificates pursuant to Section 3.06 or 3.07 hereof, the
Trustee may require the payment from the party or parties to whom such new
Certificate or Certificates are issued of a sum to reimburse itself for, or to
provide funds for, the payment of any tax or other governmental charge or any
charges and expenses connected therewith paid or payable by the Trustee.
Section 3.09. Payments by Each Owner Participant. Payments and
contributions (including, without limitation, Trustee's fees and expenses and
indeminifications of the Trustee) provided for herein to be made by each Owner
Participant shall be made by each Owner Participant in proportion to its
beneficial interest in the Trust Estate at the time such payments or
contributions are due and payable. In the event that any Owner Participant makes
a payment for any costs or expenses (including legal fees and expenses) pursuant
to the written instructions of the Trustee or a Majority in Interest of Owner
Participants, such Owner Participant all
12
<PAGE> 13
be entitled to immediate reimbursement therefor from the other Owner
Participants in proportion to its beneficial interest in the Trust Estate.
ARTICLE IV
Acceptance of Lease Property
Section 4.01 Acceptance of Lease Property. The Owner Participants
hereby authorize and direct the Trustee to, and the Trustee agrees for the
benefit of the Owner Participants, that on the Closing Date, it will, ubject to
due compliance with the terms of Section 4.02 hereof, take such actions as are
required of the Trustee hereunder or under the Operative Documents, including
without limitation, the following:
(a) authorize a representative or representatives of the
Trustee to accept the FAA Bill of Sale, Warranty Bill of Sale and original
counterpart of the Lease and the applicable Assigned Contracts on such Closing
Date;
(b) execute and deliver a Lease Assignment relating to the
Lease Property; and
(c) upon the payment by each Owner Participant of its
proportionate share of the purchase price for the Aircraft, the Trustee shall
cause the Agent, without further act, authorization, or direction by the Owner
Participants to the Trustee, to file on behalf of the Trustee the FAA Bill of
Sale, UCC-1 Financing Statements and the Aircraft Registration Application in
the name of the Trustee; and
(d) execute and deliver each of the Operative Documents and
all other related documents to which it is a party; and
(e) issue a Trust Certificate for such interest in the Trust
Estate to each of the Owner Participants.
Section 4.02 Conditions Precedent. The right and obligation of the
Trustee to take the action required by Section 4.01 hereof shall be subject to
the conditions precedent enumerated in Article III of the Purchase Agreement.
Section 4.03 Authority Without Express Instructions. The Trustee,
without the necessity of further instructions from the Owner Participants, is
hereby authorized and directed by the Owner Participants to take any action in
connection with postponing the Closing Date; provided, however, that the Trustee
shall not give any consent, waive any right or benefit or enter into any
modification or amendment of the Operative Documents or take any other action to
perform any obligations whatsoever except at the direction of all of the Owner
Participants or a Majority in Interest Owner Participants, as applicable.
ARTICLE V
Article V is intentionally omitted.
ARTICLE VI
Distributions
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Section 6.01 Distribution of Basic-Rent. Each payment of Basic Rent, as
well as payment of interest on overdue installments of Basic Rent, received by
the Trustee at any time shall be distributed in accordance with Section 3.05 by
the Trustee on the date such payment is due from the Lessee, (or as soon
thereafter as such payment shall be received by the Trustee) to each Owner
Participant without priority of one over the other ratably in proportion to its
undivided beneficial interest in the Trust Estate. The Trustee agrees to take
all reasonable steps necessary to collect any rent or other amounts due under
the Operative Documents.
Section 6.02. Distribution of Payments. All payments and amounts,
except for Basic Rent, if any, received by the Trustee shall be distributed
forthwith upon receipt, provided, however, all such amounts in excess of $10,000
shall be distributed no later than twenty four (24) hours after the Trustee has
knowledge of its receipt, in the following order of priority: first, so much of
such payment or amount as shall be required to reimburse the Trustee for any
reasonable fees or expenses not otherwise paid or reimbursed by the Owner
Participants as to which the Trustee is entitled to be paid or reimbursed
hereunder shall be retained by the Trustee; second, to reimburse an Owner
Participant for payments made by it and not by all Owner Participants, pursuant
to Section 7.03 or 9.01 hereof, or an instruction from the Trustee pursuant to a
written instruction from all of the Owner Participants or a Majority in Interest
of Owner Participants, as required, ratably in proportion to the aggregate
amount of such payments made by each Owner Participant; and third, the balance,
if any, of such payment or amount remaining thereafter shall be distributed to
the Owner Participants ratably, without priority of one over the other, in
proportion to the beneficial interest of each Owner Participant in the Trust
Estate.
Section 6.03 Distribution of Trust Estate. Whenever the terms of this
Agreement shall require the Trustee to distribute or transfer the entire Trust
Estate to any person(s), the Trustee shall be entitled to retain such monies and
securities, if any, as shall then be held by the Trustee as a part of the Trust
Estate and as shall be required to reimburse or pay the Trustee for any
reasonable fees, expenses, or liabilities not reimbursed or paid by the Owner
Participants as to which the Trustee is entitled to be paid or reimbursed
hereunder or under any Operative Document and shall distribute the Trust Estate
in accordance with Section 6.02.
ARTICLE VII
Duties of the Trustee
Section 7.01 Notice of Event of Default. In the event the Trustee shall
have knowledge of a Default or Event of Default, the Trustee shall give prompt
written notice thereof to each Owner Participant. Subject to the terms of
Section 7.03 hereof, the Trustee shall take or refrain from taking such action
with respect to a Default or Event of Default as the Trustee shall be instructed
in a written instrument executed by a Majority in Interest of Owner
Participants. If the Trustee shall not have received instructions within twenty
(20) days after giving notice of a Default or Event of Default as above
provided, the Trustee may, but shall be under no duty to, and it shall have no
liability for its failure or refusal, to take or refrain from taking any action
with respect to such Default or Event of Default as it shall deem advisable and
in the best interests of the Owner Participants; provided, however, that the
Trustee shall give the Owner Participants ten days' notice thereof prior to
taking any such action. For all purposes of this Agreement, in the absence of
actual knowledge of an officer of the Trustee, the Trustee shall not be deemed
to have knowledge of a Default or an Event of Default unless it receives written
notification thereof given by or on behalf of the Lessee or any Owner
Participant.
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Section 7.02 Action upon Instructions. Subject to the terms of Sections
7.01 and 7.03 hereof, upon the written instructions of a Majority in Interest of
Owner Participants, the Trustee will take or refrain from taking such action or
actions, as may be specified in such instructions, including, without
limitation, (i) enforcing provisions of the Lease, (ii) executing and filing
UCC-1 Financing Statements for informational purposes, (iii) executing and
delivering loan agreements with any Lender(s) (but only upon the written
instruction of all of the Owner Participants), (iv) executing and delivering
amendments to the Lease, (v) giving such notice of direction or exercising such
right, remedy or power hereunder or under any of the Assigned Contracts or the
Purchase Agreement or in respect of all or any part of the Trust Estate, or
taking such other action as shall be specified in such instructions; (vi) taking
such action to pressure or protect the Trust Estate (including the discharge of
liens and encumbrances) as may be specified in such instructions; (vii)
approving as satisfactory to it or consenting to all matters required by the
terms of the Assigned Contracts to be satisfactory to the Trustee, it being
understood that without the written instructions of a Majority in Interest of
Owner Participants, the Trustee shall not approve any such matter as
satisfactory to it or consent to any such action; and (viii) taking such other
action as a Majority in Interest of Owner Participants shall direct in writing.
Section 7.03 Indemnification. The Trustee shall not be required to take
or refrain from taking any action under this Agreement or any Operative Document
(other than the actions specified in the first sentence of Section 7.01 hereof)
unless the Trustee shall have been indemnified by the owner Participants, in
accordance with Article IX hereof, against any liability, fee, cost or expense
(including attorneys' fees) which may be incurred or charged in connection
therewith; and, if the Owner Participants or a Majority in Interest of Owner
Participants, as required, shall have directed the Trustee to take or refrain
from taking any action under this Agreement or any Operative Document, the Owner
Participants agree to furnish the Trustee, with the indemnification more
particularly set forth in Article IX hereof, and, in addition, to pay the
reasonable compensation of the Trustee for the services performed or to be
performed by it pursuant to such direction. The Trustee shall not be required to
take any action under this Agreement or any Operative Document if the Trustee
shall reasonably determine, or shall have been advised by counsel, that such
action is contrary to the terms hereof or of any document contemplated hereby to
which the Trustee is a party or is otherwise contrary to law.
Section 7.04 No Duties Except as Specified in Trust Agreement or
Instructions. The Trustee shall not have any duty or obligation to manage,
control, make any payment in respect of, register, record, insure, inspect,
instruct, use, sell, dispose of or otherwise deal with the Lease Property, or
any other part of the Trust Estate, or to otherwise take or refrain from taking
any action under, or in connection with, any document contemplated hereby to
which the Trustee is a party, except as expressly provided by the terms of this
Agreement, or in written instructions from a Majority in Interest of Owner
Participants received pursuant to Section 7.01 or 7.02 hereof; and no implied
duties or obligations shall be read into this Agreement against the Trustee. The
Trustee, in its individual capacity, nevertheless agrees that it will, at its
own cost and expense, promptly take all action as may be necessary to discharge
any Liens (including Lessor's Liens) on any part of the Trust Estate which
result from actions or commissions or omissions by or claims against the
Trustee, in its individual capacity, or the trusts created hereby not related to
the Trustee's ownership of the Lease Property or any other part of the Trust
Estate or the administration of the Trust Estate or the transactions
contemplated by the Operative Documents or this Agreement.
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Section 7.05 No Action Except Under Specified Documents or
Instructions. The Trustee agrees that it will not manage, control, use, sell,
dispose of or otherwise deal with the Lease Property or any other part of the
Trust Estate except (i) as required by this Agreement and the Operative
Documents, or (ii) in accordance with the powers granted to, or the authority
conferred upon, or the directions given to, the Trustee pursuant to or under
this Agreement.
Section 7.06 Absence of Duties. Except in accordance with written
instructions furnished pursuant to Section 7.02 hereof, and without limitation
of the generality of Section 7.04 and the last sentence of Section 11.01(b)
hereof, the Trustee shall have no duty (i) to file, record or deposit any
Operative Documents, any financing statements or this Agreement, or to maintain
any such filing, recording or deposit or to refile, rerecord or re-deposit any
such document, except as specified in Section 7.02 hereof, (ii) to obtain
insurance on the Aircraft, the Airframe, or an Engine, or Part or to effect or
maintain any such insurance, (iii) to maintain or mark the Aircraft, the
Airframe, or an Engine, or Part, (iv) to pay or discharge any tax, assessment or
other governmental charge or any lien or encumbrance of any kind owing with
respect to or assessed or levied against any part of the Trust Estate, except as
provided in the last sentence of Section 7.04 hereof, (v) to confirm, verify,
investigate or inquire into the failure to receive any reports or financial
statement of Lessee and Sublessee, or (vi) to inspect the Aircraft, the
Airframe, or an Engine, or Part at any time or to ascertain or inquire as to the
performance or observance of any covenants of Lessee under any Operative
Document with respect to the Aircraft, the Airframe, or an Engine or Part.
ARTICLE VIII
The Trustee
Section 8.01 Acceptance of Trusts and Duties. The Trustee accepts the
trusts hereby created and agrees to perform the same but only upon the terms of
this Agreement. The Trustee also agrees to disburse all monies, if any, actually
received by it constituting part of the Trust Estate upon the terms of this
Agreement. The Trustee shall not be answerable or accountable under any
circumstances, in its individual capacity, except (i) for its own willful
misconduct or gross negligence, (ii) in the case of the inaccuracy of any
representation or warranty of the Trustee contained in Section 8.03 hereof or
any representation or warranty of the Trustee in its individual capacity
contained in the Operative Documents, (iii) as arising from the failure by the
Trustee to perform its obligations under the last sentence of Section 7.04
hereof, (iv) for taxes, fees or other charges on, based on or measured by any
fees, commissions or compensation received by Trustee for acting as Trustee in
connection with any of the transactions contemplated by the Operative Documents.
Section 8.02 Furnishing of Documents. The Trustee will furnish to each
Owner Participant, promptly upon receipt thereof, duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and any
other instruments furnished to the Trustee hereunder or under the Operative
Documents.
In case any tax report or tax return is required to be made with
respect to the Trust Estate and the Lessee or Sublessee is not required to
prepare and file the same pursuant to the Lease or Sublease, the Trustee will
prepare such tax report or return and deliver a copy thereof to each Owner
Participant. Upon the request of the Trustee, each Owner Participant will
provide such instruments, documents, certificates or other information as is
reasonably necessary to enable the Trustee to prepare any such tax report or
return. The Trustee agrees to
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forward to each Owner Participant a copy of any communications with respect to
taxes pertaining to the Trust Estate which are received by the Trustee.
Section 8.03 No Representations or Warranties as to Lease Property or
Documents. THE TRUSTEE, IN ITS INDIVIDUAL CAPACITY, MAKES (i) NO REPRESENTATION
OR WARRANTY AS TO THE TITLE, VALUE, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR ANY OTHER REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT, AIRFRAME; OR ANY
ENGINE OR PART WHATSOEVER, or the validity or enforceability of the Lease and
Assigned Contracts, and (ii) no representation or warranty as to the validity or
enforceability of this Agreement or the Operative Documents, or as to the
correctness of any statement contained in any thereof, except to the extent that
any such statement is made therein by the Trustee, in its individual capacity,
and except that the Trustee, in its individual capacity, hereby represents and
warrants to each Owner Participant that this Agreement has been and each of such
other documents which contemplates execution thereof by the Trustee has been or
will be, executed and delivered by its officers who are or will be duly
authorized to execute and deliver such document on its behalf, and except that
the Trustee, in its individual capacity, hereby represents and warrants to each
Owner Participant that the Lease Property is free and clear of any liens
attributable to it and that it will comply with the last sentence of Section
7.04 hereof.
Section 8.04 No Segregation of Monies; No Interest. Except as otherwise
provided herein, monies, if any, received by the Trustee hereunder need not be
segregated in any manner except to the extent required by law and may be
deposited under such general conditions as may be prescribed by law, and the
Trustee shall not be liable for any interest thereon.
Section 8.05 Reliance; Advice of Counsel. The Trustee shall incur no
liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
document or paper believed by it to be genuine and believed by it to be signed
by the proper party or parties. The Trustee may accept a certified copy of a
resolution of the Board of Directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or matter the
manner of ascertainment of which is not specifically prescribed herein, the
Trustee may for all purposes hereof rely on a certificate, signed by a duly
authorized officer of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Trustee for any action taken
or omitted to be taken by it in good faith in reliance thereon. In the
administration of the trusts hereunder, the Trustee may execute any of the
trusts or powers hereof and perform its powers and duties hereunder directly or
through agents or attorneys and may consult, with counsel, accountants and other
skilled persons to be selected and employed by it, and the Trustee shall not be
liable for anything done, suffered or omitted in good faith by it in accordance
with the advice or opinion of any such counsel, accountants or other skilled
persons and not contrary to this Agreement, so long as such advice or opinion
pertains to such matters as the Trustee may reasonably presume to be within the
scope of such person's expertise.
Section 8.06 Not Acting in Individual Capacity. Except as provided in
this Article VIII, in accepting the trusts hereby created the Trustee acts
solely as trustee hereunder and not in its individual capacity; and all persons
having any claim against the Trustee by reason of the transactions contemplated
hereby or by the
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other Operative Documents shall look only to the Trust Estate for payment or
satisfaction thereof, except as specifically provided in this Article VIII.
ARTICLE IX
Indemnification of Trustee by Owner Participants
Section 9.01 Owner Participants to Indemnify Trustee. Each Owner
Participant agrees to pay, severally, in proportion to its respective beneficial
interest in the Trust Estate, to the extent not paid by the Lessee pursuant to
the Lease, (or reimburse the Trustee for) all reasonable expenses of the Trustee
hereunder, including, without limitation, the reasonable compensation, expenses
and disbursements of such agents, representatives, experts and counsel as the
Trustee may employ in connection with the exercise and performance of its rights
and duties hereunder or under the other Operative Documents, whether or not the
transactions contemplated hereby are consummated; provided, however, that if the
Trustee deems it advisable to employ any such agent, representative, expert or
counsel, and the Trustee reasonably believes that the fees of such agent,
representative, expert or counsel will exceed $5,000, the Trustee shall notify
the Owner Participants thereof and shall employ such agent, representative,
expert or counsel only if a Majority in Interest of Owner Participants has
approved such employment. The Owner Participants agree to assume liability for,
and to indemnify the Trustee in its individual capacity and its successors,
assigns, agents and servants against and from any and all liabilities (including
without limitation, any liability of the Owner Participants, and liability
without fault and any strict liability), obligations, losses, damages, taxes
(such term "taxes" or the term "tax" as used in this Article IX shall include,
without limitation, all taxes specifically related to this Agreement and the
Trust Estate created hereby excluding, however, any income taxes or fees or
other compensation received by the trustee in its capacity as Trustee), claims,
actions, suits, costs, expenses and disbursements (including legal fees and
expenses) of any kind and nature whatsoever (collectively, "Expenses") which may
be imposed on, incurred by or asserted at any time against the Trustee (whether
or not indemnified against by the Lessee or any other parties) in any way
relating to or arising out of the existence or administration of this Agreement,
the Trust Estate or the action or inaction of the Trustee hereunder or under the
other Operative Documents, or the enforcement of any of the terms of any
thereof, or in any way relating to or arising out of the manufacture, purchase,
acceptance, non-acceptance, rejection, ownership, delivery, lease, financing,
possession, use, operation, condition, sale, return or other disposition of the
Aircraft, the Airframe, or an Engine (including, without limitation, latent and
other defects, whether or not discoverable, and any claim for patent, trademark
or copyright infringement) or in any way relating to or arising out of the
Assigned Contracts, except that the foregoing indemnities shall not cover the
Trustee (i) for its own willful misconduct or gross negligence, (ii) in the case
of the inaccuracy of any representation or warranty of the Trustee contained in
Section 7.03 hereof or any representation or warranty of the Trustee in its
individual capacity contained in the operative Documents, and (iii) as arising
from the failure by the Trustee to perform its obligations under the last
sentence of Section 7.04 hereof, or obligations in its individual capacity
contained in the Operative Documents. In addition, if necessary, the Trustee
shall be entitled to indemnification from the Trust Estate, for any liability,
obligation, loss, damage, penalty, tax, claim, action, suit, cost, expense or
disbursement indemnified against pursuant to this Section 9.01 to the extent not
reimbursed by Lessee, the Owner Participants or others, but without releasing
any of them from their respective agreements of reimbursement; and, to secure
the same, the Trustee shall have a lien on the Trust Estate, subject to the
Lien, if any, of any Lender, which shall be prior to any interest therein of the
Owner Participants, but only in the event and to the extent that the Trustee
does not receive payment from
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the Lessee or pursuant to any other provision of any Operative Document, except
only that the Owner Participants shall not be required to indemnify the Trustee
for expenses arising or resulting from any of the matters described in the last
sentence of Section 8.01 hereof. The indemnities contained in this Section 9.01
shall survive the termination of this Agreement.
Section 9.02 Compensation and Expense. The Trustee shall receive the
following as compensation for its services hereunder, and as payment for all its
costs, fees and expenses incurred in connection with the administration of the
Trust Estate (including legal fees and expenses):
(a) An acceptance fee of $2,500 and an administration fee of
$2,000 ("Annual Administration Fee") for the one year period commencing on the
Closing Date, and each year thereafter in which it is the Trustee hereunder and
under the Operative Documents; provided, however, that such Annual
Administrative Fee shall be increased or decreased annually by any change in the
Gross National Product Implicit Price Deflator or should such index be
discontinued or abolished, the replacement index therefor or a comparable index
thereof. Notwithstanding anything to the contrary herein, to the extent the
Trustee has received the acceptance fee and the Annual Administration Fee with
respect to any trust created as of the date of this Agreement by the original
Owner Participants, Trustee shall not be entitled to any fees hereunder. Such
Annual Administration Fee shall cover all of the Trustee's costs, fees and
expenses of any kind incurred in connection with the administration of the
Trust-Estate, including, without limitation, any fees paid to the Agent and
executing and delivering loan agreement(s) and other agreements with any Lender
and taking such other action under or in connection with the Operative Documents
as the Owner Participants shall direct in writing.
(b) The Trustee shall be entitled to compensation for any of
its reasonable out-of-pocket expenses and the reasonable fees and expenses of
any agent, representative, expert or counsel employed by the Trustee, incurred
in connection with its administration of the Trust Estate hereunder; provided,
however, that if the Trustee reasonably believes that such expenses, fees and
expenses will exceed $5,000, the Trustee will obtain the prior approval thereof
of a Majority in Interest of Owner Participants.
ARTICLE X
Termination of Trust Agreement
Section 10.01 Termination of Trust Agreement. Subject to Section 10.02
of this Agreement, this Agreement and the trusts created hereby shall terminate
and the Trust Estate shall, subject to Article VI hereof, be distributed to the
Owner Participants, and this Agreement shall be of no further force or effect,
upon the earlier of (i) the sale or other final disposition by the Trustee of
all property constituting part of the Trust Estate and the final distribution by
the Trustee or any other party of all monies or other property or proceeds
constituting part of the Trust Estate in accordance with the terms of Article VI
hereof, provided that at such time the Lessee shall have fully complied with all
the terms of the Lease, or (ii) twenty-one (21) years less one day after the
death of the last survivor of all of the descendants living on the date of this
Agreement of the present members of the Boards of Directors of the Trustee and
the Owner Participants; but if this Agreement and the trusts created hereby
shall be or become valid under applicable law for a period subsequent to the
21st anniversary of the death of such last survivor, or if legislation shall
become effective providing for the validity thereof for a period in gross
exceeding the period hereinabove stated, then this Agreement and the trusts
created hereby shall not terminate as aforesaid but shall extend to and continue
in
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effect, but only if such nontermination and extension shall then be valid under
applicable law, until such time as the same shall, under applicable law, cease
to be valid.
Section 10.02 Termination at Option of Owner Participants. The
provisions of Section 10.01 hereof notwithstanding, this Agreement and the
trusts created hereby shall terminate and the Trust Estate shall be distributed
to the Owner Participants in accordance with the terms of Article VI hereof, and
this Agreement shall be of no further force and effect, upon the election, in
their sole discretion, of all of the owner Participants by notice to the
Trustee, if such notice shall be accompanied by the written agreement of all of
the Owner Participants assuming all the obligations of the Trustee under the
Operative Documents and all other obligations of the Trustee incurred by it as
Trustee hereunder. Such written agreement shall fully and completely release the
Trustee from all further obligations and liabilities of the Trustee hereunder
and under the agreements and other instruments mentioned in the preceding
sentence; provided, however, that the obligations and liabilities of any party
hereinunder arising prior to the date of such written agreement shall survive
such termination of the Trustee.
ARTICLE XI
Successor Trustees, Co-Trustees and
Separate Trustees
Section 11.01 Resignation of Trustee; Appointment of Successor.
(a) The Trustee may resign at any time without cause by giving
at least 30 days' prior written notice to each Owner Participant, such
resignation to be effective upon the acceptance of appointment by a successor
Trustee under Section 11.01(b) hereof. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Article XI, the
Trustee shall resign immediately by giving written notice to each Owner
Participant, such resignation to be effective upon the acceptance of appointment
by a successor Trustee under Section 11.01(b) hereof. In addition, the Trustee
may be removed at any time without cause by an instrument in writing executed by
each Owner Participant and delivered to the Trustee, such removal to be
effective upon the acceptance of appointment by a successor Trustee under
Section 11.01(b) hereof. In case of the resignation or removal of the Trustee, a
Majority in Interest of Owner Participants may appoint a successor Trustee by an
instrument signed by such a Majority in Interest of Owner Participants. If a
successor Trustee shall not have been appointed within thirty (30) days after
the giving of written notice of such resignation or the delivery of the written
instrument with respect to such removal, the Trustee or a Majority in Interest
of Owner Participants may apply to any court of competent jurisdiction to
appoint a successor Trustee to act until such time, if any, as a successor
Trustee so appointed by such court shall immediately and without further act be
superseded by any successor Trustee appointed as above provided within one year
from the date of the appointment by such court.
(b) Any successor Trustee, however appointed, shall execute
and deliver to the predecessor Trustee and each Owner Participant an instrument
accepting such appointment, and thereupon such successor Trustee, without
further act, shall become vested with all the estates, properties, rights,
powers, duties and trusts of the predecessor Trustee in the trusts hereunder
with like effect as if originally named the Trustee herein; but nevertheless,
upon the written request of such successor Trustee, such predecessor Trustee
shall execute and deliver an instrument transferring to such successor Trustee,
upon the trusts herein expressed, all the estates, properties, rights, powers,
duties and trusts of such predecessor Trustee, and such predecessor
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Trustee shall duly assign, transfer, deliver and pay over to such successor
Trustee all monies or other property then held by such predecessor Trustee upon
the trusts herein expressed. The predecessor Trustee will cooperate in causing
registration of the Aircraft to be transferred to the successor Trustee in
accordance with applicable law.
(c) The Trustee and any successor Trustee, however appointed,
must resign if at any time it is unable to obtain or maintain at all times
satisfactory registration of each Aircraft pursuant to the Federal Aviation Act,
as amended (the "Act"). Any successor Trustee shall be a bank or trust company
incorporated and doing business within the United States of America and having a
combined capital and surplus of at least $50,000,000, or the subsidiary of an
institution having a combined capital and surplus of at least $50,000,000, which
guarantees the obligations of such subsidiary.
(d) The Trustee shall be and any successor Trustee will be "a
citizen of the United States" as defined in Section 101(16) of the Act.
(e) Any corporation into which the Trustee may be merged or
with which it may be consolidated, or any corporation resulting from any merger,
or consolidation to which the Trustee shall be a party, or any corporation to
which substantially all the corporate trust business of the Trustee may be
transferred, shall, subject to the terms of Section 11.01(c) hereof, be the
Trustee under this Agreement without further act.
Section 11.02 Co-Trustees and Separate Trustees. Whenever the Trustee
or a Majority in Interest of Owner Participants shall deem it necessary or
prudent in order either to conform to any law of any jurisdiction in which all
or any part of the Trust Estate shall be situated or to make any claim or bring
any suit with respect to the Trust Estate or the Operative Documents, or either
the Trustee or a Majority in Interest of Owner Participants shall be advised by
counsel satisfactory to it that it is so necessary or prudent, the Trustee and a
Majority in Interest of Owner Participants shall execute and deliver an
agreement supplemental hereto and all other instruments and agreements, and
shall take all other action, necessary or proper to constitute one or more
persons (and the Trustee may appoint one or more of its officers) (any and all
of which shall be a "citizen of the United States" as defined in Section 101(16)
of the Act) either as co-trustee or co-trustees jointly with the Trustee of all
or any part of the Trust Estate, or as separate trustee or separate trustees of
all or any part of the Trust Estate, and to vest in such persons, in such
capacity, such title to the Trust Estate or any part thereof, and such rights or
duties as may be necessary or desirable, all for such period and under such
terms and conditions as are satisfactory to the Trustee and a Majority in
Interest of Owner Participants. In case any co-trustee or separate trustee shall
die, become incapable of acting, resign or be removed, the title to the Trust
Estate and all rights and duties of such co-trustee or separate trustee shall,
so far as permitted by law, vest in and be exercised by the Trustee, without the
appointment of a successor to such co-trustee or separate trustee.
ARTICLE XII
Concerning the Agent
Section 12.01. Appointment of Agent. The Owner Participants authorize
and direct the Trustee to appoint, and the Trustee hereby does appoint,
Airlease, in its separate capacity as Agent and not as Owner Participant, as its
agent to do all such acts and things and execute all such documents, instruments
and other
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agreements as the Trustee hereafter may from time to time direct, in its place
and stead, in accordance with the terms of this Agreement and the Operative
Documents.
Section 12.02. Agent's Acceptance of Appointment. The Agent agrees to
act as Agent for the Trustee hereunder and to accept possession of and hold such
items of the Trust Estate as it may from time to time receive on behalf of the
Trustee subject to the trusts hereby created and the terms and conditions of
this Agreement.
Section 12.03. Agreements of the Agent. The Agent hereby agrees:
(a) to exercise the rights and perform the duties of the
Trustee as directed by the Trustee in accordance with the terms hereof;
(b) to assume liability for and indemnify the Owner
Participants, Trustee, and Trust Estate from and against Liens attributable to
it; and
(c) pursuant to the instructions of the Trustee in accordance
with the terms hereof, to conduct negotiations with respect to the documents
contemplated by this Agreement and the Operative Documents and to use its best
efforts by administrative means to cause the Operative Documents to be executed
and to consummate the purchase of the Aircraft, Airframe, and Engines and
delivery of the Aircraft, Airframe, and Engines under the Purchase Agreement in
the manner contemplated by the Operative Documents.
Section 12.04. Standard of Care and Diligence
(a) Agent's Liability. Except as provided in Section 12.03
hereof, the Agent assumes no liability for anything other than its own willful
misconduct or gross negligence. It shall give each Owner Participant prompt
notice of any Events of Default or claimed Events of Default under the Lease of
which it shall have actual knowledge. For all purposes of this Agreement, in the
absence of actual knowledge of an officer of the Agent, the Agent shall not be
deemed to have actual knowledge of a Default or an Event of Default unless it
receives written notification thereof given by or on behalf of the Lessee, the
Trustee, any Owner Participant, or any other party.
(b) Use of Agents. Subject to the same limitations as the
Trustee herein, the Agent may exercise its powers and perform its duties by or
through such attorneys, agents and servants as it shall appoint; and it shall be
entitled to the advice of counsel (who may, in cases deemed by the Agent in its
reasonable discretion to be appropriate, be counsel for the Agent) and shall be
protected by the advice of such counsel in anything done or omitted to be done
in accordance with such advice.
Section 12.05. Resignation or Removal of Agent. The Agent or any
successor thereto may resign at any time without cause by giving at least 30
days prior written notice to the Trustee and each Owner Participant, such
resignation to be effective on the date specified in such notice. In addition, a
Majority in Interest of Owner Participants may at any time remove the Agent
without cause by an instrument in writing executed by a Majority in Interest of
Owner Participants delivered to the Agent and the Trustee. In the case of the
resignation or removal of the Agent, a Majority in Interest of Owner
Participants may, at their sole cost and expense, appoint a successor Agent by
an instrument signed by a Majority in Interest of Owner
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<PAGE> 23
Participants. If a Majority in Interest of Owner Participants shall not have
appointed a successor Agent within 30 days after such resignation or removal,
the Trustee may apply to any court of competent jurisdiction to appoint a
successor Agent to act until such time, if any, as a successor shall have been
appointed by a Majority in Interest of Owner Participants as above provided. The
successor Agent so appointed by such court shall immediately and without further
act be superseded by any successor Agent appointed by a Majority in Interest of
Owner Participants within one year from the date of the appointment by such
court.
Section 12.06. Estates and Rights of Successor Agent. Any Agent,
whether appointed by a Majority in Interest of Owner Participants or a court,
shall execute and deliver to the Trustee and to the predecessor Agent an
instrument accepting such appointment, and thereupon such successor Agent,
without further act, shall become vested with all the estates, properties,
rights, powers and duties of the predecessor Agent hereunder with like effect as
if originally named the Agent herein; but nevertheless upon the written request
of the Trustee or such successor Agent, such predecessor Agent shall execute and
deliver an instrument transferring to such successor Agent all the estates,
properties, rights and powers of such predecessor Agent, and such predecessor
Agent shall duly assign, transfer, deliver and pay over to such successor Agent
all monies or other property then held by such predecessor Agent hereunder.
Section 12.07. Merger or Consolidation of Agent. Any corporation into
which the Agent may be merged or converted or with which it may be consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Agent shall be a party, or any corporation to which substantially all
the business of the Agent may be transferred, shall be the Agent under this
Agreement without further act.
Section 12.08. Agent's Duty to Indemnify. The obligation of the Agent
under Section 12.03(b) to indemnify the Owner Participants, Trust Estate, and
Trustee shall survive the resignation or removal of the Agent and the
termination of the Trust.
ARTICLE XIII
Supplements and Amendments
This Agreement shall be amended only by a written instrument signed by
the Trustee and a Majority in Interest of Owner Participants and to the extent
any such amendment affects the Agent, signed by the Agent; but if in the
reasonable opinion of the Trustee or Agent, as the case may be, any instrument
required to be so executed adversely affects any right, duty, liability of, or
immunity or indemnity in favor of it under this Agreement or any of the
documents contemplated hereby to which it is a party, or would cause or result
in any conflict with or breach of any terms, conditions or provisions of, or
default under the charter documents or by-laws of the Trustee or Agent or any
document contemplated hereby to which the Trustee or Agent is a party, the
Trustee or Agent, as the case may be, may in its sole discretion decline to
execute such instrument and upon the request of a Majority in Interest of Owner
Participants immediately shall resign as the Trustee or Agent, as the case may
be, under this Agreement, any Operative Document, or other related document. No
supplement, amendment or modification of the Agreement shall impair any
requirement in this Agreement that the consent of a Majority in Interest of or
all of the Owner Participants be obtained for any purpose and no such
supplement, amendment or modification shall require any Owner Participant to
invest or advance funds or shall entail any additional personal liability or the
surrender of any
23
<PAGE> 24
indemnification, claim or individual right on the part of any Owner Participant
with respect to any agreement or obligation or create or suffer to exist any
additional obligation of or liability on the Trust Estate, except with the
written consent of each of the Owner Participants.
ARTICLE XIV
Sale, Transfer or Mortgage of Lease Property
Section 14.01. General. Except as hereinafter expressly permitted, no
Owner Participant may sell, assign, transfer, mortgage, charge or otherwise
encumber, or suffer any third party to sell, assign, transfer, mortgage, charge
or otherwise encumber, or contract to do or permit any of the foregoing, whether
voluntarily or by operation of law (herein sometimes collectively called a
"transfer"), any part or all of its interest hereunder or in the Trust Estate
without the written consent of the other Owner Participants and any attempt to
do so shall be void. The giving of such consent in any one or more instances
shall not limit or waive the need for such consent in any other or subsequent
instances.
Section 14.02. Permitted Transfers by the Owner Participants.
(a) Transfers by Airlease. Notwithstanding the provisions of
Subsection 14.01, without the consent of the other Owner Participants, Airlease
may from time to time transfer all or any portion of its interest hereunder to
an Affiliate.
(b) Transfers by the Partnership. Notwithstanding the
provisions of Section 14.01, without the consent of the other Owner
Participants, the Partnership may from time to time transfer all or any portion
of its interest hereunder to an Affiliate.
(c) Transfer by NAF. Notwithstanding the provisions of Section
14.01, without the consent of the other Owner Participants, NAF may from time to
time transfer all or any portion of its interest hereunder to an Affiliate.
(d) Notwithstanding anything to the contrary in this Article
XIV, the Trustee and each of the Owner Participants acknowledge and agree that
Section 13.3 and the Agreements of the Owner Participants in the Purchase
Agreement, with respect to the sale, assignment or transfer of the Aircraft or
Assigned Contracts, are for the mutual benefit of and binding on each of the
parties hereto.
Section 14.03. Right of First Refusal as to an Owner Participant's
Trust Estate Interest.
(a) Offering Notice. Except for permitted transfers under
Section 14.02 above, if any Owner Participant receives a bona fide offer for the
purchase of either (i) all of its interest hereunder or (ii) less than all of
its interest hereunder, (the recipient of any such offer being hereinafter
called the "Offeror"), which offer complies with the provisions of Section
14.03(b) and which offer it desires and intends to accept, before accepting such
offer it shall give notice (the "Offering Notice") to the other Owner
Participants (the "Offerees") which shall include a true copy of such offer,
whereupon the provisions set forth in this Section 14.03 shall apply. Except for
permitted transfers under Section 14.02 above, no Owner Participant shall accept
an offer unless such offer complies with the provisions of Section 14.03(b).
24
<PAGE> 25
(b) Requirements of Offer. Such an offer shall comply with the
following requirements:
(1) the proposed purchase price (which shall be net
of any Trust Estate debts or liabilities which the proposed
purchaser has agreed to assume in its offer to purchase the
Offeror's interest) is payable solely in lawful money of the
United States and, if not payable in its entirety in cash,
under no circumstances may payment of the non-cash portion of
the proposed purchase price be secured by any charge,
encumbrance or hypothecation of the Trust Estate;
(2) the offer contains provisions whereby the proposed
purchaser is obligated to comply with the provisions of
Section 14.06 hereof, requiring it to assume certain
obligations prior to or at closing;
(3) the offer is accompanied by a certified check of the
prospective purchaser for a sum equal to at least ten percent
(10%) of the proposed purchase price; provided, however, that
if the sale to the third party purchaser is not consummated
for any reason other than due to the failure of the Owner
Participants to perform their obligations pursuant to the
offer, each Owner Participant shall be entitled to a pro rata
portion of such sum;
(4) the Offeror shall not have caused or permitted an Owner
Participant Event of Default (as hereinafter defined); and
(5) the prospective purchaser shall be capable of carrying
out all obligations of an Owner Participant under this
Agreement and all related agreements; and as shown by the
audited financial statements of such prospective purchaser for
the two (2) most recent fiscal years of such prospective
purchaser, shall have a tangible net worth satisfactory to the
offerees, determined in accordance with generally accepted
accounting principles.
(c) Procedure. In the Offering Notice, the Offeror shall offer
(the "Sale Offer") to each Offeree the right to purchase a portion of the
interest (the "Portion of the Interest") of the Offeror referred to in said
offer, at a portion of the same price and subject to the same terms and
conditions as set forth in said offer and the Offeror shall submit with the
offering Notice a true copy of said offer. The portion shall be equal to the
full amount of the interest offered multiplied by a fraction, the numerator of
which is such Offeree's then interest in the Trust Estate and the denominator is
the then interest in the Trust Estate of all Offerees. Each Offeree shall notify
the Offeror and the other Offeree(s) of its election within fifteen (15) days of
the date of its receipt of the Offering Notice; provided, however, that such
election shall be as to all of the Portion of the Interest.
(d) Acceptance of Sale Offer.
(1) If the Sale Offer is accepted by each Offeree,
and notice in writing is given within the period specified in
Section 14.03(c), the Offeror shall thereupon be bound to sell
to such Offeree and the offeror shall thereupon be bound to
purchase the Portion of the Interest
25
<PAGE> 26
referred to in the Sale Offer in accordance with the terms of
the Sale offer and the closing of the purchase shall take
place in accordance with Section 14.04.
(2) If one Offeree has not accepted the Sale Offer or
has not accepted the Sale Offer within such fifteen (15) day
period and one or more of the other Offerees has accepted the
Sale Offer ("Accepting Offeree"), the Accepting Offeree(s)
shall have the right to purchase the entire interest referred
to in the Sale Offer (but not less than such entire interest)
in accordance with the terms of the Sale Offer and the
purchase shall take place in accordance with Section 14.04 and
the procedures included in Section 14.03(c). Except that the
Accepting Offerees shall notify the Offeror and other Offerees
of such election within ten (10) days of the end of the
initial fifteen (15) day period referred to in Section
14.03(c). The Offeror shall thereupon be bound to sell to such
Accepting Offeree(s) and the Accepting Offeree(s) shall
thereupon be bound to purchase the entire interest referred to
in the Sale Offer in accordance with the terms of the Sale
Offer and the closing of the purchase shall take place in
accordance with Section 14.04.
(e) Right to Sell to Third Party. If the Offerees have not
accepted the Sale Offer as provided in Section 14.03(c) within the time limits
referred to therein, or if the Accepting Offeree(s) have not accepted the Sale
Offer as provided in Section 14.03(d)(2) within the time limits referred to
therein, the Sale Offer shall be deemed to have been declined by such Offerees
and the Offeror shall be free to sell its interest to the maker of said offer at
a price and upon terms and conditions not less favorable to the Offeror than
those set forth in the Offering Notice within the time period set forth below.
If in any instance such Offerees elect not to exercise their rights hereunder or
to waive such rights, such election shall not constitute a waiver of the
Offerees' right to an Offering Notice in the case of any subsequent offer. If
such interest is not so sold and the transfer not consummated within thirty (30)
days, unless extended by mutual agreement, from the expiration of the time
limits referred to in Section 14.03(c) or Section 14.03(d)(2), as applicable,
the relevant interest shall then again become subject to all the provisions of
this Section 14.03.
(f) Limitations on Exercise. Notwithstanding anything to the
contrary contained in this Section 14.03, no Offeree which has failed to perform
or observe any of its obligations, covenants, conditions, or agreements under
this Agreement or any related document (an "Owner Participant Event of
Default"), which Owner Participant Event of Default is still continuing, shall
be entitled to exercise its right to purchase (or sell, unless the Owner
Participant Event of Default is cured by such sale) any portion of the Offeror's
interest.
Section 14.04. Closings.
(a) Location and Time Periods. The closing of any sale of an
interest in the Trust Estate pursuant to this Article XIV shall be held at a
mutually acceptable place and on a mutually acceptable date not more than thirty
(30) days, unless extended by mutual agreement, after the receipt by the Offeror
of the written notices of election by the Offerees, Accepting Offeree, or Third
Party Accepting Offeree, as applicable, or after the expiration of the time
within which the Offeree must so elect, as provided in Sections 14.03(c) or
14.03(d).
26
<PAGE> 27
(b) Closing Conditions. Any Owner Participant transferring its
interest shall transfer such interest free and clear of all liens, encumbrances
or any interests of any third party (excepting any liens permitted under the
Lease) and shall execute or cause to be executed any and all documents required
to fully transfer such interest to the acquiring third party or acquiring Owner
Participant(s), including, but not limited to, any documents necessary to
evidence such transfer and to evidence the agreement by the acquiring third
party or acquiring Owner Participant(s) to be bound by all applicable provisions
of the Operative Documents, and all documents required to release any interest
in such selling Owner Participant's interest. Any sums owed by the selling Owner
Participants to the Trust Estate or the other Owner Participants shall be paid
concurrently from the proceeds from such sale at the closing. Following the date
of closing, unless otherwise agreed, the selling Owner Participant(s) shall have
no further rights to any rent or proceeds from the Trust Estate assets
attributable to any period or event following the date of closing and all such
rights shall vest in the transferee of the interest purchased from the selling
Owner Participant(s).
(c) Event of Loss. If an Event of Loss (as defined in the
Lease) shall occur with respect to the Aircraft between (i) the date an election
is made by an Owner Participant, the Owner Participants, or a third party
transferee to purchase pursuant to Section 14.03, and (ii) the closing of such
purchase, the offer to purchase shall automatically terminate, without any
further action or notice required.
(d) Partial Loss. If a partial loss shall occur with respect
to the Aircraft under the Lease, subject to the performance by Lessee of its
obligations under the Lease and so long as there is no Event of Default
thereunder, the purchase of the interest hereunder shall be consummated as
contemplated by the parties.
Section 14.05. Termination of obligations.
As of the closing date of any transfer not prohibited hereunder by an
owner Participant of its entire interest in the Trust Estate to the other Owner
Participant(s) or to a third party purchaser, such transferring Owner
Participant's rights and obligations hereunder shall terminate except as to any
of its unperformed obligations accrued as of such date and except as to any
unperformed indemnity obligations of such Owner Participant attributable to acts
or events occurring prior to such closing date. Thereupon, except as limited by
the preceding sentence, this Agreement shall terminate as to the transferring
Owner Participant(s) but all terms and conditions thereof shall remain in effect
as to the other Owner Participant(s) and the third party purchaser shall become
an Owner Participant hereunder. In the event of a transfer of its entire Trust
Estate interest by an Owner Participant to the other Owner Participant(s) or to
a third party purchaser, the Owner Participant(s) or third party purchaser to
which such interest is transferred, shall indemnify, defend and hold harmless
the Owner Participant so transferring its interest from and against any and all
claims, demands, losses, liabilities, expenses, actions, lawsuits, and other
proceedings, judgments, awards, and costs and expenses (including but not
limited to reasonable attorneys' fees) incurred in or rising directly or
indirectly, in whole or in part, out of the Trust Estate, excluding only those
liabilities, if any, accruing prior to the closing date of such transfer.
Section 14.06. Agreements with Transferees.
In the event that pursuant to the provisions of this Article XIV, any
Owner Participant shall transfer its interest hereunder to any person or entity
other than the other Owner Participant(s), no such transfer shall
27
<PAGE> 28
be made or shall be effective to make such transferee an Owner Participant or
entitle such transferee to any benefits or rights hereunder or under the
Operative Documents until the proposed Transferee agrees in writing to assume
and be bound by all the obligations of the selling Owner Participant and be
subject to all the restrictions to which the selling Participant is subject
under the terms of this Agreement, the Operative Documents, and any further
agreement which may be required with respect to the Trust Estate. In the event
an Owner Participant's interest hereunder is transferred by operation of law,
such Owner Participant's transferee shall sign such a writing within fifteen
(15) days of the closing date as an express condition to the effectiveness of
any such transfer.
Section 14.07. Restraining Order.
In the event that any Owner Participant shall at any time transfer or
attempt to transfer its interest hereunder in violation of the provisions of
this Agreement and any rights hereby granted, then the other Owner
Participant(s) shall, in addition to all rights and remedies at law and in
equity, be entitled to a decree or order restraining and enjoining such transfer
and the defaulting owner Participant shall not plead in defense thereto that
there would be an adequate remedy at law; it being hereby expressly acknowledged
and agreed by the parties hereto that damages at law will be an inadequate
remedy for a breach or threatened breach of the violation of the provisions
concerning transfer of a Trust Estate interest as set forth in this Agreement.
Section 14.08. Sale by an Owner Participant of an Owner Participant's
Trust Estate.
The parties agree that in the event that one of the Owner Participants
should decide to purchase the Trust Estate interest of the other Owner
Participants, the parties shall negotiate the terms and conditions of such
purchase in good faith, including, without limitation, the purchase price, any
financing arrangements, and like matters. Such purchase shall take place in
accordance with Section 14.04.
ARTICLE XV
Miscellaneous
Section 15.01 No Legal Title to Trust Estate in Owner Participants. The
Owner Participants shall not have legal title to any part of the Trust Estate.
No transfer, by operation of law or otherwise, of any right, title and interest
of the Owner Participants in and to the Trust Estate or hereunder shall operate
to terminate this Agreement or the trusts hereunder or entitle any successor or
transferee to an accounting or to the transfer to it of legal title to any part
of the Trust Estate.
Section 15.02 Sale of Aircraft, etc., by Trustee is Binding. Any sale
or other conveyance of the Aircraft, the Airframe, an Engine or Part by the
Trustee made pursuant to the terms of this Agreement (so long as such sale is
not contrary to the provisions of the Operative Documents) shall bind the Owner
Participants and shall be effective to transfer or convey all right, title and
interest of the Trustee and the Owner Participants in and to the Aircraft, the
Airframe, or an Engine or Part. No purchaser or other grantee shall be required
to inquire as to the authorization, necessity, expediency or regularity of such
sale or conveyance or as to the application of any sale or other proceeds with
respect thereto by the Trustee.
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<PAGE> 29
Section 15.03 Limitations on Rights of Others. Nothing in this
Agreement shall be construed to give to any person other than the Trustee, Owner
Participants, and the Agent (to the extent provided in Article XII hereof) any
legal or equitable right, remedy or claim under or in respect of this Agreement,
any covenants, conditions or provisions contained herein or the Trust Estate.
Section 15.04 No Partnership for Tax Purposes. The Owner Participants
agree that this Trust Estate is not to be construed as a partnership for tax
purposes; provided, however, that if it is determined to be a partnership for
tax purposes, each of Airlease and NAF agree to be bound by an election under
Section 754 of the Internal Revenue Code of 1954, as amended, made by the
Partnership.
Section 15.05 Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all notices required under-the terms and
provisions hereof shall be in writing by first class mail, personal delivery,
cable, telex or telecopy (with such cable, telex or telecopy confirmed in
writing, mailed by first-class mail, postage prepaid) addressed to such person
at the address set forth herein with copies to Trustee, Owner Participants, or
Agent, as the case may be. Whenever any notice is required to be given, such
notice shall be deemed given and such requirement satisfied if such notice is
(i) mailed, on the day of deposit into the mail, or (ii) personally delivered,
when delivered, or (iii) cabled, when such notice is delivered to the telegraph
company, or (iv) telecopied, when the telecopy has been received, or (v)
telexed, when the answer back of the addressee is received. Any person entitled
to notice hereunder may change the address to which notices to such person will
be sent by giving notice of such change to Trustee, Owner Participant, or Agent.
If to Trustee: Trust Company for USL, Inc.
615 Battery Street
San Francisco, Ca 94111
Attn: President
Telex: 278031
If to Airlease: United States Airlease, Inc.
615 Battery Street
San Francisco, Ca 94111
Attn: President
If to the
Partnership: Airlease Ltd., A California Limited Partnership
c/o Airlease Management Services, Inc.
2988 Campus Drive
San Mateo, Ca 94403
Attn: President
If to NAF: North American Aircraft Finance Corporation
3225 North Harbor Drive
San Diego, California 92101
Attn: Executive Vice President
29
<PAGE> 30
Section 15.06 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 15.07 Limitation on Liability of Owner Participants and Agent.
The Owner Participants or Agent shall not have any liability for the performance
of this Agreement except as expressly set forth herein or, with respect to the
Agent, in any written instructions of the Trustee pursuant to this Agreement.
Section 15.08 Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 15.09 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the Trustee
and its successors and assigns, the Owner Participants and their successors and,
to the extent permitted by Article XIV hereof, its assigns, all as herein
provided, and the Agent and its successors and assigns, to the extent permitted
by Article XII hereof. Any request, notice, direction, consent, waiver or other
instrument or action by the Owner Participants, shall bind the successors and
assigns of such Owner Participant.
Section 15.10 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof. The remainder of this page is
intentionally omitted.
Section 15.11 Governing Law. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the State of
California, including all matters of construction, validity and performance.
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereto duly
authorized, as of the day and year first above written.
AIRLEASE LTD., A CALIFORNIA UNITED STATES AIRLEASE, INC.,
LIMITED PARTNERSHIP, as as Owner Participant
Owner Participant
/s/ Douglas C. Kay
-------------------
By: Airlease Management Services, Inc., By: Douglas C. Kay
General Partner Vice President
/s/ Douglas C. Kay
- ------------------
By: Douglas C. Kay TRUST COMPANY FOR USL, INC.
Vice President as Trustee
/s/ Frances E. Liu
-------------------
NORTH AMERICAN AIRCRAFT By: Frances E. Liu
FINANCE CORPORATION, Vice President
as Owner Participant
/s/ George M. Shortley
- -----------------------
By: George M. Shortley UNITED STATES AIRLEASE, INC.
Executive Vice President as Agent
/s/ Douglas C. Kay
-------------------
By: Douglas C. Kay
Vice President
31
<PAGE> 32
SCHEDULE 1
AIRCRAFT DATA
<TABLE>
<CAPTION>
FAA Manufacturer's Pratt & Whitney
Registration Serial JT8D-9 Engines
No. No. Serial Nos.
- --------------------------------------------------------------------------------
<S> <C> <C>
N7379F 20071 P674314B
P673484B
</TABLE>
32
<PAGE> 33
EXHIBIT 10.17
Trust Company for USL, Inc., Trustee
Under Trust Agreement Dated as of
December 30, 1986
CERTIFICATE
Issued in connection with the Aircraft hereinafter described: Boeing
737-200 series aircraft, FAA Registration No. N7379F.
January 6, 1987
$2,366,666.67
Trust Company for USL, Inc., not in its individual capacity but solely
as Trustee (herein in such capacity called the "Trustee") under the Trust
Agreement hereinafter referred to hereby certifies as follows: (i) this
Certificate is one of the Certificates referred to in the certain Trust
Agreement (N7379F) dated as of December 30, 1986 by and among the Trustee,
Airlease Ltd., A California Limited Partnership, United States Airlease, Inc.,
and North American Aircraft Finance Corporation (herein called "Trust
Agreement"): the defined terms therein not otherwise defined herein being herein
used with the same meaning), which Certificates have been or are to be issued by
the Trustee pursuant to the Trust Agreement; (ii) United States Airlease, Inc.
is an Owner Participant and owns an undivided one-third (1/3) interest in the
Trust Estate; and (iii) the holder of this Certificate has, ratably with the
holders of the other Certificates, an undivided beneficial interest in the Trust
Estate and is entitled to receive ratably with the holders of the other
Certificates issued with respect to the Trust Estate as provided in the Trust
Agreement, a share of a portion of (1) the rental received or to be received by
the Trustee with respect to the Trust Estate or (2) upon the sale or lease of
all or any part of the Trust Estate any proceeds received or receivable
therefrom as well as a share of certain other payments which may be received by
the Trustee pursuant to the terms of the Trust Agreement as more particularly
set forth therein.
All amounts payable hereunder and under the Trust Agreement shall be
paid only from the income and the proceeds from the Trust Estate and only to the
extent that the Trustee shall have sufficient income or proceeds from the Trust
Estate to make such payments in accordance with the terms of the Trust
Agreement, except as specifically provided in Section 8.01 thereof, and each
holder hereof by its acceptance of this Certificate, agrees that it will look
solely to the income and proceeds from the Trust Estate to the extent available
for distribution to such holder as above provided and that neither the Owner
Participants nor the Trustee (except to the extent provided in Section 8.01 of
the Trust Agreement) are personally liable to the holder hereof for any amounts
payable under this Certificate or the Trust Agreement.
<PAGE> 34
Trust Company for USL, Inc., Trustee
Under Trust Agreement Dated as of
December 30, 1986
CERTIFICATE
Issued in connection with the Aircraft hereinafter described: Boeing
737-200 series aircraft, FAA Registration No. N7379F
January 6, 1987
$2,366,666.67
Trust Company for USL, Inc., not in its individual capacity but solely
as Trustee (herein in such capacity called the "Trustee") under the Trust
Agreement hereinafter referred to hereby certifies as follows: (i) this
Certificate is one of the Certificates referred to in the certain Trust
Agreement (N7379F) dated as of December 30, 1986, by and among the Trustee,
Airlease Ltd., A California Limited Partnership, United States Airlease, Inc.,
and North American Aircraft Finance Corporation (herein called "Trust
Agreement"); the defined terms therein not otherwise defined herein being herein
used with the same meaning), which Certificates have been or are to be issued by
the Trustee pursuant to the Trust Agreement; (ii) Airlease Ltd., A California
Limited Partnership is an Owner Participant and owns an undivided one-third
(1/3) interest in the Trust Estate; and (iii) the holder of this Certificate
has, ratably with the holders of the other Certificates, an undivided beneficial
interest in the Trust Estate and is entitled to receive, ratably with the
holders of the other Certificates issued with respect to the Trust Estate as
provided in the Trust Agreement, a share of a portion of (1) the rental received
or to be received by the Trustee with respect to the Trust Estate, or (2) upon
the sale or lease of all or any part of the Trust Estate, any proceeds received
or receivable therefrom, as well as a share of certain other payments which may
be received by the Trustee pursuant to the terms of the Trust Agreement as more
particularly set forth therein.
All amounts payable hereunder and under the Trust Agreement shall be
paid only from the income and the proceeds from the Trust Estate and only to the
extent that the Trustee shall have sufficient income or proceeds from the Trust
Estate to make such payments in accordance with the terms of the Trust
Agreement, except as specifically provided in Section 8.01 thereof, and each
holder hereof, by its acceptance of this Certificate, agrees that it will look
solely to the income and proceeds from the Trust Estate to the extent available
for distribution to such holder as above provided and that neither the Owner
Participants nor the Trustee (except to the extent provided in Section 8.01 of
the Trust Agreement) are personally liable to the holder hereof for any amounts
payable under this Certificate or the Trust Agreement.
Reference is hereby made to the Trust Agreement for a statement of the
rights of the holder of this Certificate and of the rights of the holders of
the other Certificates as well as for a statement of the terms and conditions
of the trusts created by, and the rights limitations of rights obligations and
duties of the Trustee set forth in, the Trust Agreement, to all of which terms
and conditions each holder hereof agrees by its acceptance of this Certificate.
<PAGE> 35
Each holder hereof by its acceptance of this Certificate, agrees not
to transfer this Certificate except in accordance with the terms of Article XIV
and Section 3.06 of the Trust Agreement.
These Certificates have not been registered under the Securities Law of
1933, as amended, and may be transferred only in compliance with such law.
IN WITNESS WHEREOF the Trustee has duly executed this Certificate as of
the date first above written.
Trust Company for USL, Inc.
as Trustee,
/s/ Douglas C. Kay
-----------------------------
By Douglas C. Kay
Vice President
2
<PAGE> 36
Trust Company for USL. Inc., Trustee
Under Trust Agreement Dated as of
December 30, 1986
CERTIFICATE
Issued in connection with the Aircraft hereinafter described: Boeing
737-200 series aircraft. FAA Registration No. N7379F.
January 6, 1987
$2,366,666.67
Trust Company for USL, Inc. not in its individual capacity but solely
as Trustee (herein in such capacity called the "Trustee") under the Trust
Agreement hereinafter referred to hereby certifies as follows: (i) this
Certificate is one of the Certificates referred to in the certain Trust
Agreement (N7379F) dated as of December 30, 1986, by and among the Trustee.
Airlease Ltd., A California Limited Partnership. United States Airlease, Inc.
and North American Aircraft Finance Corporation (herein called "Trust
Agreement"), the defined terms therein not otherwise defined herein being herein
used with the same meaning), which Certificates have been or are to be issued by
the Trustee pursuant to the Trust Agreement, (ii) North American Aircraft
Finance Corporation is an Owner Participant and owns an undivided one-third
(1/3) interest in the Trust Estate, and (iii) the holder of this Certificate
has, ratably with the holders of the other Certificates, an undivided beneficial
interest in the Trust Estate and is entitled to receive, ratably with the
holders of the other Certificates issued with respect to the Trust Estate as
provided in the Trust Agreement, a share of a portion of (1) the rental received
or to be received by the Trustee with respect to the Trust Estate or (2) upon
the sale or lease of all or any part of the Trust Estate, any proceeds received
or receivable therefrom as well as a share of certain other payments which may
be received by the Trustee pursuant to the terms of the Trust Agreement as more
particularly set forth therein.
All amounts payable hereunder and under the Trust Agreement shall be
paid only from the income and the proceeds from the Trust Estate and only to the
extent that the Trustee shall have sufficient income or proceeds from the Trust
Estate to make such payments in accordance with the terms of the Trust
Agreement, except as specifically provided in Section 8.01 thereof, and each
holder hereof, by its acceptance of this Certificate agrees that it will look
solely to the income and proceeds from the Trust Estate to the extent available
for distribution to such holder as above provided and that neither the Owner
Participants nor the Trustee (except to the extent provided in Section 8.01 of
the Trust Agreement) are personally liable to the holder hereof for any amounts
payable under this Certificate or the Trust Agreement.
Reference is hereby made to the Trust Agreement for a statement of the
rights of the holder of this Certificate and of the rights of the holders of the
other Certificates, as well as for a statement of the terms and conditions of
the trusts created by and the right a limitations of rights obligations and
duties of the Trustee
<PAGE> 37
set forth in, the Trust Agreement, to all of which terms and conditions each
holder hereof agrees by its acceptance of this Certificate.
Each holder hereof by its acceptance of this Certificate agrees not to
transfer this Certificate except in accordance with the terms of Article XIV and
Section 3.06 of the Trust Agreement.
These Certificates have not been registered under the Securities Law of
1933, as amended, and may be transferred only in compliance with such law.
IN WITNESS WHEREOF, the Trustee has duly executed this Certificate as
of the date first above written.
Trust Company for USL, Inc.,
as Agent
/s/ Douglas C. Kay
-----------------------------
By: Douglas C. Kay
Vice President
2
<PAGE> 1
Exhibit 10.40
================================================================================
TRUST AGREEMENT
DATED AS OF August 15, 1988
AMONG
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP,
as Owner Participant,
UNITED STATES AIRLEASE, INC.
as Owner Participant and Agent,
AND
TRUST COMPANY FOR USL, INC.,
as Trustee
Concerning
One (1) McDonnell Douglas DC-9-82 Aircraft
with FAA Registration No. N913TW
Leased to Trans World Airlines, Inc.
================================================================================
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
I Definitions . . . . . . . . . . . . . . . . . . . . 4
II Authority to Execute and Perform Various
Documents; Declaration of Trust by Trustee . . . . . . . . . . . 6
III Beneficial Interest of Owner Participants in
Trust Estate and Certificates . . . . . . . . . . . . . . . . . 6
IV Acceptance of Lease Property . . . . . . . . . . . . . . . . . . 10
V Management and Administrative Services . . . . . . . . . . . . . 11
VI Distributions . . . . . . . . . . . . . . . . . . . . 12
VII Duties of the Trustee . . . . . . . . . . . . . . . . . . . . . 13
VIII The Trustee . . . . . . . . . . . . . . . . . . . . 15
IX Indemnification of Trustee by
Owner Participants . . . . . . . . . . . . . . . . . . . . 17
X Termination of Trust Agreement . . . . . . . . . . . . . . . . . 18
XI Successor Trustees, Co-Trustees and Separate
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
XII Concerning the Agent . . . . . . . . . . . . . . . . . . . . . . 21
XIII Supplements and Amendments . . . . . . . . . . . . . . . . . . . 23
XIV Sale, Transfer or Mortgage of Lease Property . . . . . . . . . . 23
XV Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 28
Schedule I - Description of Aircraft and Engines . . . . . . . . . . . . 32
</TABLE>
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<PAGE> 3
TRUST AGREEMENT
THIS TRUST AGREEMENT dated as of August 15, 1988, by and among
Trust Company for USL, Inc., a trust company organized under the laws of the
State of Illinois, in its individual capacity as expressly stated herein and
otherwise not in its individual capacity but solely as trustee hereunder
(herein in such capacity with its permitted successors and assigns called the
"Trustee"); Airlease Ltd., A California Limited Partnership (herein referred to
as the "Partnership" or "Owner Participant"); and United States Airlease, Inc.,
a California corporation, (herein sometimes referred to as "Airlease" or "Owner
Participant" in its separate capacity as Owner Participant and at other times,
herein sometimes referred to as "Agent" in its separate capacity as Agent).
(The Partnership and Airlease are herein sometimes referred to collectively as
the "Owner Participants.")
W I T N E S S E T H
WHEREAS, DC-9T-III, a Delaware corporation ("Seller"), is the
owner of the full legal and beneficial title to one (1) McDonnell Douglas
DC-9-82-Aircraft, which is subject to the Lease (as hereinafter defined);
WHEREAS, the Owner Participants are entering into this Trust
Agreement with the Trustee for the purpose of acquiring the Aircraft and the
Trustee shall purchase the Aircraft upon the instructions of the Owner
Participants, with funds advanced by each of the Owner Participants;
WHEREAS, Each of the Partnership and Airlease shall hold an
undivided fifty percent (50%) beneficial interest in the Lease Property (as
hereafter defined);
WHEREAS, upon the instructions of the Owner Participants, the
Trustee is entering into an agreement with Intercontinental Pacific Group,
Inc., a California corporation ("IPG"), Seller, and the Owner Participants to
acquire the Seller's interest in the Aircraft;
WHEREAS, the parties hereto desire to set forth certain of
their rights and obligations in respect of their interests under the
Certificates and in the Trust Estate (as such terms are hereafter defined);
NOW, THEREFORE, in consideration of the mutual agreements
herein contained, the parties hereto agree as follows:
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<PAGE> 4
ARTICLE I
Definitions
Section 1.01. For all purposes of this Agreement, the
following terms shall have the following meanings (such definitions to be
equally applicable to both the singular and plural forms of the terms defined):
"Affiliate" means any individual, partnership, joint venture,
estate, association, corporation, trust company, trust or other entity
(collectively, "Person") that directly or indirectly controls, is controlled
by, or is under common control with the Person in question.
"Agreement" means this Trust Agreement, as it may hereafter
from time to time be supplemented, amended, waived, or modified pursuant to the
applicable provisions hereof.
"Aircraft" means the McDonnell Douglas DC-9-82 aircraft, FAA
Registration No. N913TW, Serial No. 49184, identified in Schedule 1 to this
Agreement, as more particularly defined in the applicable Lease, including the
Engines pertaining thereto.
"Application for Aircraft Registration" means the Application
for Aircraft Registration (AC Form 8050-1) with respect to the Aircraft.
"Assumption Agreement" means the Assumption Agreement dated as
of the Closing Date among Seller, Buyer, Security Pacific Equipment Leasing,
Inc., IPG, and Pegasus Capital Corporation.
"Certificate" means a certificate substantially in the form
included in Article III hereof issued by the Trustee to the Owner Participants.
"Closing Date" means the date the Aircraft is purchased by the
Trustee pursuant to the Purchase Agreement.
"Engine" in respect of the Aircraft means the two (2) Pratt &
Whitney JT8D-217A engines identified by serial number in Schedule 1 hereto.
"FAA" means the Federal Aviation Administration and any agency
succeeding to the powers thereof.
"FAA Bill of Sale" means the bill of sale for the Aircraft on
AC Form 8050-2 or such other form as may be approved by the FAA on the Closing
Date for the Aircraft.
"IPG" means Intercontinental Pacific Group, Inc., a California
corporation.
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<PAGE> 5
"Lease" means the Aircraft Lease Agreement, dated as of March
15, 1984 relating to the Aircraft between Seller as Lessor and Lessee, as
supplemented by Lease Supplement No. 1 thereto dated March 22, 1984, recorded
as one instrument by the FAA on April 26, 1984, and assigned Conveyance Number
S47200, and as amended by the Amendment Agreement dated as of December 15,
1986, recorded by the FAA on January 26, 1987 and assigned Conveyance Number
E91224, and all Exhibits attached thereto.
"Lease Assignment" means an Assignment and Assumption
Agreement between the Trustee, the Owner Participants and Seller, with respect
to the Aircraft, the Lease and the Participation Agreement in the form attached
to the Purchase Agreement as such Assignment and Assumption Agreement may
hereafter from time to time be supplemented, amended, waived or modified.
"Lease Property" means the Lease, the Aircraft, the Purchase
Agreement, and the Participation Agreement and all income, deductions, credits
and other benefits to which an owner of property would be entitled to as lessor
under the Lease, and owner of the Aircraft, including without limitation, all
rental payments under the Lease, the right to possession of the Aircraft, and
all proceeds upon the sale or re-lease of the Aircraft.
"Lender" means any Person whose principal business is
providing financing and which provides financing to the Trustee or Owner
Participants and is granted a Lien on the Aircraft, or the Airframe, or an
Engine or Part.
"Lessee" means Trans World Airlines, Inc., a Delaware
corporation.
"Majority in Interest of Owner Participants", as of a
particular date of determination, means the Owner Participant(s) having in
excess of 75% of the then outstanding amount of all Certificates.
"Operative Documents" means this Agreement, the Lease, the
Lease Assignment, the Assumption Agreement, the Certificates, the Purchase
Agreement, the Application for Aircraft Registration, the FAA Bill of Sale and
the Warranty Bill of Sale, the Participation Agreement and all other
agreements, instruments and certificates contemplated by such documents.
"Participation Agreement" means the Participation Agreement
between Seller and Lessee dated as of March 15, 1984, relating to the Lease and
the Aircraft.
"Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership, dated as of October 10, 1986, among Airlease
Management Services, Inc. ("General Partner"), United States Airlease Holding,
Inc., and other limited partners specified therein (the "Partnership
Agreement") to acquire, own, lease, and otherwise hold interests in aircraft
lease transactions.
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<PAGE> 6
"Purchase Agreement" means the Aircraft Purchase Agreement,
dated as of August 15, 1988, by and among the Trustee, IPG, Seller and the
Owner Participants, as such Purchase Agreement may hereafter from time to time
be supplemented, amended, waived or modified.
"Seller" means DC-9T-III, Inc., a Delaware corporation.
"Trust Estate" means all estate, right, title and interest of
the Trust in and to the Operative Documents, any funds given to the Trustee by
the Owner Participants, and the Lease Property, including, without limitation,
all amounts of Basic Rent, insurance proceeds, stipulated loss value payments,
and requisition, indemnity or other payments of any kind (1) for or with
respect to the Lease Property or (2) payable to the Trustee under the Purchase
Agreement, Lease Assignment or Lease, or with respect to the Lease Property,
excluding any indemnity payments paid directly to an Owner Participant.
"Warranty Bill of Sale" means the bill of sale covering the
Aircraft in the form attached to the Purchase Agreement.
Section 1.02. For all purposes of this Agreement, any term
used but not defined herein shall have the meanings assigned to it in the
Lease, including, without limitation, "Airframe," "Parts," "Default," "Event of
Default," "Basic Rent" or "rental," and "Lien."
ARTICLE II
Authority to Execute and Perform Various Documents;
Declaration of Trust by Trustee
Section 2.01 Authority to Execute and Perform Various
Documents. Each Owner Participant hereby authorizes and directs the Trustee
(i) to execute and deliver the Purchase Agreement, the Lease Assignment, the
Certificates, the Assumption Agreement, the Application, for Aircraft
Registration and the Affidavit pursuant to Section 47.7(c)(2)(ii) of the
Federal Aviation Regulations with respect to the Aircraft, and all other
agreements, instruments and certificates contemplated by the Operative
Documents, and to accept the FAA Bill of Sale and the Warranty Bill of Sale and
(ii) subject to the terms of this Agreement, to take other action in connection
with the foregoing as the Owner Participants may from time to time direct in
writing.
Section 2.02 Declaration of Trust by Trustee. The Trustee
hereby declares that it will and does hold the Trust Estate upon the trusts set
forth herein for the sole use and benefit of the Owner Participants.
ARTICLE III
Beneficial Interest of Owner Participants
in Trust Estate and Certificates
Section 3.01. Beneficial Interest of Each Owner Participant.
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<PAGE> 7
(a) Each Owner Participant shall have and retain an
undivided fifty percent (50%) beneficial interest in the Trust Estate, such
interest to be evidenced by Certificate(s) to be issued hereunder. The Owner
Participants have jointly agreed to participate in the purchase of the Lease
Property on the Closing Date on the terms set forth in the Purchase Agreement,
and each Owner Participant shall, on the Closing Date, wire transfer to the
Seller on behalf of the Trustee its pro-rata portion of the purchase price for
the Aircraft.
Section 3.02. The Certificates. The Owner Participants hereby
authorize and direct the Trustee, and the Trustee agrees that it will issue to
each Owner Participant a Certificate substantially in the form set forth below
as provided in Section 3.03 hereof.
Trust Company for USL, Inc., Trustee
Under Trust Agreement Dated as of
August 15, 1988
CERTIFICATE
Issued in connection with the Aircraft hereinafter described:
McDonnell Douglas DC-9-82 Aircraft, Serial No. 49184, FAA Registration No.
N913TW. August _____, 1988.
Trust Company for USL, Inc., not in its individual capacity
but solely as Trustee (herein in such capacity called the "Trustee") under the
Trust Agreement hereinafter referred to hereby certifies as follows: (i) this
Certificate is one of the Certificates referred to in the certain Trust
Agreement dated as of August 15, 1988, by and among the Trustee, Airlease Ltd.,
A California Limited Partnership, and United States Airlease, Inc., (herein
called "Trust Agreement"); the defined terms therein not otherwise defined
herein being herein used with the same meaning), which Certificates have been
or are to be issued by the Trustee pursuant to the Trust Agreement;
(ii)_________ is an Owner Participant and owns an undivided 50% interest in the
Trust Estate; and (iii) the holder of this Certificate has, ratably with the
holders of the other Certificates, an undivided beneficial interest in the
Trust Estate and is entitled to receive, ratably with the holders of the other
Certificates issued with respect to the Trust Estate as provided in the Trust
Agreement, a share of a portion of (1) the rental received or to be received by
the Trustee with respect to the Trust Estate, or (2) upon the sale or lease of
all or any part of the Trust Estate, any proceeds received or receivable
therefrom, as well as a share of certain other payments, which may be received
by the Trustee pursuant to the terms of the Trust Agreement as more
particularly set forth therein.
All amounts payable hereunder and under the Trust Agreement
shall be paid only from the income and the proceeds from the Trust Estate and
only to the extent that the Trustee shall have sufficient income or proceeds
from the Trust Estate to make such payments in accordance with the terms of the
Trust Agreement, except as specifically provided in Section 8.01 thereof; and
each holder hereof, by its acceptance of this Certificate, agrees that it will
look solely to the income and proceeds from the Trust Estate to the extent
available for distribution to such holder as above provided and that neither
the Owner Participants nor the Trustee (except to the
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<PAGE> 8
extent provided in Section 8.01 of the Trust Agreement) are personally liable
to the holder hereof for any amounts payable under this Certificate or the
Trust Agreement.
Reference is hereby made to the Trust Agreement for a
statement of the rights of the holder of this Certificate and of the rights of
the holders of the other Certificates, as well as for a statement of the terms
and conditions of the trusts created by, and the rights, limitations of rights,
obligations and duties of the Trustee set forth in, the Trust Agreement, to all
of which terms and conditions each holder hereof agrees by its acceptance of
this Certificate.
Each holder hereof, by its acceptance of this Certificate,
agrees not to transfer this Certificate except in accordance with the terms of
Article XIV and Section 3.06 of the Trust Agreement.
These Certificates have not been registered under the
Securities Law of 1933, as amended, and may be transferred only in compliance
with such law.
IN WITNESS WHEREOF, the Trustee has duly executed this
Certificate as of the date first above written.
---------------------------
Name: Stanley E. Gutman
Title: Vice President
TRUST COMPANY FOR USL, INC.
Section 3.03. Issuance of Certificates. Each Certificate
issued to an Owner Participant shall contain a statement by the Trustee that
the holder of such Certificate has, ratably with the holders of the other
Certificates, an undivided beneficial interest in the Trust Estate, and is
entitled to receive, ratably with the holders of the other like Certificates as
provided herein, a share of a portion of (i) the rental received or to be
received by the Trustee for such Trust Estate, or (ii) upon the sale or lease
of all or any part of the Trust Estate, any proceeds received or receivable
therefrom, as well as a share of certain other payments which may be received
by the Trustee pursuant to the terms hereof as more particularly set forth
herein.
Section 3.04. Payments from Trust Estate Only. All payments
to be made under the Certificates and under this Trust Agreement shall be made
only from the income and the proceeds from the Trust Estate and only to the
extent that the Trustee shall have sufficient income or proceeds from the Trust
Estate to make such payments in accordance with the terms of Article VI hereof,
except as specifically provided in Section 8.01 hereof. Each holder of a
Certificate, by its acceptance of such Certificate, agrees that it will look
solely to the income and proceeds from the Trust Estate, to the extent
available for distribution to such holder as above provided and that the Owner
Participants are not personally liable to the holder of any Certificates.
Except as specifically provided herein, the Trustee is not liable to the Owner
Participants for any amounts payable under this Agreement and is not subject to
any liability in its individual capacity under this Agreement.
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<PAGE> 9
Section 3.05. Payment to Holder of Certificate. Subject to
Article VI, any amounts received by the Trustee and payable to each holder of a
Certificate pursuant to this Trust Agreement will be payable to each such
holder by wire transfer of immediately available funds to the bank for the
account of each Owner Participant as such Owner Participant shall direct in
writing, without any presentment or surrender of any Certificate. The Trustee
may deem and treat the person in whose name any Certificate shall have been
issued by the Trustee as the absolute owner and holder of such Certificate for
the purpose of receiving payment of all amounts payable by the Trustee with
respect to such Certificate and for all other purposes, and the Trustee shall
not be affected by any notice to the contrary.
Section 3.06. Transfer of Certificate. Subject to Article
XIV, a holder of a Certificate intending to transfer any Certificate held by
such holder to a new holder shall surrender such Certificate to the Trustee,
together with a written request from such holder for the issuance of a new
Certificate, specifying the name and address of the transferee and evidence
that the conditions set forth herein for such transfer have been satisfied.
Promptly upon receipt of such documents the Trustee will issue a new
Certificate of the same type, dated the same date or dates, in the amounts
indicated, and designated as issued in connection with the Aircraft as the
Certificate surrendered, and naming such transferee as shall be specified in
the written request from such holder, the Trustee shall not be required to
exchange any surrendered Certificate as above provided during the 10-day period
preceding the due date of any payment on such Certificate.
Section 3.07. Mutilated, Destroyed, Lost, or Stolen
Certificates. If any Certificate shall become mutilated, destroyed, lost or
stolen, the Trustee shall, upon the written request of the holder of such
Certificate, execute and deliver in replacement thereof a new Certificate, in
the same original amount, dated the same date, as the Certificate so mutilated,
destroyed, lost or stolen. If the Certificate being replaced has become
mutilated, such Certificate shall be surrendered to the Trustee. If the
Certificate being replaced has been destroyed, lost or stolen the holder of
such Certificate shall furnish to the Trustee such security or indemnity as may
be required by either of them to save it harmless and evidence satisfactory to
the Trustee of the destruction, loss or theft of such Certificate and of the
ownership thereof. If such holder is an original Owner Participant, the
written undertaking of such Owner Participant shall be sufficient indemnity.
Section 3.08. Payment of Expenses Upon Transfer. Upon the
issuance of a new Certificate or Certificates pursuant to Section 3.06 or 3.07
hereof, the Trustee may require the payment from the party or parties to whom
such new Certificate or Certificates are issued of a sum to reimburse itself
for, or to provide funds for, the payment of any tax or other governmental
charge or any charges and expenses connected therewith paid or payable by the
Trustee.
Section 3.09. Payments by Each Owner Participant. Payments
and contributions (including, without limitation, Trustee's fees and expenses
and indemnifications of the Trustee) provided for herein to be made by each
Owner Participant shall be made by each Owner Participant in proportion to its
beneficial interest in the Trust Estate at the time such payments or
contributions are due and payable. In the event that any Owner Participant
makes a payment for any costs or expenses (including legal fees and expenses)
pursuant to the written instructions of the Trustee or a Majority in Interest
of Owner Participants, such Owner Participant shall be entitled to immediate
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<PAGE> 10
reimbursement therefor from the other Owner Participants in proportion to its
beneficial interest in the Trust Estate.
ARTICLE IV
Acceptance of Lease Property
Section 4.01 Acceptance of Lease Property. The Owner
Participants hereby authorize and direct the Trustee to, and the Trustee agrees
for the benefit of the Owner Participants, that on the Closing Date, it will,
subject to due compliance with the terms of Section 4.02 hereof, take such
actions as are required of the Trustee hereunder or under the Operative
Documents, including without limitation, the following:
(a) authorize a representative or representatives of the
Trustee to accept the FAA Bill of Sale, Warranty Bill of Sale, a complete copy
of the Lease and an executed counterpart of the Participation Agreement, on
such Closing Date;
(b) execute and deliver a Lease Assignment relating to
the Lease Property; and
(c) execute and deliver the Assumption Agreement; and
(d) upon the payment by each Owner Participant of its
proportionate share of the purchase price for the Aircraft, the Trustee shall
cause the Agent, without further act, authorization, or direction by the Owner
Participants to the Trustee, to file on behalf of the Trustee the FAA Bill of
Sale, UCC-1 Financing Statements, the Aircraft Registration Application, and
other related documents in the name of the Trustee; and
(e) execute and deliver, and accept, each of the
Operative Documents and all other related documents to which it is a party; and
(f) issue a Certificate for such interest in the Trust
Estate to each of the Owner Participants.
Section 4.02 Conditions Precedent. The right and obligation
of the Trustee to take the action required by Section 4.01 hereof shall be
subject to the conditions precedent enumerated in Article III of the Purchase
Agreement.
Section 4.03 Authority Without Express Instructions. The
Trustee, without the necessity of further instructions from the Owner
Participants, is hereby authorized and directed by the Owner Participants to
take all action specified in the Operative Documents as action to be taken by
the Trustee; provided, however, that the Trustee shall not give any consent,
waive any right or benefit or enter into any modification or amendment of the
Operative Documents or take any other action to perform any obligation of
Lessee under the Lease except at the direction of all of the Owner Participants
or a Majority in Interest Owner Participants, as applicable.
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<PAGE> 11
Section 4.04 Replacements. The Owner Participants hereby
authorize and direct the Trustee, and the Trustee agrees for the benefit of the
Owner Participants that, in the event of a replacement airframe or engine, if
any, being substituted pursuant to the applicable provisions of the Lease, it
will, subject to Section 7.02 hereof and in compliance with the terms of the
Lease:
(a) to the extent not previously accomplished by a prior
authorization, authorized a representative of the Trustee (who may be an
employee of the Lessee) to accept delivery of the replacement airframe or
engine;
(b) accept from the Lessee or other vendor of a
replacement airframe or engine a bill of sale or bills of sale and the invoice,
if any, with respect to such replacement airframe or engine;
(c) execute and deliver a Lease Supplement covering such
replacement airframe or engine and, to the extent requested by counsel to any
Owner Participant, execute and deliver any required amendments to this
Agreement or any other Operative Document to which the Trustee is a party and
request any required consent form the manufacturer of such replacement airframe
or engine; and
(d) transfer title to the airframe or engine being
replaced to the Lessee.
ARTICLE V
Management and Administrative Services
Section 5.1. Partnership Agreement. Pursuant to the
Partnership Agreement (i) the General Partner or Airlease or other Affiliates
(as defined in the Partnership Agreement) will perform certain management,
administrative, and remarketing services for the Partnership, including,
without limitation, the payment of operating expenses, lease management,
collection of lease income, negotiation and review of leases, servicing
indebtedness secured by aircraft, disposing and remarketing of aircraft, the
payment of distributions and allocations to the limited partners of the
Partnership, and preparing the books and records and tax returns of the
Partnership; and (ii) the Partnership will pay certain fees (as specified in
the Partnership Agreement) as compensation for the performance of such
services. All of the terms, conditions, and agreements under the Partnership
Agreement are incorporated by reference herein as though set forth at length,
and in the event of any inconsistency between the provisions of this Agreement
and the Partnership Agreement, the provisions of the Partnership Agreement
shall control.
Section 5.2. Compensation and Reimbursement of Owner
Participants.
(a) No Compensation. Except as may be expressly provided for
herein, no payment will be made by or to any Owner Participant for the services
of such Owner Participant or any officer, shareholder, director, or employee of
such Owner Participant.
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<PAGE> 12
(b) Reimbursable Expenditures. Airlease or its Affiliates
shall receive fees and compensation and be reimbursed by the Partnership in
accordance with the Partnership Agreement, for expenditures incurred in
connection with negotiating and consummating the transaction contemplated by
the Purchase Agreement and this Agreement, performing management and
administrative services in connection with the Trust Estate and disposing of or
remarketing the Aircraft for lease.
Section 5.3. Scope of Owner Participant's Authority. Except
as otherwise specified in this Agreement: (a) no Owner Participant shall have
any authority to bind or act for, or assume any obligations or responsibility
on behalf of, the other Owner Participant, and (b) no Owner Participant shall
be responsible or liable for any indebtedness or obligation of the other Owner
Participant relating to the Trust Estate, or otherwise.
Section 5.4. Joint Directions Under Trust Agreement. In the
event it shall be necessary or appropriate at any time, or from time to time,
for the Owner Participants to give any directions, authorizations or
instructions to the Trustee under the Trust Agreement, or otherwise, the
Partnership and Airlease hereby agree that all such directions, authorizations
or instructions shall be given by them jointly, and that each will act in good
faith to reach agreement as to such directions, authorizations or instructions,
and each will join with the other to execute any and all joint written
directions, authorizations or instructions to the Trustee as may be necessary
or appropriate in the premises.
ARTICLE VI
Distributions
Section 6.01 Distribution of Rental. Each payment of rental,
as well as payment of interest on overdue rental installments, received by the
Trustee at any time shall be distributed in accordance with Section 3.05 by the
Trustee on the date such payment is due from the Lessee (or as soon thereafter
as such payment shall be received by the Trustee) to each Owner Participant
without priority of one over the other ratably in proportion to its undivided
beneficial interest in the Trust Estate. The Trustee agrees to take all
reasonable steps necessary to collect any rent or other amounts due under the
operative Documents.
Section 6.02. Distribution of Payments. All payments and
amounts, except for rental, if any, received by the Trustee shall be
distributed forthwith upon receipt, provided, however, all such amounts in
excess of $10,000 shall be distributed no later than twenty four (24) hours
after the Trustee has knowledge of its receipt, in the following order of
priority: first, so much of such payment or amount as shall be required to
reimburse the Trustee for any reasonable fees or expenses not otherwise paid or
reimbursed by the Owner Participants as to which the Trustee is entitled to be
paid or reimbursed hereunder shall be retained by the Trustee; second, to
reimburse an Owner Participant for payments made by it and not by all Owner
Participants, pursuant to Section 7.03 or 9.01 hereof, or an instruction from
the Trustee pursuant to a written instruction from all of the Owner
Participants or a Majority in Interest of Owner Participants, as required,
ratably in proportion to the aggregate amount of such payments made by each
Owner
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Participant; and third, the balance, if any, of such payment or amount
remaining thereafter shall be distributed to the Owner Participants ratably,
without priority of one over the other, in proportion to the beneficial
interest of each Owner Participant in the Trust Estate.
Section 6.03 Distribution of Trust Estate. Whenever the terms
of this Agreement shall require the Trustee to distribute or transfer the
entire Trust Estate to any person(s), the Trustee shall be entitled to retain
such monies and securities, if any, as shall then be held by the Trustee as a
part of the Trust Estate and as shall be required to reimburse or pay the
Trustee for any reasonable fees, expenses, or liabilities not reimbursed or
paid by the Owner Participants as to which the Trustee is entitled to be paid
or reimbursed hereunder or under any Operative Document and shall distribute
the Trust Estate in accordance with Section 6.02.
ARTICLE VII
Duties of the Trustee
Section 7.01 Notice of Event of Default. In the event the
Trustee shall have knowledge of a Default or Event of Default, the Trustee
shall give prompt written notice thereof to each Owner Participant. Subject to
the terms of Section 7.03 hereof, the Trustee shall take or refrain from taking
such action with respect to a Default or Event of Default as the Trustee shall
be instructed in a written instrument executed by a Majority in Interest of
Owner Participants. If the Trustee shall not have received instructions within
twenty (20) days after giving notice of a Default or Event of Default as above
provided, the Trustee may, but shall be under no duty to, and it shall have no
liability for its failure or refusal, to take or refrain from taking any action
with respect to such Default or Event of Default as it shall deem advisable and
in the best interests of the Owner Participants; provided, however, that the
Trustee shall give the owner Participants ten days' notice thereof prior to
taking any such action. For all purposes of this Agreement, in the absence of
actual knowledge of an officer of the Trustee, the Trustee shall not be deemed
to have knowledge of a Default or an Event of Default unless it receives
written notification thereof given by or on behalf of the Lessee, any Owner
Participant or any other party.
Section 7.02 Action upon Instructions. Subject to the terms
of Sections 7.01 and 7.03 hereof, upon the written instructions of a Majority
in Interest of Owner Participants, the Trustee will take or refrain from taking
such action or actions, as may be specified in such instructions, including,
without limitation, (i) enforcing provisions of the Lease;(ii) executing and
filing UCC-1 Financing Statements; (iii) executing and delivering loan
agreements with any Lender(s) (but only upon the written instruction of all of
the Owner Participants); (iv) executing and delivering amendments to the Lease;
(v) giving such notice of direction or exercising such right, remedy or power
hereunder or under any of the Lease, the Assumption Agreement or the Purchase
Agreement or in respect of all or any part of the Trust Estate, or taking such
other action as shall be specified in such instructions; (vi) taking such
action to preserve or protect the Trust Estate (including the discharge of
liens and encumbrances) as may be specified in such instructions; (vii)
approving as satisfactory to it or consenting to all matters required by the
terms of the Operative Documents to be satisfactory to the Trustee, it being
understood that without the written instructions of a Majority in Interest of
Owner Participants, the Trustee shall not approve any such
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matter as satisfactory to it or consent to any such action; and (viii) taking
such other action as a Majority in Interest of Owner Participants shall direct
in writing.
Section 7.03 Indemnification. The Trustee shall not be
required to take or refrain from taking any action under this Agreement or any
Operative Document (other than the actions specified in the first sentence of
Section 7.01 hereof) unless the Trustee shall have been indemnified by the
Owner Participants, in accordance with Article IX hereof, against any
liability, fee, cost or expense (including attorneys' fees) which may be
incurred or charged in connection therewith; and, if the Owner Participants or
a Majority in Interest of Owner Participants, as required, shall have directed
the Trustee to take or refrain from taking any action under this Agreement or
any Operative Document, the Owner Participants agree to furnish the Trustee
with the indemnification more particularly set forth in Article IX hereof, and,
in addition, to pay the reasonable compensation of the Trustee for the services
performed or to be performed by it pursuant to such direction. The Trustee
shall not be required to take any action under this Agreement or any Operative
Document if the Trustee shall reasonably determine, .or shall have been advised
by counsel, that such action is contrary to the terms hereof or of any document
contemplated hereby to which the Trustee is a party or is otherwise contrary to
law.
Section 7.04 No Duties Except as Specified in Trust Agreement
or Instructions. The Trustee shall not have any duty or obligation to manage,
control, make any payment in respect of, register, record, insure, inspect,
instruct, use, sell, dispose of or otherwise deal with the Lease Property, or
any other part of the Trust Estate, or to otherwise take or refrain from taking
any action under, or in connection with, any document contemplated hereby to
which the Trustee is a party, except as expressly provided by the terms of this
Agreement, or in written instructions from a Majority in Interest of Owner
Participants received pursuant to Section 7.01 or 7.02 hereof; and no implied
duties or obligations shall be read into this Agreement against the Trustee.
The Trustee, in its individual capacity, nevertheless agrees that it will, at
its own cost and expense, promptly take all action as may be necessary to
discharge any Liens (including Seller's Liens) on any part of the Trust Estate
which result from actions or commissions or omissions by or claims against the
Trustee, in its individual capacity, or the trusts created hereby not related
to the Trustee's ownership of the Lease Property or any other part of the Trust
Estate or the administration of the Trust Estate or the transactions
contemplated by the Operative Documents or this Agreement.
Section 7.05 No Action Except Under Specified Documents or
Instructions. The Trustee agrees that it will not manage, control, use, sell,
dispose of or otherwise deal with the Lease Property or any other part of the
Trust Estate except (i) as required by this Agreement and the Operative
Documents, or (ii) in accordance with the powers granted to, or the authority
conferred upon, or the directions given to, the Trustee pursuant to or under
this Agreement.
Section 7.06 Absence of Duties. Except in accordance with
written instructions furnished pursuant to Section 7.02 hereof, and without
limitation of the generality of Section 7.04 and the last sentence of Section
11.01(b) hereof, the Trustee shall have no duty (i) to file, record or deposit
any Operative Documents, any financing statements or this Agreement, or to
maintain any such filing, recording or deposit or to refile, rerecord or
redeposit any such document, except as specified in Section 7.02 hereof, (ii)
to obtain insurance on the Aircraft, or to effect or maintain any
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such insurance, (iii) to maintain or mark the Aircraft, (iv) to pay or
discharge any tax, assessment or other governmental charge or any lien or
encumbrance of any kind owing with respect to or assessed or levied against any
part of the Trust Estate, except as provided in the last sentence of Section
7.04 hereof, (v) to confirm, verify, investigate or inquire into the failure to
receive any reports or financial statement of Lessee or any sublessee, or (vi)
to inspect the Aircraft at any time or to ascertain or inquire as to the
performance or observance of any covenants of Lessee or any sublessee under any
Operative Document with respect to the Aircraft.
ARTICLE VIII
The Trustee
Section 8.01 Acceptance of Trusts and Duties. The Trustee
accepts the trusts hereby created and agrees to perform the same but only upon
the terms of this Agreement. The Trustee also agrees to disburse all monies,
if any, actually received by it constituting part of the Trust Estate upon the
terms of this Agreement. The Trustee shall not be answerable or accountable
under any circumstances, in its individual capacity, except (i) for its own
willful misconduct or gross negligence, (ii) in the case of the inaccuracy of
any representation or warranty of the Trustee contained in Section 8.03 hereof
or any representation or warranty of the Trustee in its individual capacity
contained in the Operative Documents, (iii) as arising from the failure by the
Trustee to perform its obligations under the last sentence of Section 7.04
hereof, (iv) for taxes, fees or other charges on, based on or measured by any
fees, commissions or compensation received by Trustee for acting as Trustee in
connection with any of the transactions contemplated by the Operative
Documents.
Section 8.02 Furnishing of Documents. The Trustee will
furnish to each Owner Participant, promptly upon receipt thereof, duplicates or
copies of all reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Trustee hereunder or
under the Operative Documents.
In case any tax report or tax return is required to be made
with respect to the Trust Estate and the Lessee is not required to prepare and
file the same pursuant to the Lease, the Trustee will prepare such tax report
or return and deliver a copy thereof to each Owner Participant. Upon the
request of the Trustee, each Owner Participant will provide such instruments,
documents, certificates or other information as is reasonably necessary to
enable the Trustee to prepare any such tax report or return. The Trustee
agrees to forward to each Owner Participant a copy of any communications with
respect to taxes pertaining to the Trust Estate which are received by the
Trustee.
Section 8.03 No Representations or Warranties as to Lease
Property or Documents. THE TRUSTEE, IN ITS INDIVIDUAL CAPACITY, MAKES (i) NO
REPRESENTATION OR WARRANTY AS TO THE TITLE, VALUE, CONDITION, DESIGN,
OPERATION, AIRWORTHINESS, MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR
ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
AIRCRAFT, AIRFRAME, OR ANY ENGINE OR PART WHATSOEVER,
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and (ii) no representation or warranty as to the validity or enforceability of
this Agreement or the Operative Documents, or as to the correctness of any
statement contained in any thereof, except to the extent that any such
statement is made therein by the Trustee, in its individual capacity, and
except that the Trustee, in its individual capacity, hereby represents and
warrants to each Owner Participant that this Agreement has been and each of
such other documents which contemplates execution thereof by the Trustee has
been or will be, executed and delivered by its officers who are or will be duly
authorized to execute and deliver such document on its behalf, and except that
the Trustee, in its individual capacity, hereby represents and warrants to each
Owner Participant that the Lease Property is free and clear of any liens
attributable to it and that it will comply with the last sentence of Section
7.04 hereof.
Section 8.04 No Segregation of Monies; No Interest. Except as
otherwise provided herein, monies, if any, received by the Trustee hereunder
need not be segregated in any manner except to the extent required by law and
may be deposited under such general conditions as may be prescribed by law, and
the Trustee shall not be liable for any interest thereon.
Section 8.05 Reliance; Advice of Counsel. The Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Trustee may accept a certified copy
of a resolution of the Board of Directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the manner of ascertainment of which is not specifically
prescribed herein, the Trustee may for all purposes hereof rely on a
certificate, signed by a duly authorized officer of the relevant party, as to
such fact or matter, and such certificate shall constitute full protection to
the Trustee for any action taken or omitted to be taken by it in good faith in
reliance thereon. In the administration of the trusts hereunder, the Trustee
may execute any of the trusts or powers hereof and perform its powers and
duties hereunder directly or through agents or attorneys and may consult, with
counsel, accountants and other skilled persons to be selected and employed by
it, and the Trustee shall not be liable for anything done, suffered or omitted
in good faith by it in accordance with the advice or opinion of any such
counsel, accountants or other skilled persons and not contrary to this
Agreement, so long as such advice or opinion pertains to such matters as the
Trustee may reasonably presume to be within the scope of such person's
expertise.
Section 8.06 Not Acting in Individual Capacity. Except as
provided in this Article VIII, in accepting the trusts hereby created the
Trustee acts solely as trustee hereunder and not in its individual capacity;
and all persons having any claim against the Trustee by reason of the
transactions contemplated hereby or by the other Operative Documents shall look
only to the Trust Estate for payment or satisfaction thereof, except as
specifically provided in this Article VIII.
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ARTICLE IX
Indemnification of Trustee by Owner Participants
Section 9.01 Owner Participants to Indemnity Trustee. Each
Owner Participant agrees to pay, severally, in proportion to its respective
beneficial interest in the Trust Estate, to the extent not paid by the Lessee
pursuant to the Lease (or reimburse the Trustee for), all reasonable expenses
of the Trustee hereunder, including, without limitation, the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Trustee may employ in connection with the exercise
and performance of its rights and duties hereunder or under the other Operative
Documents, whether or not the transactions contemplated hereby are consummated;
provided, however, that if the Trustee deems it advisable to employ any such
agent, representative, expert or counsel, and the Trustee reasonably believes
that the fees of such agent, representative, expert or counsel will exceed
$5,000, the Trustee shall notify the Owner Participants thereof and shall
employ such agent, representative, expert or counsel only if a Majority in
Interest of Owner Participants has approved such employment. The Owner
Participants agree to assume liability for, and to indemnify the Trustee in its
individual capacity and its successors, assigns, agents and servants against
and from any and all liabilities (including without limitation, any liability
of the Owner Participants, and liability without fault and any strict
liability), obligations, losses, damages, taxes (such term "taxes" or the term
"tax" as used in this Article IX shall include, without limitation, all taxes
specifically related to this Agreement and the Trust Estate created hereby
excluding, however, any income taxes or fees or other compensation received by
the trustee in its capacity as Trustee), claims, actions, suits, costs,
expenses and disbursements (including legal fees and expenses) of any kind and
nature whatsoever (collectively, "Expenses") which may be imposed on, incurred
by or asserted at any time against the Trustee (whether or not indemnified
against by the Lessee or any other parties) in any way relating to or arising
out of the existence or administration of this Agreement, the Trust Estate or
the action or inaction of the Trustee hereunder or under the other Operative
Documents, or the enforcement of any of the terms of any thereof, or in any way
relating to or arising out of the manufacture, purchase, acceptance,
non-acceptance, rejection, ownership, delivery, lease, financing, possession,
use, operation, condition, sale, return or other disposition of the Aircraft,
the Airframe, or an Engine (including, without limitation, latent and other
defects, whether or not discoverable, and any claim for patent, trademark or
copyright infringement) or in any way relating to or arising out of the
Operative Agreements, except that the foregoing indemnities shall not cover the
Trustee (i) for its own willful misconduct or gross negligence, (ii) in the
case of the inaccuracy of any representation or warranty of the Trustee
contained in Section 8.03 hereof or any representation or warranty of the
Trustee in its individual capacity contained in the Operative Documents, and
(iii) as arising from the failure by the Trustee to perform its obligations
under the last sentence of section 7.04 hereof, or obligations in its
individual capacity contained in the operative Documents. In addition, if
necessary, the Trustee shall be entitled to indemnification from the Trust
Estate, for any liability, obligation, loss, damage, penalty, tax, claim,
action, suit, cost, expense or disbursement indemnified against pursuant to
this Section 9.01 to the extent not reimbursed by Lessee, the Owner
Participants or others, but without releasing any of them from their respective
agreements of reimbursement; and, to secure the same, the Trustee shall have a
lien on the Trust Estate, subject to the Lien, if any, of any Lender, which
shall be prior to any interest therein of the Owner Participants, but only in
the
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event and to the extent that the Trustee does not receive payment from the
Lessee or pursuant to any other provision of any Operative Document, except
only that the Owner Participants shall not be required to indemnify the Trustee
for expenses arising or resulting from any of the matters described in the last
sentence of Section 8.01 hereof. The indemnities contained in this Section
9.01 shall survive the termination of this Agreement.
Section 9.02 Compensation and Expense. The Trustee shall
receive the following as compensation for its services hereunder, and as
payment for all its costs, fees and expenses incurred in connection with the
administration of the Trust Estate (including legal fees and expenses):
(a) An acceptance fee of $2,500 and an administration
fee of $2,000 ("Annual Administration Fee") for the one year period commencing
on the Closing Date, and each year thereafter in which it is the Trustee
hereunder and under the Operative Documents; provided, however, that after two
(2) years from the date of this Agreement, the Trustee may request an increase
in the Annual Administration Fee, and the Owner Participants shall consider
such request and make its determination with respect thereto in good faith.
Such Annual Administration Fee shall cover all of the Trustee's costs, fees and
expenses of any kind incurred in connection with the administration of the
Trust Estate, including, without limitation, any fees paid to the Agent and
executing and delivering loan agreement(s) and other agreements with any Lender
and taking such other action under or in connection with the Operative
Documents as the Owner Participants shall direct in writing.
(b) The Trustee shall be entitled to compensation for any
of its reasonable out-of-pocket expenses and the reasonable fees and expenses
of any agent, representative, expert or counsel employed by the Trustee,
incurred in connection with its administration of the Trust Estate hereunder;
provided, however, that if the Trustee reasonably believes that such expenses,
fees and expenses will exceed $5,000, the Trustee will obtain the prior
approval thereof of a Majority in Interest of Owner Participants.
ARTICLE X
Termination of Trust Agreement
Section 10.01 Termination of Trust Agreement. Subject to
Section 10.02 of this Agreement, this Agreement and the trusts created hereby
shall terminate and the Trust Estate shall, subject to Article VI hereof, be
distributed to the Owner Participants, and this Agreement shall be of no
further force or effect, upon the earlier of (i) the sale or other final
disposition by the Trustee of all property constituting part of the Trust
Estate and the final distribution by the Trustee or any other party of all
monies or other property or proceeds constituting part of the Trust Estate in
accordance with the terms of Article VI hereof, provided that at such time the
Lessee and any parties to the Operative Documents other than Trustee and Owner
Participants shall have fully complied with all the terms of the Operative
Documents to which it is a party or (ii) twenty-one (21) years less one day
after the death of the last survivor of all of the descendants living on the
date of this Agreement of the present members of the Boards of Directors of the
Trustee and the Owner Participants; but if this Agreement and the trusts
created hereby shall be or become valid
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under applicable law for a period subsequent to the 21st anniversary of the
death of such last survivor, or if legislation shall become effective providing
for the validity thereof for a period in gross exceeding the period hereinabove
stated, than this Agreement and the trusts created hereby shall not terminate
as aforesaid but shall extend to and continue in effect, buy only if such
non-termination and extension shall then be valid under applicable law, until
such time as the same shall, under applicable law, cease to be valid.
Section 10.02 Termination at Option of Owner Participants The
provisions of_Section 10.01 hereof notwithstanding, this Agreement and the
trusts created hereby shall terminate and the Trust Estate shall be distributed
to the Owner Participants in accordance with the terms of Article VI hereof,
and this Agreement shall be of no further force and effect, upon the election,
in their sole discretion, of all of the Owner Participants by notice to the
Trustee, if such notice shall be accompanied by the written agreement of all of
the Owner Participants assuming all the obligations of the Trustee under the
Operative Documents and all other obligations of the Trustee incurred by it as
Trustee hereunder. Such written agreement shall fully and completely release
the Trustee from all further obligations and liabilities of the Trustee
hereunder and under the agreements and other instruments mentioned in the
preceding sentence; provided, however, that the obligations and liabilities of
any party hereinunder arising prior to the date of such written agreement shall
survive such termination of the Trustee.
ARTICLE XI
Successor Trustees, Co-Trustees and Separate Trustees
Section 11.01 Resignation of Trustee; Appointment of
Successor.
(a) The Trustee may resign at any time without cause by
giving at least thirty (30) days' prior written notice to each Owner
Participant, such resignation to be effective upon the acceptance of such
appointment by a successor Trustee under Section 11.01(b) hereof. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Article XI, the Trustee shall resign immediately by giving
written notice to each Owner Participant, such resignation to be effective upon
the acceptance of appointment by a successor Trustee under Section 11.01(b)
hereof. In addition, the Trustee may be removed at any time without cause by
an instrument in writing executed by each Owner Participant and delivered to
the Trustee, such removal to be effective upon the acceptance of appointment by
a successor Trustee under Section 11.01(b) hereof. In case of the resignation
or removal of the Trustee, a Majority in Interest of Owner Participants may
appoint a successor Trustee by an instrument signed by such a Majority in
Interest of Owner Participants. If a successor Trustee shall not have been
appointed within thirty (30) days after the giving of written notice of such
resignation or the delivery of the written instrument with respect to such
removal, the Trustee or a Majority in Interest of Owner Participants may apply
to any court of competent jurisdiction to appoint a successor Trustee to act
until such time, if any, as a successor Trustee so appointed by such court
shall immediately and without further act be superseded by any successor
Trustee appointed as above provided within one year from the date of the
appointment by such court.
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(b) Any successor Trustee, however appointed, shall
execute and deliver to the predecessor Trustee and each Owner Participant an
instrument accepting such appointment, and thereupon such successor Trustee,
without further act, shall become vested with all the estates, properties,
rights, powers, duties and trusts of the predecessor Trustee in the trusts
hereunder with like effect as if originally named the Trustee herein; but
nevertheless, upon the written request of such successor Trustee, such
predecessor Trustee shall execute and deliver an instrument transferring to
such successor Trustee, upon the trusts herein expressed, all the estates,
properties, rights, powers, duties and trusts of such predecessor Trustee, and
such predecessor Trustee shall duly assign, transfer, deliver and pay over to
such successor Trustee all monies or other property then held by such
predecessor Trustee upon the trusts herein expressed. The predecessor Trustee
will cooperate in causing registration of the Aircraft to be transferred to the
successor Trustee in accordance with applicable law.
(c) The Trustee and any successor Trustee, however
appointed, must resign if at any time it is unable to obtain or maintain at all
times satisfactory registration of each Aircraft pursuant to the Federal
Aviation Act, as amended (the "Act"). Any successor Trustee shall be a bank or
trust company incorporated and doing business within the United States of
America and having a combined capital and surplus of at least $25,000,000, or
the subsidiary of an institution having a combined capital and surplus of at
least $25,000,000, which guarantees the obligations of such subsidiary.
(d) The Trustee shall be and any successor Trustee will
be "a citizen of the United States" as defined in Section 101(16) of the Act.
(e) Any corporation into which the Trustee may be merged
or with which it may be consolidated, or any corporation resulting from any
merger, or consolidation to which the Trustee shall be a party, or any
corporation to which substantially all the corporate trust business of the
Trustee may be transferred, shall, subject to the terms of Section 11.01(c)
hereof, be the Trustee under this Agreement without further act.
Section 11.02 Co-Trustees and Separate Trustees. Whenever the
Trustee or a Majority in Interest of Owner Participants shall deem it necessary
or prudent in order either to conform to any law of any jurisdiction in which
all or any part of the Trust Estate shall be situated or to make any claim or
bring any suit with respect to the Trust Estate or the Operative Documents, or
either the Trustee or a Majority in Interest of Owner Participants shall be
advised by counsel satisfactory to it that it is so necessary or prudent, the
Trustee and a Majority in Interest of Owner Participants shall execute and
deliver an agreement supplemental hereto and all other instruments and
agreements, and shall take all other action, necessary or proper to constitute
one or more persons (and the Trustee may appoint one or more of its
officers)(any and all of which shall be a "citizen of the United States" as
defined in Section 101(16) of the Act) either as co-trustee or co-trustees
jointly with the Trustee of all or any part of the Trust Estate, or as separate
trustee or separate trustees of all or any part of the Trust Estate, and to
vest in such persons, in such capacity, such title to the Trust Estate or any
part thereof, and such rights or duties as may be necessary or desirable, all
for such period and under such terms and conditions as are satisfactory to the
Trustee and a Majority in Interest of Owner Participants. In case any
co-trustee or separate trustee shall
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die, become incapable of acting, resign or be removed, the title to the Trust
Estate and all rights and duties of such co-trustee or separate trustee shall,
so far as permitted by law, vest in and be exercised by the Trustee, without
the appointment of a successor to such co-trustee or separate trustee.
ARTICLE XII
Concerning the Agent
Section 12.01. Appointment of Agent. The Owner Participants
authorize and direct the Trustee to appoint, and the Trustee hereby does
appoint, Airlease, in its separate capacity as Agent and not as Owner
Participant, as its agent to do all such acts and things and execute all such
documents, instruments and other agreements as the Trustee hereafter may from
time to time direct, in its place and stead, in accordance with the terms of
this Agreement and the Operative Documents.
Section 12.02. Agent's Acceptance of Appointment. The Agent
agrees to act as Agent for the Trustee hereunder and to accept possession of
and hold such items of the Trust Estate as it may from time to time receive on
behalf of the Trustee subject to the trusts hereby created and the terms and
conditions of this Agreement.
Section 12.03. Agreements of the Agent. The Agent hereby
agrees:
(a) to exercise the rights and perform the duties of the
Trustee as directed by the Trustee in accordance with the terms hereof;
(b) to assume liability for and indemnify the Owner
Participants, Trustee, and Trust Estate from and against Liens attributable to
it; and
(c) pursuant to the instructions of the Trustee in
accordance with the terms hereof, to conduct negotiations with respect to the
documents contemplated by this Agreement and the Operative Documents and to use
its best efforts by administrative means to cause the Operative Documents to be
executed and to consummate the purchase of the Aircraft, Airframe, and Engines
and delivery of the Aircraft, Airframe, and Engines under the Purchase
Agreement in the manner contemplated by the operative Documents.
Section 12.04. Standard of Care and Diligence
(a) Agent's Liability. Except as provided in Section
12.03 hereof, the Agent assumes no liability for anything other than its own
willful misconduct or gross negligence. It shall give each Owner Participant
prompt notice of any Events of Default or claimed Events of Default under the
Lease of which it shall have actual knowledge. For all purposes of this
Agreement, in the absence of actual knowledge of an officer of the Agent, the
Agent shall not be deemed to have actual knowledge of a Default or an Event of
Default unless it receives written notification thereof given by or on behalf
of the Lessee, the Trustee, any Owner Participant, or any other party.
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(b) Use of Agents. Subject to the same limitations as
the Trustee herein, the Agent may exercise its powers and perform its duties by
or through such attorneys, agents and servants as it shall appoint; and it
shall be entitled to the advice of counsel (who may, in cases deemed by the
Agent in its reasonable discretion to be appropriate, be counsel for the Agent)
and shall be protected by the advice of such counsel in anything done or
omitted to be done in accordance with such advice.
Section 12.05. Resignation or Removal of Agent. The Agent or
any successor thereto may resign at any time without cause by giving at least
thirty (30) days prior written notice to the Trustee and each Owner
Participant, such resignation to be effective on the date specified in such
notice. In addition, a Majority in Interest of Owner Participants may at any
time remove the Agent without cause by an instrument in writing executed by a
Majority in Interest of Owner Participants delivered to the Agent and the
Trustee. In the case of the resignation or removal of the Agent, a Majority in
Interest of Owner Participants may, at their sole cost and expense, appoint a
successor Agent by an instrument signed by a Majority in Interest of Owner
Participants. If a Majority in Interest of Owner Participants shall not have
appointed a successor Agent within thirty (30) days after such resignation or
removal, the Trustee may apply to any court of competent jurisdiction to
appoint a successor Agent to act until such time, if any, as a successor shall
have been appointed by a Majority in Interest of Owner Participants as above
provided. The successor Agent so appointed by such court shall immediately and
without further act be superseded by any successor Agent appointed by a
Majority in Interest of Owner Participants within one year from the date of the
appointment by such court.
Section 12.06. Estates and Rights of Successor Agent. Any
Agent, whether appointed by a Majority in Interest of Owner Participants or a
court, shall execute and deliver to the Trustee and to the predecessor Agent an
instrument accepting such appointment, and thereupon such successor Agent,
without further act, shall become vested with all the estates, properties,
rights, powers and duties of the predecessor Agent hereunder with like effect
as if originally named the Agent herein; but nevertheless upon the written
request of the Trustee or such successor Agent, such predecessor Agent shall
execute and deliver an instrument transferring to such successor Agent all the
estates, properties, rights and powers of such predecessor Agent, and such
predecessor Agent shall duly assign, transfer, deliver and pay over to such
successor Agent all monies or other property then held by such predecessor
Agent hereunder.
Section 12.07. Merger or Consolidation of Agent. Any
corporation into which the Agent may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Agent shall be a party, or any corporation to
which substantially all the business of the Agent may be transferred, shall be
the Agent under this Agreement without further act.
Section 12.08. Agent's Duty to Indemnity. The obligation of
the Agent under Section 12.03(b) to indemnify the Owner Participants, Trust
Estate, and Trustee shall survive the resignation or removal of the Agent and
the termination of the Trust.
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ARTICLE XIII
Supplements and Amendments
This Agreement shall be amended only by a written instrument
signed by the Trustee and a Majority in Interest of Owner Participants and to
the extent any such amendment affects the Agent, signed by the Agent; but if in
the reasonable opinion of the Trustee or Agent, as the case may be, any
instrument required to be so executed adversely affects any right, duty,
liability of, or immunity or indemnity in favor of it under this Agreement or
any of the documents contemplated hereby to which it is a party, or would cause
or result in any conflict with or breach of any terms, conditions or provisions
of, or default under the charter documents or by-laws of the Trustee or Agent
or any document contemplated hereby to which the Trustee or Agent is a party,
the Trustee or Agent, as the case may be, may in its sole discretion decline to
execute such instrument and upon the request of a Majority in Interest of Owner
Participants immediately shall resign as the Trustee or Agent, as the case may
be, under this Agreement, any Operative Document, or other related document.
No supplement, amendment or modification of the Agreement shall impair any
requirement in this Agreement that the consent of a Majority in Interest of or
all of the Owner Participants be obtained for any purpose and no such
supplement, amendment or modification shall require any Owner Participant to
invest or advance funds or shall entail any additional personal liability or
the surrender of any indemnification, claim or individual right on the part of
any Owner Participant with respect to any agreement or obligation or create or
suffer to exist any additional obligation of or liability on the Trust Estate,
except with the written consent of each of the Owner Participants.
ARTICLE XIV
Sale, Transfer or Mortgage of Lease Property
Section 14.01. General. Except as hereinafter expressly
permitted, no Owner Participant may sell, assign, transfer, mortgage, charge or
otherwise encumber, or suffer any third party to sell, assign, transfer,
mortgage, charge or otherwise encumber, or contract to do or permit any of the
foregoing, whether voluntarily or by operation of law (herein sometimes
collectively called a "transfer"), any part or all of its interest hereunder or
in the Trust Estate without the written consent of the other Owner Participants
and any attempt to do so shall be void. The giving of such consent in any one
or more instances shall not limit or waive the need for such consent in any
other or subsequent instances.
Section 14.02. Permitted Transfers by the Owner Participants.
Notwithstanding the provisions of Subsection 14.01, without the consent of the
other Owner Participants, either party may at any time or from time to time
transfer all or any portion of its interest hereunder to an Affiliate.
Section 14.03. Right of First Refusal as to an Owner
Participant's Trust Estate Interest.
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<PAGE> 24
(a) Offering Notice. Except for permitted transfers
under Section 14.02 above, if any Owner Participant receives a bona fide offer
for the purchase of either (i) all of its interest hereunder or (ii) less than
all of its interest hereunder, (the recipient of any such offer being
hereinafter called the "Offeror"), which offer complies with the provisions of
Section 14.03(b) and which offer it desires and intends to accept, before
accepting such offer it shall give notice (the "Offering Notice") to the other
Owner Participants (the "Offerees") which shall include a true copy of such
offer, whereupon the provisions set forth in this Section 14.03 shall apply.
Except for permitted transfers under Section 14.02 above, no Owner Participant
shall accept an offer unless such offer complies with the provisions of Section
14.03(b).
(b) Requirements of Offer. Such an offer shall comply
with the following requirements:
(1) the proposed purchase price (which shall be
net of any Trust Estate debts or liabilities which the
proposed purchaser has agreed to assume in its offer to
purchase the Offeror's interest) is payable solely in lawful
money of the United States and, if not payable in its entirety
in cash, under no circumstances may payment of the non-cash
portion of the proposed purchase price be secured by any
charge, encumbrance or hypothecation of the Trust Estate;
(2) the offer contains provisions whereby the
proposed purchaser is obligated to comply with the provisions
of Section 14.06 hereof, requiring it to assume certain
obligations prior to or at closing;
(3) the offer is accompanied by a certified check
of the prospective purchaser for a sum equal to at least ten
percent (10%) of the proposed purchase price; provided,
however, that if the sale to the third party purchaser is not
consummated for any reason other than due to the failure of
the Owner Participants to perform their obligations pursuant
to the offer, each Owner Participant shall be entitled to a
pro rata portion of such sum;
(4) the Offeror shall not have caused or permitted
an Owner Participant Event of Default (as hereinafter defined)
; and
(5) the prospective purchaser shall be capable of
carrying out all obligations of an Owner Participant under
this Agreement and all related agreements; and as shown by the
audited financial statements of such prospective purchaser for
the two (2) most recent fiscal years of such prospective
purchaser, shall have tangible net worth satisfactory to the
Offerees, determined in accordance with generally accepted
accounting principles.
(c) Procedure. In the Offering Notice, the Offeror shall
offer (the "Sale offer") to each Offeree the right to purchase a portion of the
interest (the "Portion of the Interest") of the Offeror referred to in said
offer, at a portion of the same price and subject to the same terms and
conditions as set forth in said offer and the Offeror shall submit with the
Offering Notice a true
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<PAGE> 25
copy of said offer. The portion shall be equal to the full amount of the
interest offered multiplied by a fraction, the numerator of which is such
Offeree's then interest in the Trust Estate and the denominator is the then
interest in the Trust Estate of all Offerees. Each Offeree shall notify the
Offeror and the other Offeree(s) of its election within fifteen (15) days of
the date of its receipt of the Offering Notice; provided, however, that such
election shall be as to all of the Portion of the Interest.
(d) Acceptance of Sale Offer.
(1) If the Sale Offer is accepted by each
Offeree, and notice in writing is given within the period
specified in Section 14.03(c), the Offeror shall thereupon be
bound to sell to such Offeree and the Offeree shall thereupon
be bound to purchase the Portion of the Interest referred to
in the Sale Offer in accordance with the terms of the Sale
Offer and the closing of the purchase shall take place in
accordance with Section 14.04.
(2) If one Offeree has not accepted the Sale
Offer or has not accepted the Sale Offer within such fifteen
(15) day period and one or more of the other Offerees has
accepted the Sale Offer ("Accepting Offeree"), the Accepting
Offeree(s) shall have the right to purchase the entire
interest referred to in the Sale Offer (but not less than such
entire interest) in accordance with the terms of the Sale
Offer and the purchase shall take place in accordance with
Section 14.04 and the procedures included in Section 14.03(c).
Except that the Accepting Offerees shall notify the Offeror
and other Offerees of such election within ten (10) days of
the end of the initial fifteen (15) day period referred to in
Section 14.03(c). The Offeror shall thereupon be bound to sell
to such Accepting Offeree(s) and the Accepting Offeree(s)
shall thereupon be bound to purchase the entire interest
referred to in the Sale Offer in accordance with the terms of
the Sale Offer and the closing of the purchase shall take
place in accordance with Section 14.04.
(e) Right to Sell to Third Party. If the Offerees have
not accepted the Sale Offer as provided in Section 14.03(c) within the time
limits referred to therein, or if the Accepting Offeree(s) have not accepted
the Sale Offer as provided in Section 14.03(d)(2) within the time limits
referred to therein, the Sale Offer shall be deemed to have been declined by
such Offerees and the Offeror shall be free to sell its interest to the maker
of said offer at a price and upon terms and conditions not less favorable to
the Offeror than those set forth in the Offering Notice within the time period
set forth below. If in any instance such Offerees elect not to exercise their
rights hereunder or to waive such rights, such election shall not constitute a
waiver of the Offerees' right to an Offering Notice in the case of any
subsequent offer. If such interest is not so sold and the transfer not
consummated within thirty (30) days, unless extended by mutual agreement, from
the expiration of the time limits referred to in Section 14.03(c) or Section
14.03(d)(2), as applicable, the relevant interest shall then again become
subject to all the provisions of this Section 14.03.
(f) Limitations on Exercise. Notwithstanding anything
to the contrary contained in this Section 14.03, no Offeree which has failed to
perform or observe any of its
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<PAGE> 26
obligations, covenants, conditions, or agreements under this Agreement or any
related document (an "Owner Participant Event of Default"), which Owner
Participant Event of Default is still continuing, shall be entitled to exercise
its right to purchase (or sell, unless the Owner Participant Event of Default
is cured by such sale) any portion of the Offeror's interest.
Section 14.04. Closings.
(a) Location and Time Periods. The closing of any sale
of an interest in the Trust Estate pursuant to this Article XIV shall be held
at a mutually acceptable place and on a mutually acceptable date not more than
thirty (30) days, unless extended by mutual agreement, after the receipt by the
Offeror of the written notices of election by the Offerees, Accepting Offeree,
or Third Party Accepting Offeree, as applicable, or after the expiration of the
time within which the Offeree must so elect, as provided in Sections 14.03(c)
or 14.03(d).
(b) Closing Conditions. Any Owner Participant
transferring its interest shall transfer such interest free and clear of all
liens, encumbrances or any interests of any third party (excepting any liens
permitted under the Lease) and shall execute or cause to be executed any and
all documents required to fully transfer such interest to the acquiring third
party or acquiring Owner Participant(s), including, but not limited to, any
documents necessary to evidence such transfer and to evidence the agreement by
the acquiring third party or acquiring Owner Participant(s) to be bound by all
applicable provisions of the Operative Documents, and all documents required to
release any interest in such selling Owner Participant's interest. Any sums
owed by the selling Owner Participants to the Trust Estate or the other Owner
Participants shall be paid concurrently from the proceeds from such sale at the
closing. Following the date of closing, unless otherwise agreed, the selling
Owner Participant(s) shall have no further rights to any rent or proceeds from
the Trust Estate assets attributable to any period or event following the date
of closing and all such rights shall vest in the transferee of the interest
purchased from the selling Owner Participant(s).
(c) Event of Loss. If an Event of Loss (as defined in
the Lease) shall occur with respect to the Aircraft between (i) the date an
election is made by an Owner Participant, the Owner Participants, or a third
party transferee to purchase pursuant to Section 14.03, and (ii) the closing of
such purchase, the offer to purchase shall automatically terminate, without any
further action or notice required.
(d) Partial Loss. If a partial loss shall occur with
respect to the Aircraft under the Lease, subject to the performance by Lessee
of its obligations under the Lease and so long as there is no Event of Default
thereunder, the purchase of the interest hereunder shall be consummated as
contemplated by the parties.
14.05. Termination of Obligations. As of the closing date of
any transfer not prohibited hereunder by an Owner Participant of its entire
interest in the Trust Estate to the other Owner Participant(s) or to a third
party purchaser, such transferring Owner Participant's rights and obligations
hereunder shall terminate except as to any of its unperformed obligations
accrued as of such date and except as to any unperformed indemnity obligations
of such Owner Participant attributable to acts or events occurring prior to
such closing date. Thereupon, except as limited by
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<PAGE> 27
the preceding sentence, this Agreement shall terminate as to the transferring
Owner Participant(s) but all terms and conditions thereof shall remain in
effect as to the other Owner Participant(s) and the third party purchaser shall
become an Owner Participant hereunder. In the event of a transfer of its
entire Trust Estate interest by an Owner Participant to the other Owner
Participant(s) or to a third party purchaser, the Owner Participant(s) or third
party purchaser to which such interest is transferred, shall indemnify, defend
and hold harmless the Owner Participant so transferring its interest from and
against any and all claims, demands, losses, liabilities, expenses, actions,
lawsuits, and other proceedings, judgments, awards, and costs and expenses
(including but not limited to reasonable attorneys' fees) incurred in or rising
directly or indirectly, in whole or in part, out of the Trust Estate, excluding
only those liabilities, if any, accruing prior to the closing date of such
transfer.
Section 14.06. Agreements with Transferees. In the event that
pursuant to the provisions of this Article XIV, any Owner Participant shall
transfer its interest hereunder to any person or entity other than the other
Owner Participant(s), no such transfer shall be made or shall be effective to
make such transferee an Owner Participant or entitle such transferee to any
benefits or rights hereunder or under the Operative Documents until the
proposed Transferee agrees in writing to assume and be bound by all the
obligations of the selling Owner Participant and be subject to all the
restrictions to which the selling Participant is subject under the terms of
this Agreement, the Operative Documents, and any further agreement which may be
required with respect to the Trust Estate. In the event an Owner Participant's
interest hereunder is transferred by operation of law, such Owner Participant's
transferee shall sign such a writing within fifteen (15) days of the closing
date as an express condition to the effectiveness of any such transfer.
Section 14.07. Restraining Order. In the event that any Owner
Participant shall at any time transfer or attempt to transfer its interest
hereunder in violation of the provisions of this Agreement and any rights
hereby granted, then the other Owner Participant(s) shall, in addition to all
rights and remedies at law and in equity, be entitled to a decree or order
restraining and enjoining such transfer and the defaulting Owner Participant
shall not plead in defense thereto that there would be an adequate remedy at
law; it being hereby expressly acknowledged and agreed by the parties hereto
that damages at law will be an inadequate remedy for a breach or threatened
breach of the violation of the provisions concerning transfer of a Trust Estate
interest as set forth in this Agreement.
Section 14.08. Sale by an Owner Participant of an Owner
Participant's Trust Estate. The parties agree that in the event that one of
the Owner Participants should decide to purchase the Trust Estate interest of
the other Owner Participants, the parties shall negotiate the terms and
conditions of such purchase in good faith, including, without limitation, the
purchase price, any financing arrangements, and like matters. Such purchase
shall take place in accordance with Section 14.04.
Section 14.09 Amendment to Agreement on Transfer. Upon either
(i) the transfer by the Partnership of all its Certificates or (ii) the
transfer by Airlease of all its Certificates to a person which is not an
Affiliate of the Partnership, then Section 5.1 and 5.2(b) shall no longer be a
part of this Agreement.
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<PAGE> 28
ARTICLE XV
Miscellaneous
Section 15.01 No Legal Title to Trust Estate in Owner
Participants. The Owner Participants shall not have legal title to any part of
the Trust Estate. No transfer, by operation of law or otherwise, of any right,
title and interest of the Owner Participants in and to the Trust Estate or
hereunder shall operate to terminate this Agreement or the trusts hereunder or
entitle any successor or transferee to an accounting or to the transfer to it
of legal title to any part of the Trust Estate.
Section 15.02 Sale of Aircraft, etc., by Trustee is Binding.
Any sale or other conveyance of the Aircraft, the Airframe, an Engine or Part
by the Trustee made pursuant to the terms of this Agreement (so long as such
sale is not contrary to the provisions of the Operative Documents) shall bind
the Owner Participants and shall be effective to transfer or convey all right,
title and interest of the Trustee and the Owner Participants in and to the
Aircraft, the Airframe, or an Engine or Part. No purchaser or other grantee
shall be required to inquire as to the authorization, necessity, expediency or
regularity of such sale or conveyance or as to the application of any sale or
other proceeds with respect thereto by the Trustee.
Section 15.03 Limitations on Rights of Others. Nothing in
this Agreement shall be construed to give to any person other than the Trustee,
Owner Participants, and the Agent (to the extent provided in Article XII
hereof) any legal or equitable right, remedy or claim under or in respect of
this Agreement, any covenants, conditions or provisions contained herein or the
Trust Estate.
Section 15.04 No Partnership for Tax Purposes. The Owner
Participants agree that this Trust Estate is not to be construed as a
partnership for tax purposes; provided, however, that if it is determined to be
a partnership for tax purposes, each Owner Participant agrees to be bound by an
election under Section 754 of the Internal Revenue Code of 1986, as amended,
made by the Partnership.
Section 15.05 Notices. Unless otherwise expressly specified
or permitted by the terms hereof, all notices required under the terms and
provisions hereof shall be in writing by first class mail, personal delivery,
cable, telex or telecopy (with such cable, telex or telecopy confirmed in
writing, mailed by first-class mail, postage prepaid) addressed to such person
at the address set forth herein with copies to Trustee, Owner Participants, or
Agent, as the case may be. Whenever any notice is required to be given, such
notice shall be deemed given and such requirement satisfied if such notice is
(i) mailed, on the day of deposit into the mail, or (ii) personally delivered,
when delivered, or (iii) cabled, when such notice is delivered to the telegraph
company, or (iv) telecopied, when the telecopy has been received, or (v)
telexed, when the answer back of the addressee is received. Any person
entitled to notice hereunder may change the address to which notices to such
person will be sent by giving notice of such change to Trustee, Owner
Participant, or Agent.
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<PAGE> 29
If to Trustee: Trust Company for USL, Inc.
615 Battery Street
San Francisco, CA 94111
Attn: President
Telex: 278031
Telecopy: 415/398-7029
If to Airlease: United States Airlease, Inc.
615 Battery Street
San Francisco, California 94111
Attn: President
Telex: 278031
Telecopy: 415/398-7029
If to the
Partnership: Airlease Ltd.
A California Limited Partnership
c/o Airlease Management Services, Inc.
2988 Campus Drive
San Mateo, California 94403
Attn: President
Section 15.06 Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
Section 15.07 Limitation on Liability of Owner Participants
and Agent. The Owner Participants or Agent shall not have any liability for
the performance of this Agreement except as expressly set forth herein or, with
respect to the Agent, in any written instructions of the Trustee pursuant to
this Agreement.
Section 15.08 Separate Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 15.09 Successors and Assigns. All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the Trustee and its successors and assigns, the Owner Participants and their
successors and, to the extent permitted by Article XIV hereof, its assigns, all
as herein provided, and the Agent and its successors and assigns, to the extent
permitted by Article XII hereof. Any request, notice, direction, consent,
waiver or other instrument or action by the Owner Participants, shall bind the
successors and assigns of such Owner Participant.
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<PAGE> 30
Section 15.10 Headings. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
Section 15.11 Arbitration. If the Owner Participants are
unable to agree with respect to any matter hereunder, or under any of the
Operative Documents, the same shall be settled and finally determined by
arbitration in accordance with the Rules of Commercial Arbitration of the
American Arbitration Association ("AAA"), or if agreed by the parties, by any
arbitration association authorized by or in the State of California ("CAA") or
its successors, and the provisions of Article 9, Arbitration, of the California
Code of Civil Procedure, or any successor or amended statute or law containing
similar provisions, shall be applicable in any such arbitration; or in any case
where the AAA or CAA, as applicable, or its successor, is not in existence or
fails or refuses to act within a reasonably prompt period of time (but in no
event exceeding thirty (30) days from the date a request for arbitration is
filed), the arbitration shall proceed in accordance with the laws relating to
arbitration then in effect in the State of California, including but not
limited to Article 9, Arbitration, of the California Code of Civil Procedure,
as the same may be amended or modified from time to time. Any arbitration
pursuant to this Agreement shall be conducted by three arbitrators. All Owner
Participants shall collectively select two disinterested arbitrators approved
by the AAA or CAA, as applicable. The two (2) arbitrators selected by the
Owner Participants shall select a third disinterested arbitrator approved by
the AAA or CAA, as applicable. The judgment upon the award rendered in any
such arbitration by the three (3) arbitrators shall be final and binding upon
the parties and may be entered in any court having jurisdiction thereof. All
fees and expenses of the arbitrators and all other expenses of the arbitration,
except for attorneys' fees, shall be shared equally by the Owner Participants.
Each Owner Participant shall bear its own attorneys' fees.
Section 15.11 Governing Law. This Agreement shall in all
respects be governed by, and construed in accordance with, the laws of the
State of California, including all matters of construction, validity and
performance.
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereto duly
authorized, as of the day and year first above written.
AIRLEASE LTD., A CALIFORNIA UNITED STATES AIRLEASE, INC.,
LIMITED PARTNERSHIP, as Owner as Owner Participant
Participant
By Airlease Management /s/ Douglas C. Kay
Services, Inc., -------------------------------
General Partner By: Douglas C. Kay
Title: President
/s/Douglas C. Kay
- -----------------------------
By: Douglas C. Kay
Title: President
UNITED STATES AIRLEASE, INC., TRUST COMPANY FOR USL, INC., as
as Agent Trustee
/s/ Douglas C. Kay /s/ Stanley E. Gutman
- ----------------------------- -------------------------------
By: Douglas C. Kay By: Stanley E. Gutman
Title: President Title: Vice President
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<PAGE> 32
SCHEDULE 1
IDENTIFICATION OF AIRCRAFT AND ENGINES
Aircraft Make and Model: McDonnell Douglas DC-9-82
Manufacturer's Serial Number: 49184
U.S. FAA Registration Number: N913TW
Engine 1 Serial Number: P709733D
Engine 2 Serial Number: P709734D
Including without limitation, all equipment, components, fittings, parts
or accessories made a part of, or installed on or attached to the Aircraft
which are the property of Lessor pursuant to the Lease Documents or otherwise
subject to the Lease Documents.
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<PAGE> 1
Exhibit 10.45
- --------------------------------------------------------------------------------
TRUST AGREEMENT (N362)
DATED AS OF JULY 27, 1993
AMONG
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP,
as Owner Participant,
UNITED STATES LEASING INTERNATIONAL, INC.
As Agent,
AND
TRUST COMPANY FOR USL, INC.,
as Trustee
Concerning
One (1) Boeing 727-2D4 Aircraft
with FAA Registration No. N362PA
Leased to Federal Express Corporation
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
I Definitions................................................................ 2
II Authority to Execute and Perform Various Documents;
Declaration of Trust by Trustee............................................ 5
III Beneficial Interest of Owner Participants
in Trust Estate and Certificates........................................... 5
IV Acceptance and Delivery of Aircraft........................................ 9
V Article V is intentionally omitted......................................... 10
VI Distributions.............................................................. 11
VII Duties of Trustee.......................................................... 12
VIII Trustee.................................................................... 14
IX Indemnification of Trustee by Owner Participants........................... 16
X Termination of this Agreement.............................................. 18
Successor Trustees, Co-Trustees and
XI Separate Trustees.......................................................... 19
XII Agent...................................................................... 21
XIII Supplements and Amendments................................................. 23
XIV Sale, Transfer or Mortgage of Lease Property............................... 24
XV Miscellaneous.............................................................. 29
</TABLE>
<PAGE> 3
TRUST AGREEMENT (N362)
THIS TRUST AGREEMENT (N362) dated as of July 27, 1993, is by and among:
(1) TRUST COMPANY FOR USL, INC., a trust company organized under
the laws of the State of Illinois, in its individual capacity as expressly
stated herein and otherwise not in its individual capacity but solely as trustee
hereunder (in such capacity, with its permitted successors and assigns,
"Trustee");
(2) AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP ("Airlease")
; and
(3) UNITED STATES LEASING INTERNATIONAL, INC., a Delaware
corporation (in such capacity, "Agent").
RECITALS
A. Airlease and United States Leasing International, Inc. ("USLI") each
hold 50% undivided interests in a trust estate established pursuant to that
certain Trust Agreement [1987 N362PA] dated as of November 10, 1987 (as amended,
the "Original Trust Agreement") among Trust Company for USL, Inc., as trustee
("Original Trustee) and Airlease and USLI, pursuant to which Original Trustee
holds title to the Aircraft and the Lease.
B. Airlease intends to enter into that certain Trust Termination and
Assignment and Assumption Agreement dated as of July 27, 1993 by and among
Airlease, USLI, Trustee and Original Trustee (the "Trust Termination Agreement")
to terminate the trust created under the Original Trust Agreement and to provide
for the distribution to each of USLI and Trustee (on behalf of Airlease) of 50%
undivided interests in the assets of such trust.
C. Airlease and Agent are entering into this Trust Agreement with
Trustee for the purpose of causing Trustee to acquire Airlease's undivided 50%
interest in such assets upon the instructions of Airlease.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual
agreements herein contained, the parties hereto agree as follows:
<PAGE> 4
ARTICLE I
Definitions
Section 1.01. Defined Terms. For all purposes of this Agreement, the
following terms shall have the following meanings (such definitions to be
equally applicable to both the singular and plural forms of the terms defined):
"Act" shall have the meaning given to such term in Section 11.01(c)
hereof.
"Affiliate" means Person that directly or indirectly controls, is
controlled by, or is under common control with the Person in question.
"Agent" shall have the meaning given to such term in clause (3) of the
introductory paragraph hereof.
"Agreement" means this Trust Agreement (N362), as it may hereafter
from time to time be supplemented, amended, waived, or modified pursuant to the
applicable provisions hereof.
"Aircraft" means and includes the used Boeing 727-2D4 ADV Airframe
together with the Engines pertaining thereto as more particularly described and
identified in Schedule 1 hereto. "Aircraft" also means, if the context so
requires, the Aircraft Records of the Aircraft.
"Aircraft Records" means (a) the maintenance log books, flight log
book, summaries of operations or work performed, reports of repair,
alterations, rebuild, installation, modification, removal and replacement and
inspection or overhaul of the Airframe, Engines or Parts and (b) all
publications, notebooks, data, operations manuals, maintenance manuals,
Aeronautics Authority-approved maintenance program, balance loading manuals and
equipment lists.
"Airframe" means and includes (A) the Boeing 727-2D4 ADV Airframe
(excluding Engines or engines from time to time installed thereon) having the
Manufacturer's serial number and the FAA registration number as set forth in
Schedule 1 attached hereto, and (B) any and all Parts so long as the same shall
be incorporated or installed in or attached to the Airframe, or so long as
title thereto shall remain vested in Trustee, after removal from the Airframe.
"Airlease" shall have the meaning given to such term in clause (2) of
the introductory paragraph hereof.
"Application for Aircraft Registration" means the Application for
Aircraft Registration (AC Form 8050-1) executed by USLI and Trustee with
respect to the Aircraft.
<PAGE> 5
"Bill of Sale" means the bill of sale covering the Aircraft executed
by Original Trustee in favor of USLI and Trustee pursuant to the Trust
Termination Agreement.
"Certificate" means a certificate substantially in the form included
in Section 3.02 hereof issued by Trustee hereunder.
"Delivery Date" means the date Trustee acquires its 50% undivided
interest in the Lease Property, including the Aircraft, pursuant to the Trust
Termination Agreement.
"Engine" means and includes: (a) any of the Engines listed by
manufacturer's serial number in Schedule 1 attached hereto whether or not from
time to time thereafter installed on the Airframe or installed on any other
airframe or any other aircraft; (b) any engine which may from time to time be
substituted, or be a replacement or addition pursuant to the Lease for any such
Engine; and (c) any and all Parts incorporated or installed in or attached
thereto or any and all parts removed therefrom so long as title thereto shall
remain vested in Trustee in accordance with the terms of the applicable Lease
after removal from any such Engine.
"FAA" shall mean the Federal Aviation Administration and/or
Administrator of the Federal Aviation Administration or any person,
governmental department, bureau, commission or agency succeeding to the
functions thereof.
"FAA Bill of Sale" means the bill of sale (AC Form 8050-2), covering
the Aircraft, executed by Original Trustee, in favor of USLI and Trustee.
"Lease" means the Aircraft Lease Agreement dated as of April 15, 1993
with Lessee, as supplemented by a Lease Supplement dated [April 22], 1993,
covering the Aircraft, as the Lease may hereafter from time to time be
supplemented, amended, waived or modified.
"Lease Property" means the Lease Documents, including the Lease and
the Participation Agreement, the Aircraft, and all income, deductions, credits
and other benefits to which an owner of property would be entitled to as lessor
under the Lease, and owner of the Aircraft, including without limitation, all
rental payments under the Lease, the right to possession of the Aircraft, and
all proceeds upon the sale or re-lease of the Aircraft.
"Lessee" means Federal Express Corporation and its permitted
successors and assigns.
"Majority in Interest of Owner Participants", as of a particular date
of determination, means the Owner Participant(s) having in excess of 75% of the
then outstanding amount of all Certificates.
3
<PAGE> 6
"Operative Documents" means this Agreement, the Certificates, the
Lease Documents, the Trust Termination Agreement, the Application for Aircraft
Registration, the FAA Bill of Sale, the Bill of Sale, and all other agreements,
instruments and certificates contemplated by such documents.
"Original Trust Agreement" shall have the meaning given to such term
in Recital A hereof.
"Original Trustee" shall have the meaning given to such term in
Recital A hereof.
"Owner Participant" means, at any particular time, each holder of a
Certificate at such time.
"Person" means any individual, partnership, joint venture, estate,
association, corporation, trust company, trust or other entity.
"Trustee" shall have the meaning given to such term in clause (1) of
the introductory paragraph hereof.
"Trust Estate" means all estate, right, title and interest of the
trust created by this Agreement in and to the Operative Documents, any funds
given to Trustee by an Owner Participant, and the Lease Property, including,
without limitation, all amounts of rent, insurance proceeds, stipulated loss
value payments, and requisition, indemnity or other payments of any kind (1)
for or with respect to the Lease Property or (2) payable to Trustee under the
Lease, or with respect to the Lease Property, excluding any indemnity payments
paid directly to an Owner Participant.
"Trust Termination Agreement" shall have the meaning given to such
term in Recital B hereof.
"USLI" shall have the meaning given to such term in Recital A hereof.
Section 1.02. Other Terms. For all purposes of this Agreement, any
term used but not defined herein shall have the meanings assigned to it in the
Lease, including, without limitation, the following: "Basic Rent," "Default",
"Event of Default", "Event of Loss", "Lease Documents", "Lessor Liens", "Lien",
"Parts", and "Participation Agreement"; provided, however, in the event of any
conflict hereunder ,with the meaning of any term defined in the Lease, the
definition in the Lease shall control.
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<PAGE> 7
ARTICLE II
Authority to Execute and Perform Various Documents;
Declaration of Trust by Trustee
Section 2.01. Authority to Execute and Perform Various Documents.
Airlease, as an Owner Participant, hereby authorizes and directs Trustee (a) to
execute and deliver the Trust Termination Agreement, a Certificate naming
Airlease as an Owner Participant pursuant to Section 3.01 hereof, and the
Application for Aircraft Registration, and all other agreements, instruments and
certificates contemplated by the Operative Documents, and to accept the FAA Bill
of Sale and the Bill of Sale and (b) subject to the terms of this Agreement, to
take such other action in connection with the foregoing as any Owner Participant
may from time to time direct in writing.
Section 2.02. Declaration of Trust by Trustee. Trustee hereby
declares that it will and does hold the Trust Estate upon the trusts set forth
herein for the sole use and benefit of the Owner Participants.
ARTICLE III
Beneficial Interest of Owner Participants
in Trust Estate and Certificates
Section 3.01. Beneficial Interest of the Owner Participants.
Airlease, as an Owner Participant, shall have and retain a one hundred-percent
(100%) beneficial interest in the Trust Estate, such interest to be evidenced by
a Certificate to be issued hereunder. Airlease has agreed to participate in the
acquisition by Trustee of a 50% undivided interest in the Lease Property on the
Delivery Date on the terms set forth in the Trust Termination Agreement.
Section 3.02. The Certificates. Airlease, as an Owner Participant,
hereby authorizes and directs Trustee to, and Trustee agrees that it will, issue
to Airlease a Certificate substantially in the form set forth below, completed
as provided in Section 3.03 hereof.
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<PAGE> 8
OWNER CERTIFICATE
Trust Company for USL, Inc., Trustee
Under Trust Agreement (N362)
Dated as Of July 27, 1993
(_________________________)
Name of Owner Participant
Issued in Connection with the Boeing Model 727-2D4 Aircraft bearing
United States Registration No. 362PA and Manufacturer's Serial No. 21850 (the
"Aircraft")
____________________1993
$_______________________
Trust Company for USL, Inc., not in its individual capacity but solely
as Trustee (in such capacity, "Trustee") under the Trust Agreement hereinafter
referred to, hereby certifies as follows: (a) this Certificate is one of the
Certificates referred to in the certain Trust Agreement (N362) dated as of July
27, 1993, by and among Trustee, Airlease Ltd., A California Limited Partnership
and United States Leasing International, Inc., (the "Trust Agreement") (the
terms defined in the Trust Agreement and not otherwise defined herein are used
herein as defined in the Trust Agreement), which Certificates have been or are
to be issued by Trustee pursuant to the Trust Agreement; (b)_______________ is
an Owner Participant and owns an undivided __%. interest in the Trust Estate;
and (c) the holder of this Certificate has, ratably with the holders of the
other Certificates, an undivided beneficial interest in the Trust Estate and is
entitled to receive, ratably with the holders of the other Certificates issued
with respect to the Trust Estate as provided in the Trust Agreement, a
proportionate share of (1) the rental received or to be received by Trustee
with respect to the Trust Estate, and (2) upon the sale or lease of all or any
part of the Trust Estate, any proceeds received or receivable therefrom, as
well as a share of certain other payments which may be received by Trustee
pursuant to the terms of the Trust Agreement as more particularly set forth
therein.
All amounts payable hereunder and under the Trust Agreement shall be
paid only from the income and the proceeds from the Trust Estate and only to
the extent that Trustee shall have sufficient income or proceeds from the Trust
Estate to make such payments in accordance with the terms of the Trust
Agreement, except as specifically provided in Section 8.01 thereof; and each
holder hereof, by its acceptance of this Certificate, agrees that it will look
solely to the income and proceeds from the Trust Estate to the extent available
for distribution to such holder as above provided and that no Owner Participant
nor Trustee (except to the extent provided in Section 8.01 of the Trust
Agreement) are personally liable to the holder hereof for any amounts payable
under this Certificate or the Trust Agreement.
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<PAGE> 9
Reference is hereby made to the Trust Agreement for a statement of the
rights of the holder of this Certificate and of the rights of the holders of
the other Certificates, as well as for a statement of the terms and conditions
of the trusts created by, and the rights, limitations of rights, obligations
and duties of Trustee set forth in, the Trust Agreement, to all of which terms
and conditions each holder hereof agrees by its acceptance of this Certificate.
Each holder hereof, by its acceptance of this Certificate, agrees not
to transfer this Certificate except in accordance with the terms of Article XIV
and Section 3.06 of the Trust Agreement.
These Certificates have not been registered under the Securities Act
of 1933, as amended, and may be transferred only in compliance with such law.
IN WITNESS WHEREOF, Trustee has duly executed this Certificate as of
the date first above written.
TRUST COMPANY FOR USL, INC. ,
AS TRUSTEE
BY:
-----------------------
ITS:
----------------------
Section 3.03. Issuance of Certificates. Each Certificate issued to an
Owner Participant shall contain a statement by Trustee that the holder of such
Certificate has, ratably with the holders of the other Certificates, an
undivided beneficial interest in the Trust Estate, and is entitled to receive,
ratably with the holders of the other Certificates as provided herein, a
proportionate share of (a) the rental received or to be received by Trustee
with respect to the Trust Estate, and (b) upon the sale or lease of all or any
part of the Trust Estate, any proceeds received or receivable therefrom, as
well as a share of certain other payments which may be received by Trustee
pursuant to the terms hereof as more particularly set forth herein.
Section 3.04. Payments from Trust Estate Only. All payments to be
made under the Certificates and under this Trust Agreement shall be made only
from the income and the proceeds from the Trust Estate and only to the extent
that Trustee shall have sufficient income or proceeds from the Trust Estate to
make such payments in accordance with the terms of Article VI hereof, except as
specifically provided in Section 8.01 hereof. Each holder of a Certificate, by
its acceptance of such Certificate, agrees that it will look solely to the
income and proceeds from the Trust Estate, to the extent available for
distribution to
7
<PAGE> 10
such holder as above provided and that no Owner Participant is personally
liable to the holder of any Certificate. Except as specifically provided
herein, Trustee is not liable to any Owner Participant for any amounts payable
under this Agreement and is not subject to any liability in its individual
capacity under this Agreement.
Section 3.05. Payment to Holder of Certificate. Subject to Article VI
hereof, any amounts received by Trustee and payable to each holder of a
Certificate pursuant to this Trust Agreement will be payable to each such holder
by wire transfer of immediately available funds to the bank for the account of
such holder as such holder shall direct in writing, without any presentment or
surrender of any Certificate. Trustee may deem and treat the person in whose
name any Certificate shall have been issued by Trustee as the absolute owner and
holder of such Certificate for the purpose of receiving payment of all amounts
payable by Trustee with respect to such Certificate and for all other purposes,
and Trustee shall not be affected by any notice to the contrary.
Section 3.06. Transfer of Certificates. Subject to Article XIV
hereof, a holder of a Certificate intending to transfer any Certificate held by
such holder to a new holder shall surrender such Certificate to Trustee,
together with a written request from such holder for the issuance of a new
Certificate, specifying the name and address of the transferee and evidence that
the conditions set forth herein for such transfer have been satisfied. Promptly
upon receipt of such documents Trustee will issue a new Certificate, dated the
same date as the Certificate surrendered, in the amounts indicated, and naming
such transferee as shall be specified in the written request from such holder.
Trustee shall not be required to exchange any surrendered Certificate as above
provided during the 10-day period preceding the due date of any payment on such
Certificate.
Section 3.07. Mutilated, Destroyed, Lost or Stolen Certificates. If
any Certificate shall become mutilated, destroyed, lost or stolen, Trustee
shall, upon the written request of the holder of such Certificate, execute and
deliver in replacement thereof a new Certificate, in the same original amount,
dated the same date, as the Certificate so mutilated, destroyed, lost or stolen.
If the Certificate being replaced has become mutilated, such Certificate shall
be surrendered to Trustee. If the Certificate being replaced has been
destroyed, lost or stolen the holder of such Certificate shall furnish to
Trustee such security or indemnity as may be required by either of them to save
it harmless and evidence satisfactory to Trustee of the destruction, loss or
theft of such Certificate and of the ownership thereof. If such holder is
Airlease the written undertaking of Airlease shall be sufficient indemnity.
8
<PAGE> 11
SCHEDULE 1
AIRCRAFT DATA
<TABLE>
<CAPTION>
FAA REGISTRATION NO. MANUFACTURER'S SERIAL NO. PRATT & WHITNEY
- -------------------- ------------------------- JT8D-15 ENGINES
SERIAL NOS.
-----------
<S> <C> <C>
N363PA 21850 P700267
P708902
P70036
</TABLE>
<PAGE> 12
Section 3.08. Payment of Expenses Upon Transfer. Upon the issuance of
a new Certificate or Certificates pursuant to Section 3.06 or 3.07 hereof,
Trustee may require the payment from the party or parties to whom such new
Certificate or Certificates are issued of a sum to reimburse itself for, or to
provide funds for, the payment of any tax or other governmental charge or any
charges and expenses connected therewith paid or payable by Trustee.
Section 3.09. Payments by Each Owner Participant. Payments and
contributions (including, without limitation, Trustee's fees and expenses and
indemnification of Trustee) provided for herein to be made by each Owner
Participant shall be made by each Owner Participant in proportion to its
beneficial interest in the Trust Estate at the time such payments or
contributions are due and payable. If any Owner Participant makes a payment for
any costs or expenses (including legal fees and expenses) pursuant to the
written instructions of Trustee or a Majority in Interest of Owner Participants,
such Owner Participant shall be entitled to immediate reimbursement therefor
from the other Owner Participants in proportion to their respective beneficial
interests in the Trust Estate.
ARTICLE IV
Acceptance and Delivery of Aircraft
Section 4.01. Acceptance of Aircraft. Airlease, as an Owner
Participant, hereby authorizes and directs Trustee to, and Trustee agrees for
the benefit of the Owner Participants, that on the Delivery Date, it will,
subject to due compliance with the terms of Section 4.02 hereof, take such
actions as are required of Trustee hereunder or under the Operative Documents,
including without limitation, the following:
(a) authorize a representative or representatives of Trustee to
accept delivery on behalf of Trustee of a 50% undivided interest in the
Aircraft, and to accept the FAA Bill of Sale, Bill of Sale, the Trust
Termination Agreement and the Lease on the Delivery Date;
(b) upon the execution by Airlease of the Trust Termination
Agreement, Trustee shall cause Agent, without further act, authorization, or
direction by any Owner Participant to Trustee, to file on behalf of Trustee the
FAA Bill of Sale, and the Aircraft Registration Application in the name of
Trustee;
(c) execute and deliver each of the Operative Documents and all
other related documents to which it is a party; and
(d) issue a Certificate to Airlease to evidence Airlease's
interest in the Trust Estate.
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<PAGE> 13
Section 4.02. Conditions Precedent. The right and obligation of
Trustee to take the action required by Section 4.01 hereof shall be subject to
the condition precedent that Airlease has executed the Trust Termination
Agreement.
Section 4.03. Authority Without Express Instructions. Trustee,
without the necessity of further instructions from Airlease as an Owner
Participant, is hereby authorized and directed by Airlease, as an Owner
Participant, to take any action in connection with postponing the Delivery Date;
provided, however, that Trustee shall not give any consent, waive any right or
benefit or enter into any modification or amendment of the Operative Documents
or take any other action to perform any obligations whatsoever except at the
direction of all Owner Participants or a Majority in Interest of Owner
Participants, as applicable.
Section 4.04. Replacements. Airlease, as an Owner Participant, hereby
authorizes and directs Trustee, and Trustee agrees for the benefit of the Owner
Participants that, if a replacement airframe or engine, if any, is substituted
pursuant to the Lease, Trustee will, subject to Section 7.02 hereof and in
compliance with the terms of the Lease:
(a) to the extent not previously accomplished by a prior
authorization, authorize a representative of Trustee (who may be an employee of
Lessee) to accept delivery of the replacement airframe or engine;
(b) accept from Lessee or other vendor of the replacement
airframe or engine a bill of sale or bills of sale and the invoice, if any,
with respect to such replacement airframe or engine;
(c) execute and deliver a Lease Supplement covering such
replacement airframe or engine and, to the extent requested by counsel to the
Owner Participants, execute and deliver any required amendments to this
Agreement or any other Operative Document to which Trustee is a party and
request any required consent from the manufacturer of such replacement airframe
or engine; and
(d) transfer title to the airframe or engine being replaced to
Lessee.
ARTICLE V
Article V is intentionally omitted.
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<PAGE> 14
ARTICLE VI
Distributions
Section 6.01. Distribution of Basic Rent. Each payment of Basic Rent,
as well as payment of interest on overdue installments of Basic Rent, received
by Trustee at any time shall be distributed in accordance with Section 3.05
hereof by Trustee on the date such payment is due from the Lessee, (or as soon
thereafter as such payment shall be received by Trustee) to each holder of a
Certificate without priority of one over the other ratably in proportion to its
undivided beneficial interest in the Trust Estate. Trustee agrees to take all
reasonable steps necessary to collect any rent or other amounts due under the
Operative Documents.
Section 6.02. Distribution of Payments All payments and amounts,
except for Basic Rent, if any, received by Trustee shall be distributed
forthwith upon receipt; provided, however, all such amounts in excess of $10,000
shall be distributed no later than twenty four (24) hours after Trustee has
knowledge of its receipt, in the following order of priority: first, so much of
such payment or amount as shall be required to reimburse Trustee for any
reasonable fees or expenses not otherwise paid or reimbursed by an Owner
Participant as to which Trustee is entitled to be paid or reimbursed hereunder
shall be retained by Trustee; second, to reimburse an Owner Participant for
payments made by it and not by all Owner Participants, pursuant to Section 7.03
or 9.01 hereof, or an instruction from Trustee pursuant to a written instruction
from all Owner Participants or a Majority in Interest of Owner Participants, as
required, ratably in proportion to the aggregate amount of such payments made by
each Owner Participant; and third, the balance, if any, of such payment or
amount remaining thereafter shall be distributed to the Owner Participants
ratably, without priority of one over the other, in proportion to the beneficial
interest of each Owner Participant in the Trust Estate.
Section 6.03. Distribution of Trust Estate. Whenever the terms of
this Agreement shall require Trustee to distribute or transfer the entire Trust
Estate to any person, Trustee shall be entitled to retain such monies and
securities, if any, as shall then be held by Trustee as a part of the Trust
Estate and as shall be required to reimburse or pay Trustee for any reasonable
fees, expenses, or liabilities not reimbursed or paid by an Owner Participant as
to which Trustee is entitled to be paid or reimbursed hereunder or under any
Operative Document and shall distribute the Trust Estate in accordance with
Section 6.02 hereof.
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<PAGE> 15
ARTICLE VII
Duties of Trustee
Section 7.01. Notice of Event of Default. If Trustee shall have
knowledge of a Default or Event of Default, Trustee shall give prompt written
notice thereof to each Owner Participant. Subject to the terms of Section 7.03
hereof, Trustee shall take or refrain from taking such action with respect to a
Default or Event of Default as Trustee shall be instructed in a written
instrument executed by a Majority in Interest of Owner Participants. If Trustee
shall not have received instructions within twenty (20) days after giving notice
of a Default or Event of Default as above provided, Trustee may, but shall be
under no duty to, and it shall have no liability for its failure or refusal, to
take or refrain from taking any action with respect to such Default or Event of
Default as it shall deem advisable and in the best interests of the Owner
Participants; provided, however, that Trustee shall give the Owner Participants
ten days notice thereof prior to taking any such action. For all purposes of
this Agreement, in the absence of actual knowledge of an officer of Trustee,
Trustee shall not be deemed to have knowledge of a Default or an Event of
Default unless it receives written notification thereof given by or on behalf of
Lessee or any Owner Participant.
Section 7.02. Action upon Instructions. Subject to the terms of
Sections 7.01 and 7.03 hereof, upon; the written instructions of a Majority in
Interest of Owner Participants, Trustee will take or refrain from taking such
action or actions, as may be specified in such instructions, including, without
limitation, (a) enforcing provisions of the Lease, the Trust Termination
Agreement, or the Participation Agreement, (b) executing and filing UCC-1
Financing Statements for informational purposes, (c) executing and delivering
loan agreements with any lender (but only upon the written instruction of all
Owner Participants), (d) executing and delivering amendments or supplements to
the Lease, the Participation Agreement, or the other Operative Documents, (e)
giving such notice of direction or exercising such right, remedy or power
hereunder or under the Lease, the Participation Agreement, the other Operative
Documents, or in respect of all or any part of the Trust Estate, or taking such
other action as shall be specified in such instructions; (f) taking such action
to preserve or protect the Trust Estate (including the discharge of liens and
encumbrances) as may be specified in such instructions; (g) approving as
satisfactory to it or consenting to all matters required by the terms of the
Lease, the Participation Agreement or the other Operative Documents to be
satisfactory to Trustee, it being understood that without the written
instructions of a Majority in Interest of Owner Participants, Trustee shall not
approve any such matter as satisfactory to it or consent to any
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<PAGE> 16
such action; and (h) taking such other action as a majority in Interest of
Owner Participants shall direct in writing.
Section 7.03. Indemnification. Trustee shall not be required to take
or refrain from taking any action under this Agreement or any Operative Document
(other than the actions specified in the first sentence of Section 7.01 hereof)
unless Trustee shall have been indemnified by the Owner Participants, in
accordance with Article IX hereof, against any liability, fee, cost or expense
(including attorneys fees) which may be incurred or charged in connection
therewith; and, if the Owner Participants or a Majority in Interest of Owner
Participants, as required, shall have directed Trustee to take or refrain from
taking any action under this Agreement or any Operative Document, the Owner
Participants agree to furnish Trustee with the indemnification more
particularly set forth in Article IX hereof, and, in addition, to pay the
reasonable compensation of Trustee for the services performed or to be
performed by it pursuant to such direction. Trustee shall not be required to
take any action under this Agreement or any Operative Document if Trustee shall
reasonably determine, or shall have been advised by counsel, that such action
is contrary to the terms hereof or of any document contemplated hereby to which
Trustee is a party or is otherwise contrary to law.
Section 7.04. No Duties Except as Specified in Trust Agreement or
Instructions. Trustee shall not have any duty or obligation to manage,
control, make any payment in respect of, register, record, insure, inspect,
instruct, use, sell, dispose of or otherwise deal with the Lease Property, or
any other part of the Trust Estate, or to otherwise take or refrain from taking
any action under, or in connection with, any document contemplated hereby to
which Trustee is a party, except as expressly provided by the terms of this
Agreement, or in written instructions from a Majority in Interest of Owner
Participants received pursuant to Section 7.01 or 7.02 hereof; and no implied
duties or obligations shall be read into this Agreement against Trustee.
Trustee, in its individual capacity, nevertheless agrees that it will, at its
own cost and expense promptly take all action as may be necessary to discharge
any Liens (including Lessor Liens) on any part of the Trust Estate which result
from actions or commissions or omissions by, or claims against, Trustee, in its
individual capacity, or the trusts created hereby not related to Trustee's
ownership of the Lease Property or any other part of the Trust Estate or the
administration of the Trust Estate or the transactions contemplated by the
Operative Documents or this Agreement.
Section 7.05. No Action Except Under Specified Documents or
Instructions. Trustee agrees that it will not manage, control, use, sell,
dispose of or otherwise deal with the Lease Property or any other part of the
Trust Estate except (a) as required by this Agreement and the Operative
Documents, or (b) in accordance with the powers granted to, or the authority
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<PAGE> 17
conferred upon, or the directions given to, Trustee pursuant to or under this
Agreement.
Section 7.06. Absence of Duties. Except in accordance with written
instructions furnished pursuant to Section 7.02 hereof, and without limitation
of the generality of Section 7.04 and the last sentence of Section 11.01(b)
hereof, Trustee shall have no duty (a) to file, record or deposit any Operative
Document, any financing statement or this Agreement, or to maintain any such
filing, recording or deposit or to refile, rerecord or redeposit any such
document, except as specified in Section 7.02 hereof, (b) to obtain insurance on
the Aircraft, the Airframe, any Engine, or Parts or to effect or maintain any
such insurance , (c) to maintain or mark the Aircraft, the Airframe, any Engine,
or Parts, (d) to pay or discharge any tax, assessment or other governmental
charge or any lien or encumbrance of any kind owing with respect to or assessed
or levied against any part of the Trust Estate, except as provided in the last
sentence of Section 7.04 hereof, (e) to confirm, verify, investigate or inquire
into the failure to receive any reports or financial statement of Lessee or any
Sublessee, or (f) to inspect the Aircraft, the Airframe, any Engine, or Parts at
any time or to ascertain or inquire as to the performance or observance of any
covenants of Lessee under any Operative Document with respect to the Aircraft,
the Airframe, any Engine or Parts.
ARTICLE VIII
Trustee
Section 8.01. Acceptance of Trusts and Duties. Trustee accepts the
trusts hereby created and agrees to perform the same but only upon the terms of
this Agreement. Trustee also agrees to disburse all monies, if any, actually
received by it constituting part of the Trust Estate upon the terms of this
Agreement. Trustee shall not be answerable or accountable under any
circumstances, in its individual capacity, except (a) for its own willful
misconduct or gross negligence, (b) in the case of the inaccuracy of any
representation or warranty of Trustee contained in Section 8.03 hereof or any
representation or warranty of Trustee in its individual capacity contained in
the Operative Documents, (c) as arising from the failure by Trustee to perform
its obligations under the last sentence of Section 7.04 hereof, (d) for taxes,
fees or other charges on, based on or measured by any fees, commissions or
compensation received by Trustee for acting as Trustee in connection with any of
the transactions contemplated by the Operative Documents.
Section 8.02. Furnishing of Documents. Trustee will furnish to each
Owner Participant, promptly upon receipt thereof, duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and any
other instruments furnished to Trustee hereunder or under the Operative
Documents.
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<PAGE> 18
In case any tax report or tax return is required to be made with
respect to the Trust Estate and Lessee or any Sublessee is not required to
prepare and file the same pursuant to the Lease or any sublease, Trustee will
prepare such tax report or return and deliver a copy thereof to each Owner
Participant. Upon the request of Trustee, each Owner Participant will provide
such instruments, documents, certificates or other information as is reasonably
necessary to enable Trustee to prepare any such tax report or return. Trustee
agrees to forward to each Owner Participant a copy of any communications with
respect to taxes pertaining to the Trust Estate which are received by Trustee.
Section 8.03. No Representations or warranties as to Lease Property or
Documents. TRUSTEE, IN ITS INDIVIDUAL CAPACITY, MAKES (a) NO REPRESENTATION OR
WARRANTY AS TO THE TITLE, VALUE, CONDITION, DESIGN, OPERATION, AIRWORTHINESS,
MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR ANY OTHER REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT, AIRFRAME, OR ANY
ENGINE OR PARTS WHATSOEVER, and (b) no representation or warranty as to the
validity or enforceability of this Agreement or the other Operative Documents,
or as to the correctness of any statement contained in any thereof, except to
the extent that any such statement is made therein by Trustee, in its
individual capacity, and except that Trustee, in its individual capacity,
hereby represents and warrants to each Owner Participant that this Agreement
has been, and each of such other documents which contemplates execution thereof
by Trustee has been or will be, executed and delivered by its officers who are
or will be duly authorized to execute and deliver such document on its behalf,
and except that Trustee, in its individual capacity, hereby represents and
warrants to each Owner Participant that the Lease Property is free and clear of
any Liens attributable to it and that it will comply with the last sentence of
Section 7.04 hereof.
Section 8.04. No Segregation of Monies; No Interest. Except as
otherwise provided herein, monies, if any, received by Trustee hereunder need
not be segregated in any manner except to the extent required by law and may be
deposited under such general conditions as may be prescribed by law, and Trustee
shall not be liable for any interest thereon.
Section 8.05. Reliance; Advice of Counsel. Trustee shall incur no
liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. Trustee may accept a certified copy of
a resolution of the Board of Directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or matter
the manner of ascertainment of which is not specifically prescribed herein,
Trustee may for all purposes hereof rely on a certificate, signed
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<PAGE> 19
by a duly authorized officer of the relevant party, as to such fact or matter,
and such certificate shall constitute full protection to Trustee for any action
taken or omitted to be taken by it in good faith in reliance thereon. In the
administration of the trusts hereunder, Trustee may execute any of the trusts
or powers hereof and perform its powers and duties hereunder directly or
through Agent or other agents or attorneys and may consult, with counsel,
accountants and other skilled persons to be selected and employed by it, and
Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the advice or opinion of any such counsel,
accountants or other skilled persons and not contrary to this Agreement, so
long as such advice or opinion pertains to such matters as Trustee may
reasonably presume to be within the scope of such person's expertise.
Section 8.06. Not Acting in Individual Capacity. Except as provided
in this Article VIII, in accepting the trusts hereby created Trustee acts solely
as trustee hereunder and not in its individual capacity; and all persons having
any claim against Trustee by reason of the transactions contemplated hereby or
by the other Operative Documents shall look only to the Trust Estate for payment
or satisfaction thereof, except as specifically provided in this Article VIII.
ARTICLE IX
Indemnification of Trustee by Owner Participants
Section 9.01. Owner Participants to Indemnity Trustee. Each Owner
Participant agrees to pay, severally, in proportion to its respective
beneficial interest in the Trust Estate, to the extent not paid by Lessee
pursuant to the Lease, (or reimburse Trustee for) all reasonable expenses of
Trustee hereunder, including, without limitation, the reasonable compensation,
expenses and disbursements of such agents, representatives, experts and counsel
as Trustee may employ in connection with the exercise and performance of its
rights and duties hereunder or under the other Operative Documents, whether or
not the transactions contemplated hereby are consummated; provided, however,
that if Trustee deems it advisable to employ any such agent, representative,
expert or counsel, and Trustee reasonably believes that the fees of such agent,
representative, expert or counsel will exceed $5,000, Trustee shall notify the
Owner Participants thereof and shall employ such agent, representative, expert
or counsel only if a Majority in Interest of Owner Participants has approved
such employment. The Owner Participants agree to assume liability for, and to
indemnify Trustee in its individual capacity and its successors, assigns,
agents and servants against and from any and all liabilities (including without
limitation, any liability of any Owner Participant, and liability without fault
and any strict liability), obligations, losses, damages, taxes (such term
16
<PAGE> 20
"taxes" or the term "tax" as used in this Article IX shall include, without
limitation, all taxes specifically related to this Agreement and the Trust
Estate created hereby excluding, however, any income taxes or fees or other
compensation received by the trustee in its capacity as Trustee), claims,
actions, suits, costs, expenses and disbursements (including legal fees and
expenses) of any kind and nature whatsoever (collectively, "Expenses") which
may be imposed on, incurred by or asserted at any time against Trustee (whether
or not indemnified against by Lessee or any other parties) in any way relating
to or arising out of the existence or administration of this Agreement, the
Trust Estate or the action or inaction of Trustee hereunder or under the other
Operative Documents, or the enforcement of any of the terms of any thereof, or
in any way relating to or arising out of the manufacture, purchase, acceptance,
non-acceptance, rejection, ownership, delivery, lease, financing, possession,
use, operation, condition, sale, return or other disposition of the Aircraft,
the Airframe, or an Engine (including, without limitation, latent and other
defects, whether or not discoverable, and any claim for patent, trademark or
copyright infringement) or in any way relating to or arising out of the Lease
or the Participation Agreement, except that the foregoing indemnities shall not
cover Trustee (a) for its own willful misconduct or gross negligence, (b) in
the case of the inaccuracy of any representation or warranty of Trustee
con-tained in Section 7.03 hereof or any representation or warranty of Trustee
in its individual capacity contained in the Operative Documents, and (c) as
arising from the failure by Trustee to perform its obligations under the last
sentence of Section 7.04 hereof, or obligations in its individual capacity
contained in the Operative Documents. In addition, if necessary, Trustee shall
be entitled to indemnification from the Trust Estate, for any liability,
obligation, loss, damage, penalty, tax, claim, action, suit, cost, expense or
disbursement indemnified against pursuant to this Section 9.01 to the extent
not reimbursed by Lessee, the Owner Participants or others, but without
releasing any of them from their respective agreements of reimbursement and, to
secure the same, Trustee shall have a lien on the Trust Estate, subject to the
Lien, if any, of any lender, which shall be prior to any interest therein of
the Owner Participants, but only in the event and to the extent that Trustee
does not receive payment from Lessee or pursuant to any other provision of any
Operative Document, except only that the Owner Participants shall not be
required to indemnify Trustee for expenses arising or resulting from any of the
matters described in the last sentence of Section 8.01 hereof. The indemnities
contained in this Section 9.01 shall survive the termination of this Agreement.
Section 9.02. Compensation and Expense. Trustee shall receive the
following as compensation for its services hereunder, and as payment for all
its costs, fees and expenses incurred in connection with the administration of
the Trust Estate (including legal fees and expenses):
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(a) An acceptance fee of $2,500 and an administration fee of $2,000
(the "Annual Administration Fee") or the one year period commencing on the
Delivery Date, and each year thereafter in which it is Trustee hereunder and
under the Operative Documents; provided, however, after 3 years from the date of
this Agreement, Trustee may request an increase in the Annual Administration
Fee, and the Owner Participants shall consider such request and make their
determination with respect thereto in good faith. Such Annual Administration
Fee shall cover all of Trustee's costs, fees and expenses of any kind incurred
in connection with the administration of the Trust Estate, including, without
limitation, any fees paid to Agent and executing and delivering loan agreements
and other agreements with any lender and taking such other action under or in
connection with the Operative Documents as the Owner Participants shall direct
in writing.
(b) Trustee shall be entitled to compensation for any of its
reasonable out-of-pocket expenses and the reasonable fees and expenses of any
agent, representative, expert or counsel employed by Trustee, incurred in
connection with its administration of the Trust Estate hereunder; provided,
however, that if Trustee reasonably believes that such expenses, fees and
expenses will exceed $5,000, Trustee will obtain the prior approval thereof of a
Majority in Interest of Owner Participants.
ARTICLE X
Termination of this Agreement
Section 10.01. Termination of this Agreement. Subject to Section 10.02
hereof, this Agreement and the trusts created hereby shall terminate and the
Trust Estate shall, subject to Article VI hereof, be distributed to the Owner
Participants, and this Agreement shall be of no further force or effect, upon
the earlier of (a) the sale or other final disposition by Trustee of all
property constituting part of the Trust Estate and the final distribution by
Trustee or any other party of all monies or other property or proceeds
constituting part of the Trust Estate in accordance with the terms of Article VI
hereof, provided that at such time Lessee shall have fully complied with all the
terms of the Lease, or (b) twenty-one (21) years less one day after the death of
the last survivor of all of the descendants living on the date of this Agreement
of the present members of the Boards of Directors of Trustee and the general
partner of Airlease; but if this Agreement and the trusts created hereby shall
be or become valid under applicable law for a period subsequent to the 21st
anniversary of the death of such last survivor, or if legislation shall become
effective providing for the validity thereof for a period in gross exceeding the
period hereinabove stated, then this Agreement and the trusts created hereby
shall not terminate as aforesaid but shall extend to and continue in effect, but
only if such nontermination and extension shall then
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be valid under applicable law, until such time as the same shall, under
applicable law, cease to be valid.
Section 10.02. Termination at Option of Owner Participants. The
provisions of Section 10.01 hereof notwithstanding, this Agreement and the
trusts created hereby shall terminate and the Trust Estate shall be distributed
to the Owner Participants in accordance with the terms of Article VI hereof, and
this Agreement shall be of no further force and effect, upon the election, in
their sole discretion, of all of the Owner Participants by notice to Trustee, if
such notice shall be accompanied by the written agreement of all of the Owner
Participants assuming all the obligations of Trustee under the Operative
Documents and all other obligations of Trustee incurred by it as Trustee
hereunder; provided, however, that so long as the Lease shall be in effect, no
such termination of this Agreement shall occur without Lessee's prior written
consent, which consent shall not be unreasonably withheld. Such written
agreement shall fully and completely release Trustee from all further
obligations and liabilities of Trustee hereunder and under the agreements and
other instruments mentioned in the preceding sentence; provided, however, that
the obligations and liabilities of any party hereunder arising prior to the date
of such written agreement shall survive such termination of Trustee.
ARTICLE XI
Successor Trustees, Co-Trustees and
Separate Trustees
Section 11.01. Resignation of Trustee; Appointment of Successor.
(a) Resignation of Trustee. Trustee may resign at any time
without cause by giving at least 30 days' prior written notice to each Owner
Participant, such resignation to be effective upon the acceptance of appointment
by a successor Trustee under Section 11.01(b) hereof. In case at any time
Trustee shall cease to be eligible in accordance with the provisions of this
Article XI, Trustee shall resign immediately by giving written notice to each
Owner Participant, such resignation to be effective upon the acceptance of
appointment by a successor Trustee under Section 11.01(b) hereof. In addition,
Trustee may be removed at any time without cause by an instrument in writing
executed by each Owner Participant and delivered to Trustee, such removal to be
effective upon the acceptance of appointment by a successor Trustee under
Section 11.01(b) hereof. In case of the resignation or removal of Trustee, a
Majority in Interest of Owner Participants may appoint a successor Trustee by an
instrument signed by such a Majority in Interest of Owner Participants. If a
successor Trustee shall not have been appointed within thirty (30) days after
the giving of written notice of such resignation or the delivery of the written
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instrument with respect to such removal, Trustee or a Majority in Interest of
Owner Participants or Lessee may apply to any court of competent jurisdiction
to appoint a successor Trustee to act until such time, if any, as a successor
Trustee so appointed by such court shall immediately and without further act be
superseded by any successor Trustee appointed as above provided within one year
from the date of the appointment by such court.
(b) Appointment of Successor Trustee. Any successor Trustee,
however appointed, shall execute and deliver to the predecessor Trustee and each
Owner Participant an instrument accepting such appointment, and thereupon such
successor Trustee, without further act, shall become vested with all the
estates, properties, rights, powers, duties and trusts of the predecessor
Trustee in the trusts hereunder with like effect as if originally named Trustee
herein; but nevertheless, upon the written request of such successor Trustee,
such predecessor Trustee shall execute and deliver an instrument transferring to
such successor Trustee, upon the trusts herein expressed, all the estates,
properties, rights, powers, duties and trusts of such predecessor Trustee, and
such predecessor Trustee shall duly assign, transfer, deliver and pay over to
such successor Trustee all monies, or other property then held by such
predecessor Trustee) upon the trusts herein expressed. The predecessor Trustee
will cooperate in causing registration of the Aircraft to be transferred to the
successor Trustee in accordance with applicable law.
(c) Mandatory Resignation. Trustee and any successor Trustee,
however appointed, must resign if at any time it is unable to obtain or maintain
at all times satisfactory registration of each Aircraft pursuant to the Federal
Aviation Act, as amended (the "Act"). Any successor Trustee shall be a bank or
trust company incorporated and doing business within the United States of
America and having a combined capital and surplus of at least $50,000,000, or
the subsidiary of an institution having a combined capital and surplus of at
least $50,000,000, which guarantees the obligations of such subsidiary.
(d) Citizen of the United States. Trustee shall be and any
successor Trustee will be "a citizen of the United States" as defined in Section
101(16) of the Act.
(e) Merger of trustee. Any corporation into which Trustee may be
merged or with which it may be consolidated, or any corporation resulting from
any merger, or consolidation to which Trustee shall be a party, or any
corporation to which substantially all the corporate trust business of Trustee
may be transferred, shall, subject to the terms of Section 11.01(c) hereof, be
Trustee under this Agreement without further act.
Section 11.02. Co-Trustees and Separate Trustees. Whenever Trustee or
a Majority in Interest of Owner Participants shall deem it necessary or prudent
in order either to conform to any law of any jurisdiction in which all or any
part of the Trust
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Estate shall be situated or to make any claim or bring any suit with respect to
the Trust Estate or the Operative Documents, or either Trustee or a Majority in
Interest of Owner Participants shall be advised by counsel satisfactory to it
that it is so necessary or prudent, Trustee and a Majority in interest of Owner
Participants shall execute and deliver an agreement supplemental hereto and all
other instruments and agreements, and shall take all other action, necessary or
proper to constitute one or more Persons (and Trustee may appoint one or more
of its officers) (any and all of which shall be a "citizen of the United
States" as defined in Section 101(16) of the Act) either as co-trustee or
co-trustees jointly with Trustee of all or any part of the Trust Estate, or as
separate trustee or separate trustees of all or any part of the Trust Estate,
and to vest in such Persons, in such capacity, such title to the Trust Estate
or any part thereof, and such rights or duties as may be necessary or
desirable, all for such period and under such terms and conditions as are
satisfactory to Trustee and a Majority in Interest of Owner Participants. In
case any co-trustee or separate trustee shall die, become incapable of acting,
resign or be removed, the title to the Trust Estate and all rights and duties
of such co-trustee or separate trustee shall, so far as permitted by law, vest
in and be exercised by Trustee, without the appointment of a successor to such
co-trustee or separate trustee.
ARTICLE XII
Agent
Section 12.01. Appointment of Agent. The Owner Participants
authorize and direct Trustee to appoint, and Trustee hereby does appoint, Agent
as its agent to do all such acts and things and execute all such documents,
instruments and other agreements as Trustee hereafter may from time to time
direct, in its place and stead, in accordance with the terms of this Agreement
and the Operative Documents.
Section 12.02. Agent's Acceptance of Appointment. Agent agrees to act
as agent for Trustee hereunder and to accept possession of and hold such items
of the Trust Estate as it may from time to time receive on behalf of Trustee
subject to the trusts hereby created and the terms and conditions of this
Agreement.
Section 12.03. Agreements of Agent. Agent hereby agrees:
(a) to exercise the rights and perform the duties of Trustee as
directed by Trustee in accordance with the terms hereof;
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(b) to assume liability for, and indemnify the Owner Participants,
Trustee, and the Trust Estate from and against, Liens attributable to it; and
(c) pursuant to the instructions of Trustee in accordance with
the terms hereof, to conduct negotiations with respect to the documents
contemplated by this Agreement and the Operative Documents and to use its best
efforts by administrative means to cause the Operative Documents to be executed
and to consummate the acquisition of the 50% undivided interest in the Aircraft
under the Trust Termination Agreement in the manner contemplated by the
Operative Documents.
Section 12.04. Standard of Care and Diligence
(a) Agent's Liability. Except as provided in Section 12.03 hereof,
Agent assumes no liability for anything other than its own willful misconduct or
gross negligence. It shall give each Owner Participant prompt notice of any
Event of Default or claimed Event of Default under the Lease of which Agent
shall have actual knowledge. For all purposes of this Agreement, in the absence
of actual knowledge of an officer of Agent, Agent shall not be deemed to have
actual knowledge of a Default or an Event of Default unless it receives written
notification thereof given by or on behalf of Lessee, Trustee, any Owner
Participant, or any other party.
(b) Use of Agents. Subject to the same limitations as apply
hereunder to Trustee, Agent may exercise its powers and perform its duties by
or through such attorneys, agents and servants as it shall appoint; and it
shall be entitled to the advice of counsel (who may, in cases deemed by Agent
in its reasonable discretion to be appropriate, be counsel for Agent) and shall
be protected by the advice of such counsel in anything done or omitted to be
done in accordance with such advice.
Section 12.05. Resignation or Removal of Agent. Agent or any successor
thereto may resign at any time without cause by giving at least 30 days prior
written notice to Trustee and each Owner Participant, such resignation to be
effective on the date specified in such notice. In addition, a Majority in
Interest of Owner Participants may at any time remove Agent without cause by an
instrument in writing executed by a Majority in Interest of Owner Participants
delivered to the Agent and Trustee. In the case of the resignation or removal
of Agent, a Majority in Interest of Owner Participants may, at their sole cost
and expense, appoint a successor Agent by an instrument signed by a Majority in
Interest of Owner Participants. If a Majority in Interest of Owner Participants
shall not have appointed a successor Agent within 30 days after such resignation
or removal, Trustee may apply to any court of competent jurisdiction to appoint
a successor Agent to act until such time, if any, as a successor shall have been
appointed by a Majority in Interest of Owner Participants as above provided. The
successor Agent so
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appointed by such court shall immediately and without further act be superseded
by any successor Agent appointed by a Majority in Interest of Owner
Participants within one year from the date of the appointment by such court.
Section 12.06. Estates and Rights of Successor Agent. Any Agent,
whether appointed by a Majority in Interest of Owner Participants or a court,
shall execute and deliver to Trustee and to the predecessor Agent an instrument
accepting such appointment, and thereupon such successor Agent, without further
act, shall become vested with all the estates, properties, rights, powers and
duties of the predecessor Agent hereunder with like effect as if originally
named Agent herein; but nevertheless upon the written request of Trustee or such
successor Agent, such predecessor Agent shall execute and deliver an instrument
transferring to such successor Agent all the estates, properties, rights and
powers of such predecessor Agent, and such predecessor Agent shall duly assign,
transfer, deliver and pay over to such successor Agent all monies or other
property then held by such predecessor Agent hereunder.
Section 12.07. Merger or Consolidation of Agent. Any corporation into
which Agent may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
Agent shall be a party, or any corporation to which substantially all the
business of Agent may be transferred, shall be Agent under this Agreement
without further act.
Section 12.08. Agent's Duty to Indemnity. The obligation of Agent
under Section 12.03(b) to indemnify the Owner Participants, the Trust Estate,
and Trustee shall survive the resignation or removal of Agent and the
termination of this Agreement.
ARTICLE XIII
Supplements and Amendments
This Agreement shall be amended only by a written instrument signed by
Trustee and a Majority in Interest of Owner Participants; but if in the
reasonable opinion of Trustee, any instrument required to be so executed
adversely affects any right, duty, liability of, or immunity or indemnity in
favor of it under this Agreement or any of the documents contemplated hereby to
which it is a party, or would cause or result in any conflict with or breach of
any terms, conditions or provisions of, or default under the charter documents
or by-laws of Trustee or any document contemplated hereby to which Trustee is a
party, Trustee may in its sole discretion decline to execute such instrument and
upon the request of a Majority in Interest of Owner Participants immediately
shall resign as Trustee under this Agreement, any Operative Document, or other
related document. No
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supplement, amendment or modification of the Agreement shall impair any
requirement in this Agreement that the consent of a Majority in Interest of
Owner Participants or of all of the Owner Participants be obtained for any
purpose and no such supplement, amendment or modification shall require any
Owner Participant to invest or advance funds or shall entail any additional
personal liability or the surrender of any indemnification, claim or individual
right on the part of any Owner Participant with respect to any agreement or
obligation or create or suffer to exist any additional obligation of or
liability on the Trust Estate, except with the written consent of each of the
Owner Participants.
ARTICLE XIV
Sale, Transfer or Mortgage of Lease Property
Section 14.01. General. Except as hereinafter expressly permitted, no
Owner Participant may sell, assign, transfer, mortgage, charge or otherwise
encumber, or suffer any third party to sell, assign, transfer, mortgage, charge
or otherwise encumber, or contract to do or permit any of the foregoing,
whether voluntarily or by operation of law (herein sometimes collectively
called a "transfer"), any part or all of its interest hereunder or in the Trust
Estate without the written consent of the other Owner Participant(s) and any
attempt to do so shall be void. The giving of such consent in any one or more
instances shall not limit or waive the need for such consent in any other or
subsequent instances.
Section 14.02. Permitted Transfers.
(a) Transfers by Agent. Notwithstanding the provisions of Section
14.01 hereof, without the consent of the other Owner Participants, Agent may
from time to time transfer all or any portion of its interest hereunder to an
Affiliate.
(b) Transfers by Airlease. Notwithstanding the provisions of
Section 14.01 hereof, without the consent of the other Owner Participants,
Airlease may from time to time transfer all or any portion of its interest
hereunder to an Affiliate.
Section 14.03. Right of First Refusal as to an Owner Participant's
Trust Estate Interest.
(a) Offering Notice. Except for permitted transfers under Section
14.02 above, if any Owner Participant receives a bona fide offer for the
purchase of either (i) all of its interest hereunder or (ii) less than all of
its interest hereunder, (the recipient of any such offer being hereinafter
called the "Offerer"), which offer complies with the provisions of Section
14.03(b) hereof and which offer it desires and intends to accept, before
accepting such offer it shall give notice (the
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"Offering Notice") to the other Owner Participants (the "Offerees") which shall
include a true copy of such offer, whereupon the provisions set forth in this
Section 14.03 shall apply. Except for permitted transfers under Section 14.02
above, no Owner Participant shall accept an offer unless such offer complies
with the provisions of Section 14.03(b) hereof.
(b) Requirements of Offer. Such an offer shall comply with the
following requirements:
(i) the proposed purchase price (which shall be
net of any Trust Estate debts or liabilities which the proposed
purchaser has agreed to assume in its offer to purchase the
Offeror's interest) is payable solely in lawful money of the
United States and, if not payable in its entirety in cash,
under no circumstances may payment of the non-cash portion of
the proposed purchase price be secured by any charge,
encumbrance or hypothecation of the Trust Estate;
(ii) the offer contains provisions whereby the
proposed purchaser is obligated to comply with the provisions
of Section 14.06 hereof, requiring it to assume certain
obligations prior to or at closing;.
(iii) the offer is accompanied by a certified check
of the prospective purchaser for a sum equal to at least ten
percent (10%) of the proposed purchase price; provided,
however, that if the sale to the third party purchaser is not
consummated for any reason other than due to the failure of the
Offeror and the Offerees to perform their obligations pursuant
to the offer, the Offeror and the Offerees shall be entitled to
a pro rata portion of such sum;
(iv) the Offeror shall not have caused or permitted
an Owner Participant Event of Default (as hereinafter defined);
and
(v) the prospective purchaser shall be capable of
carrying out all obligations of an Owner Participant under this
Agreement and all related agreements; and as shown by the
audited financial statements of such prospective purchaser for
the two (2) most recent fiscal years of such prospective
purchaser, shall have a tangible net worth satisfactory to the
Offerees, determined in accordance with generally accepted
accounting principles.
(c) Procedure. In the Offering Notice, the Offeror shall offer
(the "Sale Offer") to each Offeree the right to purchase a portion of the
interest (the "Portion of the Interest") of the Offeror referred to in said
offer, at a portion of the same price and subject to the same terms and
conditions as
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set forth in said offer and the Offeror shall submit with the Offering Notice a
true copy of said offer. The portion shall be equal to the full amount of the
interest offered multiplied by a fraction, the numerator of which is such
Offeree's then interest in the Trust Estate and the denominator is the then
interest in the Trust Estate of all Offerees. Each Offeree shall notify the
Offeror and the other Offeree(s) of its election within fifteen (15) days of
the date of its receipt of the Offering Notice; provided, however, that such
election shall be as to all of the Portion of the Interest.
(d) Acceptance of Sale Offer.
(i) If the Sale Offer is accepted by each Offeree, and
notice in writing is given within the period specified in
Section 14.03(c) hereof, the Offeror shall thereupon be bound
to sell to such Offeree and the Offeree shall thereupon be
bound to purchase the Portion of the Interest referred to in
the Sale offer in accordance with the terms of the Sale Offer
and the closing of the purchase shall take place in accordance
with Section 14.04 hereof.
(ii) If one Offeree has not accepted the Sale Offer or
has not accepted the Sale Offer within such fifteen (15) day
period and one or more of the other Offerees has accepted the
Sale Offer ("Accepting Offeree"), the Accepting Offeree(s)
shall have the right to purchase the entire interest referred
to in the Sale Offer (but not less than such entire interest)
in accordance with the terms of the Sale Offer and the
purchase shall take place in accordance with Section 14.04
hereof and the procedures included in Section 14.03(c) hereof.
Except that the Accepting Offerees shall notify the Offeror
and other Offerees of such election within ten (10) days of
the end of the initial fifteen (15) day period referred to in
Section 14.03(c) hereof. The Offeror shall thereupon be bound
to sell to such Accepting Offeree(s) and the Accepting
Offeree(s) shall thereupon be bound to purchase the entire
interest referred to in the Sale Offer in accordance with the
terms of the Sale Offer and the closing of the purchase shall
take place in accordance with Section 14.04 hereof.
(e) Right to Sell to Third Party. If the Offerees have not
accepted the Sale Offer as provided in Section 14.03(c) hereof within the time
limits referred to therein, or if the Accepting Offeree(s) have not accepted the
Sale Offer as provided in Section 14.03(d)(2) hereof within the time limits
referred to therein, the Sale Offer shall be deemed to have been declined by
such Offerees and the Offeror shall be free to sell its interest to the maker of
said offer at a price and upon terms and conditions not less favorable to the
Offeror than those set forth
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in the offering Notice within the time period set forth below. If in any
instance such Offerees elect not to exercise their rights hereunder or to waive
such rights, such election shall not constitute a waiver of the Offerees' right
to an Offering Notice in the case of any subsequent offer. If such interest is
not so sold and the transfer not consummated within thirty (30) days, unless
extended by mutual agreement, from the expiration of the time limits referred
to in Section 14.03(c) or Section 14.03(d)(2) hereof , as applicable, the
relevant interest shall then again become subject to all the provisions of this
Section 14.03.
(f) Limitations on Exercise. Notwithstanding anything to the
contrary contained in this Section 14.03, no Offeree which has failed to perform
or observe any of its obligations, covenants, conditions, or agreements under
this Agreement or any related document (an "Owner Participant Event of
Default"), which Owner Participant Event of Default is still continuing, shall
be entitled to exercise its right to purchase (or sell, unless the Owner
Participant Event of Default is cured by such sale) any portion of the Offeror's
interest.
Section 14.04. Closings.
(a) Location and Time Periods. The closing of any sale of an
interest in the Trust Estate pursuant to this Article XIV shall be held at a
mutually acceptable place and on a mutually acceptable date not more than thirty
(30) days, unless extended by mutual agreement, after the receipt by the Offeror
of the written notices of election by the Offerees, Accepting Offeree, or Third
Party Accepting Offeree, as applicable, or after the expiration of the time
within which the Offeree must so elect, as provided in Sections 14.03(c) or
14.03(d) hereof.
(b) Closing Conditions. Any Owner Participant transferring its
interest shall transfer such interest free and clear of all liens, encumbrances
or any interests of any third party (excepting any liens permitted under the
Lease) and shall execute or cause to be executed any and all documents required
to fully transfer such interest to the acquiring third party or acquiring Owner
Participants, including, but not limited to, any documents necessary to evidence
such transfer and to evidence the agreement by the acquiring third party or
acquiring Owner Participants to be bound by all applicable provisions of the
Operative Documents, and all documents required to release any interest in such
selling Owner Participant's interest. Any sums owed by the selling Owner
Participants to the Trust Estate or the other Owner Participants shall be paid
concurrently from the proceeds from such sale at the closing. Following the
date of closing, unless otherwise agreed, the selling Owner Participant shall
have no further rights to any rent or proceeds from the Trust Estate assets
attributable to any period or event following the date of closing and all such
rights shall vest in the
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transferee of the interest purchased from the selling owner Participant.
(c) Event of Loss. If an Event of Loss shall occur with respect
to the Aircraft between (i) the date an election is made by any Owner
Participant or a third party transferee to purchase pursuant to Section 14.03,
and (ii) the closing of such purchase, the offer to purchase shall automatically
terminate, without any further action or notice required.
(d) Partial Loss. If a partial loss shall occur with respect to
the Aircraft under the Lease, subject to the performance by Lessee of its
obligations under the Lease and so long as there is no Event of Default
thereunder, the purchase of the interest hereunder shall be consummated as
contemplated by the parties.
14.05. Termination of Obligations. As of the closing date of any
transfer not prohibited hereunder by an owner Participant of its entire interest
in the Trust Estate to the other Owner Participants or to a third party
purchaser, such transferring Owner Participant's rights and obligations
hereunder shall terminate except as to any of its unperformed obligations
accrued as of such date and except as to any unperformed indemnity obligations
of such Owner Participant attributable to acts or events occurring prior to such
closing date. Thereupon, except as limited by the preceding sentence, this
Agreement shall terminate as to the transferring Owner Participant but all terms
and conditions thereof shall remain in effect as to the other Owner Participants
and the third party purchaser shall become an Owner Participant hereunder. In
the event of a transfer of its entire Trust Estate interest by an Owner
Participant to the other Owner Participants or to a third party purchaser, the
Owner Participants or third party purchaser to which such interest is
transferred, shall indemnify, defend and hold harmless the Owner Participant so
transferring its interest from and against any and all claims, demands, losses,
liabilities, expenses, actions, lawsuits, and other proceedings, judgments,
awards, and costs and expenses (including but not limited to reasonable
attorneys' fees) incurred in or rising directly or indirectly, in whole or in
part, out of the Trust Estate, excluding only those liabilities, if any, which
accrued prior to the closing date of such transfer.
Section 14.06. Agreements with Transferees. If pursuant to the
provisions of this Article XIV, any Owner Participant shall transfer its
interest hereunder to any person or entity other than the other Owner
Participants, no such transfer shall be made or shall be effective to make such
transferee an Owner Participant or entitle such transferee to any benefits or
rights hereunder or under the Operative Documents until the proposed Transferee
agrees in writing to assume and be bound by all the obligations of the selling
Owner Participant and be subject to all the restrictions to which the selling
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Participant is subject under the terms of this Agreement, the Operative
Documents, and any further agreement which may be required with respect to the
Trust Estate. If an Owner Participant's interest hereunder is transferred by
operation of law, such Owner Participant's transferee shall sign such a writing
within fifteen (15) days of the closing date as an express condition to the
effectiveness of any such transfer.
Section 14.07. Restraining Order. If any Owner Participant shall at
any time transfer or attempt to transfer its interest hereunder in violation of
the provisions of this Agreement and any rights hereby granted, then the other
Owner Participants shall, in addition to all rights and remedies at law and in
equity, be entitled to a decree or order restraining and enjoining such transfer
and the defaulting Owner Participant shall not plead in defense thereto that
there would be an adequate remedy at law; it being hereby expressly acknowledged
and agreed by the parties hereto that damages at law will be an inadequate
remedy for a breach or threatened breach of the violation of the provisions
concerning transfer of a Trust Estate interest as set forth in this Agreement.
Section 14.08. Sale by an Owner Participant of an Owner Participant's
Trust Estate. The parties agree that if one of the Owner Participants should
decide to purchase the Trust Estate interest of the other Owner Participants,
the parties shall negotiate the terms and conditions of such purchase in good
faith, including, without limitation, the purchase price, any financing
arrangements, and like matters. Such -purchase shall take place in accordance
with Section 14.04 hereof.
ARTICLE XV
Miscellaneous
Section 15.01. No Legal Title to Trust Estate in Owner Participants.
The Owner Participants shall not have legal title to any part of the Trust
Estate. No transfer, by operation of law or otherwise, of any right, title and
interest of the Owner Participants in and to the Trust Estate or hereunder shall
operate to terminate this Agreement or the trusts hereunder or entitle any
successor or transferee to an accounting or to the transfer to it of legal title
to any part of the Trust Estate.
Section 15.02. Sale of Aircraft, etc., by Trustee is Binding. Any sale
or other conveyance of the Aircraft, the Airframe, an Engine or Parts by Trustee
made pursuant to the terms of this Agreement (so long as such sale is not
contrary to the provisions of the Operative Documents) shall bind the Owner
Participants and shall be effective to transfer or convey all right, title and
interest of Trustee and the Owner Participants in and to the Aircraft, the
Airframe, or an Engine or Parts. No purchaser or other grantee shall be
required to -inquire as to the
29
<PAGE> 33
authorization, necessity, expediency or regularity of such sale or conveyance
or as to the application of any sale or other proceeds with respect thereto by
Trustee.
Section 15.03. Limitations on Rights of Others.
Except as provided in Sections 10.02 and 11.01 hereof, nothing in this
Agreement shall be construed to give to any person other than Trustee, the
Owner Participants or the Agent any legal or equitable right, remedy or claim
under or in respect of this Agreement, any covenants, conditions or provisions
contained herein or the Trust Estate.
Section 15.04. No Partnership for Tax Purposes. The Owner Participants
agree that this Trust Estate is not to be construed as a partnership for tax
purposes; provided, however, that if it is determined to be a partnership for
tax purposes, Agent agrees to be bound by an election under Section 754 of the
Internal Revenue Code of 1954, as amended, made by Airlease.
Section 15.05. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all notices required under the terms and
provisions hereof shall be in writing by first class mail, personal delivery,
cable, telex or telecopy (with such cable, telex or telecopy confirmed in
writing, mailed by first-class mail, postage prepaid) addressed to such person
at the address set forth herein with copies to Trustee or the Owner
Participants, as the case may be. Whenever any notice is required to be given,
such notice shall be deemed given and such requirement satisfied in such notice
is (a) mailed, on the day of deposit into the mail, or (b) personally delivered,
when delivered, or (c) cabled, when such notice is delivered to the telegraph
company, or (d) telecopied, when the telecopy has been received, or (e) telexed,
when the answer back of the addressee is received. Any Person entitled to
notice hereunder may change the address to which notices to such Person will be
sent by giving notice of such change to Trustee, the Owner Participants, or
Agent.
If to Trustee: Trust Company for USL, Inc.
615 Battery Street
San Francisco, CA 94111
Attn: President
Telex: 278031
If to Agent: United States Leasing
International, Inc.
615 Battery Street
San Francisco, California 94111
Attn: President
30
<PAGE> 34
If to Airlease: Airlease Ltd., A California
Limited Partnership
c/o Airlease Management Services, Inc.
615 Battery Street
San Francisco, California 94111
Attn: President
Section 15.06. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 15.07. Limitation on Liability of the Owner Participants and
Agent. The Owner Participants and Agent shall not have any liability for the
performance of this Agreement except as expressly set forth herein.
Section 15.08. Separate Counterparts. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 15.09. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, Trustee
and its successors and assigns, Agent and its successors and assigns, and the
Owner Participants and their respective successors and, to the extent permitted
by Article XIV hereof, assigns, all as herein provided. Any request, notice,
direction, consent, waiver or other instrument or action by any Owner
Participant, shall bind the successors and assigns of such Owner Participant.
Section 15.10. Headings The headings of the various
Articles and Sections herein are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof.
Section 15.11. Governing Law. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the State of
Illinois, including all matters of construction, validity and performance.
31
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers hereto as of the day and year first
above written.
AIRLEASE LTD., A CALIFORNIA UNITED STATES LEASING
LIMITED PARTNERSHIP, as INTERNATIONAL, INC., as Agent
Owner Participant
By: Airlease Management /s/ Martin W. Gruen
Services, Inc., -------------------
General Partner By: Investment Officer -
Transportation and
Facilities Financing
/s/ David B. Gebler
- -------------------
By: President
TRUST COMPANY FOR USL, INC.,
as Trustee
/s/ Stanley E. Gutman
---------------------
By: Vice President
[Aircraft N362PA - New Trust Agreement]
32
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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0
0
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<SALES> 12,513
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</TABLE>
