<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-20029
------------------------
AMERICAN INCOME FUND I-E, A MASSACHUSETTS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3127244
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
88 BROAD STREET, SIXTH FLOOR, BOSTON, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
Securities registered pursuant to Section 12(b) of the Act NONE
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
---------------------------------------- ---------------------------------
Securities registered pursuant to Section 12(g) of the Act:
883,829.31 UNITS REPRESENTING LIMITED PARTNERSHIP INTEREST
(Title of class)
(Title of class)
------------------------
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 / /
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1998 (Part I and II)
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<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 5
Item 3. Legal Proceedings............................................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders........................................... 5
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder Matters................... 6
Item 6. Selected Financial Data....................................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 8
Item 8. Financial Statements and Supplementary Data................................................... 8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 8
PART III
Item 10. Directors and Executive Officers of the Partnership........................................... 9
Item 11. Executive Compensation........................................................................ 11
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 12
Item 13. Certain Relationships and Related Transactions................................................ 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 14-15
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
AMERICAN INCOME FUND I-E, a Massachusetts Limited Partnership (the
"Partnership"), was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on August 29, 1991, for the
purpose of acquiring and leasing to third parties a diversified portfolio of
capital equipment. Partners' capital initially consisted of contributions of
$1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On December 4, 1991 the
Partnership concluded an Interim Closing and issued 587,079.96 units of limited
partnership interest (the "Units") to 654 investors for a purchase price of
$14,569,875. Included in the 587,079.96 units are 4,284.96 bonus units. On
January 31, 1992 the Partnership concluded its Final Closing. An additional
296,749.35 units (including 626.35 bonus units) were purchased for an additional
purchase price of $7,403,075 and an additional 735 investors became Limited
Partners of the Partnership. As of January 31, 1992, an aggregate total of
883,829.31 units (including 4,911.31 bonus units) had been purchased for an
aggregate total purchase price of $21,972,950 and an aggregate of 1,089
investors had become Limited Partners of the Partnership. The Partnership has
one General Partner, AFG Leasing VI Incorporated, a Massachusetts corporation
formed in 1990 and an affiliate of Equis Financial Group Limited Partnership
(formerly known as American Finance Group), a Massachusetts limited partnership
("EFG" or the "Manager"). The General Partner is not required to make any other
capital contributions except as may be required under the Uniform Act and
Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited
Partnership (the "Restated Agreement, as amended").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one industry segment: the business of
acquiring capital equipment and leasing the equipment to creditworthy lessees on
a full payout or operating lease basis. Full payout leases are those in which
aggregate undiscounted, noncancellable rents equal or exceed the acquisition
cost of the leased equipment. Operating leases are those in which the aggregate
undiscounted, noncancellable rental payments are less than the acquisition cost
of the leased equipment. Industry segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases and to lease the
equipment to third parties as income-producing investments. More specifically,
the Partnership's primary investment objectives were to acquire and lease
equipment that would:
1. Generate quarterly cash distributions;
2. Preserve and protect Partnership capital; and
3. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the Offering of Units of the Partnership was December 4,
1991. Significant operations commenced with the initial purchase of equipment
and the associated lease commitments on December 4, 1991. The Restated
Agreement, as amended, provides that the Partnership concluded its Final Closing
on January 31, 1992. The acquisition of the equipment and its associated leases
is described in Note 3 to the financial statements included in Item 14, herein.
The Restated Agreement, as amended, provides that the Partnership will terminate
no later than December 31, 2002. However, the Partnership is a Nominal Defendant
in a Class Action Lawsuit, the outcome of which could significantly alter the
nature
3
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of the Partnership's organization and its future business operations. See Note 8
to the accompanying financial statements.
The Partnership has no employees; however, it is managed pursuant to a
Management Agreement with EFG or one of its affiliates. The Manager's role,
among other things, is to (i) evaluate, select, negotiate, and consummate the
acquisition of equipment, (ii) manage the leasing, re-leasing, financing, and
refinancing of equipment, and (iii) arrange the resale of equipment. The Manager
is compensated for such services as provided for in the Restated Agreement, as
amended, described in Item 13 herein, and in Note 5 to the financial statements
included in Item 14, herein.
The Partnership's investment in equipment is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence and defaults by lessees. A principal business risk of owning and
leasing equipment is the possibility that aggregate lease revenues and equipment
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
In addition, the leasing industry is very competitive. The Partnership is
subject to considerable competition when equipment is re-leased or sold at the
expiration of primary lease terms. The Partnership must compete with lease
programs offered directly by manufacturers and other equipment leasing
companies, including limited partnerships organized and managed similarly to the
Partnership, and including other EFG-sponsored partnerships and trusts, which
may seek to re-lease or sell equipment within their own portfolios to the same
customers as the Partnership. Many competitors have greater financial resources
and more experience than the Partnership, the General Partner and the Manager.
In addition, default by a lessee under a lease may cause equipment to be
returned to the Partnership at a time when the General Partner or the Manager is
unable to arrange for the re-lease or sale of such equipment. This could result
in the loss of anticipated revenues.
Revenue from individual lessees which accounted for 10% or more of lease
revenue during the years ended December 31, 1998, 1997 and 1996 is incorporated
herein by reference to Note 2 to the financial statements in the 1998 Annual
Report. Refer to Item 14(a)(3) for lease agreements filed with the Securities
and Exchange Commission.
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
direct-participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Mr. Engle
established Equis Corporation and GDE LP in December 1994 for the sole purpose
of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not applicable.
4
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ITEM 2. PROPERTIES.
Incorporated herein by reference to Note 3 to the financial statements in
the 1998 Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
Incorporated herein by reference to Note 8 to the financial statements in
the 1998 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
5
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PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1998, there were 1,016 record holders in the Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the amount of
cash distributions to be declared and paid to the Partners is determined on a
quarterly basis. Each quarter's distribution may vary in amount and is made 95%
to the Limited Partners and 5% to the General Partner. Generally, cash
distributions are paid within 30 days after the completion of each calendar
quarter.
Distributions in 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNER PARTNERS
------------ ---------- ------------
<S> <C> <C> <C>
Total 1998 distributions.................................................. $ 941,996 $ 47,100 $ 894,896
Total 1997 distributions.................................................. 1,177,470 58,873 1,118,597
------------ ---------- ------------
Total............................................................... $ 2,119,466 $ 105,973 $ 2,013,493
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
Distributions payable were $235,495 at both December 31, 1998 and 1997.
There are no formal restrictions under the Restated Agreement, as amended,
that materially limit the Partnership's ability to pay cash distributions,
except that the General Partner may suspend or limit cash distributions to
ensure that the Partnership maintains sufficient working capital reserves to
cover, among other things, operating costs and potential expenditures, such as
refurbishment costs to remarket equipment upon lease expiration. Liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets. In particular,
the Partnership must contemplate the potential liquidity risks associated with
its investment in commercial jet aircraft. The management and remarketing of
aircraft can involve, among other things, significant costs and lengthy
remarketing initiatives.
Although the Partnership's lessees are required to maintain the aircraft
during the period of lease contract, repair, maintenance, and/or refurbishment
costs at lease expiration can be substantial. For example, an aircraft that is
returned to the Partnership meeting minimum airworthiness standards, such as
flight hours or engine cycles, nonetheless may require heavy maintenance in
order to bring its engines, airframe and other hardware up to standards that
will permit its prospective use in commercial air transportation. Individually,
these repairs can cost in excess of $1 million and, collectively, they could
require the disbursement of several million dollars, depending upon the extent
of refurbishment. In addition, the Partnership's equipment portfolio includes an
interest in three Stage 2 aircraft having scheduled lease expiration dates of
December 31, 1999. These aircraft are prohibited from operating in the United
States after December 31, 1999 unless they are retro-fitted with hush-kits to
meet Stage 3 noise regulations promulgated by the Federal Aviation
Administration. The cost to hush-kit an aircraft, such as the Partnership's
Boeing 737s, can approach $2 million. Although the Partnership is not required
to retro-fit its aircraft with hush-kits, insufficient liquidity could
jeopardize the re-marketing of these aircraft and risk their disposal at a
depressed value at a time when a better economic return would be realized
6
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from refurbishing the aircraft and re-leasing them to another user.
Collectively, the aggregation of the Partnership's potential liquidity needs
related to aircraft and other working capital requirements could be significant.
Accordingly, the General Partner has maintained significant cash reserves within
the Partnership in order to minimize the risk of a liquidity shortage,
particularly in connection with the Partnership's aircraft interests.
Finally, the Partnership is a Nominal Defendant in a Class Action Lawsuit
described in Note 8 to the accompanying financial statements. A preliminary
settlement agreement will allow the Partnership to invest in new equipment or
other activities, subject to certain limitations, effective March 22, 1999. To
the extent that the Partnership continues to own aircraft investments that could
require capital reserves, the General Partner does not anticipate that the
Partnership will invest in new assets, regardless of its authority to do so.
Until the Class Action Lawsuit is adjudicated, the General Partner does not
expect that the level of future quarterly cash distributions paid by the
Partnership will be increased above amounts paid in the fourth quarter of 1998.
In addition, the proposed settlement, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. See Note 8 to the accompanying financial
statements.
Cash distributions consist of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the General Partner, and increased by any portion of such reserves
deemed by the General Partner not to be required for Partnership operations and
reduced by all accrued and unpaid Equipment Management Fees and, after Payout,
further reduced by all accrued and unpaid Subordinated Remarketing Fees.
Distributable Cash From Operations does not include any Distributable Cash From
Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the General Partner determines shall be reinvested in similar
equipment for the remainder of the original lease term of the lost or destroyed
equipment, or in isolated instances, in other equipment, if the General Partner
determines that investment of such proceeds will significantly improve the
diversity of the Partnership's equipment portfolio, and subject in either case
to satisfaction of all existing indebtedness secured by such equipment to the
extent deemed necessary or appropriate by the General Partner, or (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
governing a joint venture which the General Partner determines will be invested
in additional equipment or interests in equipment and which ultimately are so
reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after
Payout, any accrued and unpaid Subordinated Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partner, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) general excess and current liabilities of the
Partnership (other than any portion of the Equipment Management Fee which is
required to be accrued and the Subordinated Remarketing Fee) and (c) any
reserves for working capital and contingent liabilities funded from such cash to
the extent deemed reasonable by the General Partner and (ii) increased by any
portion of such reserves deemed by the General Partner not to be required for
Partnership operations. In the event the Partnership accepts a note in
connection with any sale or refinancing transaction, all payments subsequently
received in cash by the Partnership with respect to such note shall be included
in Cash From
7
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Sales or Refinancings, regardless of the treatment of such payments by the
Partnership for tax or accounting purposes. If the Partnership receives purchase
money obligations in payment for equipment sold, which are secured by liens on
such equipment, the amount of such obligations shall not be included in Cash
From Sales or Refinancings until the obligations are fully satisfied.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Limited Partners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Limited Partners' original capital contributions plus a cumulative annual
distribution of 11% (compounded quarterly and calculated beginning with the last
day of the month of the Partnership's Closing Date) on their aggregate
unreturned capital contributions. For purposes of this definition, capital
contributions shall be deemed to have been returned only to the extent that
distributions of cash to the Limited Partners exceed the amount required to
satisfy the cumulative annual distribution of 11% (compounded quarterly) on the
Limited Partners' aggregate unreturned capital contributions, such calculation
to be based on the aggregate unreturned capital contributions outstanding on the
first day of each fiscal quarter.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled "Selected Financial
Data" in the 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1998 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
8
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of this
report, AFG Leasing VI Incorporated is the sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely responsible for the operation of the Partnership's properties. The
Limited Partners have no right to participate in the control of the
Partnership's general operations, but they do have certain voting rights, as
described in Item 12 herein. The names, titles and ages of the Directors and
Executive Officers of the General Partner as of March 15, 1999 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (SEE ITEM 13)
<TABLE>
<CAPTION>
NAME TITLE AGE TERM
- ------------------------------------ --------------------------------------------- --- ---------------------
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Executive Until a successor is
Committee of EFG and President and a Director duly elected and
of the General Partner 50 qualified
Gary D. Engle President and Chief Executive Officer and
member of the Executive Committee of EFG 50
Gary M. Romano Executive Vice President and Chief Operating
Officer of EFG and Clerk of the General
Partner 39
James A. Coyne Executive Vice President of EFG 38
Michael J. Butterfield Senior Vice President, Finance and Treasurer
of EFG and Treasurer of the General Partner 39
Sandra L. Simonsen Senior Vice President, Information Systems of
EFG 48
Gail D. Ofgant Senior Vice President, Lease Operations of
EFG 33
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners, Directors
or Executive Officers.
(e) Business Experience
Mr. MacDonald, age 50, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the General Partner.
Mr. MacDonald was also a co-founder, Director, and Senior Vice President of
EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is President of
American Finance Group Securities Corp. and a limited partner in Atlantic
Acquisition
9
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Limited Partnership ("AALP") and Old North Capital Limited Partnership ("ONC").
Prior to co-founding EFG's predecessors, Mr. MacDonald held various executive
and management positions in the leasing and pharmaceutical industries. Mr.
MacDonald holds a M.B.A. from Boston College and a B.A. degree from the
University of Massachusetts (Amherst).
Mr. Engle, age 50, is President and Chief Executive Officer of EFG and sole
shareholder and Director of its general partner, Equis Corporation and a member
of the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle joined EFG in 1990 as Executive Vice President and acquired control of EFG
and its subsidiaries in December 1994. Mr. Engle is Vice President and a
Director of certain of EFG's subsidiaries and affiliates, a limited partner in
AALP and ONC and controls the general partners of AALP and ONC. Mr. Engle is
also Chairman, Chief Executive Officer, and a member of the Board of Directors
of Semele Group, Inc. ("Semele"). From 1987 to 1990, Mr. Engle was a principal
and co-founder of Cobb Partners Development, Inc., a real estate and mortgage
banking company. From 1980 to 1987, Mr. Engle was Senior Vice President and
Chief Financial Officer of Arvida Disney Company, a large-scale community
development company owned by Walt Disney Company. Prior to 1980, Mr. Engle
served in various management consulting and institutional brokerage capacities.
Mr. Engle has a MBA from Harvard University and a BS degree from the University
of Massachusetts (Amherst).
Mr. Romano, age 39, became Executive Vice President and Chief Operating
Officer of EFG, and Secretary of Equis Corporation in 1996 and is Secretary or
Clerk of several of EFG's subsidiaries and affiliates. Mr. Romano joined EFG in
November 1989, became Vice President and Controller in April 1993 and Chief
Financial Officer in April 1995. Mr. Romano assumed his current position in
April 1996. Mr. Romano is also Vice President and Chief Financial Officer of
Semele. Prior to joining EFG, Mr. Romano was Assistant Controller for a
privately held real estate development and mortgage origination company that he
joined in 1987. Previously, Mr. Romano was an Audit Manager at Ernst & Whinney
(now Ernst & Young LLP), where he was employed from 1982 to 1986. Mr. Romano is
a Certified Public Accountant and holds a B.S. degree from Boston College.
Mr. Coyne, age 38, is Executive Vice President, Capital Markets of EFG and
President, Chief Operating Officer and a member of the Board of Directors of
Semele. Mr. Coyne joined EFG in 1989, remained until May 1993, and rejoined EFG
in November 1994. In September 1997, Mr. Coyne was appointed Executive Vice
President of EFG. Mr. Coyne is a limited partner in AALP and ONC. From May 1993
through November 1994, he was employed by the Raymond Company, a private
investment firm, where he was responsible for financing corporate and real
estate acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a
real estate investment company and an equipment leasing company. Prior to 1985,
he was with the accounting firm of Ernst & Whinney (now Ernst & Young LLP). He
has a BS in Business Administration from John Carroll University, a Masters
Degree in Accounting from Case Western Reserve University and is a Certified
Public Accountant.
Mr. Butterfield, age 39, is Senior Vice President, Finance and Treasurer of
EFG and certain of its affiliates and is Treasurer of the General Partner and
Semele. Mr. Butterfield joined EFG in June 1992, became Vice President, Finance
and Treasurer of EFG and certain of it's affiliates in April 1996 and in July
1998, was promoted to Senior Vice President, Finance and Treasurer of EFG and
certain of its affiliates. Prior to joining EFG, Mr. Butterfield was an Audit
Manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield was
employed in public accounting and industry positions in New Zealand and London
(UK) prior to coming to the United States in 1987. Mr. Butterfield attained his
Associate Chartered Accountant (A.C.A.) professional qualification in New
Zealand and has completed his CPA requirements in the United States. He holds a
Bachelor of Commerce degree from the University of Otago, Dunedin, New Zealand.
Ms. Simonsen, age 48, joined EFG in February 1990 and was promoted to Senior
Vice President, Information Systems of EFG in April 1996. Prior to joining EFG,
Ms. Simonsen was Vice President, Information Systems with Investors Mortgage
Insurance Company, which she joined in 1973.
10
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Ms. Simonsen provided systems consulting for a subsidiary of American
International Group and authored a software program published by IBM. Ms.
Simonsen holds a BA degree from Wilson College.
Ms. Ofgant, age 33, is Senior Vice President, Lease Operations of EFG and
certain of its affiliates. Ms. Ofgant joined EFG in July 1989, was promoted to
Manager Lease Operations in April 1994, and became Vice President of Lease
Operations in April 1996. In July 1998, Ms. Ofgant was promoted to Senior Vice
President of Lease Operations. Prior to joining EFG, Ms. Ofgant was employed by
Security Pacific National Trust Company. Ms. Ofgant holds a BS degree in Finance
from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
ITEM 11. EXECUTIVE COMPENSATION.
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of the
Restated Agreement, as amended, the Partnership is obligated to pay all costs of
personnel employed full or part-time by the Partnership, including officers or
employees of the General Partner or its Affiliates. There is no plan at the
present time to make any officers or employees of the General Partner or its
Affiliates employees of the Partnership. The Partnership has not paid and does
not propose to pay any options, warrants or rights to the officers or employees
of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to Section 9.4(c) of the Restated Agreement, as amended, the
Partnership incurs a monthly charge for personnel costs of the Manager for
persons engaged in providing administrative services to the Partnership. A
description of the remuneration paid by the Partnership to the Manager for such
services is included in Item 13, herein and in Note 5 of the financial
statements included in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partner or
its Affiliates which results or may result from their resignation, retirement or
any other termination.
11
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
By virtue of its organization as a limited partnership, the Partnership has
outstanding no securities possessing traditional voting rights. However, as
provided in Section 10.2(a) of the Restated Agreement, as amended (subject to
Sections 10.2(b) and 10.3), a majority interest of the Limited Partners has
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all, or substantially all, of the
assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
As of March 1, 1999, the following person or group owns beneficially more
than 5% of the Partnership's 883,829.31 outstanding Units:
<TABLE>
<CAPTION>
NAME AND AMOUNT PERCENT
ADDRESS OF OF BENEFICIAL OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
- ----------------------------------------- ----------------------------------------- ----------------- -----------
<S> <C> <C> <C>
Units Representing Old North Capital Limited Partnership
Limited Partnership 88 Broad Street
Interests Boston, MA 02110 87,118.15 Units 9.86%
</TABLE>
Messrs. Engle, MacDonald and Coyne have ownership interests in ONC. The
general partner of ONC is controlled by Gary D. Engle.
The ownership and organization of EFG is described in Item 1 of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The General Partner of the Partnership is AFG Leasing VI Incorporated, an
affiliate of EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1998, 1997 and 1996, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Equipment management fees.................................................... $ 110,415 $ 183,112 $ 154,545
Administrative charges....................................................... 66,924 63,126 39,739
Reimbursable operating expenses due to third parties......................... 474,818 135,893 122,586
---------- ---------- ----------
Total........................................................................ $ 652,157 $ 382,131 $ 316,870
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management of equipment. For acquisition services, EFG is compensated by an
amount equal to 2.23% of Equipment Base Price paid by the Partnership. For
management services, EFG is compensated by an amount equal to 5% of gross
operating lease rental revenues and 2% of gross full payout lease rental revenue
received by the Partnership. Both acquisition and management fees are subject to
certain limitations defined in the Management Agreement.
12
<PAGE>
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG at actual cost.
All equipment was purchased from EFG, one of its affiliates or from
third-party sellers. The Partnership's acquisition cost was determined by the
method described in Note 2 to the financial statements included in Item 14,
herein.
During 1997, the Partnership and certain affiliated investment programs
sponsored by EFG exchanged their ownership interests in certain vessels for
aggregate consideration of $11,565,375. The Partnership's share of such
consideration was $2,456,528 consisting of common stock in Semele valued at
$638,615, a note receivable from Semele of $938,718 and cash of $879,195. For
further discussion, see Note 4, "Investment Securities--Affiliate / Note
Receivable Affiliate" to the financial statements included in Item 14 herein and
Item 10.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1998, the Partnership was owed $112,684 by EFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1999.
During 1996, the Partnership received payment in full from EFG of a note and
accrued interest thereon which was beneficially assigned to the Partnership in
1994 by a former affiliate of AFG as partial consideration for the exchange of
certain intermodal cargo containers.
Certain affiliates of the General Partner own Units in the Partnership as
follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
AFFILIATE UNITS OWNED OUTSTANDING UNITS
- ------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Atlantic Acquisition Limited Partnership..................... 23,472 2.66%
Old North Capital Limited Partnership........................ 87,118 9.86%
</TABLE>
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995. The general partners of AALP and ONC are controlled by Gary D. Engle.
In addition, the limited partnership interests of ONC are owned by Semele Group,
Inc. ("Semele"). Gary D. Engle is Chairman and CEO of Semele.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
13
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C> <C> <C>
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors................................................. *
Statement of Financial Position at December 31, 1998 and 1997.................. *
Statement of Operations for the years ended December 31, 1998, 1997 and 1996... *
Statement of Changes in Partners' Capital for the years ended December 31,
1998, 1997 and 1996............................................................ *
Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996... *
Notes to the Financial Statements.............................................. *
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as set forth in Item 601
of Regulation S-K, are not applicable.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------------
<C> <S>
4 Amended and Restated Agreement and Certificate of Limited Partnership included as Exhibit A to the
Prospectus, which is included in Registration Statement on Form S-1 (No. 33-35148).
13 The 1998 Annual Report to security holders, a copy of which is furnished for the information of the
Securities and Exchange Commission. Such Report, except for those portions thereof which are
incorporated herein by reference, is not deemed "filed" with the Commission.
23 Consent of Independent Auditors.
99(a) Lease agreement with General Motors Corporation was filed in the Registrant's Annual Report on Form
10-K for the period ended December 31, 1991 as Exhibit 28 (b) and is incorporated herein by
reference.
99(b) Lease agreement with Gearbulk Shipowning Ltd (formerly Kristian Gerhard Jebsen Skipsrederi A/S) was
filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 as Exhibit
28 (f) and is incorporated herein by reference
99(c) Lease agreement with National Steel Corporation was filed in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 as Exhibit 28 (h) and is incorporated herein by reference.
99(d) Lease agreement with Reno Air Inc. is filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998 and is included herein.
</TABLE>
- ------------------------
* Incorporated herein by reference to the appropriate portion of the 1998
Annual Report to security holders for the year ended December 31, 1998 (see
Part II).
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------------
<C> <S>
99(e) Lease agreement with Finnair OY is filed in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998 and is included herein.
99(f) Lease agreement with Finnair OY is filed in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998 and is included herein.
99(g) Lease agreement with Southwest Airlines is filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998 and is include herein.
99(h) Lease agreement with Southwest Airlines is filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998 and is include herein.
99(i) Lease agreement with Southwest Airlines is filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998 and is include herein.
99(j) Lease agreement with Trans Ocean Corporation, Inc. is filed in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998 and is included herein
</TABLE>
(b) Reports on Form 8-K
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
<TABLE>
<S> <C> <C>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated,
-----------------------------------------
a Massachusetts corporation and the
General Partner of the Registrant.
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ GEOFFREY A. MACDONALD By: /s/ GARY D. ENGLE
---------------------------------------- ----------------------------------------
Geoffrey A. MacDonald Gary D. Engle
CHAIRMAN AND A MEMBER OF THE EXECUTIVE PRESIDENT AND CHIEF EXECUTIVE OFFICER AND
COMMITTEE OF EFG AND PRESIDENT AND A A MEMBER OF THE EXECUTIVE COMMITTEE OF
DIRECTOR OF THE GENERAL PARTNER EFG (PRINCIPAL EXECUTIVE OFFICER)
Date: March 31, 1999 Date: March 31, 1999
By: /s/ GARY M. ROMANO By: /s/ MICHAEL J. BUTTERFIELD
---------------------------------------- ----------------------------------------
Gary M. Romano Michael J. Butterfield
EXECUTIVE VICE PRESIDENT AND CHIEF SENIOR VICE PRESIDENT, FINANCE AND
OPERATING OFFICER OF EFG AND CLERK OF THE TREASURER OF EFG AND TREASURER OF THE
GENERAL PARTNER (PRINCIPAL FINANCIAL GENERAL PARTNER (PRINCIPAL ACCOUNTING
OFFICER) OFFICER)
Date: March 31, 1999 Date: March 31, 1999
</TABLE>
16
<PAGE>
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
ANNUAL REPORT TO THE PARTNERS, DECEMBER 31, 1998
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SELECTED FINANCIAL DATA................................................................................... 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 3-10
FINANCIAL STATEMENTS:
Report of Independent Auditors............................................................................ 11
Statement of Financial Position at December 31, 1998 and 1997............................................. 12
Statement of Operations for the years ended December 31, 1998, 1997 and 1996.............................. 13
Statement of Changes in Partners' Capital for the years ended December 31, 1998, 1997 and 1996............ 14
Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996.............................. 15
Notes to the Financial Statements......................................................................... 16-28
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash Generated to Cost of Equipment Disposed..................... 29
Statement of Cash and Distributable Cash From Operations, Sales and Refinancings.......................... 30
Schedule of Costs Reimbursed to the General Partner and its Affiliates as Required by Section 9.4 of the
Amended and Restated Agreement and Certificate of Limited Partnership................................... 31
</TABLE>
1
<PAGE>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1998:
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS 1998 1997 1996 1995 1994
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Lease revenue........................ $ 2,430,065 $ 5,115,146 $ 5,328,237 $ 5,590,621 $ 7,587,215
Net income........................... $ 137,523 $ 1,252,723 $ 1,062,652 $ 261,733 $ 948,185
Per Unit:
Net income......................... $ 0.15 $ 1.35 $ 1.14 $ 0.28 $ 1.02
Cash distributions................. $ 1.01 $ 1.27 $ 2.40 $ 2.75 $ 2.75
<CAPTION>
FINANCIAL POSITION
- -------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets......................... $ 14,457,880 $ 15,908,093 $ 18,074,828 $ 18,755,667 $ 22,075,839
Total long-term obligations.......... $ 3,688,947 $ 4,768,982 $ 6,586,970 $ 5,839,543 $ 6,657,115
Partners' capital.................... $ 10,136,041 $ 10,706,355 $ 10,865,261 $ 12,035,442 $ 14,332,162
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1997
COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Certain statements in this annual report of American Income Fund I-E, a
Massachusetts Limited Partnership (the "Partnership") that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of important factors that could cause
actual results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
outcome of the Class Action Lawsuit described in Note 8 to the accompanying
financial statements, the collection of all rents due under the Partnership's
lease agreements and the remarketing of the Partnership's equipment.
YEAR 2000 ISSUE
The Year 2000 Issue generally refers to the capacity of computer programming
logic to correctly identify the calendar year. Many companies utilize computer
programs or hardware with date sensitive software or embedded chips that could
interpret dates ending in "00" as the year 1900 rather than the year 2000. In
certain cases, such errors could result in system failures or miscalculations
that disrupt the operations of the affected businesses. The Partnership uses
information systems provided by EFG and has no information systems of its own.
EFG has adopted a plan to address the Year 2000 Issue that consists of four
phases: assessment, remediation, testing, and implementation and has elected to
utilize principally internal resources to perform all phases. EFG completed
substantially all of its Year 2000 project by December 31, 1998 at an aggregate
cost of less than $50,000 and at a di minimus cost to the Partnership. Remaining
items are expected to be minor and be completed by March 31, 1999. All costs
incurred in connection with EFG's Year 2000 project have been expensed as
incurred.
EFG's primary information software was coded by IBM at the point of original
design to use a four digit field to identify calendar year. All of the
Partnership's lease billings, cash receipts and equipment remarketing processes
are performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll, depreciation processing,
and electronic banking, have been evaluated for potential programming changes
and have required only minor modifications to function properly with respect to
dates in the year 2000 and thereafter. EFG understands that each of its and the
Partnership's significant vendors and third-party servicers are in the process,
or have completed the process, of making their systems Year 2000 compliant.
Substantially all parties queried have indicated that their systems would be
Year 2000 compliant by the end of 1998.
Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Partnership's results of operations,
liquidity, or financial position. The Partnership's equipment leases were
structured as triple net leases, meaning that the lessees are responsible for,
among other things, (i) maintaining and servicing all equipment during the lease
term, (ii) ensuring that all equipment functions properly and is returned in
good condition, normal wear and tear excepted, and (iii) insuring the assets
against casualty and other events of loss. Non-compliance with lease terms on
the part of a lessee, including failure to address Year 2000 Issues, could
result in lost revenues and impairment of residual values of the Partnership's
equipment assets under a worst-case scenario.
EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Partnership's
3
<PAGE>
business operations. However, EFG has no means of ensuring that all customers,
vendors and third-party servicers will conform ultimately to Year 2000
standards. The effect of this risk to the Partnership is not determinable.
OVERVIEW
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The value of the Partnership's equipment
portfolio decreases over time due to depreciation resulting from age and usage
of the equipment, as well as technological changes and other market factors. In
addition, the Partnership does not replace equipment as it is sold; therefore,
its aggregate investment value in equipment declines from asset disposals
occurring in the normal course of business. Presently, the Partnership is a
Nominal Defendant in a Class Action Lawsuit, the outcome of which could
significantly alter the nature of the Partnership's organization and its future
business operations. See Note 8 to the accompanying financial statements.
Pursuant to the Restated Agreement, as amended, the Partnership is scheduled to
be dissolved by December 31, 2002.
RESULTS OF OPERATIONS
For the year ended December 31, 1998, the Partnership recognized lease
revenue of $2,430,065 compared to $5,115,146 and $5,328,237 for the years ended
December 31, 1997 and 1996, respectively. The decrease in lease revenue from
1996 to 1998 reflects the effects of primary lease term expirations and the sale
or exchange of equipment, including the vessel exchange in 1997 discussed below.
In 1997 and 1996, the Partnership had recognized lease revenue from the vessel
of $1,148,884 and $1,077,488, respectively. Partially offsetting the decrease
from 1996 to 1997 was the effects of an aircraft exchange which concluded in
March 1996. As a result of the aircraft exchange, the Partnership replaced its
ownership interest in a Boeing 747-SP aircraft (the "United Aircraft"), having
aggregate quarterly lease revenues of $174,279, with interests in six other
aircraft, three Boeing 737 aircraft leased by Southwest Airlines, Inc., two
McDonnell Douglas MD-82 aircraft leased by Finnair OY (the "Finnair Aircraft")
and one McDonnell Douglas MD-87 aircraft leased by Reno Air, Inc. (the "Reno
Aircraft"), having aggregate quarterly lease revenues of $266,911. The Southwest
Aircraft were exchanged into the Partnership in 1995, while the Finnair Aircraft
and the Reno Aircraft were exchanged into the Partnership on March 25 and March
26, 1996, respectively (see further discussion below). Accordingly, 1997 was the
first year the Partnership recognized a full year's revenue related to its
interest in all six of these aircraft.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enabled the Partnership to
further diversify its equipment portfolio at inception by participating in the
ownership of selected assets, thereby reducing the general levels of risk which
could have resulted from a concentration in any single equipment type, industry
or lessee. The Partnership and each affiliate individually report, in proportion
to their respective ownership interests, their respective shares of assets,
liabilities, revenues, and expenses associated with the equipment.
Interest income for the year ended December 31, 1998 was $306,920 compared
to $152,995 and $158,602 for the years ended December 31, 1997 and 1996,
respectively. Interest income is typically generated from temporary investment
of rental receipts and equipment sale proceeds in short-term instruments.
Interest income in 1998 and 1997 included $93,872 and 18,514, respectively,
earned on a note receivable from Semele Group, Inc. (formerly Banyan Strategic
Land Fund II) ("Semele") (see Note 4 to the financial statements herein). In
1996, the Partnership earned interest income of $36,763 on cash held in a
special-purpose escrow account in connection with the aircraft exchange
transactions. During 1996, the Partnership also earned interest income of
$18,553, on a note receivable from EFG resulting from a settlement with ICCU
Containers, S.p.A. (see Note 5 to the financial statements herein). The amount
of
4
<PAGE>
future interest income is expected to fluctuate in relation to prevailing
interest rates, the collection of lease revenue and the proceeds from equipment
sales.
During the year ended December 31, 1998, the Partnership sold equipment
having a net book value of $108,381 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $208,143
compared to a net gain in 1997 of $359,630 on equipment having a net book value
of $535,501, and a net gain of $177,153 in 1996 on equipment having a net book
value of $127,837.
In 1997, the Partnership exchanged its interest in a vessel with an original
cost and net book value of $5,160,573 and $2,386,249, respectively. In
connection with this exchange, the Partnership realized proceeds of $1,578,208,
which resulted in a net loss, for financial statement purposes, of $808,041. In
addition, as this vessel was disposed of prior to the expiration of the related
lease term, the Partnership received a prepayment of the remaining contracted
rent due under the vessel's lease agreement of $878,320.
During August 1997, the Partnership and another EFG-sponsored investment
program exchanged certain locomotives for a proportionate interest in
replacement locomotives. The Partnership's original locomotives had a cost and
net book value of $1,572,197 and $1,047,043, respectively, and had associated
indebtedness of $411,997 at the time of the exchange. The replacement
locomotives were recorded at their fair value of $1,524,829 and the Partnership
assumed associated debt of $1,040,043. The locomotive exchange resulted in the
recognition of a net loss, for financial statement purposes, of $150,260.
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of
common stock in Semele, a purchase money note of $8,219,500 (the "Note") and
cash of $365,375. Semele is a Delaware corporation organized on April 14, 1987
and has its common stock listed on NASDAQ (NASDAQ SmallCap Market effective
January 5, 1999). At the date of the exchange transaction, the common stock of
Semele had a net book value of approximately $1.50 per share and closing market
value of $1.00 per share. Semele has one principal real estate asset consisting
of an undeveloped 274 acre parcel of land near Malibu, California ("Rancho
Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Semele (the "Semele Note").
As a result of the vessel exchange transaction and its original 67%
beneficial ownership interest in Hato Arrow, one of the three Vessels, the
Partnership received $879,195 in cash, became the beneficial owner of 425,743
shares of Semele common stock (valued at $638,615 ($1.50 per share) at the time
of the exchange transaction) and received a beneficial interest in the Semele
Note of $938,718. The Semele Note bears an annual interest rate of 10% and will
be amortized over three years with mandatory principal reductions, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
Rancho Malibu.
Cash equal to the amount of the Semele Note was placed in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock
5
<PAGE>
in a way to protect Semele's net operating loss carry-forwards, and (3) engage
EFG to provide administrative services to Semele, which services EFG will
provide at cost. On October 21, 1997, such Consent was obtained from Semele's
shareholders. The Consent also allowed for (i) the election of a new Board of
Directors nominated by EFG for terms of up to three years and an increase in the
size of the Board to as many as nine members, provided a majority of the Board
shall consist of members independent of Semele, EFG or any affiliate; and (ii)
an amendment extending Semele's life to perpetual and changing its name from
Banyan Strategic Land Fund II. Contemporaneously with the Consent being
obtained, Semele declared a $0.20 per share dividend to be paid on all shares,
including those beneficially owned by the Partnership. A dividend of $85,149 was
paid to the Partnership on November 17, 1997. This dividend represented a return
of equity to the Partnership, which proportionately reduced the Partnership's
investment in Semele.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements may not be indicative of the total
residual value the Partnership achieved from leasing the equipment.
Depreciation expense was $1,438,667, $2,679,339 and $3,688,916 for the years
ended December 31, 1998, 1997 and 1996, respectively. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the
Partnership depreciates the difference between (i) the cost of the asset and
(ii) the estimated residual value of the asset at the date of primary lease
expiration on a straight-line basis over such term. For purposes of this policy,
estimated residual values represent estimates of equipment values at the date of
primary lease expiration. To the extent that equipment is held beyond its
primary lease term, the Partnership continues to depreciate the remaining net
book value of the asset on a straight-line basis over the asset's remaining
economic life.
Interest expense was $338,932 or 13.9% of lease revenue in 1998, compared to
$355,277 or 6.9% of lease revenue in 1997 and $595,554 or 11.2% of lease revenue
in 1996. The decrease in interest expense from 1996 to 1998 reflects the
reduction of the Partnership's indebtedness utilizing rental payments and a
portion of the Partnership's available cash. Interest expense in future years is
expected to decline in amount and as a percentage of lease revenue as the
principal balance of notes payable is reduced through the application of rent
receipts to outstanding debt.
Management fees were approximately 4.5% of lease revenue during the year
ended December 31, 1998, compared to 3.6% and 2.9% during the years ended
December 31, 1997 and 1996. Management fees are based on 5% of gross lease
revenue generated by operating leases and 2% of gross lease revenue generated by
full payout leases.
Write-down of investment securities-affiliate was $377,849 for the year
ended December 31, 1998. The General Partner determined that the decline in
market value of the Semele common stock was other-than-
6
<PAGE>
temporary at December 31, 1998. As a result, the Partnership wrote down the cost
of the Semele common stock from $15 per share to $4.125 per share (the quoted
price of Semele stock on NASDAQ at December 31, 1998).
Operating expenses were $541,742, $199,019 and $162,325 for the years ended
December 31, 1998, 1997 and 1996, respectively. During the year ended December
31, 1998, the Partnership incurred or accrued approximately $334,000 for certain
legal and administrative expenses related to the Class Action Lawsuit described
in Note 8 to the financial statements. Other operating expenses consist
principally of administrative charges, professional service costs, such as audit
and other legal fees, as well as printing, distribution and remarketing
expenses. In certain cases, equipment storage or repairs and maintenance costs
may be incurred in connection with equipment being remarketed. The increase in
operating expenses from 1996 to 1997 was primarily attributable to an increase
in administrative charges and professional service costs.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Partnership by its nature is a limited life entity. As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These cash
inflows are used to satisfy debt service obligations associated with leveraged
leases, and to pay management fees and operating costs. Operating activities
generated net cash inflows of $2,642,701, $4,412,819 and $4,965,954 in 1998,
1997 and 1996, respectively. Future renewal, re-lease and equipment sale
activities will cause a decline in the Partnership's lease revenue and
corresponding sources of operating cash. Overall, expenses associated with
rental activities, such as management fees, and net cash flow from operating
activities will also decline as the Partnership experiences a higher frequency
of remarketing events.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. During 1998, the Partnership realized net
cash proceeds of $316,524, compared to $896,006 and $304,990 in 1997 and 1996,
respectively. Future inflows of cash from asset disposals will vary in timing
and amount and will be influenced by many factors including, but not limited to,
the frequency and timing of lease expirations, the type of equipment being sold,
its condition and age, and future market conditions. In 1996, the Partnership
completed the replacement of its interest in a Boeing 747-SP aircraft which it
sold in 1995 with the acquisitions of an 9.71% ownership interest in two
aircraft leased to Finnair OY and a 17.43% ownership interest in an aircraft
leased to Reno Air, Inc. at a total cost of $2,718,900 and $2,367,806,
respectively. To acquire the ownership interest in the Finnair Aircraft, the
Partnership paid $909,035 in cash and obtained financing of $1,809,865 from a
third-party lender. To acquire the ownership interest in the Reno Aircraft, the
Partnership paid $404,693 in cash and obtained financing of $1,963,113 from a
third-party lender. The Partnership utilized $1,276,051(classified ad
Contractual Right for Equipment at December 31, 1995) which had been deposited
into a special-purpose escrow account through a third-party exchange agent
pending the completion of the aircraft exchange. The balance of $37,677 was
expended from the Partnership's cash reserves. The remaining ownership interests
of 90.29% and 82.57% in the Finnair Aircraft and the Reno Aircraft,
respectively, are held by affiliated equipment leasing programs sponsored by
EFG. There were no equipment acquisitions in 1998 or 1997.
At December 31, 1998, the Partnership was due aggregate future minimum lease
payments of $5,113,204 from contractual lease agreements (see Note 2 to the
financial statements), a portion of which will be used to amortize the principal
balance of notes payable of $3,688,947 (see Note 6 to the financial statements).
At the expiration of the individual primary and renewal lease terms underlying
the Partnership's future minimum lease payments, the Partnership will sell the
equipment or enter re-lease or renewal agreements when considered advantageous
by the General Partner and EFG. Such future remarketing activities will result
in the realization of additional cash inflows in the form of equipment sale
proceeds or rents from renewals and re-leases, the timing and extent of which
cannot be predicted with certainty. This
7
<PAGE>
is because the timing and extent of remarketing events often is dependent upon
the needs and interests of the existing lessees. Some lessees may choose to
renew their lease contracts, while others may elect to return the equipment. In
the latter instances, the equipment could be re-leased to another lessee or sold
to a third party. Accordingly, as the terms of the currently existing
contractual lease agreements expire, the cash flows of the Partnership will
become less predictable. In addition, the Partnership will need cash outflows to
satisfy interest on indebtedness and to pay management fees and operating
expenses.
As a result of the vessel exchange (see Results of Operations), the
Partnership became the beneficial owner of 425,743 shares of Semele common stock
(valued at $638,615 ($1.50 per share) at the time of the exchange transaction).
This investment was reduced by a dividend of $85,149 received in November 1997
representing a return of equity to the Partnership. The Partnership also
received a beneficial interest in the Semele Note of $938,718 in connection with
the exchange.
On June 30, 1998, Semele effected a 1-for-300 reverse stock split followed
by a 30-for-1 forward stock split resulting in a reduction of the number of
shares of Semele common stock owned by the Partnership to 42,574 shares. In
accordance with the Financial Accounting Standard Board's Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
equity securities classified as available-for-sale are required to be carried at
fair value. During the year ended December 31, 1998, the Partnership decreased
the carrying value of its investment in Semele common stock to $4.125 per share
(the quoted price of the Semele stock on NASDAQ at December 31, 1998) resulting
in an unrealized loss in 1998 of $143,690. In 1997, the Partnership recorded an
unrealized loss of $234,159 related to its Semele common stock. These losses
were reported as components of comprehensive income, included in partners'
capital. At December 31, 1998, the General Partner determined that the decline
in market value of the Semele common stock was other-than-temporary. As a
result, the Partnership wrote down the cost of the Semele common stock to $4.125
per share (the quoted price of the Semele common stock on NASDAQ at December 31,
1998) for a total realized loss of $377,849 in 1998.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In addition, during 1997 the Partnership utilized a
portion of its available cash to repay certain of its debt obligations. In
future years, the amount of cash used to repay debt obligations is scheduled to
decline as the principal balance of notes payable is reduced through the
collection and application of rents. The Partnership also has balloon payment
obligations at the expiration of the respective primary lease terms related to
the Finnair Aircraft and the Reno Aircraft of $922,830 and $555,597,
respectively.
There are no formal restrictions under the Restated Agreement, as amended,
that materially limit the Partnership's ability to pay cash distributions,
except that the General Partner may suspend or limit cash distributions to
ensure that the Partnership maintains sufficient working capital reserves to
cover, among other things, operating costs and potential expenditures, such as
refurbishment costs to remarket equipment upon lease expiration. Liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets. In particular,
the Partnership must contemplate the potential liquidity risks associated with
its investment in commercial jet aircraft. The management and remarketing of
aircraft can involve, among other things, significant costs and lengthy
remarketing initiatives.
Although the Partnership's lessees are required to maintain the aircraft
during the period of lease contract, repair, maintenance, and/or refurbishment
costs at lease expiration can be substantial. For
8
<PAGE>
example, an aircraft that is returned to the Partnership meeting minimum
airworthiness standards, such as flight hours or engine cycles, nonetheless may
require heavy maintenance in order to bring its engines, airframe and other
hardware up to standards that will permit its prospective use in commercial air
transportation. Individually, these repairs can cost in excess of $1 million
and, collectively, they could require the disbursement of several million
dollars, depending upon the extent of refurbishment. In addition, the
Partnership's equipment portfolio includes an interest in three Stage 2 aircraft
having scheduled lease expiration dates of December 31, 1999. These aircraft are
prohibited from operating in the United States after December 31, 1999 unless
they are retro-fitted with hush-kits to meet Stage 3 noise regulations
promulgated by the Federal Aviation Administration. The cost to hush-kit an
aircraft, such as the Partnership's Boeing 737s, can approach $2 million.
Although the Partnership is not required to retro-fit its aircraft with
hush-kits, insufficient liquidity could jeopardize the re-marketing of these
aircraft and risk their disposal at a depressed value at a time when a better
economic return would be realized from refurbishing the aircraft and re-leasing
them to another user. Collectively, the aggregation of the Partnership's
potential liquidity needs related to aircraft and other working capital
requirements could be significant. Accordingly, the General Partner has
maintained significant cash reserves within the Partnership in order to minimize
the risk of a liquidity shortage, particularly in connection with the
Partnership's aircraft interests.
Finally, the Partnership is a Nominal Defendant in a Class Action Lawsuit
described in Note 8 to the accompanying financial statements. A preliminary
settlement agreement will allow the Partnership to invest in new equipment or
other activities, subject to certain limitations, effective March 22, 1999. To
the extent that the Partnership continues to own aircraft investments that could
require capital reserves, the General Partner does not anticipate that the
Partnership will invest in new assets, regardless of its authority to do so.
Until the Class Action Lawsuit is adjudicated, the General Partner does not
expect that the level of future quarterly cash distributions paid by the
Partnership will be increased above amounts paid in the fourth quarter of 1998.
In addition, the proposed settlement, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. See Note 8 to the accompanying financial
statements.
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the year ended December 31, 1998, the Partnership declared total
cash distributions of $941,996. In accordance with the Restated Agreement, as
amended, the Limited Partners were allocated 95% of these distributions, or
$894,896 and the General Partner was allocated 5%, or $47,100. The fourth
quarter 1998 cash distribution was paid on January 15, 1999.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date.
The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes (generally referred to as permanent or timing differences;
see Note 7 to the financial statements). For instance, selling commissions and
organization and offering costs pertaining to syndication of the Partnership's
limited partnership units are not deductible for federal income tax purposes,
but are recorded as a reduction of partners' capital for financial reporting
purposes. Therefore, such differences are permanent differences between capital
accounts for financial reporting and federal income tax purposes. Other
differences between the bases of capital accounts for federal income tax and
financial reporting purposes occur due to timing differences. Such items consist
of the cumulative difference between income or loss for tax purposes and
financial statement income or loss, the difference between distributions
(declared vs. paid) for income tax and financial reporting purposes, and the
9
<PAGE>
treatment of unrealized gains or losses on investment securities, if any, for
book and tax purposes. The principal component of the cumulative difference
between financial statement income or loss and tax income or loss results from
different depreciation policies for book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at December 31, 1998. This is the result of aggregate cash
distributions to the General Partner being in excess of its capital contribution
of $1,000 and its allocation of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the General Partner for
financial reporting purposes is not indicative of any further capital
obligations to the Partnership by the General Partner. The Amended and Restated
Agreement and Certificate of Limited Partnership requires that, upon the
dissolution of the Partnership, the General Partner will be required to
contribute to the Partnership an amount equal to any negative balance which may
exist in the General Partner's tax capital account. At December 31, 1998, the
General Partner had a positive tax capital account balance.
The future liquidity of the Partnership will be influenced by, among other
factors, prospective market conditions, technological changes, the ability of
EFG to manage and remarket the assets, and many other events and circumstances,
that could enhance or detract from individual asset yields and the collective
performance of the Partnership's equipment portfolio. However, the outcome of
the Class Action Lawsuit described in Note 8 to the accompanying financial
statements will be the principal factor in determining the future of the
Partnership's operations
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Fund I-E,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Fund I-E, a Massachusetts Limited Partnership, as of December
31, 1998 and 1997, and the related statements of operations, changes in
partners' capital, and cash flows for each of the three years in the period
ended December 31, 1998. 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 audits.
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 American Income Fund I-E, a
Massachusetts Limited Partnership at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Additional Financial Information
identified in the Index to Annual Report to the Partners is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1999
11
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................................... $ 4,468,062 $ 3,530,868
Rents receivable................................................................... 301,563 301,473
Accounts receivable--affiliate..................................................... 112,684 809,443
Note receivable--affiliate......................................................... 938,718 938,718
Investment securities--affiliate................................................... 175,617 319,307
Equipment at cost, net of accumulated depreciation of $10,116,949 and $10,784,619
at December 31, 1998 and 1997, respectively...................................... 8,461,236 10,008,284
------------- -------------
Total assets................................................................... $ 14,457,880 $ 15,908,093
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable...................................................................... $ 3,688,947 $ 4,768,982
Accrued interest................................................................... 36,297 31,496
Accrued liabilities................................................................ 295,500 9,200
Accrued liabilities--affiliate..................................................... 17,592 50,770
Deferred rental income............................................................. 48,008 105,795
Cash distributions payable to partners............................................. 235,495 235,495
------------- -------------
Total liabilities.............................................................. 4,321,839 5,201,738
------------- -------------
Partners' capital (deficit):
General Partner.................................................................. (467,548) (439,033)
Limited Partnership Interests (883,829.31 Units; initial purchase price of $25
each).......................................................................... 10,603,589 11,145,388
------------- -------------
Total partners' capital........................................................ 10,136,041 10,706,355
------------- -------------
Total liabilities and partners' capital............................................ $ 14,457,880 $ 15,908,093
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of
these financial statements
12
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Lease revenue......................................................... $ 2,430,065 $ 5,115,146 $ 5,328,237
Interest income....................................................... 213,048 134,481 140,049
Interest income--affiliate............................................ 93,872 18,514 18,553
Gain on sale of equipment............................................. 208,143 359,630 177,153
Loss on exchange of equipment......................................... -- (958,301) --
------------ ------------ ------------
Total income........................................................ 2,945,128 4,669,470 5,663,992
------------ ------------ ------------
Expenses:
Depreciation.......................................................... 1,438,667 2,679,339 3,688,916
Interest expense...................................................... 338,932 355,277 595,554
Equipment management fees--affiliate.................................. 110,415 183,112 154,545
Write-down of investment securities--affiliate........................ 377,849 -- --
Operating expenses--affiliate......................................... 541,742 199,019 162,325
------------ ------------ ------------
Total expenses...................................................... 2,807,605 3,416,747 4,601,340
------------ ------------ ------------
Net income.............................................................. $ 137,523 $ 1,252,723 $ 1,062,652
------------ ------------ ------------
------------ ------------ ------------
Net income per limited partnership unit................................. $ 0.15 $ 1.35 $ 1.14
------------ ------------ ------------
------------ ------------ ------------
Cash distributions declared per limited partnership unit................ $ 1.01 $ 1.27 $ 2.40
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of
these financial statements
13
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
GENERAL LIMITED PARTNERS
PARTNER ---------------------------
AMOUNT UNITS AMOUNT TOTAL
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............................ $ (372,579) 883,829.31 $ 12,408,021 $ 12,035,442
Net income--1996...................................... 53,133 -- 1,009,519 1,062,652
----------- ------------ ------------- -------------
Comprehensive income.................................... 53,133 -- 1,009,519 1,062,652
----------- ------------ ------------- -------------
Cash distributions declared............................. (111,642) -- (2,121,191) (2,232,833)
----------- ------------ ------------- -------------
Balance at December 31, 1996............................ (431,088) 883,829.31 11,296,349 10,865,261
Net income--1997...................................... 62,636 -- 1,190,087 1,252,723
Unrealized loss on investment securities.............. (11,708) -- (222,451) (234,159)
----------- ------------ ------------- -------------
Comprehensive income.................................... 50,928 -- 967,636 1,018,564
----------- ------------ ------------- -------------
Cash distributions declared............................. (58,873) -- (1,118,597) (1,177,470)
----------- ------------ ------------- -------------
Balance at December 31, 1997............................ (439,033) 883,829.31 11,145,388 10,706,355
Net income--1998...................................... 6,877 -- 130,646 137,523
Unrealized loss on investment securities.............. (7,184) -- (136,506) (143,690)
Less: reclassification adjustment for write-down of
investment securities............................... 18,892 -- 358,957 377,849
----------- ------------ ------------- -------------
Comprehensive income.................................... 18,585 -- 353,097 371,682
----------- ------------ ------------- -------------
Cash distributions declared............................. (47,100) -- (894,896) (941,996)
----------- ------------ ------------- -------------
Balance at December 31, 1998............................ $ (467,548) 883,829.31 $ 10,603,589 $ 10,136,041
----------- ------------ ------------- -------------
----------- ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of
these financial statements
14
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income............................................................. $ 137,523 $ 1,252,723 $ 1,062,652
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation....................................................... 1,438,667 2,679,339 3,688,916
Gain on sale of equipment.......................................... (208,143) (359,630) (177,153)
Write-down of investment securities--affiliate..................... 377,849 -- --
Loss on exchange of equipment...................................... -- 958,301 --
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable................................................... (90) 563,486 222,102
Accounts receivable--affiliate..................................... 696,759 (570,057) (108,475)
Note receivable--affiliate......................................... -- -- 210,377
Increase (decrease) in:
Accrued interest................................................... 4,801 (64,627) 28,123
Accrued liabilities................................................ 286,300 (14,050) 1,480
Accrued liabilities--affiliate..................................... (33,178) 16,547 22,348
Deferred rental income............................................. (57,787) (49,213) 15,584
------------- ------------ ------------
Net cash from operating activities............................... 2,642,701 4,412,819 4,965,954
------------- ------------ ------------
Cash flows from (used in) investing activities:
Dividend received.................................................... -- 85,149 --
Purchase of equipment................................................ -- -- (37,677)
Proceeds from equipment sales........................................ 316,524 896,006 304,990
------------- ------------ ------------
Net cash from investing activities............................... 316,524 981,155 267,313
------------- ------------ ------------
Cash flows used in financing activities:
Principal payments--notes payable.................................. (1,080,035) (2,446,034) (3,025,551)
Distributions paid................................................. (941,996) (1,255,968) (2,558,453)
------------- ------------ ------------
Net cash used in financing activities............................ (2,022,031) (3,702,002) (5,584,004)
------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents................... 937,194 1,691,972 (350,737)
Cash and cash equivalents at beginning of year......................... 3,530,868 1,838,896 2,189,633
------------- ------------ ------------
Cash and cash equivalents at end of year............................... $ 4,468,062 $ 3,530,868 $ 1,838,896
------------- ------------ ------------
------------- ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................................. $ 334,131 $ 419,904 $ 567,431
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
See Note 4 to the financial statements regarding the reduction of the
Partnership's carrying value of its investment securities--affiliate. Also, see
Note 3 to the financial statements.
The accompanying notes are an integral part of
these financial statements
15
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--ORGANIZATION AND PARTNERSHIP MATTERS
American Income Fund I-E, a Massachusetts Limited Partnership (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on August 29, 1991, for the
purpose of acquiring and leasing to third parties a diversified portfolio of
capital equipment. Partners' capital initially consisted of contributions of
$1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On December 4, 1991, the
Partnership concluded an Interim Closing and issued 587,079.96 units of limited
partnership interest (the "Units") to 654 investors for a purchase price of
$14,569,875. Included in the 587,079.96 units were 4,284.96 bonus units. On
January 31, 1992, the Partnership concluded its Final Closing. An additional
296,749.35 units (including 626.35 bonus units) were purchased for an additional
purchase price of $7,403,075 and an additional 735 investors became Limited
Partners of the Partnership. As of January 31, 1992, an aggregate total of
883,829.31 units (including 4,911.31 bonus units) had been purchased for an
aggregate total purchase price of $21,972,950 and an aggregate of 1,089
investors had become Limited Partners of the Partnership. The Partnership's
General Partner, AFG Leasing VI Incorporated, is a Massachusetts corporation
formed in 1990 and an affiliate of Equis Financial Group Limited Partnership
(formerly known as American Finance Group), a Massachusetts limited partnership
("EFG"). The General Partner is not required to make any other capital
contributions except as may be required under the Uniform Act and Section 6.1(b)
of the Amended and Restated Agreement and Certificate of Limited Partnership
(the "Restated Agreement, as amended").
Significant operations commenced on December 4, 1991 when the Partnership
made its initial equipment acquisition. Pursuant to the Restated Agreement, as
amended, Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 95% to the Limited Partners and 5% to the General
Partner.
Under the terms of a Management Agreement between the Partnership and EFG,
management services are provided by EFG to the Partnership at fees which the
General Partner believes to be competitive for similar services (see Note 5).
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Equipment Manager or Advisor to the Partnership and
several other direct-participation equipment leasing programs sponsored or
co-sponsored by EFG (the "Other Investment Programs"). The Company arranges to
broker or originate equipment leases, acts as remarketing agent and asset
manager, and provides leasing support services, such as billing, collecting, and
asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for the
sole purpose of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American
16
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Finance Group and its acronym in connection with the Partnership and the Other
Investment Programs and to continue managing all assets owned by the Partnership
and the Other Investment Programs.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
the display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Partnership's net income or partners'
capital. Statement 130 requires unrealized gains or losses on the Partnership's
available-for-sale securities, which prior to adoption were reported separately
in partners' capital to be included in comprehensive income (loss). At December
31, 1997, the cumulative amount of other comprehensive losses was $234,159.
STATEMENT OF CASH FLOWS
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in federal agency
discount notes and in reverse repurchase agreements with overnight maturities.
Under the terms of the agreements, title to the underlying securities passes to
the Partnership. The securities underlying the agreements are book entry
securities. At December 31, 1998, the Partnership had $4,358,050 invested in
federal agency discount notes and in reverse repurchase agreements secured by
U.S. Treasury Bills or interests in U.S. Government securities.
REVENUE RECOGNITION
Rents are payable to the Partnership monthly, quarterly or semi-annually and
no significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of
$5,113,204 are due as follows:
<TABLE>
<C> <S> <C>
For the year ending December 31, 1999 .................... $1,827,355
2000 .................... 1,072,124
2001 .................... 888,038
2002 .................... 836,068
2003 .................... 440,683
Thereafter .................... 48,936
----------
Total .................... $5,113,204
----------
----------
</TABLE>
In December 1998, the Partnership and the other affiliated leasing programs
owning interests in two McDonnell Douglas MD-82 aircraft entered into lease
extension agreements with Finnair OY. The lease extensions, effective upon the
expiration of the existing primary lease terms on April 28, 1999, extended the
leases for nine months and two years, respectively. In aggregate, these lease
extensions will provide additional lease revenue of approximately $573,000 to
the Partnership.
17
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Finnair OY................................................................ $ 418,516 $ -- $ --
General Motors Corporation................................................ $ 363,440 $ -- $ --
Southwest Airlines........................................................ $ 338,112 $ -- $ --
Reno Air, Inc............................................................. $ 306,806 $ -- $ --
Trans Ocean Container Corp................................................ $ 279,105 $ -- $ --
Gearbulk Shipowning Ltd................................................... $ -- $ 1,148,884 $ 1,077,488
National Steel Corporation................................................ $ -- $ 729,633 $ 722,342
</TABLE>
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
EQUIPMENT ON LEASE
All equipment was acquired from EFG, one of its Affiliates or from
third-party sellers. Equipment Cost means the actual cost paid by the
Partnership to acquire the equipment, including acquisition fees. Where
equipment was acquired from EFG or an Affiliate, Equipment Cost reflects the
actual price paid for the equipment by EFG or the Affiliate plus all actual
costs incurred by EFG or the Affiliate while carrying the equipment, including
all liens and encumbrances, less the amount of all primary term rents earned by
EFG or the Affiliate prior to selling the equipment. Where the seller of the
equipment was a third party, Equipment Cost reflects the seller's invoice price.
DEPRECIATION
The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
Periodically, the General Partner evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. Adjustments to
reduce the net carrying value of equipment are recorded in those instances where
estimated net realizable value is considered to be less than net carrying value.
To the extent that such adjustments have been recorded, they are reflected
separately on the accompanying Statement of Operations as Write-Down of
Equipment
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends,
18
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
technological advances, and many other events can converge to enhance or detract
from asset values at any given time.
INVESTMENT SECURITIES--AFFILIATE
The Partnership's investment in Semele Group, Inc. is considered to be
available-for-sale and as such is carried at fair value with unrealized gains
and losses reported as a separate component of Partner's Capital.
Other-than-temporary declines in market value are recorded as write down of
investment in the Statement of Operations (see Note 4).
ACCRUED LIABILITIES--AFFILIATE
Unpaid operating expenses paid by EFG on behalf of the Partnership and
accrued but unpaid administrative charges and management fees are reported as
Accrued Liabilities--Affiliate (see Note 5).
ALLOCATION OF PROFITS AND LOSSES
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the Limited
Partners and 5% to the General Partner). See Note 7 for allocation of income or
loss for income tax purposes.
NET INCOME AND CASH DISTRIBUTIONS PER UNIT
Net income and cash distributions per Unit are based on 883,829.31 Units
outstanding during each of the three years in the period ended December 31, 1998
and are computed after allocation of the General Partner's 5% share of net
income and cash distributions.
PROVISION FOR INCOME TAXES
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
NOTE 3--EQUIPMENT
The following is a summary of equipment owned by the Partnership at December
31, 1998. Remaining Lease Term (Months), as used below, represents the number of
months remaining from December 31, 1998 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment
19
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
either held for sale or re-lease or being leased on a month-to-month basis. In
the opinion of EFG, the acquisition cost of the equipment did not exceed its
fair market value.
<TABLE>
<CAPTION>
REMAINING
LEASE TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST LOCATION
- --------------------------------------------- ------------- --------------- -------------------------------------
<S> <C> <C> <C>
Aircraft..................................... 13-48 $ 8,697,671 NV/TX/WA
Materials handling........................... 12-60 2,319,365 AR/IL/MI/NJ/OH/PA/SC/TX/WV
Trailers/intermodal containers............... 54 1,759,967 CA
Railroad..................................... 63 1,522,810 NB
Construction and mining...................... 24-72 1,342,849 IL/MI/WV
General purpose plant/warehouse.............. 3-12 1,195,438 CA
Tractors and heavy duty trucks............... 0 712,184 CA/IL/OR/WA
Retail store fixtures........................ 3 687,947 FL
Communications............................... 9 315,882 FL/NY/VA
Photocopying................................. 0-10 24,072 CA/CT/IL/NJ
---------------
Total equipment cost 18,578,185
Accumulated depreciation (10,116,949)
---------------
Equipment, net of accumulated depreciation $ 8,461,236
---------------
---------------
</TABLE>
During August 1997, the Partnership and another EFG-sponsored investment
program exchanged certain locomotives for a proportionate interest in certain
other locomotives. The Partnership's original locomotives had a cost and net
book value of $1,572,197 and $1,047,043, respectively, and had associated
indebtedness of $411,997 at the time of the exchange. The replacement
locomotives were recorded at their fair value of $1,524,829 and the Partnership
assumed associated debt of $1,040,043.
In 1996, the Partnership completed the replacement of its interest in a
Boeing 747-SP aircraft which it sold in 1995 with the acquisitions of an 9.71%
ownership interest in two aircraft leased to Finnair OY and a 17.43% ownership
interest in an aircraft leased to Reno Air, Inc. at a total cost of $2,718,900
and $2,367,806, respectively. To acquire the ownership interest in the Finnair
Aircraft, the Partnership paid $909,035 in cash and obtained financing of
$1,809,865 from a third-party lender. To acquire the ownership interest in the
Reno Aircraft, the Partnership paid $404,693 in cash and obtained financing of
$1,963,113 from a third-party lender. The Partnership utilized $1,276,051
(classified ad Contractual Right for Equipment at December 31, 1995) which had
been deposited into a special-purpose escrow account through a third-party
exchange agent pending the completion of the aircraft exchange. The balance of
$37,677 was expended from the Partnership's cash reserves. The remaining
ownership interests of 90.29% and 82.57% in the Finnair Aircraft and the Reno
Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by EFG.
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or an
affiliated equipment leasing program sponsored by EFG. The Partnership and each
affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enabled the Partnership to further diversify its equipment portfolio at
inception by participating in the ownership of selected assets, thereby reducing
the general levels of risk which could have resulted from a concentration in any
single equipment type, industry or
20
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
lessee. At December 31, 1998, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $12,034,761, representing
approximately 65% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately $8,328,000
and a net book value of approximately $6,361,000 at December 31, 1998 (see Note
6).
Generally, the costs associated with maintaining, insuring and operating the
Partnership's equipment are incurred by the respective lessees pursuant to terms
specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, EFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the primary lease terms. The summary above includes equipment held
for sale or re-lease with a cost and a net book value of $2,392,720 and
$1,136,326, respectively. This equipment includes the Partnership's
proportionate interest in a McDonnell Douglas MD-82 aircraft, formerly leased to
Alaska Airlines, Inc., with a cost and net book value of $1,892,051 and
$1,136,326, respectively, at December 31, 1998. This aircraft was sold in
January 1999 (see Note 9, Subsequent Events). The General Partner is actively
seeking the sale or re-lease of all other equipment not on lease. In addition,
the summary above also includes equipment being leased on a month-to-month
basis.
NOTE 4--INVESTMENT SECURITIES--AFFILIATE/NOTE RECEIVABLE--AFFILIATE
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly isssued shares (at $1.50 per share)
of common stock in Semele Group, Inc. ("Semele") (formerly Banyan Strategic Land
Fund II), a purchase money note of $8,219,500 (the "Note") and cash of $365,375.
Semele is a Delaware corporation organized on April 14, 1987 and has its common
stock listed on NASDAQ (NASDAQ Small Cap Market effective January 5, 1999). At
the date of the exchange transaction, the common stock of Semele had a net book
value of approximately $1.50 per share and closing market value of $1.00 per
share. Semele has one principal real estate asset consisting of an undeveloped
274 acre parcel of land near Malibu, California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Semele (the "Semele Note").
As a result of the exchange transaction and its original 67% beneficial
ownership interest in Hato Arrow, one of the three Vessels, the Partnership
received $879,195 in cash, became the beneficial owner of
21
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
425,743 shares of Semele common stock (valued at $638,615 ($1.50 per share) at
the time of the exchange transaction) and received a beneficial interest in the
Semele Note of $938,718. The Semele Note bears an annual interest rate of 10%
and will be amortized over three years with mandatory principal reductions, if
and to the extent that net proceeds are received by Semele from the sale or
refinancing of Rancho Malibu. The Partnership recognized interest income of
$93,872 and $18,514 related to the Semele Note during 1998 and 1997,
respectively. The Partnership's interest in the vessel had an original cost and
net book value of $5,160,573 and $2,386,249, respectively. The proceeds realized
by the Partnership of $1,578,208 resulted in a net loss, for financial statement
purposes, of $808,041. In addition, as this vessel was disposed of prior to the
expiration of the related lease term, the Partnership received a prepayment of
the remaining contracted rent due under the vessel's lease agreement of
$878,320.
Cash equal to the amount of the Semele Note was placed in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in the size of the Board to as many as nine members,
provided a majority of the Board shall consist of members independent of Semele,
EFG or any affiliate; and (ii) an amendment extending Semele's life to perpetual
and changing its name from Banyan Strategic Land Fund II. Contemporaneously with
the Consent being obtained, Semele declared a $0.20 per share dividend to be
paid on all shares, including those beneficially owned by the Partnership. A
dividend of $85,149 was paid to the Partnership on November 17, 1997. This
dividend represented a return of equity to the Partnership, which
proportionately reduced the Partnership's investment in Semele. Subsequent to
the exchange transaction, Gary D. Engle, President and Chief Executive Officer
of EFG, was elected to the Board of Directors and appointed Chief Executive
Officer of Semele and James A. Coyne, Executive Vice President of EFG was
appointed Semele's President and Chief Operating Officer, and was elected to the
Board of Directors.
On June 30, 1998, Semele effected a 1-for-300 reverse stock split followed
by a 30-for-1 forward stock split resulting in a reduction of the number of
shares of Semele common stock owned by the Partnership to 42,574 shares. In
accordance with the Financial Accounting Standard Board's Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
equity securities classified as available-for-sale are required to be carried at
fair value. During the year ended December 31, 1998, the Partnership decreased
the carrying value of its investment in Semele common stock to $4.125 per share
(the quoted price of the Semele stock on NASDAQ at December 31, 1998) resulting
in an unrealized loss in 1998 of $143,690. In 1997, the Partnership recorded an
unrealized loss of $234,159 related to its Semele common stock. These losses
were reported as components of comprehensive income, included in partners'
capital. At December 31, 1998, the General Partner determined that the decline
in market value of the Semele common stock was other-than-temporary. As a
result, the Partnership wrote down the cost of the Semele common stock to $4.125
per share (the quoted price of the Semele stock on NASDAQ at December 31, 1998)
for a total realized loss of $377,849 in 1998.
22
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5--RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1998, 1997 and 1996, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Equipment management fees.................................................... $ 110,415 $ 183,112 $ 154,545
Administrative charges....................................................... 66,924 63,126 39,739
Reimbursable operating expenses due to third parties......................... 474,818 135,893 122,586
---------- ---------- ----------
Total........................................................................ $ 652,157 $ 382,131 $ 316,870
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management of equipment. For acquisition services, EFG is compensated by an
amount equal to 2.23% of Equipment Base Price paid by the Partnership. For
management services, EFG is compensated by an amount equal to 5% of gross
operating lease rental revenues and 2% of gross full payout lease rental revenue
received by the Partnership. Both acquisition and management fees are subject to
certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG at actual cost.
All equipment was acquired from EFG, one of its Affiliates or from
third-party sellers. The Partnership's Purchase Price was determined by the
method described in Note 2.
All rents and proceeds from the sale of equipment are paid by the lessees
directly to either EFG or to a lender. EFG temporarily deposits collected funds
in a separate interest-bearing escrow account prior to remittance to the
Partnership. At December 31, 1998, the Partnership was owed $112,684 by EFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in January 1999.
During 1996, the Partnership received payment in full from EFG of a note and
accrued interest thereon which was beneficially assigned to the Partnership in
1994 by a former affiliate of AFG as partial consideration for the exchange of
certain intermodal cargo containers.
Certain affiliates of the General Partner own Units in the Partnership as
follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
AFFILIATE UNITS OWNED OUTSTANDING UNITS
- --------------------------------------------------------------------------------- ------------ -------------------
<S> <C> <C>
Atlantic Acquisition Limited Partnership......................................... 23,472 2.66%
Old North Capital Limited Partnership............................................ 87,118.15 9.86%
</TABLE>
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995 and affiliates of EFG. The general partners of AALP and ONC are
controlled by Gary D. Engle. In addition, the limited partnership interests of
ONC are owned by Semele Group, Inc. ("Semele"). Gary D. Engle is Chairman and
CEO of Semele.
23
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6--NOTES PAYABLE
Notes payable at December 31, 1998 consisted of installment notes of
$3,688,947 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 6.76% and 8.9%, except for one note which
bears a fluctuating interest rate based on LIBOR (5.54% at December 31, 1998)
plus a margin. All of the installment notes are non-recourse and are
collateralized by the equipment and assignment of the related lease payments.
Generally, the installment notes will be fully amortized by noncancellable
rents. However, the Partnership has balloon payment obligations at the
expiration of the primary lease terms related to the Finnair Aircraft and the
Reno Aircraft of $922,830 and $555,597, respectively. The carrying amount of
notes payable approximates fair value at December 31, 1998.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C>
For the year ending December 31, 1999... $1,691,093
2000...... 384,032
2001...... 413,481
2002...... 411,995
2003...... 740,223
Thereafter... 48,123
----------
Total..... $3,688,947
----------
----------
</TABLE>
NOTE 7--INCOME TAXES
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income to
each class of partner according to their respective ownership percentages (95%
to the Limited Partners and 5% to the General Partner). This convention differs
from the income or loss allocation requirements for income tax and Dissolution
Event purposes as delineated in the Restated Agreement, as amended. For income
tax purposes, the Partnership allocates net income or loss in accordance with
the provisions of such agreement. The Restated Agreement, as amended, requires
that upon dissolution of the Partnership, the General Partner will be required
to contribute to the Partnership an amount equal to any negative balance which
may exist in the General Partner's tax capital account. At December 31, 1998,
the General Partner had a positive tax capital account balance.
The following is a reconciliation between net income reported for financial
statement and federal income tax reporting purposes for the years ended December
31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Net income................................................................ $ 137,523 $ 1,252,723 $ 1,062,652
Financial statement depreciation in excess of (less than) tax
depreciation.......................................................... (586,707) (124,537) 360,011
Deferred rental income.................................................. (57,787) (49,213) 15,584
Other................................................................... 448,330 3,340 (35,287)
---------- ------------ ------------
Net income (loss) for federal income tax reporting purposes............... $ (58,641) $ 1,082,313 $ 1,402,960
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
24
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
The principal component of "Other" consists of the difference between the
tax gain or loss on equipment disposals and the financial statement gain or loss
on disposals.
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Partners' capital.................................................................. $ 10,136,041 $ 10,706,355
Unrealized loss on investment securities......................................... -- 234,159
Add back selling commissions and organization and offering costs................. 2,466,957 2,466,957
Financial statement distributions in excess of tax distributions................. 11,775 11,775
Cumulative difference between federal income tax and financial statement income
(loss)......................................................................... (2,704,182) (2,508,018)
------------- -------------
Partners' capital for federal income tax reporting purposes........................ $ 9,910,591 $ 10,911,228
------------- -------------
------------- -------------
</TABLE>
Unrealized loss on investment securities, financial statement distributions
in excess of tax distributions and cumulative difference between federal income
tax and financial statement income (loss) represent timing differences.
NOTE 8--LEGAL PROCEEDINGS
In January 1998, certain plaintiffs (the "Plaintiffs") filed a class and
derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP
LIMITED PARTNERSHIP, ET AL., in the United States District Court for the
Southern District of Florida (the "Court") on behalf of a proposed class of
investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and a number
of its affiliates, including the General Partner, as defendants (collectively,
the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had
filed an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit".
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth terms pursuant to which a settlement of
the Class Action Lawsuit is intended to be achieved and which, among other
things, is expected to reduce the burdens and expenses attendant to continuing
litigation. The Stipulation of Settlement was based upon and superseded a
Memorandum of Understanding between the parties dated March 9, 1998 which
outlined the terms of a possible settlement. The Stipulation of Settlement was
filed with the Court on July 23, 1998 and was preliminarily approved by the
Court on August 20, 1998 when the Court issued its "Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
for Notice of, and Hearing on, the Proposed Settlement" (the "August 20 Order").
Prior to issuing a final order, the Court will hold a fairness hearing that will
be open to all interested parties and permit any party to object to the
settlement. The investors of the
25
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Partnership and all other plaintiff class members in the Class Action Lawsuit
will receive a Notice of Settlement and other information pertinent to the
settlement of their claims that will be mailed to them in advance of the
fairness hearing. Since first executing the Stipulation of Settlement, the Court
has scheduled two fairness hearings, the first on December 11, 1998 and the
second on March 19, 1999, each of which was postponed because of delays in
finalizing certain information materials that are subject to regulatory review
prior to being distributed to investors.
On March 15, 1999, counsel for the Plaintiffs and the Defendants entered
into an amended stipulation of settlement (the "Amended Stipulation") which was
filed with the Court on March 15, 1999. The Amended Stipulation was
preliminarily approved by the Court by its "Modified Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999
(the "March 22 Order"). The Amended Stipulation, among other things, divides the
Class Action Lawsuit into two separate sub-classes that can be settled
individually. This revision is expected to expedite the settlement of one
sub-class by the middle of 1999. However, the second sub-class, involving the
Partnership and 10 affiliated partnerships (collectively referred to as the
"Exchange Partnerships"), is expected to remain pending for a longer period due,
in part, to the complexity of the proposed settlement pertaining to this class.
Specifically, the settlement of the second sub-class is premised on the
consolidation of the Exchange Partnerships' net assets (the "Consolidation"),
subject to certain conditions, into a single successor company ("Newco"). Under
the proposed Consolidation, the partners of the Exchange Partnerships would
receive both common stock in Newco and a cash distribution; and thereupon the
Exchange Partnerships would be dissolved. In addition, EFG would contribute
certain management contracts, operations personnel, and business opportunities
to Newco and cancel its current management contracts with all of the Exchange
Partnerships. Newco would operate as a finance company specializing in the
acquisition, financing and servicing of equipment leases for its own account and
for the account of others on a contract basis. Newco also would use its best
efforts to list its shares on the Nasdaq National Market or another national
exchange or market as soon after the Consolidation as Newco deems that market
conditions and its business operations are suitable for listing its shares and
Newco has satisfied all necessary regulatory and listing requirements. The
potential benefits and risks of the Consolidation will be presented in a
Solicitation Statement that will be mailed to all of the partners of the
Exchange Partnerships as soon as the associated regulatory review process is
completed and at least 60 days prior to the fairness hearing. A preliminary
Solicitation Statement was filed with the Securities and Exchange Commission on
August 24, 1998 and remains pending. Class members will be notified of the
actual fairness hearing date when it is confirmed.
One of the principal objectives of the Consolidation is to create a company
that would have the potential to generate more value for the benefit of existing
limited partners than other alternatives, including continuing the Partnership's
customary business operations until all of its assets are disposed in the
ordinary course of business. To facilitate the realization of this objective,
the Amended Stipulation provides, among other things, that commencing March 22,
1999, the Exchange Partnerships may collectively invest up to 40% of the total
aggregate net asset values of all of the Exchange Partnerships in any
investment, including additional equipment and other business activities that
the general partners of the Exchange Partnerships and EFG reasonably believe to
be consistent with the anticipated business interests and objectives of Newco,
subject to certain limitations, including that the Exchange Partnerships retain
sufficient cash balances to pay their respective shares of the cash distribution
referenced above in connection with the proposed Consolidation.
26
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
In the absence of the Court's authorization to enter into such activities,
the Partnership's Restated Agreement, as amended, would not permit new
investment activities without the approval of limited partners owning a majority
of the Partnership's outstanding Units. Accordingly, to the extent that the
Partnership invests in new equipment, the Manager (being EFG) will (i) defer,
until the earlier of the effective date of the Consolidation or December 31,
1999, any acquisition fees resulting therefrom and (ii) limit its management
fees on all such assets to 2% of rental income. In the event that the
Consolidation is consummated, all such acquisition and management fees will be
paid to Newco. To the extent that the Partnership invests in other business
activities not consisting of equipment acquisitions, the Manager will forego any
acquisition fees and management fees related to such investments. In the event
that the Partnership has acquired new investments, but the Partnership does not
participate in the Consolidation, Newco will acquire such new investments for an
amount equal to the Partnership's net equity investment plus an annualized
return thereon of 7.5%. Finally, in the event that the Partnership has acquired
new investments and the Consolidation is not effected, the General Partner will
use its best efforts to divest all such new investments in an orderly and timely
fashion and the Manager will cancel or return to the Partnership any acquisition
or management fees resulting from such new investments.
The Amended Stipulation and previous Stipulation of Settlement prescribe
certain conditions necessary to effecting final settlements, including providing
the partners of the Exchange Partnerships with the opportunity to object to the
participation of their partnership in the Consolidation. Assuming the proposed
settlement is effected according to present terms, the Partnership's share of
legal fees and expenses related to the Class Action Lawsuit is estimated to be
approximately $115,600 all of which was accrued and expensed by the Partnership
in 1998. In addition, the Partnership's share of fees and expenses related to
the proposed Consolidation is estimated to be approximately $218,400, all of
which was accrued and expensed by the Partnership in 1998.
While the Court's August 20 Order enjoined certain class members, including
all of the partners of the Partnership, from transferring, selling, assigning,
giving, pledging, hypothecating, or otherwise disposing of any Units pending the
Court's final determination of whether the settlement should be approved, the
March 22 Order permits the partners to transfer Units to family members or as a
result of the divorce, disability or death of the partner. No other transfers
are permitted pending the Court's final determination of whether the settlement
should be approved. The provision of the August 20 Order which enjoined the
General Partners of the Exchange Partnerships from, among other things,
recording any transfers not in accordance with the Court's order remains
effective.
There can be no assurance that settlement of either sub-class of the Class
Action Lawsuit will receive final Court approval and be effected. There also can
be no assurance that all or any of the Exchange Partnerships will participate in
the Consolidation because if limited partners owning more than one-third of the
outstanding Units of a partnership object to the Consolidation, then that
partnership will be excluded from the Consolidation. The General Partner and its
affiliates, in consultation with counsel, concur that there is a reasonable
basis to believe that final settlements of each sub-class will be achieved.
However, in the absence of final settlements approved by the Court, the
Defendants intend to defend vigorously against the claims asserted in the Class
Action Lawsuit. Neither the General Partner nor its affiliates can predict with
any degree of certainty the cost of continuing litigation to the Partnership or
the ultimate outcome.
27
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
In addition to the foregoing, the Partnership is a party to other lawsuits
that have arisen out of the conduct of its business, principally involving
disputes or disagreements with lessees over lease terms and conditions. The
following action had not been finally adjudicated at December 31, 1998:
ACTION INVOLVING NATIONAL STEEL CORPORATION
EFG, on behalf of the Partnership and certain affiliated investment programs
(collectively, the "Plaintiffs"), filed an action in the Commonwealth of
Massachusetts Superior Court, Department of the Trial Court in and for the
County of Suffolk on July 27, 1995, for damages and declaratory relief against a
lessee of the Partnership, National Steel Corporation ("National Steel"). The
Complaint seeks reimbursement from National Steel of certain sales and/or use
taxes paid to the State of Illinois in connection with equipment leased by
National Steel from the Plaintiffs and other remedies provided under the Master
Lease Agreement ("MLA"). On August 30, 1995, National Steel filed a Notice of
Removal, which removed the case to United States District Court, District of
Massachusetts. On September 7, 1995, National Steel filed its Answer to the
Plaintiff's Complaint along with Affirmative Defenses and Counterclaims and
sought declaratory relief, alleging breach of contract, implied covenant of good
faith and fair dealing, and specific performance. The Plaintiffs filed an Answer
to National Steel's Counterclaims on September 29, 1995. The parties discussed
settlement with respect to this matter for some time; however, the negotiations
were unsuccessful. The Plaintiffs filed an Amended and Supplemental Complaint
alleging further default under the MLA and filed a motion for Summary Judgment
on all claims and Counterclaims. The Court held a hearing on the Plaintiff's
motion in December 1997 and later entered a decision dismissing certain of
National Steel's Counterclaims, finding in favor of the Plaintiffs on certain
issues and in favor of National Steel on other issues. In March 1999, the
Plaintiffs obtained payment for certain of the disputed items and have resumed
settlement discussions to resolve remaining issues. The General Partner does not
believe that the resolution of the remaining claims will have a material adverse
effect on the Partnership's financial position or results of operations.
NOTE 9--SUBSEQUENT EVENT
In January 1999, the Partnership sold its interest in a McDonnell Douglas
MD-82 aircraft formerly leased to Alaska Airlines, Inc. for net sales proceeds
of $1,262,860. The Partnership's interest in this aircraft had a cost and a net
book value of $1,892,051 and $1,136,326 at December 31, 1998, respectively.
28
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The Partnership classifies all rents from leasing equipment as lease revenue.
Upon expiration of the primary lease terms, equipment may be sold, rented on a
month-to-month basis or re-leased for a defined period under a new or extended
lease agreement. The proceeds generated from selling or re-leasing the
equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Rents earned prior to disposal of equipment, net of interest charges.... $ 2,495,772 $ 3,493,529 $ 1,391,622
Sale proceeds realized upon disposition of equipment.................... 316,524 896,006 304,990
------------ ------------ ------------
Total cash generated from rents and equipment sale proceeds............. 2,812,296 4,389,535 1,696,612
Original acquisition cost of equipment disposed......................... 2,214,718 3,181,390 1,261,267
------------ ------------ ------------
Excess of total cash generated to cost of equipment disposed............ $ 597,578 $ 1,208,145 $ 435,345
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
29
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SALES AND
OPERATIONS REFINANCINGS TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
Net income.............................................................. $ (70,620) $ 208,143 $ 137,523
Add:
Depreciation............................................................ 1,438,667 -- 1,438,667
Management fees....................................................... 110,415 -- 110,415
Write-down of investment securities--affiliate........................ 377,849 -- 377,849
Book value of disposed equipment...................................... -- 108,381 108,381
Less:
Principal reduction of notes payable.................................. (1,080,035) -- (1,080,035)
----------- ------------ -----------
Cash from operations, sales and refinancings.......................... 776,276 316,524 1,092,800
Less:
Management fees....................................................... (110,415) -- (110,415)
----------- ------------ -----------
Distributable cash from operations, sales and refinancings............ 665,861 316,524 982,385
Other sources and uses of cash:
Cash at beginning of year............................................. 3,530,868 -- 3,530,868
Net change in receivables and accruals................................ 896,805 -- 896,805
Less:
Cash distributions paid............................................... (625,472) (316,524) (941,996)
----------- ------------ -----------
Cash at end of year................................................... $ 4,468,062 $ -- $ 4,468,062
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
30
<PAGE>
AMERICAN INCOME FUND I-E,
A MASSACHUSETTS LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 9.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
DECEMBER 31, 1998
For the year ended December 31, 1998, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
<TABLE>
<S> <C>
Operating expenses................................................ $ 263,432
</TABLE>
31
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American Income Fund I-E, a Massachusetts Limited Partnership, of our
report dated March 10, 1999, included in the 1998 Annual Report to the Partners
of American Income Fund I-E, a Massachusetts Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1999
<PAGE>
Original
AIRCRAFT LEASE AGREEMENT [49587]
between
OLIVIA CORP.,
LESSOR
and
RENO AIR, INC.,
LESSEE
dated as of November 16, 1995
AIRCRAFT: McDonnell Douglas MD-87
MANUFACTURER'S SERIAL NO.: 49587
FAA REGISTRATION NO.: N753RA
THE SINGLE EXECUTED ORIGINAL OF THIS LEASE, TOGETHER WITH ANY ORIGINAL LEASE
SUPPLEMENT DELIVERED PURSUANT HERETO, EACH MARKED "ORIGINAL," SHALL BE THE
"ORIGINAL" AND ALL OTHER COUNTERPARTS OF THIS LEASE AND ANY LEASE SUPPLEMENT
SHALL BE MARKED "DUPLICATE ORIGINAL." TO THE EXTENT THAT THIS LEASE AND ANY
LEASE SUPPLEMENT CONSTITUTES CHATTEL PAPER, AS SUCH TERM IS DEFINED IN THE
UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION, NO SECURITY
INTEREST MAY BE CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER
THAN THE "ORIGINAL."
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS ................................................... -1-
SECTION 2 LEASE OF AIRCRAFT ............................................ -13-
SECTION 3 DELIVERY AND ACCEPTANCE; TERM ................................ -13-
SECTION 4 LESSEE'S CONDITIONS PRECEDENT ................................ -15-
SECTION 5 RENT, SECURITY DEPOSIT AND MAINTENANCE RESERVES............... -17-
SECTION 6 REPRESENTATIONS AND WARRANTIES ............................... -20-
SECTION 7 POSSESSION, USE, MAINTENANCE,
TITLE AND REGISTRATION ....................................... -24-
SECTION 8 REPLACEMENT OF PARTS: ALTERATIONS,
MODIFICATIONS AND ADDITIONS .................................. -31-
SECTION 9 INSPECTION; FINANCIAL INFORMATION ............................ -35-
SECTION 10 COVENANTS OF LESSEE .......................................... -36-
SECTION 11 TAXES ........................................................ -38-
SECTION 12 EVENT OF LOSS ................................................ -40-
SECTION 13 INSURANCE .................................................... -43-
SECTION 14 INDEMNIFICATION .............................................. -47-
SECTION 15 LIENS ........................................................ -49-
SECTION 16 PERFECTION OF TITLE AND FURTHER ASSURANCES ................... -50-
SECTION 17 REDELIVERY OF AIRCRAFT AND RECORDS ........................... -51-
-i-
<PAGE>
SECTION 18 EVENTS OF DEFAULT ............................................ -54-
SECTION 19 REMEDIES ..................................................... -57-
SECTION 20 ALIENATION ................................................... -59-
SECTION 21 MISCELLANEOUS ................................................ -60-
SECTION 22 SUBLEASE; ASSIGNMENT; CRAF PROGRAM ........................... -63-
SECTION 23 RIGHT OF FIRST REFUSAL ....................................... -66-
SECTION 24 ENTIRE AGREEMENT ............................................. -66-
SECTION 25 CONFIDENTIALITY .............................................. -67-
EXHIBIT "A" AIRCRAFT SPECIFICATIONS ...................................... -69-
EXHIBIT "B" AIRCRAFT DOCUMENTATION ....................................... -70-
EXHIBIT "C" CERTIFICATE OF ACCEPTANCE .................................... -71-
EXHIBIT "D" LEASE SUPPLEMENT [49587] NO. 1 ............................... -73-
EXHIBIT "E" APPOINTMENT AS ATTORNEY-IN-FACT .............................. -78-
EXHIBIT "F" REDELIVERY CERTIFICATE ....................................... -80-
EXHIBIT "G" DELIVERY CONDITIONS .......................................... -82-
EXHIBIT "H" LEASE IDENTIFICATION ......................................... -84-
EXHIBIT "I" REDELIVERY CONDITIONS ........................................ -85-
EXHIBIT "J" CREDIT STANDARDS ............................................. -90-
EXHIBIT "K" ASSIGNMENT OF LEASE AND CONSENT .............................. -91-
-ii-
<PAGE>
AIRCRAFT LEASE AGREEMENT [49587]
THIS AIRCRAFT LEASE AGREEMENT [49587], made as of this 16th day of
November, 1995 (the "Lease"), by and between OLIVIA CORP., a corporation formed
under the laws of Delaware ("LESSOR"), and RENO AIR, INC., a corporation formed
under the laws of Nevada ("LESSEE").
WHEREAS, LESSEE desires to lease the Aircraft (as hereinafter
defined) from LESSOR and LESSOR is willing to lease the Aircraft to LESSEE, in
accordance with and subject to the terms and conditions of this Lease.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein and other good and valuable consideration, the
receipt and sufficiency of which is acknowledged by the parties hereto, LESSOR
and LESSEE agree as follows:
SECTION I
DEFINITIONS
The following terms shall have the following respective meanings for
all purposes of this Lease and shall be equally applicable to both the singular
and the plural forms of the terms herein defined. Any agreement referred to
below shall mean such agreement, as amended, supplemented and modified from time
to time:
"Act" shall mean Subtitle VII of Title 49 of the United States Code
and the rules and regulations promulgated thereunder.
"Affiliate" shall mean, with respect to any Person, any other Person
which, directly or indirectly, controls or is controlled by or is under common
control with such Person.
"Agreed Value" shall mean Fourteen Million Dollars ($14,000,000.00)
with respect to the Aircraft.
<PAGE>
"Air Authority" shall mean, as applicable, the DOT, the FAA and/or
the Administrator of the FAA, or any predecessor or successor thereto.
"Aircraft" shall mean the Airframe, together with the two (2)
Engines (or any Replacement Engine substituted for either of such Engines
hereunder), all as more particularly described on Exhibit "A" hereto, whether or
not any of such initial or Replacement Engines may, from time to time, be
installed on such Airframe or may be installed on any other airframe or any
other aircraft.
"Aircraft Documents" shall mean the items identified in Exhibit "B"
hereto.
"Airframe" means (i) the McDonnell Douglas model MD-87 aircraft
(excluding Engines or engines from time to time installed thereon) bearing U.S.
registration no. N753RA and manufacturer's serial no. 49587, and (ii) any and
all Parts, so long as the same shall be incorporated in such Airframe, and any
and all Parts removed from such Airframe, so long as title to such Parts shall
remain vested in LESSOR in accordance with the terms of Section 8(A).
"Airframe Reserve" shall have the meaning set forth in the Lease
Supplement.
"Approved Insure " shall mean any reputable insurance company or
insurance broker, approved by LESSOR, for the purpose of providing or confirming
the existence of any insurance required under this Lease.
"APU" means (i) the auxiliary power unit listed in the Lease
Supplement, (ii) any and all Parts, so long as such Parts are incorporated in,
installed on or attached to such auxiliary power unit or so long as title to
such Parts is vested in LESSOR in accordance with the terms of Section 8(A)
after removal from such auxiliary power unit, and (iii) insofar as the same
belong to LESSOR, all substitutions, replacements or renewals from time to time
made in or to such auxiliary power unit or to any of the Parts referred to in
clause (ii) above, as required or permitted under this Lease.
"Authorized Maintenance Performer" shall mean any FAA authorized
repair station or any authorized FAA Part 121 air carrier having the authority
to perform maintenance and repairs to aircraft of the same type as the Aircraft.
The identity of the Authorized Maintenance Performer and such other information
about such party shall be disclosed by LESSEE to LESSOR upon LESSOR's reasonable
request.
-2-
<PAGE>
"Basic Rent" shall mean the amount payable for the period commencing
on the First Basic Rent Date through the remaining period of the Term in
accordance with Section 5(A)(2) hereof and the Lease Supplement.
"Business Day" shall mean any day other than a Saturday, Sunday or
day on which banks are required or authorized to close in the States of New York
or Nevada.
"Certificate of Acceptance" shall mean the written certificate of
LESSEE, in substantially the form of Exhibit "C" hereto, pursuant to which
LESSEE accepts delivery of the Aircraft from LESSOR and confirms that the
Aircraft is in the condition required by this Lease.
"Code" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time.
"Compensation" shall have the meaning set forth in Section 12(D)
hereof.
"Covered Maintenance" shall have the meaning set forth in Section
7(D)(iii) hereof.
"CRAF Program" shall mean the Civil Reserve Air Fleet Program
authorized under 10 U.S.C. ss. 9511 et seq.
"Credit Standards" shall have the meaning set forth on Exhibit "J"
hereto.
"Cycle" shall mean one takeoff and landing of the Aircraft, Airframe
or, with respect to any Engine not installed on the Airframe, of the airframe on
which such Engine is installed.
"Default" means any event which, upon the giving of notice or the
lapse of time would constitute an Event of Default.
"Delivery Location" shall mean Will Rogers Airport, Oklahoma City,
Oklahoma or such other location in the continental United States as may be
mutually agreed to by the parties.
"Dollars" or "$" shall mean the legal currency of the United States
of America.
-3-
<PAGE>
"DOT" shall mean the United States Department of Transportation or
any governmental person, agency or authority succeeding to the functions of such
Department of Transportation.
"Effective Date" shall mean the date on which LESSEE signs and
delivers to LESSOR Lease Supplement No. 1 to this Lease.
"Engine" means (i) each of the two (2) Pratt & Whitney model
JT8D-217C engines bearing manufacturer's serial numbers and otherwise as
described in the Certificate of Acceptance and Lease Supplement No. 1, whether
or not from time to time installed on the Airframe or installed on any other
airframe or any other aircraft, and (ii) any Replacement Engine, whether or not
from time to time installed on the Airframe or any other airframe or any other
aircraft, together, in each case, with any and all Parts incorporated in such
Engine and any and all Parts removed from such Engine, so long as title to such
Parts shall remain vested in LESSOR in accordance with the terms of Section
8(A). At such time as a Replacement Engine shall be substituted hereunder and
the Engine for which the substitution is made shall be released, such
Replacement Engine shall constitute an Engine hereunder and such replaced Engine
shall cease to be an Engine hereunder. The term "Engines" means, as of any date
of determination, all Engines leased hereunder.
"Engine Manufacture" means United Technologies Corporation, Pratt &
Whitney Group, Commercial Products Division, a Delaware corporation, in its
capacity as manufacturer of the Engines, and its successors and assigns.
"Engine Reserves" shall have the meaning set forth in the Lease
Supplement.
"Equipment Change" shall have the meaning set forth in Section 8(C)
hereof.
"Event of Default" shall have the meaning set forth in Section 18
hereof.
"Event of Loss" shall mean, with respect to the Aircraft, Airframe
or any Engine, any of the following events with respect to such property: (i)
loss of such property due to destruction, damage beyond repair or rendition of
such property unfit for normal use by LESSEE by any cause whatsoever, or any
damage to such property which results in an insurance settlement with respect to
such property on the basis of a total loss or a constructive total loss or a
compromised total loss; (ii) the disappearance, loss, theft,
-4-
<PAGE>
hijacking, condemnation, confiscation or seizure of, or requisition of use or
title of, such property for a period in excess of sixty (60) days, other than a
requisition for use by the U.S. Government, provided that such requisition of
use does not extend beyond the end of the Term; (iii) any divestiture of title
to an Engine treated as an Event of Loss pursuant to Section 12(B) or any other
provision hereof; or (iv) the operation or location of such property, while
under requisition for use by the U.S. Government, in any area excluded from
coverage by any insurance policy in effect with respect thereto required by the
terms of Section 13, if LESSEE shall be unable to obtain an indemnity in lieu
thereof from the U.S. Government on the terms provided in Section 13. 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, as set forth in Lease
Supplement No. 1.
"Expiration Date" shall mean the originally scheduled last day of
the Term, as set forth in Lease Supplement No. 1.
"FAA" shall mean the Federal Aviation Administration of the DOT or
any governmental person, agency or other authority succeeding to the functions
of the Federal Aviation Administration.
"FAR" shall mean the United States Federal Aviation Regulations
currently in effect or as hereafter amended or modified.
"First Basic Rent Date" shall mean January 15, 1996.
"First Interim Rent Date" shall mean the earlier of (i) the date the
Aircraft is placed in revenue service by the Lessee and (ii) fourteen (14) days
from the Effective Date.
"Flight Hour" shall mean each hour or fraction thereof elapsed from
the moment the wheels of the Aircraft leave the ground through the moment the
wheels of the Aircraft, Airframe or, with respect to any Engine not installed on
the Airframe, of the airframe on which such Engine is installed, touch down upon
the ground.
"Governmental Entity" shall mean and include: (i) any national
government and any political subdivision thereof or local jurisdiction therein;
(ii) any board, commission, department, division, organ, instrumentality, court
or agency of the foregoing, however constituted; and (iii) any association,
organization or institution of which any of the foregoing is a member, or to
whose jurisdiction any of the foregoing is subject, or in whose activities any
of the foregoing is a participant, but only to the extent
-5-
<PAGE>
that any such association, organization or institution has jurisdiction over the
Aircraft or its operations.
"Hourly Rent" shall mean Five Hundred ($500.00) Dollars for each
Flight Hour or fraction thereof that the Aircraft is operated for any period in
which Hourly Rent is required to be calculated hereunder.
"Indebtedness" shall mean, with respect to any Person, all
obligations of such Person for the payment or repayment of money, whether
present or future, actual or contingent.
"Indemnitee" means LESSOR, Mortgagee, their respective affiliated
entities (and the successors, assigns, directors, officers, shareholders,
employees and agents of such affiliated entities), successors and permitted
assigns and their respective directors, officers, shareholders, employees and
agents.
"Interim Period" shall mean the period commencing on the First
Interim Rent Date through and including January 14, 1996.
"Interim Rent" shall mean the amount payable by LESSEE to LESSOR
pursuant to Section 5(A)(1) hereof.
"Landing Gear" means (i) each of the three landing gear listed in
the Lease Supplement, (ii) any and all Parts, so long as such Parts are
incorporated in, installed on, attached to or appurtenant to any such landing
gear assemblies or so long as title to such Parts is vested in LESSOR in
accordance with the terms of Section 8(A) after removal from any such landing
gear, and (iii) all substitutions, replacements or renewals from time to time
made in or to any such landing gear or to any of the Parts referred to in clause
(ii) above as required or permitted under this Lease.
"Landing Gear Reserves" shall have the meaning set forth in the
Lease Supplement.
"Law" shall mean and include: (i) any statute, decree, constitution,
regulation, order or other directive of any Governmental Entity; (ii) any
treaty, pact, compact or other agreement to which any Governmental Entity is a
signatory or party; (iii) any judicial or administrative interpretation or
application of any of the foregoing; and (iv) any amendment or revision of any
of the foregoing.
-6-
<PAGE>
"Lease," "this Lease," "this Agreement," "hereby," "herein,"
"hereof," "hereunder" or other like words shall mean this Aircraft Lease
Agreement, as the same may be supplemented or amended, in writing, from time to
time.
"Lease Assignment" shall mean the Assignment of Lease and Consent
between Lessor, Lessee and Mortgagee, substantially in the form of Exhibit "K"
hereto.
"Lease Documents" shall mean this Lease, each Lease Supplement, the
Certificate of Acceptance, the Power of Attorney and the Lease Assignment.
"Lease Supplement" means a supplement to this Lease, substantially
in the form attached as Exhibit "D" hereto, subjecting the property described
therein to this Lease.
"LESSEE's Address" shall mean 220 Edison Way, Reno, Nevada 89502,
Attention: Paul H. Tate, Vice President Finance, Treasurer and Chief Financial
Officer; Telefax No.: +1-702-829-5754.
"LESSOR's Address" shall mean c/o Interadvice Anstalt, Landstrasse
25, FL-9490, Vaduz, Liechtenstein, Attention: Georg Kieber; Telefax No.:
+41-75-232-0542.
"LESSOR's Liens" means the Liens of any Person claiming by, through,
against or under LESSOR, which arise as a result of (i) claims by any such
Person not related to, or expressly permitted by, the Lease, (ii) any act or
omission of any Person claiming by, through, against or under LESSOR which is
not expressly permitted by the Lease, (iii) taxes or expenses imposed against
any such Person (or the consolidated group of taxpayers of which it is a member)
for which LESSEE is not obligated to indemnify pursuant to Section 11, or (iv)
claims against any such Person arising out of any transfer by such Person of its
interest in the Aircraft, other than a transfer resulting from LESSOR's exercise
of remedies, pursuant to Section 19, while an Event of Default has occurred and
is continuing.
"LIBID" means LIBOR minus 1/4%.
"LIBOR" means the rate per annum at which deposits in Dollars are
being offered to prime banks in the London interbank market at 11:00 a.m. in
London by the British Bankers' Association designated banks which appears on the
Telerate page 3750 on the second London Banking Day prior to any Rent Date for
the period of one month (or such other page as may replace the Telerate page
3750 on that system for the purpose
-7-
<PAGE>
of displaying London Interbank Offered Rates of leading reference banks). If the
LESSOR shall be unable to ascertain LIBOR when LIBOR is required to be
calculated hereunder, then LIBOR shall equal the rate per annum equal to
Lender's actual cost of funds in Dollars for the time remaining during the Term
measured from such Rent Date.
"Lien" shall mean any mortgage, pledge, lien, encumbrance, security
interest or other claim affecting the title to, or any interest in, property.
"Loan Agreement" means the Secured Loan Agreement dated as of
November __, 1995 between Lessor and Mortgagee pursuant to which the Mortgagee
has provided financing for the Aircraft.
"London Banking Day" shall mean any day (excluding a Saturday, a
Sunday or a day on which banks are required to close in London, England) on
which deposits in Dollars are being offered to prime banks in the London
interbank market by the British Bankers' Association designated banks.
"Maintenance Program" shall mean LESSEE's McDonnell Douglas MD-80
FAR Part 121 FAA-approved maintenance program encompassing scheduled
maintenance, condition-monitored maintenance and on-condition maintenance of
airframe, engines and components of the Aircraft, including, but not limited to,
servicing, testing, preventive maintenance, repairs, structural inspections,
system checks, overhauls, approved modifications, mandatory service bulletins,
mandatory engineering orders, airworthiness directives, corrosion control
inspections and treatments.
"Maintenance Reserve Date" means the 10th day after each Rent Date
(other than the First Interim Rent Date) and the date of the Return Occasion.
"Manufacturer" shall mean McDonnell Douglas Corporation, a Maryland
corporation, in its capacity as manufacturer of the Airframe, and its successors
and assigns.
"Minimum Basic Rent" shall have the meaning set forth in the Lease
Supplement.
"Minimum Liability Coverage" shall mean Three Hundred Fifty Million
($350,000,000.00) Dollars per occurrence.
-8-
<PAGE>
"Mortgage" shall mean that certain Aircraft Chattel Mortgage and
Security Agreement, dated as of the date of this Lease, made by LESSOR and
delivered to Mortgagee.
"Mortgagee" shall mean Credit Lyonnais/PK AIRFINANCE, New York
Branch ("AIRFINANCE"), a corporation formed under the laws of the Grand Duchy of
Luxembourg, or any transferee of AIRFINANCE in accordance with the terms of the
Loan Agreement.
"Officer's Certificate" shall mean a certificate signed by the
chairman, the president, any vice president, the treasurer, any assistant
treasurer, the secretary or any assistant secretary of the Person providing such
certificate.
"Overdue Rate" shall mean the rate of interest announced or
published from time to time by Citibank, N.A., New York, New York as its base or
prime lending rate plus three percent (3%) per annum.
"Parts" means all appliances, parts, instruments, avionics,
appurtenances, accessories, furnishings and other equipment or components, of
whatever nature (other than complete Engines or Engines and other than removable
Parts and any items owned by LESSEE or leased by LESSEE from a third party,
other than LESSOR, in accordance with Section 8(C)), which are, from time to
time, incorporated in the Airframe or any Engine, or so long as title to such
Parts shall remain vested in LESSOR, in accordance with Section 8(A) hereof,
after removal from the Airframe or any Engine.
"Passenger Convenience Equipment" shall mean components or systems
installed on, carried in or affixed to the Aircraft which are used to provide
individual air-to-ground telephone communications for hire or electronic
entertainment to passengers aboard the Aircraft and which were not originally
incorporated or installed in or attached to the Aircraft at the time of delivery
under this Lease.
"Permitted Liens" shall mean, with respect to the Aircraft, the
Airframe or any Engine (a) the respective rights of the parties under this Lease
and each Lease Supplement; (b) LESSOR's Liens; (c) (i) liens for taxes,
assessments or other governmental charges which are not yet due, or (ii) liens
for taxes, assessments or other governmental charges which are due and are being
contested in good faith by appropriate proceedings, so long as such proceedings
do not involve any material danger of the sale, forfeiture or loss of the
Aircraft, the Airframe or any Engine and so long as such liens, assessment or
governmental charges do not exceed $500,000.00 in the aggregate;
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provided, however, that in the event such liens, assessments or governmental
charges exceed $500,000.00 in the aggregate, same shall constitute a Permitted
Lien, provided that LESSEE posts a bond issued by a reputable surety or bonding
company in an amount equal to at least one and one-half (1-1/2) times the amount
of the lien, assessment or governmental charge claimed (including all penalties
and interest thereon) or, alternatively, provides LESSOR with security in an
amount and form reasonably acceptable to LESSOR; (d) (i) materialmen's,
mechanic's, worker's, repairer's, employee's or other like liens for amounts the
payment of which is not yet delinquent for more than thirty (30) days, or (ii)
materialmen's, mechanic's, worker's, repairer's, employee's or other like liens
which are being contested in good faith by appropriate proceedings, so long as
such proceedings do not involve any material danger of the sale, forfeiture or
loss of the Aircraft, the Airframe or any Engine and so long as such liens do
not exceed $500,000.00 in the aggregate; provided, however, that in the event
such liens exceed $500,000.00 in the aggregate, same shall constitute a
Permitted Lien, provided that LESSEE posts a bond issued by a reputable surety
or bonding company in an amount equal to at least one and one-half (1-1/2) times
the amount of the lien claimed (including all penalties and interest thereon)
or, alternatively, provides LESSOR with security in an amount and form
reasonably acceptable to LESSOR; (e) liens arising out of any judgment or award,
unless the judgment secured shall not, within thirty (30) days after entry
thereof, have been discharged or vacated or execution thereof stayed pending
appeal or shall not have been discharged, vacated or reversed within thirty (30)
days after the execution of such stay, and provided such lien presents no
material danger of the sale, forfeiture or loss of the Aircraft, the Airframe or
any Engine or of LESSOR's interest therein and so long as such liens do not
exceed $500,000.00 in the aggregate; provided, however, that in the event such
liens exceed $500,000.00 in the aggregate, same shall constitute a Permitted
Lien, provided that LESSEE posts a bond issued by a reputable surety or bonding
company in an amount equal to at least one and one-half (1-1/2) times the amount
of the lien claimed (including all penalties and interest thereon) or,
alternatively, provides LESSOR with security in an amount and form reasonably
acceptable to LESSOR; or (f) the Lien, created by the Mortgage and Lease
Assignment.
"Person" shall mean and include any individual, corporation,
partnership, firm, joint venture, trust, unincorporated organization,
association, Governmental Entity, or any organization or association of which
any of the foregoing is a member or participant.
"Power of Attorney" shall mean that certain power of attorney from
LESSEE to LESSOR and Mortgagee, to be executed in the form attached hereto as
Exhibit "E", pursuant to which LESSEE designates each of LESSOR and Mortgagee as
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attorney-in-fact, upon the occurrence and continuation of an Event of Default,
to do all things which LESSEE could do under this Lease in the event LESSEE
fails to fulfill such obligations hereunder, including, but not limited to,
executing and delivering such releases or terminations of this Lease upon the
occurrence and continuation of an Event of Default or at the Expiration Date, as
LESSOR or Mortgagee shall deem necessary or desirable.
"Redelivery Certificate" shall mean the written certificate of
LESSOR, in substantially the form of Exhibit "F" hereto, pursuant to which
LESSOR accepts redelivery of the Aircraft from LESSEE and confirms that the
Aircraft is in the condition required by this Lease on the Redelivery Occasion.
"Redelivery Location" shall mean Reno/Tahoe International Airport,
Reno, Nevada or such other location in the continental United States as may be
mutually agreed to by the parties.
"Redelivery Occasion" shall have the meaning set forth in Section
17(A) hereof.
"Related Aircraft" shall mean any or all of the aircraft leased by
LESSOR to LESSEE pursuant to the Related Lease Agreement.
"Related Lease Agreement" means the Aircraft Lease Agreement [49641]
to be entered into between Boxen Corp. and LESSEE with respect to the leasing by
Boxen Corp. to LESSEE of one (1) McDonnell Douglas MD-87 aircraft bearing
manufacturer's serial number 49641, as such aircraft is more particularly
described in such agreement and as such agreement may, from time to time, be
supplemented or amended pursuant to a written agreement entered into between
Boxen Corp. and LESSEE.
"Related Lease Default" shall mean a "Default," as defined in the
Related Lease Agreement.
"Related Lease Event of Default" shall mean an "Event of Default,"
as defined in the Related Lease Agreement, which shall occur and be continuing
in accordance with the terms of such Related Lease Agreement.
"Related Security Deposit" shall mean the "Security Deposit" payable
by LESSEE to Boxen Corp. in the Related Lease Agreement.
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"Rent" shall mean Interim Rent, Basic Rent and Supplemental Rent.
"Rent Adjustment" shall have the meaning set forth on the Lease
Supplement.
"Rent Date" shall mean each date on which a payment of Interim Rent
and Basic Rent, as the case may be, is due. The first Rent Date shall be the
First Interim Rent Date. If a Rent Date shall in any month not be a Business
Day, then the Rent Date shall be the immediately following Business Day.
"Rent Period" means any period commencing on any given Rent Date and
ending on the day immediately preceding the next succeeding Rent Date, provided,
however, that the last Rent Period shall end on the Expiration Date.
"Second Interim Rent Date" shall have the meaning set forth in
Section 5(A)(1)(i) hereof.
"Security Deposit" shall mean the amount set forth in the Lease
Supplement.
"Supplemental Rent" shall mean all amounts, liabilities and
obligations (other than Interim Rent and Basic Rent) which LESSEE assumes or
agrees to pay to LESSOR or any other Person hereunder, including, without
limitation, all amounts required to be paid by LESSEE under its indemnification
pursuant to Section 14 hereof.
"Taxes" shall mean any and all sales, withholding, use, excise,
personal property, ad valorem, value added, stamp, interest equalization or
other taxes levied upon LESSOR's or LESSEE's gross levies, customs or other
duties, or other charges of any nature, together with any penalties, fines or
interest thereon, imposed, levied or assessed by, or otherwise payable to, U.S.
Tax Authorities.
"Term" means the period commencing on the Effective Date and
expiring on the Expiration Date unless shortened in accordance with the
provisions of this Lease.
"U.S. Air Carrier" shall mean any air carrier operating under a
certificate of convenience and necessity issued by the Air Authority or, in the
event such certification is no longer issued to air carriers, an air carrier
permitted to engage in air transportation of passengers to, from or within the
United States.
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"U.S. Government" shall mean and include: (i) the Federal Government
of the United States of America and any political subdivision thereof or local
jurisdiction therein; (ii) any board, commission, department, division, organ,
instrumentality, court or agency of the foregoing, however constituted; and
(iii) any association, organization or institution of which any of the foregoing
is a member, or to whose jurisdiction any of the foregoing is subject, or in
whose activities any of the foregoing is a participant, but only to the extent
that any such association, organization or institution has jurisdiction over the
Aircraft or its operations.
"U.S. Tax Authorities" shall mean and include: (i) the Internal
Revenue Service and any other taxing authority of the Federal Government of the
United States of America; and (ii) any taxing authority of any state, county,
city or local municipality of the United States of America.
"Wet Lease" shall mean any arrangement whereby LESSEE agrees to
furnish the Aircraft, Airframe or any Engine to a third party, pursuant to which
such Aircraft, Airframe or Engine (i) shall remain in the exclusive possession
and operational control of LESSEE's personnel, and (ii) shall be maintained
exclusively by LESSEE or an Authorized Maintenance Performer in accordance with
the maintenance provisions of this Lease.
SECTION 2
LEASE OF AIRCRAFT
LESSOR hereby agrees to lease the Aircraft to LESSEE, and LESSEE
hereby agrees to lease the Aircraft from LESSOR, pursuant to the provisions of
this Lease.
SECTION 3
DELIVERY AND ACCEPTANCE; TERM
(A) Date of Delivery. Subject to the Aircraft conforming to the
conditions set forth in Exhibit "G", LESSEE shall take delivery of the Aircraft
and Aircraft Documents on the Effective Date. Lessor shall deliver the Aircraft
to Lessee on no later than November 20, 1995. In the event LESSOR is unable to
deliver the Aircraft
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to LESSEE on or before November 20, 1995, and no other provision of this Lease
applies which would either excuse the delay or which would provide LESSOR with
any additional time to cause delivery of the Aircraft, then, in such event,
LESSEE may terminate this Lease without any liability or obligation to the other
hereunder.
(B) Place of Delivery and Acceptance. The Aircraft and Aircraft
Documents shall be delivered to and accepted by LESSEE at the Delivery Location,
unless LESSOR and LESSEE otherwise agree in writing upon another location
subsequent to the execution of this Lease. The parties agree that the Delivery
Location will be selected to minimize the possibility of taxes to be assessed
against LESSEE and/or LESSOR.
(C) Casualty to Aircraft Preceding Delivery.
(i) In the event that any Event of Loss occurs with respect to
the Aircraft prior to the Effective Date hereof, this Lease shall
terminate and neither the LESSOR nor LESSEE shall have any liability
or obligation to the other hereunder.
(ii) In the event that on the proposed Effective Date the
Aircraft fails to conform to the conditions set forth in Exhibit
"G", LESSOR shall, within thirty (30) days from the date of the
proposed Effective Date, take such reasonable action as shall be
necessary to repair the Aircraft so that it conforms to the
conditions set forth in Exhibit "G". If at the end of such thirty
(30) day period of time the Aircraft fails to conform to the
conditions set forth in Exhibit "G", notwithstanding LESSOR's
reasonable actions pursuant to the foregoing sentence, either LESSOR
or LESSEE shall have the right to terminate this Lease without any
liability or obligation to the other hereunder.
(D) Acceptance of Aircraft. The Aircraft to be leased hereunder
shall be delivered to LESSEE in its "AS IS," "WHERE IS" condition, SUBJECT TO
EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION AS SET FORTH IN
SUBSECTION 6(A) HEREOF, except that the Aircraft shall comply with the
conditions set forth on Exhibit "G". LESSEE shall indicate and confirm its
acceptance of the Aircraft by delivery to LESSOR of a (i) Lease Supplement, and
(ii) Certificate of Acceptance, dated on such Effective Date.
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(E) Term of Lease. The term of this Lease, as to the Aircraft, shall
be for the Term.
(F) No LESSOR Liability. LESSOR will not be liable for any loss or
expense, or any loss of profit, arising from any delay or failure in delivery to
LESSEE unless such delay or failure arises as a direct consequence of the
willful misconduct of LESSOR, and in no event will LESSOR be liable for any
delay or failure which is caused by any breach or delay on the part of
Manufacturer.
SECTION 4
LESSEE'S CONDITIONS PRECEDENT
LESSOR's obligation to lease the Aircraft hereunder to LESSEE shall
be subject to the receipt by LESSOR, on or before the Effective Date (or such
other date as provided for herein), of the following from LESSEE, all of which
shall be satisfactory in form and substance to LESSOR:
(1) Certified copy of a resolution of LESSEE's Board of Directors,
authorizing the entering into and performance of this Lease together with an
incumbency certificate as to the person or persons authorized to execute and
deliver this Lease and the other Lease Documents on behalf of LESSEE;
(2) LESSEE's articles or certificate of incorporation and by-laws
certified by an officer of LESSEE;
(3) A favorable opinion of counsel of LESSEE, addressed to LESSOR,
dated the Effective Date, as to the matters set forth in clauses (1) through (5)
and (7) of Subsection 6(D) hereof, provided however, the opinion shall be to the
best of such counsel's knowledge as to primarily factual matters;
(4) A favorable opinion of Daugherty, Fowler & Peregrin, special FAA
counsel, addressed to LESSOR, opining on such matters as LESSOR shall reasonably
require, including, but not limited to, that under the Act: (i) the Aircraft is
eligible for registration in the name of LESSOR; (ii) that this Lease and the
Lease Assignment are eligible for recording; and (iii) that this Lease and the
Lease Assignment have been filed for recording;
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(5) An Officer's Certificate of LESSEE, dated as of the Effective
Date, stating that to the best of such officer's knowledge after due inquiry and
investigation:
(a) The representations and warranties contained in Subsection
6(D) hereof are true and accurate on and as of such date as though
made on and at such time (except to the extent that such
representations and warranties relate solely to an earlier date);
and
(b) No event has occurred and is continuing, or would result
from the leasing of the Aircraft, which constitutes an Event of
Default or would constitute an Event of Default with the giving of
notice or the passage of time or both;
(6) Not less than three (3) Business Days prior to the Effective
Date, certificates signed by an Approved Insurer(s) as to due compliance with
the insurance provisions of Section 13 hereof with respect to the Aircraft;
(7) The Power of Attorney, fully signed, notarized and dated on the
Effective Date, together with an original certified copy of the resolutions of
LESSEE's Board of Directors (which resolutions shall be delivered on or before
December 31, 1995), pursuant to which the entering into of the Power of Attorney
by the holder thereof was authorized. LESSEE shall, on those dates which shall
be the second, fourth, sixth and seventh anniversary dates of the Effective
Date, deliver to LESSOR a currently dated replacement Power of Attorney and
original certified copy of resolutions of LESSEE's Board of Directors, in form
and substance satisfactory to LESSOR, whereupon LESSOR shall return to LESSEE
any Powers of Attorney previously delivered by LESSEE to LESSOR;
(8) Such UCC-1 financing statements as LESSOR shall reasonably
request;
(9) The Lease Assignment, as executed by LESSEE; and
(10) Such other documents which LESSOR or its counsel may reasonably
require.
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SECTION 5
RENT, SECURITY DEPOSIT AND MAINTENANCE RESERVES
(A) Rent. LESSEE covenants and agrees to pay to LESSOR, or to any of
LESSOR's assigns designated to LESSEE in writing by LESSOR, the Rent. Time is of
the essence with respect to each payment of Rent to be paid by LESSEE to LESSOR
hereunder.
(1) Interim Rent.
(i) Interim Rent shall equal the Hourly Rent for each
Rent Period during the Interim Period. Notwithstanding the
foregoing, in no event shall the Interim Rent be less than the
Minimum Basic Rent other than as set forth in paragraph (ii)
of this Section.
(ii) Minimum Basic Rent shall be paid by LESSEE to
LESSOR in respect of the Aircraft, in advance, on the First
Interim Rent Date. Thereafter, on the corresponding date in
the immediately following month (the "Second Interim Rent
Date"), LESSEE shall pay to LESSOR a pro rata portion of the
Minimum Basic Rent based on the number of days remaining in
the period from the Second Interim Rent Date through (but not
including) the First Basic Rent Date.
(iii) In addition to Minimum Basic Rent, LESSEE shall
pay to LESSOR the following: (a) no later than five days after
the Second Interim Rent Date, an amount equal to the
difference, if positive, between (x) the Minimum Basic Rent
and (y) Hourly Rent calculated for the period from the First
Interim Rent Date through (but excluding) the Second Interim
Rent Date; and (b) no later than five days after the First
Basic Rent Date, an amount equal to the positive difference,
if any, between: (x) the pro rated Minimum Basic Rent paid for
the previous Rent Period and (y) Hourly Rent calculated for
the period from the Second Interim Rent Date through (but
excluding) the First Basic Rent Date.
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(2) Basic Rent; Rent Adjustment. (i) Basic Rent shall be paid
by LESSEE to LESSOR in respect of the Aircraft, in advance,
commencing on the First Basic Rent Date and continuing on the
corresponding date in each consecutive month during the remainder of
the Term. Basic Rent shall be payable in the amount set forth on the
Lease Supplement, subject to the Rent Adjustment as set forth
therein.
(3) Supplemental Rent. LESSEE agrees to pay to LESSOR, or to
whomsoever shall be entitled thereto, any and all Supplemental Rent
promptly as the same shall become due and owing, and in the event of
any failure on the part of LESSEE to pay any Supplemental Rent,
LESSOR shall have all rights, powers and remedies provided for in
this Lease or by Law or equity or otherwise in the case of
nonpayment of Interim Rent or Basic Rent. LESSEE will also pay to
LESSOR, on demand, as Supplemental Rent, to the extent permitted by
applicable Law, interest at the Overdue Rate on any part of any
installment of Interim Rent or Basic Rent not paid within five
Business Days when due for the period from and including the Rent
Date to and including the date of actual payment in full, and on any
Supplemental Rent not paid when due or demanded by LESSOR for any
period for which the same shall be overdue.
(B) Security Deposit. LESSEE shall deliver to LESSOR the Security
Deposit, on the Effective Date, to secure LESSEE's obligations under the Lease.
Upon the occurrence and continuation of an Event of Default hereunder or a
Related Lease Event of Default, LESSOR may use all or any part of the Security
Deposit, in addition to the Related Security Deposit, together with all interest
accrued thereon, in the manner provided for in this Lease.
(C) Form of Payment. Payment of Rent, the Security Deposit and any
other payments due under this Lease, shall be made in Dollars by wire transfer
of immediately available funds to LESSOR or its assignee at such address and
account as LESSOR may specify in writing, provided that such address shall be an
address in the continental United States. Payment shall be made on the Rent
Date, or the Business Day thereafter if the Rent Date is not a Business Day, so
as to reach LESSOR or its designated depository not later than 1:00 p.m. local
time, New York, New York, on the Rent Date or the Business Day thereafter, as
the case may be.
(D) Rent Not Reduced by Taxes. LESSEE agrees that each payment of
Rent pursuant to this Lease shall be free of all Taxes and, in the event that
any such Taxes
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are imposed, levied, assessed by, or otherwise payable with respect to or
arising out of the leasing or operation of the Aircraft by LESSEE, LESSEE shall
pay such amounts as are necessary to enable LESSOR and each assignee of LESSOR
to whom payments of Rent are to be made by LESSEE, to receive each payment of
Rent hereunder, under any circumstances and in any event, in the full amounts
required hereunder on an after-tax basis, without any reduction whatsoever;
provided, however, that this Section 5(D) shall not apply to Taxes not
indemnified against pursuant to Section 11(B) hereof.
(E) Maintenance Reserve. LESSEE shall pay to LESSOR, on each
Maintenance Reserve Date, the Airframe Reserves, the Engine Reserves and the
Landing Gear Reserves for the previous Rent Period (each a "Reserve" and
collectively, the "Reserves"). Commencing on the first anniversary of the
Effective Date and continuing on the anniversary of the Effective Date in each
consecutive year during the Term, the per Cycle amount payable by LESSEE to
LESSOR with respect to Engine Reserves shall be increased by three and one-half
(3.5%) percent from the per Cycle amount of Engine Reserves payable in the
preceding year. All Reserves paid by LESSEE to LESSOR will be held by LESSOR in
separate accounts for each of the Airframe Reserves, Engine Reserves and Landing
Gear Reserves, respectively, and shall be disbursed by LESSOR only to pay for
Covered Maintenance pursuant to Section 7(D) hereof. Interest shall accrue on
the Reserves at a rate equal to LIBID minus one-quarter percent per annum (the
"Reserve Interest"). The Reserve Interest shall form a part of the Airframe
Reserves, Engine Reserves and Landing Gear Reserves, respectively.
Notwithstanding anything set forth herein to the contrary, if on any Maintenance
Reserve Date (i)(a) the Flight Hours for the Airframe, (b) the aggregate Cycles
with respect to the Engines, and (c) the aggregate Cycles for the Landing Gear,
in each case, respectively, remaining to the next scheduled overhaul (assuming
no change in intervals between checks under the Maintenance Program not approved
by LESSOR, such approval not to be unreasonably withheld) are more than on the
Effective Date, and (ii) LESSEE meets the Credit Standards, then LESSEE shall
not be required to pay any Reserves for such Rent Period with respect to such
category of Reserves. Time is of the essence with respect to the payment by
LESSEE to LESSOR of Reserves. Upon the termination of the Lease with respect to
the Aircraft, provided LESSEE has complied with Section 17 hereof and no Default
or Related Lease Default has occurred and is continuing, all Reserves held by
LESSOR and not used to reimburse LESSEE for Covered Maintenance shall become the
property of LESSEE.
(F) Net Lease, LESSEE's Obligations; No Set off or Counterclaim.
This is a net lease. It is the intent of the parties hereto that this Lease be a
"true lease" and an agreement treated as a "lease" under the provisions of the
Code. Except as otherwise
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provided herein (including, without limitation, in Section 5(C)), and without
limiting LESSEE's rights in the event of a breach of Section 21(G), LESSEE's
obligation to pay all Rent payable hereunder shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
(i) any Set off, counterclaim, recoupment, defense or other right which LESSEE
may have against LESSOR; (ii) any defect in the title, airworthiness, condition,
design, operation or fitness for use of, or any damage to or loss or destruction
of, the Aircraft, Airframe or any Engine, or any interruption or cessation in
the use or possession thereof by LESSEE for any reason whatsoever; (iii) any
insolvency, bankruptcy, reorganization or similar proceedings by or against
LESSEE; or (iv) any restriction, prevention or curtailment of, or interference
with, any use of the Aircraft, Airframe or any Engine.
SECTION 6
REPRESENTATIONS AND WARRANTIES
(A) Disclaimer of Warranties. EXCEPT FOR THE EXPRESS REPRESENTATIONS
OF LESSOR SET FORTH IN SECTION 6(B), NEITHER LESSOR NOR ANY OF ITS DIRECTORS,
OFFICERS, EMPLOYEES OR REPRESENTATIVES HAS MADE OR WILL BE DEEMED TO HAVE MADE
ANY TERM, CONDITION, REPRESENTATION, WARRANTY OR COVENANT EXPRESS OR IMPLIED
(WHETHER STATUTORY OR OTHERWISE) AS TO (I) THE CAPACITY, AGE, AIRWORTHINESS,
VALUE, QUALITY, DURABILITY, CONFORMITY TO THE PROVISIONS OF THIS LEASE,
DESCRIPTION, CONDITION (WHETHER OF THE AIRCRAFT, ANY ENGINE, ANY PART THEREOF OR
THE AIRCRAFT DOCUMENTATION), DESIGN, WORKMANSHIP, MATERIALS, MANUFACTURE,
CONSTRUCTION, OPERATION, DESCRIPTION, STATE, MERCHANTABILITY, PERFORMANCE,
FITNESS FOR ANY PARTICULAR USE OR PURPOSE (INCLUDING THE ABILITY TO OPERATE OR
REGISTER THE AIRCRAFT OR USE THE AIRCRAFT DOCUMENTATION IN ANY OR ALL
JURISDICTIONS) OR SUITABILITY OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE
ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, KNOWN OR
UNKNOWN, APPARENT OR CONCEALED, EXTERIOR OR INTERIOR, (II) THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY
RIGHTS, (III) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF
DEALING OR USAGE OF TRADE OR (IV) ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS
OR
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IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, ALL OF WHICH ARE
HEREBY EXPRESSLY EXCLUDED AND EXTINGUISHED.
(B) LESSOR's Representations. As an exception to the foregoing,
LESSOR represents, warrants and covenants as follows:
(1) LESSOR has the lawful right to lease the Aircraft to
LESSEE in accordance with the terms of this Lease;
(2) LESSOR is a corporation duly organized and existing in
good standing under the laws of Delaware and has the corporate power
and authority to carry on its business as presently conducted and to
execute, deliver and perform its obligations under this Lease and
all other Lease Documents to which LESSOR is a party;
(3) This Lease and all other Lease Documents to which LESSOR
is a party have been duly authorized by all necessary corporate
action on the part of LESSOR, do not require any approval of the
stockholder of LESSOR (or if such approval is required, such
approval has been obtained), and neither the execution and delivery
hereof nor the consummation of the transactions contemplated hereby
nor compliance by LESSOR with any of the terms and provisions hereof
will contravene any Law applicable to LESSOR or result in any breach
of, or constitute any default under, or result in the creation of
any Lien other than to the Mortgagee upon any property of LESSOR
under, any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement, corporate
charter or by-law, or other agreement or instrument to which LESSOR
is a party or by which LESSOR or its properties or assets may be
bound or affected;
(4) This Lease and all other Lease Documents to which LESSOR
is a party have been duly entered into and delivered by LESSOR and
constitute the valid, legal and binding obligations of LESSOR,
enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, moratorium,
reorganization and similar Laws and by general principles of equity,
whether considered in a proceeding at Law or in equity; and
(5) LESSOR has good title to the Aircraft.
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THE REPRESENTATIONS, WARRANTIES AND COVENANTS SET FORTH IN
THIS SECTION 6(B) CONSTITUTE THE SOLE EXCEPTION TO SUBSECTION 6(A)
AND ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS AND
WARRANTIES OF LESSOR EXPRESS OR IMPLIED.
(C) Manufacturer's Warranties. So long as LESSEE is not in default
under this Lease, LESSOR agrees to assign or otherwise make available to LESSEE
such rights as LESSOR may have under any warranty, express or implied, with
respect to the Aircraft made by the Manufacturer, Engine Manufacturer, any
subcontractor or supplier thereof, to the extent that the same may be assigned
or otherwise made available to LESSEE and, to the extent that the same may not
be assigned or otherwise made available to LESSEE, LESSOR agrees, upon the
written request of LESSEE, to exert its efforts, at LESSEE's sole cost and
expense, to enforce such rights as LESSOR may have with respect thereto for the
benefit of LESSEE; provided, however, that upon an Event of Default all such
rights shall, without further action or notice, immediately revert to LESSOR,
including all claims thereunder, whether or not perfected. On the date of the
Redelivery Occasion, the benefit of any warranty assigned by LESSOR to LESSEE
pursuant hereto will be reassigned automatically to LESSOR or its designee.
LESSEE's rights under such warranties (including LESSEE's claims and rights to
payment thereunder) will revert to LESSOR during any period in which an Event of
Default is continuing upon the provision of notice by LESSOR to LESSEE. LESSEE
at its own cost and expense will do all such things and execute such documents
as may be required for this purpose. LESSEE will diligently and promptly pursue
any valid claims it may have against Manufacturer and others under such
warranties with respect to the Aircraft and will provide notice of the same to
LESSOR.
(D) LESSEE's Representations and Warranties. LESSEE represents and
warrants, as of the Effective Date, and all such representations and warranties
being continuing, that:
(1) LESSEE is a corporation duly organized and existing in
good standing under the Laws of Nevada and has the corporate power and authority
to carry on its business as presently conducted and to perform its obligations
under this Lease;
(2) This Lease and all other Lease Documents to which LESSEE
is a party have been duly authorized by all necessary corporate action on the
part of LESSEE, does not require any approval of the stockholders of LESSEE (or
if such approval is required, such approval has been obtained), and neither the
execution and
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delivery hereof nor the consummation of the transactions contemplated hereby nor
compliance by LESSEE with any of the terms and provisions hereof will contravene
any Law applicable to LESSEE or result in any breach of, or constitute any
default under, or result in the creation of, any lien, charge or encumbrance
upon any property of LESSEE under any indenture, mortgage, chattel mortgage,
deed of trust, conditional sales contract, bank loan or credit agreement,
corporate charter or by-law, or other agreement or instrument to which LESSEE is
a party or by which LESSEE or its properties or assets may be bound or affected;
(3) LESSEE has received or has complied with every required
consent, approval, order, or authorization of, or registration with, or the
giving of prior notice to, any Governmental Entity having jurisdiction with
respect to the execution and delivery of this Lease and all other Lease
Documents to which LESSEE is a party or the validity and enforceability hereof
and thereof;
(4) This Lease and all other Lease Documents to which LESSEE
is a party have been duly entered into and delivered by LESSEE and constitutes a
valid, legal and binding obligation of LESSEE, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy,
reorganization, moratorium or other similar Laws and by general principles of
equity, whether considered in a proceeding at Law or in equity;
(5) There are no suits or proceedings pending, or to the
knowledge of LESSEE, threatened against or affecting LESSEE, which are
reasonably expected to have a material adverse effect on the financial condition
or business of LESSEE or upon LESSEE's ability to perform its obligations
hereunder;
(6) LESSEE has filed or caused to be filed all material tax
returns which are required to be filed by LESSEE and has paid or caused to be
paid all Taxes shown to be due or payable on said returns or on any assessment
received by LESSEE, except those the validity of which is contested by LESSEE in
good faith by appropriate proceedings duly instituted and diligently prosecuted;
(7) LESSEE is an "air carrier operating under a certificate of
convenience and necessity," as such quoted language is used and defined under 11
U.S.C. ss. 1110 ("Section 1110"), and this Lease constitutes a "lease" under
Section 1110 and LESSEE is a Certificated Air Carrier pursuant to chapter 447 of
Title 49 of the United States Code;
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(8) The obligations of LESSEE under the Lease Documents
constitute direct, general and unconditional obligations of the LESSEE; and
(9) No event has occurred which constitutes, or with the
giving of notice or passage of time or both would constitute, an Event of
Default under this Lease.
(E) Notification. During the Term of this Lease, LESSEE shall notify
LESSOR in writing of any condition that materially changes the content of the
representations and warranties made as of the Effective Date under Section 6(D)
hereof, within five (5) days of LESSEE's knowledge thereof.
SECTION 7
POSSESSION, USE, MAINTENANCE, TITLE AND REGISTRATION
(A) Possession. Except as expressly provided in Subsection 8(B) and
Section 22, LESSEE shall not transfer possession of the Aircraft or any Engine
or part thereof to any Person without the prior written consent of LESSOR, which
consent shall not be unreasonably withheld, provided that, so long as no Default
shall have occurred and be continuing and so long as LESSEE shall comply with
the provisions of Section 13 hereof, LESSEE may, so long as the action to be
taken shall not deprive LESSOR of its title to and interest in the Aircraft, the
Airframe or any Engine and shall not adversely affect the registration of the
Aircraft under the Laws of the U.S. Government, without the prior written
consent of LESSOR, deliver possession of the Aircraft, the Airframe or any
Engine or other Part thereof to the Manufacturer, the Engine Manufacturer or
Authorized Maintenance Performer, as appropriate, for testing, service, repair,
maintenance or overhaul work on the Aircraft, the Airframe, any Engine or Part,
or for alterations, modifications, or additions thereto, to the extent required
or permitted by the terms of Subsection 7(D) hereof.
(B) Use. LESSEE shall use the Aircraft solely in commercial
passenger carrying operations and normal training, maintenance, ferry and other
such related operations in accordance with all Laws applicable to it and shall
not use or permit the Aircraft to be used for any purpose for which the Aircraft
is not designed or reasonably suited.
(C) Lawful Insured Operations. LESSEE shall not permit the Aircraft
to be maintained, used, or operated in violation of any Law of any Governmental
Entity
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having jurisdiction, or contrary to the Manufacturer's or Engine Manufacturer's
operating manuals and instructions, or in violation of any airworthiness
certificate, license, or registration relating to the Aircraft issued by the
U.S. Government, unless the validity thereof is being contested in good faith
and by appropriate proceedings duly instituted and diligently prosecuted, but
only so long as such proceedings will not result in the sale, forfeiture, loss
of valid insurance coverage upon, or loss of, the Aircraft, the Airframe, any
Engine or any Part. LESSEE shall comply with the foregoing at its sole cost and
expense and shall maintain the Aircraft in proper condition for operation under
such Laws. LESSEE agrees not to operate the Aircraft, or to permit or suffer the
Aircraft to be operated, within or into any geographic area:
(1) unless the Aircraft is at all such times covered by
insurance as required by the provisions of Section 13 hereof or the
indemnity given by the United States Government pursuant to Section
22(F) hereof;
(2) contrary to the terms of such insurance, as required by
the provisions of Section 13 hereof or the indemnity given by the
United States Government pursuant to Section 22(F) hereof; and
(3) in violation of any Law, rule, order or regulation of any
Governmental Entity.
LESSEE shall deliver to LESSOR such documents and assurances as LESSOR may
request under the provisions of Section 16 hereof to evidence compliance with
the foregoing.
(D) Maintenance.
(i) LESSEE, at its own cost and expense shall:
(a) service, repair, maintain, overhaul, test, or cause
the same to be done to the Aircraft so as to keep the Aircraft in as
good operating condition as when delivered to LESSEE hereunder,
ordinary wear and tear excepted, in accordance with Manufacturer's
type design and in such operating condition as required by the
Maintenance Program and as may be necessary to enable the United
States airworthiness certification of the Aircraft to be maintained
in good standing at all times under FAR Part 121 standards and the
applicable Laws of the U.S. Government;
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(b) perform all routine and non-routine services,
checks, inspections, including any structural inspections
requirements (SSID's) and "A", "B", "C," "15,000 Hour" or "30,000
Hour" checks (or the equivalent thereof) required by the
Maintenance Program or the FAA;
(c) maintain all records, logs and other materials
required by applicable Laws of any Governmental Entity and the FAA
to be maintained in respect of the Aircraft, including, but not
limited to, serviceable component tags required by the FAA;
(d) throughout the Term of this Lease, provide LESSOR
with not less than two weeks prior written notice of the scheduled
commencement date of each "C", "15,000 Hour" or "30,000 Hour" check
(or their equivalent) to be performed on the Aircraft and the
location where such checks will be performed;
(e) designate representatives to coordinate with LESSOR
or LESSOR's representatives on maintenance and warranty matters;
(f) incorporate in the Aircraft prior to the terminating
or compliance date all applicable airworthiness directives or
equivalent (referenced to in this Lease as "Airworthiness
Directives") of the FAA, all alert service bulletins of the
Manufacturer, Engine manufacturer and other vendors or manufacturers
of Parts incorporated on the Aircraft and any service bulletins
which must be performed in order to maintain the warranties on the
Aircraft, Engines and Parts;
(g) incorporate in the Aircraft all other service
bulletins of the Manufacturer, the Engine manufacturer and other
vendors which LESSEE schedules to adopt within the Term for the rest
of its MD87 aircraft fleet. It is the intent of the parties that the
Aircraft will not be discriminated from the rest of LESSEE's fleet
in service bulletin compliance (including method of compliance) or
other maintenance matters. LESSEE will not discriminate against the
Engines with respect to overhaul build standards and life limited
part replacements;
(h) incorporate in the Maintenance Program for the
Aircraft a corrosion prevention and control program as recommended
by Manufacturer and approved by the FAA, and correct any
discrepancies in
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accordance with the recommendations of Manufacturer and the
Structural Repair Manual. In addition, all inspected areas will be
properly treated with corrosion inhibitor as recommended by
Manufacturer;
(i) provide LESSOR will written summaries of all
sampling programs involving or affecting the Aircraft;
(j) properly document all repairs, modifications and
alterations and the addition, removal or replacement of equipment,
systems or components in accordance with the rules and regulations
of the FAA and reflecting such items in the Aircraft Documentation.
In addition, all repairs to the Aircraft will be accomplished in
accordance with Manufacturer's Structural Repair Manual (or
FAA-approved data supported by FAA Form 8110-3 or equivalent). All
modifications and alterations will also be accomplished in
accordance with FAA-approved data supported by FAA Form 8110-3 or
equivalent.
(ii) All maintenance of the Aircraft and Engines shall be
performed by an Authorized Maintenance Performer.
(iii) (A) "Covered Maintenance" means, at any time, (1) the
structural inspection portion (including CPCP) of the 15,000 Hour
and 30,000 Hour (or their equivalent) maintenance checks under the
Maintenance Program, (2) the performance restoration or replacement
of life limited parts or permanent repair of on-condition parts in
the bare Engine during completed shop visits and (3) the full
refurbishment of the landing gear (excluding maintenance in respect
of compliance with airworthiness directives and elective parts
replacement), respectively, pursuant to the Maintenance Program
including, in each case, without limitation, associated inspections,
breakdown and assembly occurring during such overhauls. The cost of
Covered Maintenance shall be limited to the actual cost of
replacement parts plus the cost of the associated labor at LESSEE's
in-house labor rates if the work is performed by LESSEE, excluding
any LESSEE charges for handling, packaging and shipping, or at
third-party cost charged to LESSEE if the work is performed by third
parties, and shall in no event include late charges, interest or
other similar amounts as a result of late payment.
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(B) Unless a Default or a Related Lease Default shall have
occurred and be continuing, the LESSOR shall pay to the LESSEE, within five
Business Days after receipt of:
(a) an invoice stating that Covered Maintenance has been
performed on the Airframe, an Engine or a Landing Gear,
respectively, and the cost thereof; and
(b) appropriate documentation with respect to such work
or payments, an amount equal to the actual cost of such work up to
the then current balance of the Airframe Reserves for such Covered
Maintenance on the Airframe, up to the then current balance of the
Engine Reserves for such Covered Maintenance on any Engine and up to
the then current balance of the Landing Gear Reserves for such
Covered Maintenance on a Landing Gear; provided, however, that at no
time shall the amount of any Reserve to be made available by LESSOR
for Covered Maintenance exceed the amount remaining in such Reserve.
(f) LESSEE agrees that it will not discriminate against
the Aircraft (as compared to other aircraft of the same type owned
or operated by LESSEE) in the performance of maintenance, including,
but not limited to, in contemplation of the expiration or
termination of this Lease with respect to the maintenance of the
Aircraft.
(E) Airworthiness Directives: Service Bulletins. If the FAA, the
Manufacturer or the Engine Manufacturer, or the manufacturer of any Parts,
publishes an airworthiness directive or mandatory service bulletin after the
Effective Date of this Lease, which has a useful life beyond the Term, requiring
completion or termination during the Term (a "Post-Effective Mandatory
Modification"), LESSEE shall as required in Section 7(D)(i) above take all such
action as is necessary to comply with such Post-Effective Mandatory Modification
prior to the return of the Aircraft by LESSEE to LESSOR. To the extent the cost
of completing or terminating any such Post-Effective Mandatory Modification
exceeds $50,000.00, LESSOR shall pay to LESSEE a portion of such excess equal to
the following:
(LESSEE's Cost - $50,000) x A/240
Where:
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A = 240 minus the number of months (rounded upward or
downward, as the case may be, to the nearest month) from
the date the relevant Post-Effective Mandatory
Modification was completed or terminated by LESSEE to
the Expiration Date.
Any amounts payable by LESSOR to LESSEE pursuant to this Section 7(E) shall not
be payable to the LESSEE until the later of (i) the Expiration Date, or (ii) the
date on which the LESSEE has complied with all the terms of this Lease.
(F) Title, Registration and Insignia. LESSEE acknowledges and agrees
that title to the Aircraft shall remain vested in LESSOR during the Term in
accordance with the terms of this Lease. The Aircraft shall, at all times during
the Term, be registered in the United States in the name of LESSOR or such
Person as LESSOR may designate, in accordance with the Laws of the U.S.
Government. LESSEE agrees that it shall take no action which shall cause the
Aircraft to cease to be so registered in the name of LESSOR with the FAA under
the Act. Unless otherwise requested, within fifteen (15) days of the Effective
Date, LESSEE shall fasten or cause to be fastened in the cockpit, in a location
reasonably adjacent to and not less prominent than the airworthiness certificate
for such Aircraft and on each Engine, an insignia plate supplied by LESSOR and
in the form set forth in Exhibit "H" hereto or in any other form subsequently
designated by LESSOR.
LESSEE will not allow the name of any Person to be placed on
the Aircraft or an Engine as a designation that might be interpreted as a claim
of ownership; provided, however, that LESSEE may cause the Aircraft to be
lettered in an appropriate manner for convenience of identification of the
interest of LESSEE therein, including but not limited to, the customary livery
of LESSEE.
(G) Maintenance Reports and Records.
(a) During the Term, LESSEE shall provide maintenance
information and reporting requirements to LESSOR and any other party
so designated by LESSOR including but not limited to: (i) written
notification within thirty (30) days after issuance of any
airworthiness directive or legal requirement affecting the Aircraft,
Airframe, Engines or Parts; (ii) annual and quarterly written
projections of scheduled Airframe, landing gear and Engine heavy
maintenance; (iii) prompt written notification of damage to the
Aircraft, Airframe, Engines or Parts where the estimated cost of
repair is in excess of $250,000 (iv) prompt written notification of
Engine removals,
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exchanges or foreign object damage (said report to include details
of circumstances and plan of action to repair); (v) reports of
Flight Hours and Cycles on a monthly basis; (vi) reporting of all
service bulletins completed; and (vii) copies of all material
reports sent to the FAA or Air Authority concerning the Aircraft.
(b) LESSEE will, during the Term, maintain all records, logs
and other materials required to be maintained with respect to the
Aircraft by Persons in operational control of the Aircraft under any
applicable rules, Laws or regulations and shall supply all such
records, logs and other materials to LESSOR or third parties as
reasonably requested by LESSOR and as shall be necessary in order to
implement the Maintenance Program and any and all warranties and
guarantees that apply to the Aircraft. LESSEE will provide LESSOR
with copies of all records of maintenance performed during the Term
as requested by LESSOR. All such records shall be kept as required
under FAR Part 121 and in English.
(H) Passenger Convenience Equipment. Notwithstanding any other
provision herein to the contrary, LESSEE may install or remove or permit to be
installed or removed aboard the Aircraft, without the prior written consent of
LESSOR, Passenger Convenience Equipment so long as the installation, use and
removal of such Passenger Convenience Equipment does not impair the value,
utility or airworthiness the Aircraft would have had at any time had the
installation, use or removal not occurred.
Without further action of LESSEE or LESSOR, title to such
Passenger Convenience Equipment, upon installation, shall vest in LESSOR and
shall become subject to this Lease, free of all liens, charges and encumbrances,
provided, however, that so long as an Event of Default shall not have occurred
and be continuing during the Term, LESSEE may, at any time prior to return of
the Aircraft, remove such Passenger Convenience Equipment or component thereof,
at which time title thereto shall, without further act, vest in LESSEE, and such
Passenger Convenience Equipment or component thereof shall no longer be deemed
part of the Aircraft from which it was removed.
Notwithstanding the foregoing paragraph, if the Passenger
Convenience Equipment is (i) owned by any third party and leased to LESSEE, (ii)
sold to LESSEE subject to a conditional sales contract or other security
interest, (iii) leased to LESSEE pursuant to a lease which is subject to a
security interest in favor of any third party, or (iv) installed aboard the
Aircraft subject to a license granted by LESSEE to a
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Immediately upon any replacement Parts becoming incorporated or installed in or
attached to the Aircraft as above provided, and without further act:
(1) title to the removed Part shall vest in LESSEE, free and
clear of all rights of LESSOR;
(2) title to the replacement Parts shall vest in LESSOR, free
and clear of all rights of third parties, including, but not limited
to, LESSEE; and
(3) such replacement Parts shall become subject to this Lease
and shall be deemed part of the Aircraft into which such Parts were
incorporated or with respect to which such Parts were required, for
all purposes hereof to the same extent as the Parts originally
incorporated or installed in, or attached or related to such
Aircraft.
(B) Pooling; Etc.
(i) LESSEE may subject any Engine or APU to normal interchange
agreements customary in the United States domestic commercial
airline industry entered into by the LESSEE in the ordinary course
of its business, and may subject any Engine to pooling arrangements
customary in the United States domestic commercial airline industry
and entered into by the LESSEE in the ordinary course of its
business.
(ii) LESSEE may install an Engine or APU on an airframe owned
by the LESSEE provided such airframe is free and clear of all liens
and encumbrances, except
(a) Liens of the type or equivalent to those set forth in the
definition of "Permitted Liens"; and
(b) the rights of air carriers under normal interchange
arrangements which are customary in the United States domestic
commercial airline industry and which do not contemplate, permit or
require the transfer of title to the airframe or Engines installed
thereon.
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(iii) LESSEE may install an Engine or APU on an airframe
leased to, or purchased by the LESSEE, subject to a lease,
conditional sale, trust indenture or other security agreement, but
only if
(a) such airframe is clear of all liens and encumbrances,
except Permitted Liens or Liens of the type or equivalent to those
set forth in the definition of "Permitted Liens" and the rights of
the parties to the lease, conditional sale, trust indenture or other
security agreement covering such airframe; and
(b) LESSOR shall have received from the lessor, conditional
seller, indenture trustee, or secured party of such airframe, a
written agreement (which may be the lease, conditional sale, trust
indenture or other security agreement covering such airframe),
whereby such lessor, conditional seller, indenture trustee or
secured party expressly agrees that neither it nor its successors or
assigns will acquire or claim any right, title or interest in any
Engine or APU by reason of such Engine or APU being incorporated in
such airframe at any time while such Engine or APU is subject to
this Lease.
(iv) No permitted interchange or pooling agreement, transfer
or other relinquishment of possession permitted hereunder shall
affect the title to, or registration of or effect any transfer of
the Aircraft, Airframe, Engines or APU or shall constitute consent
to any action not permitted to the LESSEE in this Lease.
(v) LESSOR hereby agrees for the benefit of LESSEE and any
lessor, conditional vendor or secured party of any engine leased to
LESSEE, purchased by LESSEE pursuant to a conditional sale agreement
or owned by LESSEE subject to a security agreement that neither
LESSOR nor its assignees will acquire or claim, as against LESSEE,
such lessor, conditional vendor or secured party or any of their
respective assignees any right, title or interest in any engine
owned by such lessor under such lease, sold by such conditional
vendor under such conditional sale agreement or subject to a
security interest in favor of such secured party under such security
agreement as a result of such engine being installed on the
Airframe.
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(C) Equipment Changes. LESSEE, at its own expense, shall make such
alterations and modifications in and additions to ("Equipment Changes") the
Aircraft as may be required from time to time to meet the standards of the FAA
and the Air Authority and of the Governmental Entity in the jurisdiction of
which LESSEE elects to fly the Aircraft and whose approval or consent is
required to permit LESSEE to fly over and/or into any geographical area with
respect to which the Governmental Entity exercises authority. In addition, the
term "Equipment Changes" shall mean modifications to or additions to the
Aircraft that LESSEE, at its own expense, may from time to time deem desirable
in the proper conduct of its business, provided that no such Equipment Change
diminishes the value, utility, condition or airworthiness of the Aircraft below
the value, utility, condition and airworthiness thereof immediately prior to
such Equipment Change, assuming the Aircraft was then in the condition required
to be maintained by the terms of this Lease, and provided further that LESSEE
shall not change the configuration of the Aircraft during the Term (except the
passenger seating configuration) unless such configuration is approved by the
LESSOR and the Air Authority. Any Equipment Change other than the Equipment
Changes relating to the installation of TCAS, Windshear detection system and the
upgrade of the Engines from model JT8D-217C to JT8D-219 with an estimated cost
in excess of Two Hundred Fifty Thousand ($250,000.00) Dollars must be approved
in advance by LESSOR, which approval will not be unreasonably withheld.
Title to all Parts incorporated, installed in, attached or
added to the Aircraft as the result of any such Equipment Change shall, without
further act, vest in LESSOR; provided, however, that during the Term, LESSEE may
remove any such Part if: (1) such Part is in addition to any Part originally
incorporated or installed in or attached to such Aircraft at the time of
delivery thereof hereunder; and (2) such Part is not required to be
incorporated, installed in, attached or added to the Aircraft; and (3) such Part
can be removed from the Aircraft or can be replaced with a part of equal value
to the Part installed upon delivery without diminishing or impairing the value,
utility or airworthiness which the Aircraft would have had at such time, had
such Equipment Change not occurred. Upon the removal by LESSEE of any Part as
above provided, title thereto shall, without further act, vest in LESSEE and
such Part shall no longer be deemed part of the Aircraft from which it was
removed. Any Part not removed from the Aircraft by LESSEE as provided above
prior to a Redelivery Occasion shall remain the property of LESSOR.
LESSOR shall bear no liability in respect of, or cost for, any
Equipment Change, grounding of the Aircraft, suspension of certification
thereof, or loss of revenue therefrom.
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SECTION 9
INSPECTION; FINANCIAL INFORMATION
(A) During the Term, LESSEE shall furnish to LESSOR and Mortgagee
such information concerning the location, condition, use and operation of the
Aircraft as LESSOR or Mortgagee may reasonably request. LESSEE shall also
furnish to LESSOR and Mortgagee copies of its reports on Forms 10-K and 10-Q
promptly upon same becoming available for public distribution.
(B) The right of LESSOR and Mortgagee, or their designated
representatives, at LESSOR's expense, to inspect the Aircraft during any "C",
"15,000 Hour" or "30,000 Hour" check or equivalent (as defined in the
Maintenance Program), performed by or on behalf of LESSEE during the Term shall
be absolute. LESSEE shall also provide LESSOR and Mortgagee with maintenance
schedules relating to the Aircraft upon the delivery of the Aircraft to LESSEE,
and from time to time as such maintenance schedules are adjusted or updated.
LESSEE further agrees to notify LESSOR and Mortgagee of any change in the date
of scheduled "C," "15,000 Hour" and "30,000 Hour" checks, which notice shall be
given within a reasonable time, to enable LESSOR and Mortgagee to inspect the
Aircraft at the time and place such checks occur. During such checks, LESSEE
agrees to allow LESSOR and Mortgagee, or their authorized representative, to
inspect any area of the Aircraft which LESSOR or Mortgagee requests to inspect
which would normally require inspection during such major checks. LESSEE also
shall permit any Person designated by LESSOR or Mortgagee in writing to:
(1) visit and inspect the Aircraft, its condition, use and
operation, and the records maintained in connection therewith;
(2) visit and inspect the properties of LESSEE;
(3) discuss, to the extent reasonable, the finances and
accounts of LESSEE with the principal officers of LESSEE,
(4) obtain such other financial information as LESSOR or
Mortgagee may reasonably request; in this regard, during the Term,
LESSEE shall deliver to LESSOR and Mortgagee annual financial
statements prepared in accordance with generally accepted accounting
principles consistently applied and audited by recognized,
independent
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certified public accountants reasonably satisfactory to LESSOR and
Mortgagee as soon as practicable and in any event within 120 days
after the end of LESSEE's fiscal year, as well as quarterly
unaudited financial statements, within 60 days following the close
of each of LESSEE's fiscal quarters; and
(5) inspect LESSEE's Maintenance Program for the Aircraft.
all at such times and frequencies as LESSOR and Mortgagee, or the assignee of
LESSOR or Mortgagee, may reasonably request without interfering with LESSEE's
normal business operations; neither LESSOR nor Mortgagee shall have any duty to
make any such inspection and neither LESSOR nor Mortgagee shall incur any
liability or obligation by reason of not making any such inspection.
LESSOR hereby agrees that if LESSOR or Mortgagee exercises any of the rights
listed in clauses (1) through (5) above, it shall do so at LESSOR's sole cost
and expense and in such a manner so as not to unreasonably interfere with the
business and operations of LESSEE.
Notwithstanding the foregoing, LESSOR and Mortgagee shall
incur no liability nor be deemed to have waived any of their rights under this
Lease by reason of LESSOR's or Mortgagee's failure to exercise any of its rights
under this Section 9(B).
(C) LESSEE shall also furnish any other information or records on
the Aircraft that LESSOR or Mortgagee may reasonably request.
SECTION 10
COVENANTS OF LESSEE
LESSEE represents, warrants, covenants and agrees that:
(A) Maintenance of Corporate Existence. LESSEE shall preserve and
maintain its existence, valid legal status, and all of its rights, privileges,
and franchises under the Laws of the U.S. Government necessary to the conduct of
its business.
(B) Payment of Taxes. LESSEE shall:
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(1) Pay or cause to be paid all taxes upon LESSEE or its
income or profits, or upon any property or assets belonging to or
used by it, prior to the date on which penalties attach thereto;
(2) Pay or otherwise discharge all lawful claims, which, if
not paid, might become a Lien or charge upon the property of LESSEE
(provided, however, that LESSEE shall not be required to pay any
such Taxes or claims, the payment of which is being contested in
good faith and by appropriate proceedings, except that LESSEE will
pay or cause to be paid all such Taxes or claims forthwith in the
event LESSEE is unable to stay or suspend enforcement or execution
of a warrant of restraint or foreclosure of any Liens which attach
as security therefor).
(C) Sale of Assets, Merger, etc. Without the prior written consent
of LESSOR, which consent shall not be unreasonably or arbitrarily withheld,
LESSEE will not sell, lease, assign, transfer or otherwise dispose of
substantially all of its assets, whether now owned or hereafter acquired, except
in the ordinary course of its business as presently conducted and for a full and
adequate consideration, and will not merge or consolidate with or into, or
acquire substantially all of the assets and assume substantially all of the
liabilities of, any corporation or other entity unless the surviving entity, as
a result of such sale, purchase, merger or consolidation, is the LESSEE or the
surviving entity (i) assumes this Lease; (ii) is a U.S. Air Carrier; and (iii)
has and will have, immediately following any such sale, purchase, merger or
consolidation, a tangible net worth (as determined in accordance with United
States generally accepted accounting practices) equal to or greater than that
which the LESSEE had immediately prior to such sale, merger or consolidation.
(D) U.S. Air Carrier. Throughout the Term, LESSEE shall, at all
times, be a U.S. Air Carrier.
(E) Communications.
(i) LESSEE shall promptly deliver to LESSOR any communications
received by LESSEE from the Air Authority which materially affects
the Aircraft and which are not applicable to all aircraft of the
same make and model as the Aircraft; and
(ii) LESSOR shall promptly deliver to LESSEE any
communications received by LESSOR from the Manufacturer which
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materially affects the maintenance, operation or airworthiness of
the Aircraft and which are not applicable to all aircraft of the
same make and model as the Aircraft.
(F) No Security Interests. LESSEE will not create or agree or permit
to arise any Lien (other than Permitted Liens) on or with respect to the
Aircraft, title thereto or any interest therein. LESSEE will forthwith, at its
own expense, take all action as may be necessary to discharge or remove any such
Lien if it exists at any time. LESSEE will promptly, but in no event later than
seventy-two (72) hours after becoming aware of the existence of any such Lien
give written notice thereof to LESSOR.
SECTION 11
TAXES
(A) LESSEE agrees to pay and to indemnify and hold harmless the
Indemnitees from all Taxes assessed against or upon any Indemnitee, LESSEE, the
Aircraft, or any part thereof during the Term and arising out of this Lease, or
upon the leasing, possession, use, operation, repair, maintenance, overhaul,
settlement of any insurance claim, or return thereof, or upon any Rent, receipts
or earnings arising from the operation thereof, or upon or with respect to this
Lease unless, and to the extent only that, any such Tax is being contested by
LESSEE in good faith and by appropriate proceedings duly instituted and
diligently prosecuted and only so long as such proceedings do not involve any
danger of the sale, forfeiture or loss of the Aircraft. Notwithstanding the
foregoing, Lessee shall not be liable to pay (1) any Taxes based solely on or
measured by the net income of any Indemnitee, (2) any Taxes imposed by any
taxing authority other than the United States of America or any political
subdivision thereof unless such Taxes would not have been imposed but for (a)
the operation or presence in such jurisdiction of the Aircraft, (b) the presence
in such jurisdiction of a permanent establishment or fixed place of business of
Lessee or any user or Person in possession of the Aircraft, or (c) the payment
from such jurisdiction of any amount due under this Lease. In case any report or
return is required to be made with respect to any obligation of LESSEE under or
arising out of this Section 11, LESSEE shall either make such report or return
in such manner as will show the ownership of the Aircraft in LESSOR and send a
copy of such report or return to LESSOR, or shall notify LESSOR of such
requirement and make such report or return in such manner as shall be
satisfactory to LESSOR. If claim is made against LESSOR for any Taxes arising
during the term of this Lease, LESSOR shall promptly notify LESSEE. LESSOR
shall, at LESSEE's expense, take such action as LESSEE may
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reasonably request in writing with respect to such asserted liability, and if
reasonably requested by LESSEE and upon the prior payment to LESSOR by LESSEE of
an amount equal to such Tax, any payment by LESSOR of such Tax shall be made
under protest. If payment is made, LESSOR shall, at LESSEE's expense, take such
action as LESSEE may reasonably request to recover such payment and shall, if
requested, permit LESSEE in LESSOR's name to file a claim or prosecute an action
to recover such payment. All of the obligations of LESSEE in this Section 11
with respect to Taxes imposed or accrued before the expiration or other
termination of this Lease shall continue in full force and effect
notwithstanding such expiration or other termination, and are expressly made for
the benefit of, and shall be enforceable by, LESSOR. LESSEE further agrees that,
with respect to any payment or indemnity hereunder, such payment or indemnity
shall include any amount necessary to hold the recipient of the payment or
indemnity harmless on an after-tax basis from all Taxes required to be paid by
such recipient with respect to such payment or indemnity under the Laws of any
Governmental Entity.
(B) In the event the LESSEE determines there is a substantial risk
of a change in the Code, or the Regulations issued pursuant thereto, which
clearly results in a Tax of the LESSOR indemnified against pursuant to this
Section 11 being imposed against an Indemnitee (a "Change"), the LESSEE shall
have the right to terminate this Lease and return the Aircraft to the LESSOR
pursuant to the provisions of Section 17. LESSEE shall notify LESSOR of any
Change and its intent to terminate the Lease in writing 270 days prior to the
date that the Lease is to be terminated and the Aircraft returned to LESSOR. If
LESSOR elects to waive any indemnification pursuant to this Section 11 in
respect of any Taxes which are attributable to such Change within 30 days of
such notice (a "LESSOR Waiver"), the Lease shall not be terminated but LESSEE
shall have no obligation under this Section 11 in respect of such Taxes arising
due to such Change. However, at any time subsequent to such LESSOR Waiver,
LESSOR may, on 270 days' prior notice to LESSEE, elect to terminate this Lease
and require the LESSEE to return the Aircraft to the LESSOR pursuant to the
provisions of Section 17, in which event LESSEE may elect to irrevocably
reinstate its indemnification pursuant to this Section 11 in respect of any
Taxes which are attributable to such Change, within 30 days of such notice from
LESSOR.
(C) LESSOR will act in good faith to minimize the obligations of the
LESSEE under this Section 11.
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SECTION 12
EVENT OF LOSS
(A) Event of Loss Regarding the Aircraft. In the event that an Event
of Loss occurs with respect to the Aircraft (other than a requisition of use by
the U.S. Government while the United States pays to LESSOR or LESSEE
compensation for such requisition in an amount equal to or in excess of the Rent
payable with respect to such Aircraft), LESSEE shall forthwith (and, in any
event, not later than five (5) days after the occurrence of the Event of Loss)
give LESSOR written notice of such Event of Loss and, not later than the earlier
of: (a) the ninetieth (90th) day following the occurrence of such Event of Loss;
or (b) the day of receipt of insurance proceeds in respect of such Event of
Loss; pay to LESSOR or its assignees, in funds of the type specified in
Subsection 5(B) hereof, the sum of all unpaid Rent and all other amounts due
hereunder with respect to such Aircraft and which have accrued through and
including the date of payment of the Agreed Value, plus an amount equal to the
Agreed Value. In the event of payment in full of such Agreed Value, together
with all such amounts due or accrued hereunder on or prior to the date of such
payment, the obligation of LESSEE to pay Rent with respect to the Aircraft as to
which such payments have been made shall terminate. LESSEE agrees that it shall
promptly file all necessary claim forms or other documents required by any
insurer in connection with any claim arising from an Event of Loss and shall
diligently pursue such claim.
Upon payment of all Rent due and the Agreed Value, LESSOR
shall transfer to LESSEE (subject to the rights of the Insurers) all of LESSOR's
right, title, and interest in and to: (i) the Aircraft which sustained such
Event of Loss, as well as all of LESSOR's right, title, and interest in and to
any Engines constituting part of such Aircraft; and (ii) all claims for damages
to such Aircraft and/or Engines, if any, against third Persons arising from such
Event of Loss (unless any insurance carrier requires that such claims be
assigned to it), without any representation, warranty, or recourse of any kind
whatsoever, express or implied, except a warranty that such Aircraft is free and
clear of any LESSOR Liens.
In the event of an Event of Loss involving the Aircraft
wherein one or more of the Engines are not attached to the Airframe, the
Aircraft, for purposes of this Section 12(A), shall be deemed to include all
Engines on lease hereunder and LESSOR shall cooperate in transferring title to
such non-attached Engines, free and clear of all LESSOR Liens, to the owner of
the engine attached to the Airframe at the time of the Event of Loss.
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(B) Event of Loss With Respect to an Engine. Upon any Event of Loss
with respect to an Engine not then installed on the Aircraft, or an Event of
Loss with respect to only an Engine installed on the Aircraft not involving an
Event of Loss to the Aircraft, LESSEE shall give LESSOR prompt written notice
thereof and LESSEE shall replace such Engine as soon as reasonably possible
after such Event of Loss by duly conveying to LESSOR, as a replacement for such
Engine, title to another engine owned by LESSEE of the same or an improved make
and model, which engine shall be free and clear of all Liens and shall have a
value and utility at least equal to, be in as good operating condition as
(including time in service, hours and cycles since new and hours and cycles
available to the next overhaul or scheduled removal), and be in equivalent or
better service bulletin and modification status than the Engine which sustained
such Event of Loss (assuming the Engine which sustained such Event of Loss was
maintained in the condition in which LESSEE was required to maintain such Engine
pursuant to this Lease). Such replacement engine, after approval and acceptance
by LESSOR, shall be deemed an "Engine" as defined herein. If the replacement
engine is in substantially better condition than the Engine which sustained such
Event of Loss, Lessor will consider an appropriate adjustment to the Engine
Reserves. LESSEE agrees to take such action as LESSOR may reasonably request in
order that any such replacement engine shall be duly and properly leased
hereunder to the same extent as the Engine subject to the Event of Loss and
shall be titled in LESSOR. LESSEE's obligation to pay Rent hereunder shall
continue in full force and effect regardless of the occurrence of an Event of
Loss with respect to an Engine, but LESSEE shall be entitled to be reimbursed by
LESSOR the amount of insurance or condemnation proceeds, if any, received by
LESSOR with respect to such Engine. Upon receipt of title by LESSOR to the
replacement engine as hereinabove provided, LESSOR shall convey to LESSEE, free
and clear of all LESSOR Liens, title to the Engine which sustained such Event of
Loss.
(C) Damage or Requisition Not Constituting an Event of Loss. In the
event of material damage or requisition of the Aircraft or any Engine not
constituting an Event of Loss, LESSEE shall promptly notify LESSOR in writing of
such damage or requisition and shall remain obligated to make all payments of
Rent in respect to such Aircraft or Engine which may become due hereunder in the
same manner as if such damage or requisition had not occurred. All payments at
any time received by LESSEE, or by LESSOR from any Person other than LESSEE,
with respect to any such damage or requisition shall be paid over to, or
retained by, LESSOR, and shall be paid to LESSEE upon repair of the Aircraft or
Engine.
(D) Receipt and Application of Compensation. Following an Event of
Loss with respect to which payments, including insurance proceeds, are made by
or are
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due from any Person (any such payments or proceeds being hereinafter referred to
as "Compensation"), LESSOR shall be entitled to receive, and shall receive, and
LESSEE hereby assigns to LESSOR any right or interest which LESSEE may have or
may hereafter acquire, in such Compensation, in trust, to be applied as follows:
(1) If such Compensation is received with respect to the
Aircraft under the circumstances described in Subsection 12(A), so
much thereof as shall not exceed the Agreed Value and other amounts
due under Subsection 12(A) shall be retained by LESSOR, in reduction
of LESSEE's obligation to pay such Agreed Value and other amounts
due as was not theretofore paid by LESSEE, or, if such Agreed Value
and other amounts have already been paid to LESSOR, such
Compensation shall be applied to reimburse LESSEE for its payment of
such Agreed Value, and may be paid to LESSEE.
(2) If such Compensation is received with respect to an Engine
under the circumstances described in Subsection 12(B), such
Compensation shall be held in an account established for LESSOR with
a bank or trust company as depository, as designated by LESSOR, such
sums to be held, invested and distributed as provided below. All of
LESSEE's interest in all monies and investments standing to the
credit of such account are hereby pledged to LESSOR, and LESSOR is
hereby granted a general lien upon and security interest in all of
LESSEE's interest in all such monies and investments as security for
the performance in full of all of LESSEE's covenants contained in
this Lease. The bank or trust company holding such Compensation
shall be deemed to be LESSOR's agent for the purpose of perfecting
LESSOR's security interest in such sums. If LESSEE shall replace
such Engine in accordance with the provisions of Subsection 12(B),
LESSOR shall, so long as no Event of Default or Default shall have
occurred and be continuing, return all monies and investments then
held in such account to LESSEE.
(E) Payments During Existence of an Event of Default. Any payment
referred to in Subsection 12(A), (B), (C) or (D) hereof which is payable to
LESSEE hereunder shall not be paid to LESSEE, or, if previously paid directly to
LESSEE, shall not be retained by LESSEE, if at the time of such payment a
Default or a Related Lease Default shall have occurred and be continuing, but
shall be paid to and retained by LESSOR as security for the obligations of
LESSEE under this Lease until such time as
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such a Default or a Related Lease Default shall have been remedied, whereupon
such payment shall be made to LESSEE.
SECTION 13
INSURANCE
(A) Public Liability and Property Damage Insurance. LESSEE will
carry and maintain in effect, at its own expense, with Approved Insurers, public
liability insurance (including, without limitation, contractual liability, and
passenger legal liability), and property damage insurance with respect to the
Aircraft, in amounts per occurrence of not less than the Minimum Liability
Coverage, or such greater amounts as LESSEE may carry from time to time on other
similar aircraft in its fleet. LESSEE shall not discriminate against the
Aircraft in providing such insurance. Each and any policy of insurance carried
in accordance with this Subsection (A), and each and any policy obtained in
substitution or replacement for any of such policies, (i) shall designate each
Indemnitee as additional insureds as their interests may appear (but without
imposing upon any obligation imposed upon the insured, including, without
limitation, the liability to pay any premiums for any such policies, but the
Indemnitees shall have the right to pay such premiums if it shall so elect), and
(ii) shall expressly provide that, in respect of the interests of the
Indemnitees in such policies, the insurance shall not be invalidated by any
action or inaction of the LESSEE or any other Person (other than the
Indemnitees, each for their respective interests), and shall insure, regardless
of any breach or violation by LESSEE or any other Person (other than the
Indemnitees, each for their respective interests) of any warranty, declaration
or condition contained in such policies, (iii) shall provide that if such
insurance is canceled for any reason whatsoever, or is adversely changed in any
way with respect to the interests of the Indemnitees, or if such insurance is
allowed to lapse for nonpayment of premium, such cancellation, change or lapse
shall not be effective as to the Indemnitees for thirty (30) days (seven (7)
days in the case of any war risks and allied perils coverage or such lesser time
which may be standard in the insurance industry and ten (10) days in the event
of nonpayment of premium), in each instance, after receipt by each of the
Indemnitees of written notice by such insurer or insurers sent to the
Indemnitees of such prospective cancellation, change or lapse, (iv) shall
include coverage for any country in which the Aircraft is located, (v) shall
provide that, as against the Indemnitees, the insurer shall waive any rights of
set-off, counterclaim or any other deduction, whether by attachment or
otherwise, and waives any rights it may have to be subrogated to any right of
any insured against the Indemnitees, with respect to the Aircraft, (vi) shall
provide war risk and allied perils coverage pursuant
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to the AVN52 extended coverage endorsement or its equivalent, and (vii) shall
insure (to the extent of the risks covered by the policies) the indemnity
provisions of Section 14. Each liability policy shall be primary without right
of contribution from any other insurance which may be carried by any Indemnitee,
and shall 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. No liability policy shall permit any
deductible or self-insurance provision except for baggage as is customary in the
industry and such other deductibles only with the consent of the LESSOR, which
consent shall not be unreasonably withheld or delayed, which from time to time
LESSEE can demonstrate are standard in comprehensive liability insurance and, in
particular, public liability risks (including, inter alia, contractual liability
and passenger liability coverage) for U.S. Air Carriers in the then current
United States insurance market.
(B) Aircraft Hull War Risks and Allied Perils Insurance. LESSEE will
carry and maintain in effect with Approved Insurers, at its own expense, all
risks hull war risks and allied perils insurance on the Aircraft (which shall
include, but not be limited to, coverage for hijacking, declared or undeclared
war, insurrections, strikes, riots, commotions or labor disturbances, malicious
acts or acts of sabotage and unlawful seizure or wrongful exercise of control of
the Aircraft in flight by a person on board such Aircraft acting without the
consent of LESSEE) in an amount not less than the Agreed Value or such greater
amounts as LESSOR or Mortgagee may reasonably request from time to time (and for
which LESSOR shall reimburse LESSEE for its cost of increased premium, if any,
for such greater amounts of insurance) and covering those perils which, from
time to time, are customarily covered by similar insurance maintained by similar
carriers in the U.S. airline industry operating aircraft on international
routes.
(C) All Risks Hull Insurance. LESSEE, at its own expense, will
maintain in effect with Approved Insurers all risks ground and flight aircraft
hull insurance covering the Aircraft, and fire, transit, extended coverage,
spares and all risks war and allied perils insurance with respect to Engines and
Parts while not installed on such Aircraft or an aircraft, which in each case is
of the type maintained by U.S. Air Carriers similarly situated to LESSEE and
operating similar aircraft and engines which comprise LESSEE's fleet. At all
times while the Aircraft is subject to this Lease, such insurance shall be for
an amount not less than the Agreed Value or such greater amounts as LESSOR may
reasonably request from time to time (and for which LESSOR shall reimburse
LESSEE at its own cost of increased premium, if any, for such greater amounts of
insurance).
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Notwithstanding anything above, each and any policy of
insurance obtained and maintained pursuant to Subsection (B) and this Subsection
(C), and each and any policy obtained in substitution or replacement for any
such policies, (i) shall designate LESSOR as owner of the Aircraft covered
thereby, and shall designate each Indemnitee as additional insureds and
Mortgagee as sole loss payee, as their respective interests may appear (but
without imposing upon any Indemnitee any obligation imposed upon the insured,
including, without limitation, the liability to pay any premiums for any such
policies, but any Indemnitee shall have the right to pay such premiums if they
shall so elect), (ii) shall expressly provide that, in respect of the interests
of any Indemnitee in such policies, the insurance shall not be invalidated by
any action or inaction of LESSEE or any other Person (other than any Indemnitee,
each for their respective interests) and shall insure the Indemnitees,
regardless of any breach or violation of any warranty, declaration or condition
contained in such policies by LESSEE or any other Person (other than the
Indemnitees, each for their respective interests), (iii) shall provide that if
such insurance is cancelled for any reason whatsoever, or is adversely changed
in any way with respect to the interest of any Indemnitee, or if such insurance
is allowed to lapse for nonpayment of premium, such cancellation change or lapse
shall not be effective as to the Indemnitees, for thirty (30) days (seven (7)
days in the case of any war risks or allied perils coverage or such lesser time
which may be standard in the insurance industry and ten (10) days in the event
of nonpayment of premium) after receipt by the Indemnitees of written notice by
such insurer or insurers to the Indemnitees; as the case may be, of such
prospective cancellation, change or lapse, (iv) shall include coverage for the
territorial limits or any country in which such Aircraft may at any time be
located, (v) shall provide that, as against the Indemnitees, the insurer shall
waive any rights of set-off, counterclaim or any other deduction, whether by
attachment or otherwise, and waives any rights it may have to be subrogated to
any right of any insured against the Indemnitees, with respect to such Aircraft,
(vi) shall provide that in the event of any damage or loss which is an Event of
Loss hereunder and which results in a payment, such payment shall be payable
solely and directly to Mortgagee for the account of all interests, (vii) shall
provide that in the event of any damage or loss which is not an Event of Loss
hereunder and which results in a payment for any one occurrence in excess of
$500,000.00, such payment shall be payable solely and directly to Mortgagee for
the account of all interests, (viii) shall provide that payments for any one
occurrence not in excess of $500,000.00 shall be payable directly to LESSEE
provided there exists no Event of Default or Related Lease Event of Default by
LESSEE, and (ix) shall provide for a standard 50/50 clause between the all risks
hull and war risks underwriters. Each such policy shall be primary without right
of contribution from any other insurance which may be carried by the
Indemnitees.
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LESSEE shall have the right to carry insurance in excess of
the amounts required hereunder and the proceeds of such excess insurance shall
be payable to LESSEE. Similarly, LESSOR shall have the right to carry additional
and separate insurance for its own benefit at its own expense, without, however,
thereby limiting LESSEE's obligations under this Section 13.
LESSEE shall at all times maintain a deductible amount in its
all risks hull insurance policies which is no more than Seven Hundred Fifty
Thousand ($750,000.00) Dollars. There shall be no deductible under LESSEE's war
risks insurance policies.
(D) Application of Insurance Proceeds Not In Excess of $500,000.00.
LESSEE shall be entitled to receive any hull insurance proceeds not in excess of
Five Hundred Thousand ($500,000.00) Dollars as soon as such funds are paid by
the insurance company and shall promptly receive such additional insurance
proceeds, if any, upon presentation to Mortgagee of a vendor's invoice, provided
that such repair work is complete. All insurance proceeds received by LESSEE
pursuant to this Subsection 13(D) shall be used by the LESSEE for the repair of
any damage to the Aircraft or Engines on account of which the insurance proceeds
were paid. Any amount referred to in this Subsection 13(D) which is payable to
LESSEE shall not be paid to LESSEE if at the time of such payment any Default or
Related Lease Default shall have occurred and be continuing, but shall be held
by Mortgagee as security for the obligations of LESSEE under this Lease and such
amount shall be paid to LESSEE at such time as there shall not be continuing any
such Default or Related Lease Default.
(E) Application in Default. Any insurance proceeds referred to in
this Lease which are otherwise payable to LESSEE, or, if it has been previously
paid to LESSEE, and not yet applied by LESSEE as permitted or required
hereunder, shall be delivered from LESSEE to Mortgagee, if at the time of such
payment, a Default or Related Lease Default shall have occurred and be
continuing. In such case, all such amounts shall be paid to and held by
Mortgagee as security for the obligations of LESSEE hereunder.
(F) Certificates. Not less than three (3) Business Days prior to the
Effective Date, and thereafter on each renewal by the LESSEE of the insurance
required hereby, LESSEE will furnish to the Indemnitees a certificate and a
broker's letter of undertaking executed and delivered by the Approved Insurer,
appointed by LESSEE, describing in reasonable detail, and in accordance with
customary practice, insurance carried on the Aircraft and certifying that the
insurance then maintained on the Aircraft
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complies with the terms of this Lease. LESSEE will cause such Approved Insurer
to agree to hold all insurance contracts and slips for the benefit of the
Indemnitees and to advise the Indemnitees in writing at least thirty (30) days
(seven (7) days in the case of any war risk and allied perils coverage and ten
(10) days in the event of nonpayment of premium) prior to the non-renewal,
termination, or cancellation for any reason (including, without limitation,
failure to pay premiums therefor) of any such insurance.
In the event LESSEE shall fail to maintain insurance as herein
provided, LESSOR may at its option provide such insurance and, in such event,
LESSEE shall, upon demand, reimburse LESSOR, as Supplemental Rent for the cost
thereof.
(G) Changes in Industry Practice. If there shall be a fundamental
change in generally accepted industry-wide practice with respect to the
insurance of aircraft (whether relating to all or any of the types of insurance
required to be effected pursuant to the terms of this Section 13) and, as a
consequence thereof, LESSOR shall be of the reasonable opinion that the
insurance required pursuant to the provisions of this Section 13 shall be
insufficient to protect the interests of LESSOR, the insurance requirements set
forth in this Section 13 shall be varied as may be mutually agreed so as to
include such additional or varied requirements to be effected pursuant to the
terms of this Section 13, and as so varied, shall provide substantially the same
protection to LESSOR as it would have done had such change in generally accepted
industry-wide practice not occurred. If any such change in generally accepted
industry-wide practice would enable LESSEE, but for the requirements in this
Section 13, to reduce its expenditures in relation to all or any of the types of
insurance required to be effected pursuant to the terms of this Section 13
without, in the reasonable opinion of LESSOR, prejudicing the interest of
LESSOR, the insurance requirements in this Section 13 shall be amended to take
account of such change in generally accepted industry-wide practice to the
extent required to enable LESSEE to reduce such expenditures, provided, however,
that in no event shall such public liability insurance coverage set forth in
Section 13 be less than $350,000,000.00.
SECTION 14
INDEMNIFICATION
(A) LESSEE agrees to indemnify, reimburse, and hold harmless the
Indemnitees from and against any and all claims, damages, losses, liabilities,
demands, suits, judgments, causes of action, legal proceedings, whether civil or
criminal, penalties, fines, other sanctions, and any reasonable costs and
expenses in connection herewith,
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including attorney's fees and expenses (any and all of which are hereafter
referred to as "Claims") which in any way may result from, pertain to, or arise
in any manner out of, or are in any manner related to the Aircraft or this
Lease, arising out of events occurring on or subsequent to the Effective Date,
or the breach of any representation, warranty or covenant made by LESSEE
hereunder, including, but not limited to, (i) the condition, manufacture,
delivery, lease, acceptance, rejection, possession, return, disposition, use, or
operation of the Aircraft (including, but not limited to, latent and other
defects whether or not discoverable by LESSEE or LESSOR) either in the air or on
the ground; or (ii) any defect in the Aircraft arising from the material or any
articles used therein or from the design, testing, or use thereof or from any
maintenance, service, repair, overhaul, or testing of such Aircraft, regardless
of when such defect shall be discovered, whether or not such Aircraft is at the
time in the possession of LESSEE, and regardless of where such Aircraft may then
be located; or (iii) this Lease or any other transaction, approval, or document
contemplated hereby or given or entered into in connection herewith; provided,
however, that LESSEE shall be subrogated to all rights and remedies which LESSOR
may have against the Manufacturer or Engine Manufacturer.
LESSEE hereby waives and releases any claim now or hereafter
existing against any Indemnitee, on account of any Claims for or on account of
or arising or in any way connected with injury to or death of personnel of
LESSEE or loss or damage to property of LESSEE or the loss of use of any
property which may result from or arise in any manner out of or in relation to
the leasing, condition, use, or operation of the Aircraft, either in the air or
on the ground during the Term, or which may be caused during the Term by any
defect in such Aircraft from any material or any article used therein or from
the design or testing thereof, or use thereof or from any maintenance, service,
repair, overhaul, or testing of such Aircraft regardless of when such defect may
be discovered, whether or not such Aircraft is at the time in the possession of
LESSEE, and regardless of the location of such Aircraft at any such time.
Without limitation upon LESSEE's liability under this Section
14, LESSEE hereby agrees to indemnify, reimburse, and hold each Indemnitee
harmless from any Claims in any manner imposed upon or accruing against each
Indemnitee because of the manufacture, use, or operation of the Aircraft, any
design, article, or material therein or relating thereto, because of
infringement of patent or any other right. LESSEE hereby agrees, and shall have
the right, to assume and conduct promptly and diligently at its sole cost and
expense, the entire defense of any Indemnitee against any such claim, and any
claim, suit, or action for which any Indemnitee is required to assume liability
and to settle such claims and pay any amounts in connection with such agreed
upon settlement.
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LESSOR agrees to give LESSEE prompt notice of any claims
hereunder following LESSOR's actual knowledge of such Claims, but the failure of
LESSOR to give the notice required by this Section 14 shall not constitute a
release by LESSOR or the Indemnitees of any obligations of LESSEE to any
Indemnitees in respect of any such Claim, unless LESSEE is materially adversely
affected solely by such failure of LESSOR to give such notice. Without the prior
consent of LESSEE, LESSOR shall not settle or compromise any Claims that LESSEE,
within a reasonable time after notice from LESSOR, has either (i) confirmed to
LESSOR are subject to indemnification pursuant to this Clause 14, or (ii) agreed
to assume, and to conduct promptly and diligently at its sole cost and expense,
the entire defense thereof.
The indemnifications contained in this Section 14 shall
continue in full force and effect notwithstanding any expiration or other
termination of this Lease and are expressly made for the benefit of and shall be
enforceable by each Indemnitee.
(B) Exceptions. In no event shall the indemnity provided for in
Section 14(A) extend to any Claim or disbursement of any Indemnitee resulting
from, pertaining to or arising in any manner out of, or in any manner relating
to the willful misconduct of any Indemnitee; or to the extent accruing either
before the Effective Date or after the Aircraft has been returned to or
repossessed by LESSOR; or which is a cost or expense required to be paid by
LESSOR hereunder; or which would not have been incurred by LESSOR if LESSOR had
not been in breach of its representations, warranties and covenants in this
Lease; or which results from LESSOR's Liens or Taxes (without prejudice to
LESSEE's obligations set forth in this Lease concerning Taxes).
SECTION 15
LIENS
LESSEE shall not directly or indirectly create, incur, assume, or
suffer to exist any Lien on or with respect to the Aircraft, title thereto, or
any interest therein, except Permitted Liens. LESSEE shall promptly, at its own
expense, take such action as may be necessary to duly discharge any Lien (except
for Permitted Liens) directly or indirectly created, incurred, assumed or
suffered to exist by LESSEE if the same shall arise at any time with respect to
the Aircraft, title thereto or any interest therein.
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SECTION 16
PERFECTION OF TITLE AND FURTHER ASSURANCES
(A) Except through the action or inaction of LESSOR, if, at any
time, any filing or recording is reasonably necessary to protect the interest of
Mortgagee or LESSOR, LESSEE shall, at its own cost and expense, cause this
Lease, the Lease Assignment financing statements with respect hereto, and any
and all additional instruments which shall be executed pursuant to the terms
hereof, so far as permitted by applicable Law, to be kept, filed and recorded
and to be re-executed, re-filed and re-recorded at all times in the appropriate
office pursuant or in relation to any Laws of any Governmental Entity, as LESSOR
or Mortgagee may request, to perfect, protect, and/or preserve the rights and
interests of LESSOR or Mortgagee hereunder and in the Aircraft, and LESSEE shall
furnish to LESSOR evidence satisfactory to LESSOR and Mortgagee of each such
filing, re-filing, recordation and re-recordation.
(B) Without limiting the foregoing, LESSEE shall do or cause to be
done, at LESSEE's cost and expense, any and all acts and things which may be
required under the terms of the Convention on the International Recognition of
Rights in Aircraft ("Mortgage Convention") to perfect and preserve the title of
LESSOR to the Aircraft within the jurisdiction of any signatory which has
ratified the Mortgage Convention, as LESSOR may reasonably request. LESSEE shall
also do or cause to be done, at its own expense, any and all acts and things
which may be required under the terms of any other Law involving any
jurisdictions in which LESSEE will operate, or any and all acts and things which
LESSOR may reasonably request to perfect and preserve LESSOR's ownership rights
regarding the Aircraft within any such jurisdiction and Mortgagee's first
priority lien and security interest in and to the Aircraft and Lease as
evidenced by the Mortgage and Lease Assignment.
(C) LESSEE will not suffer any matter or thing whatsoever whereby
the LESSOR's title in and to the Aircraft may be impaired on account of LESSEE's
or any transferee's lease or operation of the Aircraft.
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SECTION 17
REDELIVERY OF AIRCRAFT AND RECORDS
(A) Redelivery. Upon termination of the Lease with respect to the
Aircraft, or pursuant to Section 19 hereof (such event being hereinafter
referred to as a "Redelivery Occasion"), LESSEE, at its own expense prior to the
Redelivery Occasion, shall return such Aircraft to LESSOR at the Redelivery
Location or such other location as may be mutually agreed upon by LESSOR and
LESSEE, fully equipped as delivered or modified as provided hereunder with all
required Engines installed thereon.
(B) Records. Upon a Redelivery Occasion applicable to the Aircraft,
LESSEE, at its own expense, shall deliver to LESSOR all Aircraft Documents
listed in Exhibit "B", as updated, amended or supplemented along with such other
records and documents in such form as are necessary to qualify the Aircraft for
the issuance of a Certificate of Airworthiness by the FAA and to be eligible to
operate under FAR Part 121 specifications issued by the FAA. Such records and
manuals shall be current and shall constitute an accurate representation of the
condition of the Aircraft.
(C) Condition of Aircraft. Upon a Redelivery Occasion applicable to
the Aircraft, LESSEE shall return the Aircraft to LESSOR in such condition that
the Aircraft shall: (1) comply with each and every return condition requirement
set forth in Exhibit "I" hereto; (2) have a valid certificate of airworthiness
or, at LESSOR's request, a valid certificate of airworthiness for export to a
jurisdiction designated by LESSOR; and (3) shall be free and clear of all Liens,
except LESSOR's Liens.
(D) Final Inspection. Upon or next preceding a Redelivery Occasion
with respect to the Aircraft hereunder, LESSEE shall make such Aircraft
available to LESSOR and Mortgagee not more than five (5) days or less than three
(3) days prior to the date of the Redelivery Occasion for detailed inspection in
order to verify that the condition of such Aircraft complies with the
requirements set forth above (such inspection being hereinafter referred to as
the "Final Inspection"). Such Final Inspection may be scheduled at an
appropriate maintenance facility of the Authorized Maintenance Performer then
performing maintenance of such Aircraft, pursuant to Subsection 7(D) hereof, and
LESSEE shall give LESSOR and Mortgagee not less than ten (10) days' prior
written notice of the location and commencement date of such Final Inspection.
The last "C" Check (or the equivalent thereof under the Maintenance Program) and
the period allowed for the Final Inspection shall have such duration as to
permit LESSOR to inspect the Aircraft and the Aircraft Documents in accordance
with this Section 17 and Exhibit "I".
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(E) No more than three (3) of LESSOR's and Mortgagee's
representatives shall be permitted to attend each phase of activity required to
be conducted during the last "C" Check and the Final Inspection. The Final
Inspection shall commence on the dates designated pursuant to Sections 17(D) and
17(G) with respect to the Aircraft and Aircraft Documents, respectively, and
shall continue on consecutive days until all activity required above to be
performed during the Final Inspection has been concluded. During the maintenance
checks performed immediately prior to the Redelivery Occasion and at the actual
return of the Aircraft, LESSOR, Mortgagee and/or their representatives will have
an opportunity to conduct a complete inspection of the Aircraft's physical
condition including a full operational inspection of the Aircraft systems,
including the opening, in order to verify any aspect, of the condition of any
area of the Aircraft which would normally be accessible during the maintenance
check being performed, or at LESSOR's request and expense any other area,
provided that the Final Inspection, excluding time to correct deficiencies, does
not extend for more than seventy-two (72) hours beyond the Final Inspection. In
addition, a maintenance record review may also be performed to evaluate the
extent to which the Aircraft has been maintained in an airworthy condition in
accordance with requirements of this Lease. Any deficiencies from the Aircraft
return condition requirements set forth in this Section 17 and in Exhibit "I"
will be corrected by LESSEE at its cost prior to the Acceptance Flight as
hereinafter defined. Immediately prior to the proposed redelivery of the
Aircraft, LESSEE will carry out for LESSOR, Mortgagee and/or LESSOR's
representatives an Aircraft acceptance flight (the "Acceptance Flight") (which
may be the ferry flight to the Return Location) in accordance with LESSEE's
comprehensive test flights procedures or, if agreed to in writing by LESSOR, in
accordance with an airline acceptance flight procedure, either of which will be
for the duration necessary to perform such check flight procedures but in any
event not more than one and one-half (1 1/2) hours. Flight costs and fuel will
be furnished by and at the expense of LESSEE. Any deficiencies from the Aircraft
return condition requirements set forth in this Section 17 and Exhibit "I" will
be corrected by LESSEE at its cost prior to return of the Aircraft.
(F) To the extent that any portion of the Final Inspection extends
beyond the date of a Redelivery Occasion, the Term shall be deemed to be
automatically extended, and the LESSEE shall be obligated to continue to insure
the Aircraft, in accordance with the provisions of this Lease, and to pay Rent
hereunder, on a daily basis, calculated at a daily rate equal to 100% of the per
diem Basic Rent for the first five days and at a daily rate equal to 150% of the
per diem Basic Rent thereafter until the Final Inspection shall have been
concluded. All storage expenses attributable to any extension of the Term
pursuant to the preceding sentence shall be payable by LESSEE. Notwithstanding
the foregoing, in the event that the Final Inspection evidencing that the
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Aircraft and Aircraft Documents are in conformity with the provisions of this
Lease has not been or, in LESSOR's reasonable judgment, will not be concluded by
the tenth (10th) day from the scheduled end of the Term, then, in such event,
LESSOR shall have the right to elect to take possession of the Aircraft and
Aircraft Documents and perform, or cause to be performed, such repairs as are
necessary to bring the Aircraft and Aircraft Documents into conformity with the
provisions of this Lease with respect to redelivery of the Aircraft and Aircraft
Documents on a Redelivery Occasion. In the event LESSOR makes the election set
forth in the immediately preceding sentence, then, in such event, (i) the Term
shall be deemed extended until the Aircraft and Aircraft Documents are in
conformity with the provisions of this Lease with respect to redelivery but the
obligation of LESSEE to pay Rent hereunder shall terminate, except that LESSEE
shall pay Supplemental Rent in an amount equal to the costs reasonably incurred
by LESSOR to bring the Aircraft and Aircraft Documents into conformity with the
provisions of this Lease; and (ii) the amount of Supplemental Rent payable by
LESSEE to LESSOR may, at the election of LESSOR, be deducted from the Security
Deposit or Related Security Deposit then held by LESSOR and, to the extent that
such Security Deposit or Related Security Deposit is insufficient to pay such
Supplemental Rent (or if LESSOR has not elected to apply such Security Deposit
or Related Security Deposit as provided for herein), LESSEE shall, upon demand
made by LESSOR, pay to LESSOR such additional amounts as shall be necessary to
fully pay the Supplemental Rent.
(G) Aircraft Documentation. In order to enable LESSOR to prepare for
its Final Inspection of the Aircraft, (i) upon LESSOR's request, LESSEE will
make copies available of (a) drawings of the interior configuration of the
Aircraft both as it presently exists and as it will exist at return, (b)
airworthiness directive status list, (c) service bulletin incorporation list,
(d) rotable controlled, hard time and life limited component listings, (e)
interior material burn certificates, (f) complete workscope for the checks,
inspections and other work to be performed prior to return, and (g) current
Engine disk sheets, and (ii) LESSEE agrees to make available at LESSEE's
maintenance base to LESSOR, not later than ten (10) days prior to the
commencement of such Final Inspection, the Aircraft Documents listed in Exhibit
"B" hereto, together with such other documentation regarding the condition, use,
maintenance, operation and history of the Aircraft as LESSOR may request.
(H) LESSEE's Correction and Subsequent Corrections. To the extent
that the Aircraft, any Engine or any of the Aircraft Documents fails upon a
Redelivery Occasion to conform to any requirement imposed by Section 17 hereof,
LESSOR may, at its option:
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(1) continue the Lease in effect in the manner provided for in
Subsection 17(F) above with regard to automatic extension with
respect to such Aircraft until such time as the nonconforming items
are corrected; or
(2) request LESSEE to pay, and LESSEE shall pay to LESSOR, an
amount equal to the amount required (labor and materials) by the
then current Authorized Maintenance Performer or any other Person,
as the case may be, agreed upon by LESSOR and LESSEE on the date of
such Redelivery Occasion, to correct such nonconforming items. Any
such amount payable by LESSEE to LESSOR for such correction shall
become Supplemental Rent, payable by LESSEE within five (5) days
following the submission of a written statement by LESSOR to LESSEE
identifying the items corrected or to be corrected and setting forth
the expense of such correction. LESSEE's obligation to pay such
Supplemental Rent shall survive the passage of the early termination
of the Term or other termination of this Lease. In addition to the
preceding, and under the same payment terms, LESSEE, with regard to
any time-limited component installed on such Aircraft which does not
satisfy the return condition requirements of this Section 17 upon a
Redelivery Occasion, LESSEE shall pay LESSOR, at the time of a
Redelivery Occasion, an amount equal to the amount which would be
required to be paid to the Person selected by the then current
Authorized Maintenance Performer or any other person, as the case
may be, agreed upon by Lessor and Lessee on the date of such
Redelivery occasion, for putting such item in such condition.
(I) Dispute as to Compliance with Return Conditions. Should there be
any dispute as to whether the Aircraft meets the return conditions, the matter
shall be resolved by an independent knowledgeable aviation maintenance expert
reasonably acceptable to both parties. The standard to be applied in
ascertaining compliance with the redelivery conditions set out in this Section
17 shall be that applied after taking into account the levels of tolerance set
out in the Maintenance Program.
SECTION 18
EVENTS OF DEFAULT
Each of the following events shall constitute an Event of Default:
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(A) LESSEE shall fail to make any payment of Rent when due under
this Lease and such payment shall be overdue for a period of three (3) Business
Days after written notice by Lessor to Lessee;
(B) LESSEE shall fail to carry and maintain insurance on or with
respect to the Aircraft and this Lease in accordance with the provisions of
Section 13 hereof or shall operate the Aircraft or permit the Aircraft to be
operated in violation of any insurance policy required to be provided pursuant
to Section 13 hereof;
(C) Except as otherwise expressly provided in this Section 18 and
Subsection 18(B) above for which no notice is required, LESSEE shall fail to
perform or observe any covenant, condition or agreement to be performed or
observed by LESSEE under the Lease or any other Lease Document to which LESSEE
is a party and such failure shall continue for a period of thirty (30) days
after written notice thereof from LESSOR to LESSEE, provided that such right of
remedy shall only exist in respect of not more than three (3) cumulative
failures (not including any breach or default by the LESSEE of performance of
its obligations under Subsection 18(L) after the date hereof);
(D) Any representation or warranty made by LESSEE herein, or in any
notice, certificate or other document furnished by or on behalf of LESSEE herein
to LESSOR or its assigns, shall prove to have been incorrect in any material
respect when made;
(E) LESSEE shall consent to the appointment of a receiver, trustee
or liquidator for itself or for a substantial part of its property, or LESSEE
shall admit in writing its inability to pay its debts generally as they become
due, or shall make a general assignment for the benefit of creditors, or LESSEE
shall file a voluntary petition in bankruptcy or a voluntary petition or answer
seeking reorganization in a proceeding under any Laws dealing with bankruptcy,
insolvency, moratorium or creditors' rights generally (any or all of which are
hereinafter referred to as "Bankruptcy Laws"), or an answer admitting the
material allegations of a petition filed against LESSEE in any such proceeding,
or LESSEE shall by voluntary petition, answer or consent to or seek relief under
the provisions of any Bankruptcy Laws;
(F) An order, judgment or decree shall be entered by any court of
competent jurisdiction appointing, without the consent of LESSEE, a receiver,
trustee or liquidator for LESSEE or any substantial part of its property, or any
substantial part of the property of LESSEE shall be sequestered, and any such
order, judgment, decree or
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appointment, or sequestration, shall remain in force undismissed, unstayed or
unvacated for a period of sixty (60) days after the date of entry thereof;
(G) A petition against LESSEE in a proceeding under the Bankruptcy
Laws of any Governmental Entity shall be filed and shall not be withdrawn or
dismissed within sixty (60) days thereafter, or if, under the provisions of any
Bankruptcy Laws which may apply to LESSEE, 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 shall remain in
force unrelinquished, unstayed or unterminated for a period of ninety (90) days;
(H) LESSEE shall be dissolved or liquidated, shall terminate its
existence or suspend its operations, shall lose any right, privilege or
franchise necessary to maintain its corporate existence, or shall dispose of all
or substantially all of its properties to any Person (in each case, except as
otherwise permitted hereunder);
(I) LESSEE shall make or permit any assignment or transfer of this
Lease or of possession of the Aircraft other than as permitted hereunder;
(J) Any license, permit, authorization, consent, approval,
notification, registration or filing now or hereafter necessary to enable LESSEE
to perform or comply with its obligations under the Lease shall fail to be
timely issued, granted or made, or shall expire or lapse and shall not be
forthwith renewed or extended or shall be revoked, withdrawn, withheld or
adversely modified, or shall cease to be in full force and effect;
(K) All or a substantial part of the properties of LESSEE shall be
condemned, seized or otherwise appropriated for custody or control, or such
property shall be assumed by any Governmental Entity or any court or other
Person purporting to act under the authority of any Governmental Entity, or
LESSEE shall be prevented from exercising normal control over all or a
substantial part of its properties, if such events as set forth in this
Subsection 18(K) are not remedied within sixty (60) days after they occur;
(L) The LESSEE fails to pay any Indebtedness exceeding $500,000.00
individually or in the aggregate when due (giving affect to all applicable grace
periods) or any Indebtedness exceeding $500,000.00 individually or in the
aggregate of the LESSEE becomes or is declared to be due and is accelerated,
unless LESSEE is contesting its liability in respect of such Indebtedness by
proceedings being contested in good faith and diligently prosecuted and for
which appropriate reserves have been made by the LESSEE,
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all as evidenced to the reasonable satisfaction of the LESSOR, and the LESSOR is
reasonably of the view that its interest in the Aircraft is not adversely
prejudiced thereby;
(M) This Lease or any Lease Document is or becomes wholly or partly
invalid, ineffective or unenforceable and the LESSOR determines that such
invalidity, ineffectiveness or unenforceability will or may have a material
adverse effect upon the rights of the LESSOR or the ability of the LESSEE to
perform its obligations under this Lease or such Lease Document and alternative
arrangements satisfactory to the LESSOR are not entered into by the LESSEE; or
(N) If any Related Lease Event of Default shall occur and be
continuing.
SECTION 19
REMEDIES
Upon the occurrence of any Event of Default, and at any time
thereafter so long as the same shall be continuing, LESSOR may, at its option,
declare this Lease to be in default, and at any time thereafter, so long as
LESSEE shall not have remedied any outstanding Event of Default, LESSOR may
exercise one or more of the following remedies with respect to the Aircraft as
LESSOR in its sole discretion shall elect, to the extent available and permitted
by, and subject to compliance with, any mandatory requirements of applicable Law
then in effect; provided, however, that upon the occurrence of any Event of
Default specified in paragraphs (F), (G) or (H) of Section 18, LESSOR shall be
entitled automatically, as of the day prior to such occurrence, to exercise any
of the following remedies without declaring this Lease to be in default or
making demand or giving notice or the taking of any other action:
(A) Demand that LESSEE, and LESSEE shall, upon the written demand of
LESSOR, at LESSEE's expense, return the Aircraft and Aircraft Documents promptly
to LESSOR in the manner and condition required by, and otherwise in accordance
with all of the provisions of, Section 17 hereof; or LESSOR, at its option and
to the extent permitted by applicable Law, may enter upon the premises where all
or any part of the Aircraft and Aircraft Documents are located and take
immediate possession of and remove the same, by summary proceedings or
otherwise, all without liability accruing to LESSOR for or by reason of such
entry or taking of possession, whether for the restoration of damage to property
caused by such taking or otherwise;
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(B) Sell the Aircraft at public or private sale, as LESSOR may
determine, or otherwise dispose of, hold, use, operate, lease to others, or keep
idle the Aircraft, as LESSOR in its sole discretion may determine, all free and
clear of any rights of LESSEE and without any duty to account to LESSEE with
respect to such action or inaction, or for any proceeds with respect thereto;
(C) Demand (whether or not LESSOR, pursuant to Subsection 19(B)
hereof, may have sold the Aircraft) that LESSEE pay LESSOR, and LESSEE shall
upon such demand pay to LESSOR, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the Rent for such Aircraft due after such payment
occurs), any accrued and unpaid Rent for such Aircraft due up to the time LESSOR
demands such payment, plus the amount by which the Agreed Value of such Aircraft
exceeds the net cash proceeds of any sale of such Aircraft, together with
interest at the Overdue Rate on such Agreed Value or portion thereof and such
unpaid Rent from the date of LESSOR's demand to the date such payment is made;
(D) Proceed by appropriate court action or actions, either at Law or
in equity, to enforce performance by LESSEE of the applicable covenants of this
Lease (including, but not limited to, LESSEE's obligation to pay Rent for the
Term) and to recover damages for the breach thereof, or to rescind this Lease as
to the Aircraft (which rescission shall not release LESSEE from its financial
obligations hereunder);
(E) Terminate this Lease or any of LESSEE's rights hereunder by
written notice, and repossess the Aircraft and Aircraft Documents, provided such
termination shall not release LESSEE from its financial obligations hereunder;
(F) Use and apply the Security Deposit or the Related Security
Deposit to satisfy any of the obligations of LESSEE set forth in this Lease or
in the Related Lease Agreement;
(G) Should the LESSEE fail to return the Aircraft and Aircraft
Documents upon termination of the Lease for any reason whatsoever except due to
an Event of Loss and as set forth in Subsection 17(D)(3) without prejudice to
LESSOR's rights hereunder to demand return of the Aircraft in the condition
required by this Section, LESSEE shall continue to pay Rent to LESSOR for each
day the Aircraft remains in LESSEE's possession at the rate of 1/ 15 of the
monthly Basic Rent then in effect.
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In addition, LESSEE shall be liable for any and all unpaid
Rent due hereunder before or during the exercise of any of the foregoing
remedies and for the time remaining in the Term without giving effect to any
early termination of this Lease, together with interest thereon at the Overdue
Rate from the date such Rent was due, and for all reasonable attorneys' fees,
legal expenses 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 the Aircraft, in accordance with the terms of Section 17 hereof, or with
placing such Aircraft in such condition.
Except as otherwise expressly provided above, no remedy
referred to in this Section 19 is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to LESSOR under any applicable Law, and the exercise or commencement
of exercising by LESSOR of any one or more of such remedies shall not preclude
the simultaneous or later exercise by LESSOR of any or all such other remedies.
No express or implied waiver by LESSOR of any Event of Default shall in any way
be, or be construed to be, a waiver of any future or subsequent Event of
Default. LESSEE hereby agrees that, except as provided in this Section 19, any
financing profit or savings accruing to LESSOR by virtue of LESSEE's default and
LESSOR's subsequent sale, re-letting, or award shall in no way reduce, offset or
mitigate the damages for which LESSEE is liable hereunder.
If the Lease is terminated in accordance with Subsection
19(E), LESSEE hereby appoints LESSOR as LESSEE's irrevocable agent and
attorney-in-fact, as set forth in Exhibit "E", to execute all documents deemed
necessary to release, terminate and void LESSEE's interest in the Aircraft
leased hereunder, and to file said documents for recordation with the Air
Authority and the appropriate Governmental Entity following the occurrence of an
Event of Default, where LESSOR, at its sole discretion, may deem use of such
agency necessary to effect any remedy which LESSOR chooses to exercise.
SECTION 20
ALIENATION
(A) There shall be no restriction upon LESSOR's right to assign,
sell, transfer, pledge, hypothecate or encumber any interest of LESSOR
(hereinafter referred to generally as "Alienation") to the Mortgagee in the
Aircraft, this Lease, and or the
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proceeds thereof and hereof, subject to rights of the LESSEE under the
provisions of the Lease Assignment. Any other assignment by LESSOR hereunder
shall be subject to the prior written consent of LESSEE which consent shall not
be unreasonably withheld or delayed. To effect or facilitate any such
assignment, sale, transfer, pledge, hypothecation or encumbrance, LESSEE agrees
to provide LESSOR or LESSOR's designee or assignee with such agreements,
consents, conveyances or documents as may be reasonably requested by LESSOR. The
agreements, covenants, obligation and liabilities contained herein, including,
but not limited to, all obligations to pay Rent and indemnify LESSOR, are made
for the benefit of LESSOR, Mortgagee and their respective successors and
assigns, notwithstanding the possibility that any such Person was not originally
a party to this Lease or may, at the time such enforcement is sought, not be a
party to this Lease.
(B) In the case of any Alienation or assignment by LESSOR pursuant
to the provisions of Section 20, LESSEE shall execute and deliver to LESSOR
promptly (at LESSOR's cost except that LESSEE shall pay the cost of its
attorney), upon request of LESSOR, any consents or agreements required for the
perfection of such assignment provided that such consent or other documents does
not affect LESSEE's rights under Subsection 21(G) below.
SECTION 21
MISCELLANEOUS
(A) Severability. Amendment and Construction. Any provision of this
Lease which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. No term or
provision of this Lease may be changed, waived, discharged, or terminated
orally, but only by an instrument in writing expressed to be a supplement to
this Lease, signed by an officer of the party against which the enforcement of
the change, waiver, discharge or termination is sought. This Lease shall
constitute an agreement of lease for the Term of the Lease, and nothing herein
shall be construed as conveying to LESSEE any right, title or interest in the
Aircraft, the Airframe, any Engine or Part except as a LESSEE only, for such
Term. The headings in this Lease are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof. Unless the context
otherwise requires, all references in this instrument to designated Sections or
other subdivisions hereof are to such designated Sections or subdivisions; and
the words
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"herein", "hereof', "hereto", "hereunder", and other words of similar import
refer to this instrument as a whole and not to any particular Section or
subdivision. In construing any provision of this Lease, no account shall be
taken as to the party who drafted same and no presumption shall arise or result
therefrom.
(B) Governing Law. This Lease shall in all respects be governed by
and construed in accordance with the Laws of the State of New York applicable to
contracts entered into in such State by residents thereof and to be performed
entirely within such State.
(C) Waiver of Jury Trial. LESSEE AND LESSOR HEREBY WAIVE, TO THE
FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, SUIT OR PROCEEDING BROUGHT BY EITHER PARTY HERETO WITH RESPECT TO
THE CONSTRUCTION OR ENFORCEMENT OF THIS LEASE OR OF ANY PROVISION HEREOF.
(D) Notice. Except as otherwise specified herein, notice, requests,
demands, consents or other communications to, upon or by the respective parties
hereto shall be in the English language and in writing, sent by express courier
or telefax, and shall be deemed to have been duly given or made when received by
the party if sent by telefax or when received by the party, if sent by express
courier, addressed to the party to which such notice, request, demand or other
communication is required or permitted to be given or made hereunder, at the
LESSEE'S Address or LESSOR'S Address, as the case may be, or at such other
address of which such Person shall have notified in writing the party giving
such notice. Copies of all notices to the LESSOR shall also be sent to the
Mortgagee pursuant to the Lease Assignment and to Feltman, Karesh, Major &
Farbman, 152 West 57th Street, New York, New York 10019, Attn.: Loren M. Dollet,
Esq., Telefax No.: (212) 586-0951.
(E) LESSOR's Right to Perform for LESSEE. If LESSEE fails to make
any payment of Supplemental Rent or fails to perform or comply with any
covenant, agreement or obligation contained herein, LESSOR shall have the right,
but not the obligation, to make such payment or perform or comply with such
agreement, covenant or obligation, and the amount of such payment and the amount
of the reasonable expenses of LESSOR incurred in connection with such payment or
the performance thereof or compliance therewith, together with interest thereon
at the Overdue Rate, shall be deemed Supplemental Rent, payable by LESSEE upon
demand. The taking of any such action by LESSOR pursuant to this Subsection
21(E) shall not constitute a waiver or release of any
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obligation of LESSEE under the Lease, nor a waiver of any Event of Default which
may arise out of LESSEE's nonperformance of such obligation, nor an election or
waiver by LESSOR of any remedy or right available to LESSOR under or in relation
to this Lease.
(F) Counterparts. This Lease may be executed simultaneously in one
or more counterparts, all of which together shall constitute one and the same
Lease. To the extent that this Lease constitutes chattel paper in any
jurisdiction, no security interest herein may be created through the transfer of
possession of any counterpart other than the counterpart marked "Original."
Other than the counterpart of this Lease marked "Original," all other original
executed counterparts of this Lease shall be marked "Duplicate Original."
(G) Quiet Enjoyment and Lessor Covenant. LESSOR covenants that if,
and as long as, LESSEE keeps and performs each and every covenant and agreement
to be performed or observed by it hereunder and/or no Event of Default has
occurred and is continuing, LESSEE shall quietly enjoy the Aircraft without
interference by LESSOR or by any Person claiming by, through or against LESSOR,
including, but not limited to, Mortgagee and any other security assignee of
LESSOR, and none of the LESSOR or any Person claiming by, through or against
LESSOR, including, but not limited to, any assignee of LESSOR, will, as long as
LESSEE keeps and performs each and every covenant to be performed or observed by
it hereunder, take any action which adversely affect the registration of the
Aircraft. LESSOR further covenants that it will maintain all legal right, power
and authority, and all licenses and authorizations, necessary to lease the
Aircraft for the Term.
(H) Brokers. LESSOR and LESSEE each agree that there has been no
third party as broker or finder involved in this Lease and each party hereby
indemnifies the other party from liability for fees, commissions or other claims
made upon such other party due to such claims arising through it.
(I) Jurisdiction. Service of Process. The parties hereto hereby
expressly submit to the non-exclusive jurisdiction of the United States District
Court for the Southern District of New York or the Supreme Court of the State of
New York in the Borough of Manhattan, City of New York with respect to any
action arising out of or relating to this Lease. The parties hereto, to the
fullest extent available under applicable Law, waive any claim that venue or
jurisdiction is improper in such courts or that such courts constitute an
inconvenient forum. Service of summons, complaint and other legal process on
LESSOR or LESSEE with respect to any action arising out of or relating to this
Lease may be made by mailing (registered mail, return receipt requested) a copy
of
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any summons or other legal process to said Party at the LESSEE's address or
LESSOR's address, as the case may be, or by any other procedure permitted under
the Laws of the United States of America.
The mailing, as herein provided, of such summons or other
legal process shall be deemed personal service and accepted by LESSEE or LESSOR
as such, and shall be legal, effective and binding upon LESSEE or LESSOR for all
the purposes of the suit.
Nothing in this Subsection 21(I) shall in any way be deemed to
limit the ability of LESSOR or LESSEE to serve any such summonses or legal
process in any other manner permitted by applicable Law or to obtain
jurisdiction over the other party in such other jurisdictions, and in such
manner, as may be permitted by applicable Law.
SECTION 22
SUBLEASE; ASSIGNMENT; CRAF PROGRAM
(A) LESSEE shall not sublease the Aircraft or assign its rights in
this Lease to any other party without the prior written consent of LESSOR which
consent shall not be unreasonably withheld or delayed. LESSEE agrees that it
will be reasonable for LESSOR to withhold its consent if such sublease or
assignment will impair or adversely affect Mortgagee's security interest in the
Aircraft.
(B) Any sublease or assignment consented to by LESSOR shall contain,
among other things, the following terms and conditions:
(1) That such sublease or assignment is subject to and
subordinate to this Lease;
(2) The sublease or assignment shall not relieve the LESSEE of
its obligations under this Lease and the LESSEE shall continue to be primarily
liable hereunder; and
(3) The rights of the LESSOR in any sublease shall be assigned
to LESSOR as security for the performance of the obligations of LESSEE under
this Lease and further assigned by LESSOR to Mortgagee.
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(C) In connection with any request by LESSEE to LESSOR to sublease
the Aircraft or assign its rights in this Lease to any other party, LESSEE
agrees to pay on demand to LESSOR all reasonable costs and expenses incurred by
LESSOR in connection with such request, including, but not limited to, legal
fees and expenses of counsel to LESSOR (such legal fees for which LESSEE shall
be responsible shall include, but not be limited to, the cost of counsel
reviewing all documents which LESSEE proposes to enter into in connection with
such sublease or assignment).
(D) All of LESSEE's obligations hereunder may be performed by any
approved sublessee or assignee, provided however that the LESSEE shall not be
released from its obligations hereunder.
(E) LESSEE may subject the Aircraft to a Wet Lease without LESSOR's
prior written consent.
(F) So long as no Default or Event of Default shall have occurred
and be continuing under this Lease, LESSEE may transfer possession of the
Aircraft to the U.S. Government pursuant to the CRAF Program. In the event of
(i) a requisition for use by the U.S. Government of the Aircraft during the Term
for the purpose of an Air Mobility Command Solicitation pursuant to the CRAF
Program (a "CRAF Requisition") or (ii) notice to the LESSEE from the Government
to the effect that the Aircraft may be subject to a CRAF Requisition (a "CRAF
Activation"), LESSEE shall promptly notify LESSOR and Mortgagee and, except as
otherwise specified herein, all of LESSEE's obligations under this Lease shall
continue to the same extent as if such CRAF Requisition or CRAF Activation had
not occurred. LESSEE agrees that no CRAF Requisition or CRAF Activation shall
continue beyond the end of the Term and that, if the Airframe or any Engine is
not returned by the U.S. Government prior to the end of the Term, then:
(1) such failure shall constitute an Event of Loss, and LESSEE
and LESSOR shall comply with the provisions of Section 12; and
(2) the Term (including LESSEE's obligation to pay Basic Rent)
shall be deemed extended to, and shall not expire until, the date
LESSEE performs fully its obligations pursuant to Section 12.
(G) Notwithstanding any provision in this Lease to the contrary,
LESSOR and LESSEE hereby expressly acknowledge and agree that during any CRAF
Requisition or CRAF Activation:
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(1) the Aircraft shall be registered in the United States;
(2) LESSEE may transfer possession of the Aircraft to the U.S.
Government, provided that the rights of any transferee of the
Aircraft shall be subject and subordinate to all of the terms of
this Lease and the Mortgage, including the right of LESSOR and
Mortgagee to terminate this Lease and immediately repossess the
Aircraft following an Event of Default;
(3) LESSEE shall have exclusive control of the Aircraft and
shall remain primarily liable for the performance of all of the
terms of this Lease to the same extent as if such CRAF Requisition
or CRAF Activation had not occurred;
(4) there shall be no limitation on the geographic area in
which the Aircraft may be operated; and
(5) LESSEE shall provide LESSOR and Mortgagee with the name
and address of the Contracting Office Representative for the
Military Airlift Command of the United States Air Force to whom
notice must be given in connection with the enforcement of remedies
under this Lease, and LESSOR shall give such representative prior
written notice of its enforcement of any remedies under this Lease.
(H) LESSOR shall accept U.S. Government indemnification in lieu of
insurance during a CRAF Requisition or CRAF Activation, and LESSEE's failure to
maintain insurance in accordance with Section 13 hereof during a CRAF
Requisition or CRAF Activation shall not constitute an Event of Default,
provided, however, that in the event that LESSEE is able to maintain existing
insurance coverage on the Aircraft during a CRAF Requisition or CRAF Activation,
as the case may be, and the maintenance of such existing insurance during a CRAF
Requisition or CRAF Activation will not result in any additional cost to Lessee
which is materially in excess of the cost for the existing insurance coverage on
the Aircraft immediately prior to the CRAF Requisition or CRAF Activation, as
the case may be, Lessee shall not take any action or inaction which results in
the termination or cancellation of such insurance. LESSEE shall promptly notify
LESSOR and Mortgagee as to the existence of such indemnification and promptly
furnish to LESSOR and Mortgagee a copy of such indemnification agreement and a
certificate of its independent aircraft insurance brokers certifying that such
indemnification and other insurance maintained by LESSEE is in full compliance
with all the requirements of
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Section 13. All payments received by LESSOR or LESSEE from the U.S. Government
for the use of the Aircraft during or after the Term shall be paid over to or
retained by LESSEE unless (i) an Event of Default has occurred and is continuing
hereunder, or (ii) a deemed Event of Loss has occurred hereunder and LESSEE has
not complied with all of its obligations set forth in Section 12 hereof, in
either of which cases such payments shall be paid over to or retained by LESSOR
to be applied in satisfaction of LESSEE's obligations hereunder.
SECTION 23
RIGHT OF FIRST REFUSAL
If LESSOR proposes to sell the Aircraft, which LESSOR may choose to
do or not to do in LESSOR's sole discretion, and LESSOR agrees on the terms of
such sale with an unaffiliated third party, then LESSOR shall send LESSEE a
written notice (the "LESSOR Notice") specifying the proposed terms of such sale.
LESSEE shall have the option to purchase the Aircraft on the same terms as
specified in the LESSOR Notice by exercising such option in a written notice to
be delivered to LESSOR within fifteen (15) Business Days of receipt of the
LESSOR Notice by LESSEE, including to post within such 15 days period any
deposits for performance. If the LESSEE fails to accept the offer in accordance
with this Section 23 within the 15 days period, the LESSEE shall conclusively be
deemed to have rejected such offer and the LESSOR may, at any time within three
months thereafter, sell the Aircraft on the terms of the offer. If the LESSEE
accepts the offer, LESSOR and LESSEE shall negotiate in good faith to sell the
Aircraft by not later than 30 days after the LESSEE's acceptance.
SECTION 24
ENTIRE AGREEMENT
This Lease (including all Exhibits hereto) embodies the entire
agreement and understanding between LESSOR and LESSEE relating to the subject
matter hereof and supersedes all prior agreements and understandings relating
hereto and neither of the parties hereto shall be bound by or charged with any
oral or written agreements, representations, warranties, statements, promises or
understandings not specifically set forth herein. This Lease may not be changed
and no right granted or obligation imposed
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hereunder may be waived orally, but only by an instrument in writing signed by
the party against whom enforcement of any waiver, change, modification or
discharge is sought.
SECTION 25
CONFIDENTIALITY
LESSOR and LESSEE agree to keep this Lease and all Lease Documents
and any and all documents of a financial or proprietary nature received pursuant
to the provisions of this Lease confidential, and shall not disclose the
existence or any portion of this Lease and any Lease Document and any and all
documents of a financial or proprietary nature received pursuant to the
provisions of this Lease to any person or entity, except in accordance with the
terms hereof. LESSOR and LESSEE may disclose this Lease and any Lease Document
on a need to know basis to: (i) its counsel, accountants, banks, financial
institutions, maintenance providers, independent insurance advisors or other
advisors or agents who are under a duty to or agree to hold such information
confidential, (ii) if the document or information was filed as a matter of
public record with a Governmental Entity or was generally available to the
public at the time of disclosure (other than as a result of a disclosure by such
person or entity), or (iii) as may be required by any statute, court or
administrative order or decree or governmental rule or regulation or by any
regulatory or supervisory governmental authority or agency or by generally
accepted accounting principles.
[signature page follows]
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IN WITNESS WHEREOF, LESSOR and LESSEE, each pursuant to due
corporate authority, have caused this Aircraft Lease Agreement [49587] to be
executed by their duly authorized officers as of the day and year first above
written.
LESSOR: LESSEE:
OLIVIA CORP. RENO AIR, INC.
By: /s/ Aaron Mendelsohn By:
------------------------- ----------------------------
Name: Aaron Mendelsohn Name:
Title: President Title:
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IN WITNESS WHEREOF, LESSOR and LESSEE, each pursuant to due
corporate authority, have caused this Aircraft Lease Agreement [49587] to be
executed by their duly authorized officers as of the day and year first above
written.
LESSOR: LESSEE:
OLIVIA CORP. RENO AIR, INC.
By: By: /s/ Robert M. Rowen
------------------------- ----------------------------
Name: Name: Robert M. Rowen
Title: Title: Vice President and General Counsel
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EXHIBIT "A"
AIRCRAFT SPECIFICATIONS
Manufacturer: McDonnell Douglas
Model MD-87
Serial No. 49587
Line No. N/A
Reg. No. N753RA
Date of Mfgr. 1988
AIRFRAME STATUS
Time as of 11/16/95
Total Hours 14129
Total Cycles 7448
Time Since Last C Ck 13321 hours
Time to Next Overhaul N/A hours/
ENGINE STATUS
Model # Serial # REMAINING Limiter
------- -------- --------- -------
#1. Pratt & Whitney 708147 3155 cyc LPT Shaft
JT8D-217C
#2. Pratt & Whitney 708177 5704 cyc LPT Shaft
JT8D-217C
LANDING GEAR STATUS
Hrs. Remaining Cycles Remaining
-------------- ----------------
Nose N/A N/A
Main N/A N/A
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EXHIBIT "B"
AIRCRAFT DOCUMENTATION
Delivery of Manuals/Documents
o AD Status
o Present Certificate of Airworthiness
o Copy of Original Certificate of Airworthiness or Export ex USA
o Copy of Noise Certificate
o Copy of Radio Lisence
o Packing Sheet from MDC
o Engine Records and Modification Status
o Status Engine S.B., ASB, AD
o Test Cell Run Sheets
o Inventory of Loose Equipment at Date of Delivery
o Weight and Balance Records (Status at Delivery)
o Weight and Balance Manual
o S.B., AOL, I.A. - Status
o Time controlled Component Inventory List (PA 061 INVORT)
o Historical records:
o Log Books
o OTI'S, OTA'S, EO's and AD's
o None Routine Job Cards
o Briefing Cards
o HIL-Lists/Line Maintenance/Heavy Maintenance
o FAA/FAO approved Flight Manual
o Wiring Diagram Manual (Microfilm)
o IPC (Microfilm)
o MAI (Microfilm)
o Last X-Ray Pictures
o APU Log Book/Shop Findings ex UTA
o AOM (Operational Manual)
o Certificate of Airworthiness for Export issued by Swiss Federal Air Office
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EXHIBIT "C"
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered on and as of the date set
forth below by RENO AIR, INC. (hereinafter referred to as "LESSEE") to OLIVIA
CORP. (hereinafter referred to as "LESSOR") pursuant to that Aircraft Lease
Agreement [49587] dated as of November _, 1995 between LESSOR and LESSEE
(hereinafter referred to as the "Agreement"):
A. Details of Acceptance
LESSEE hereby indicates and confirms to LESSOR, its successors and
assigns, that the LESSEE has at ______ o'clock _.M., at this __ day of November,
1995, at Zurich International Airport, Zurich, Switzerland, accepted the
following in accordance with the provisions of the Agreement:
1. (a) McDonnell Douglas Model: NM-87
(b) Manufacturer's Serial No.: 49587
(c) U.S. FAA Registration Number: N753RA
Manufacturer
Engine Model Number Total Total Hours Cycles
No. Serial Number Hours Cycles Remaining Remaining
--- ------------- ----- ------ --------- ---------
(1) Pratt & Whitney
JT8D-217C
708147
(2) Pratt & Whitney
JT8D-217C
708177
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Each of the above-described Engines having 750 or more rated take-off horsepower
or the equivalent thereof.
Airframe
Total Time: ____ hrs.
Total Cycles: ____ Cycles
Fuel
____ lbs.
B. Confirmation of Undertakings
LESSEE confirms that the above described Aircraft and Engines have
been examined by its duly appointed and authorized representative(s), that such
Aircraft and Engines conform to the information set forth above, that there have
been fixed to the Aircraft the markings required by the Agreement (or that such
markings shall be affixed to the Aircraft within fifteen (15) days of the date
hereof). LESSEE confirms and acknowledges that the date set forth above
constitutes the Effective Date, as such term is defined in the Agreement, and
that LESSEE's execution and delivery of this Certificate represents LESSEE's
acceptance of the above described Aircraft and Engines for all purposes of the
Agreement.
IN WITNESS WHEREOF, LESSEE has caused this Certificate of Acceptance to be
executed in its name, by its duly authorized officer(s) or representative(s),
pursuant to due corporate authority, all as of the date written in Section A
above.
LESSEE: RENO AIR, INC.
By:_________________________
Title:______________________
Date:_______________________
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EXHIBIT "D"
LEASE SUPPLEMENT [49587] NO. 1
LEASE SUPPLEMENT [49587] NO. 1, dated November _, 1995, between OLIVIA
CORP. ("LESSOR") and RENO AIR, INC. ("LESSEE").
LESSOR and LESSEE have heretofore entered into that certain Aircraft Lease
Agreement [49587], dated as of November _, 1995, relating to one (1) McDonnell
Douglas MD-87 Aircraft (herein called the "Lease" and the defined terms therein
being hereinafter used with the same meanings). The Lease provides for the
execution and delivery of a Lease Supplement for the purpose of subjecting the
Aircraft and other property described in such Lease Supplement (collectively,
the "Equipment"), as and when delivered by LESSOR to LESSEE, to the terms of the
Lease.
The Lease relates to the Equipment described below and a counterpart of
the Lease is attached hereto and made a part hereof, and this Lease Supplement,
together with such attachment, is being filed for recordation on the date hereof
with the FAA as one document.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, LESSOR and LESSEE hereby agree as follows:
1. LESSOR hereby delivers and leases to LESSEE under the Lease, and LESSEE
hereby accepts delivery of and leases from LESSOR under the Lease, the following
described Equipment, which Equipment, as of the date hereof, is acknowledged and
accepted by LESSEE:
(i) Airframe: one (1) McDonnell Douglas MD-87 airframe, bearing
FAA Registration No. N753RA and Manufacturer's Serial No.
49587;
(ii) Engines: two (2) Pratt & Whitney Model JT8D-217C aircraft
engines, each of which has 750 or more rated takeoff
horsepower and bearing Manufacturer's Serial Nos. 708147 and
708177, respectively; and
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(iii) The Aircraft Documents.
2. The Effective Date for the Equipment is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. The Term is from the date of this Lease Supplement through and
including January 15, 2003.
4. LESSEE hereby confirms it has paid the Security Deposit to LESSOR in
the amount set forth on Schedule "1" attached hereto and forming a part hereof.
5. LESSEE hereby confirms its agreement to pay LESSOR Interim Rent and
Basic Rent, as applicable, for the Equipment throughout the Term, in the
installments and in the amounts provided for on Schedule "1", on each Rent Date.
6. LESSEE hereby confirms its agreement to pay LESSOR Reserves on each
Maintenance Reserve Date, subject to the provisions of 5(E) and in the amounts
provided for on Schedule "1".
7. LESSEE hereby confirms to LESSOR that LESSEE has accepted the Equipment
for all purposes hereof and of the Lease.
8. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement to the same extent as if fully set forth
herein.
9. This Lease Supplement 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.
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IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease Supplement
[49587] No. 1 to be duly executed and delivered as of the date and year first
above written.
LESSOR: LESSEE:
OLIVIA CORP. RENO AIR, INC.
By:_____________________________ By:_____________________________
Name: Name:
Title: Title:
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Schedule "1"
1. Security Deposit. The Security Deposit shall equal $300,000.
2. Interim Rent. Interim Rent shall be payable by LESSEE to LESSOR in the amount
set forth in Section 5(A) of the Lease. The Minimum Basic Rent shall equal
$40,000.
3. Basic Rent.
(i) Basic Rent shall be paid by LESSEE to LESSOR, in advance, as set forth
in Section 5(A)(ii) of the Lease.
(ii) The monthly Basic Rent for each Rent Period during the periods set
forth below shall equal the amounts set forth next to such periods assuming that
LIBOR for such Rent Period is 5.8% per annum:
January 15, 1996 - July 14, 1996 - $87,500
July 15, 1996 - Expiration Date - $150,000
To the extent LIBOR on any given Rent Date (provided, however, if
such Rent Date is not a London Banking Day, then on the immediately following
London Banking Day), on which Basic Rent is to be paid is less than or greater
than 5.8% per annum, the Basic Rent payable by LESSEE to LESSOR on the next Rent
Date shall be adjusted upward (in the event that LIBOR is greater than 5.8% per
annum) or downward (in the event that LIBOR is less than 5.8% per annum) in
accordance with the following formula (the "Rent Adjustment"):
((L-5.8) x A) + B
L = the actual 30-day LIBOR rate for the preceding Rent
Date, however, L shall never be greater than 8.0 nor
less than 3.6
B = the Basic Rent
A = an adjustment factor equal to the amount set forth
below corresponding to the relevant Rent Period:
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Rent Period A
----------- -
Jan-15-1996 to Jan-14-1997 7,450
Jan-15-1997 to Jan-14-1998 6,700
Jan-15-1998 to Jan-14-1999 5,800
Jan-15-1999 to Jan-14-2000 4,900
Jan-15-2000 to Jan-14-2001 3,850
Jan-15-2001 to Jan-14-2002 2,750
Jan-15-2002 to Jan-15-2003 1,550
Notwithstanding anything set forth herein to the contrary, with
respect to the Basic Rent payable for the last Rent Period, the Rent Adjustment
shall be made on the Expiration Date. To the extent the Basic Rent is adjusted
upward for such Rent Period, LESSEE shall pay the Rent Adjustment to LESSOR on
the Expiration Date. To the extent the Basic Rent is adjusted downward for such
period and provided no Default or Related Lease Default has occurred and is
continuing, LESSOR shall pay LESSEE the Rent Adjustment on the later of the
Expiration Date or the date on which LESSEE has complied with all provisions
hereof.
4. Reserves.
(i) The Airframe Reserves shall be payable in an amount equal to thirty
($30.00) Dollars for each Flight Hour incurred on the Airframe for the previous
Rent Period;
(ii) The Engine Reserves shall be payable in an amount equal to seventy
($70.00) Dollars per each Cycle incurred on each Engine for the previous Rent
Period; and
(iii) the Landing Gear Reserves shall be ten ($10.00) Dollars per each
Cycle incurred on the Landing Gear for the previous Rent Period.
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EXHIBIT "E"
APPOINTMENT AS ATTORNEY-IN-FACT
Pursuant to the terms of Subsection 19 of the Lease (as hereinafter
defined), RENO AIR, INC. ("Reno") hereby irrevocably appoints OLIVIA CORP.
("LESSOR"), or its representatives, agents or assigns, as its true and lawful
attorney-in-fact, to act in all respects, do such acts and take such actions as
Reno could do or authorize itself under the Lease with respect to the use,
operations, maintenance and possession of the McDonnell Douglas MD-87 Aircraft,
Serial Number 49587, U.S. Registration No. N753RA (the "Aircraft"), which LESSOR
has leased to Reno by Aircraft Lease Agreement [49587] dated as of November _,
1995 (the "Lease"). The appointment is made as part of and in consideration of
the leasing of the Aircraft to Reno by LESSOR and shall remain in full force and
effect until all obligations of Reno under the Lease shall be fully discharged
or satisfied. The power given to LESSOR herein may only be exercised upon the
occurrence and continuation of an Event of Default under the Lease but LESSOR
shall not be required to deliver any evidence to any party as to the existence
of such Event of Default in connection with the exercise of the power hereunder.
Executed this ___ day of November, 1995.
RENO AIR, INC.
By:_______________________
Name:
Title:
Attested by:
__________________________
(PLACE CORPORATE Secretary
SEAL HERE)
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STATE OF )
) ss.:
COUNTY OF )
On the __ day of _________, 199_, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that he resides at _____________________; that he is the ________ of
_______________, the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
______________________________
Notary Public
[Seal]
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EXHIBIT "F"
REDELIVERY CERTIFICATE
This Redelivery Certificate is delivered on and as of the date set forth
below by Olivia Corp. (hereinafter referred to as "LESSOR"), to Reno Air, Inc.
(hereinafter referred to as "LESSEE") pursuant to the Aircraft Lease Agreement
[49587], dated as of November __, 1995, between LESSOR and LESSEE (hereinafter
referred to as the "Agreement"):
A. Details of Redelivery. LESSOR hereby indicates and confirms to LESSEE,
its successors and assigns, that the LESSOR has, at ____ o'clock _.M., on this
__ day of _________, 199_, at ____________, accepted the following in accordance
with the provisions of the Agreement:
1. (a) McDonnell Douglas Model: MD-87;
(b) Manufacturer's Serial No.: 49587; and
(c) U.S. FAA Registration No.: N753RA.
Manufacturer
Engine Model Number Total Total Hours Cycles
No. Serial Number Hours Cycles Remaining Remaining
--- ------------- ----- ------ --------- ---------
(1) Pratt & Whitney
JT8D-219
[_____]
(2) Pratt & Whitney
JT8D-219
[_____]
Each of the above-described Engines having 750 or more rated take-off horsepower
or the equivalent thereof.
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Airframe
Total Time: ____ hrs.
Total Cycles: ____ Cycles
Fuel
_____ lbs.
B. Confirmation of Acceptance. LESSOR confirms that the above-described
Aircraft and Engines have been examined by its duly appointed and authorized
representative(s) and that such Aircraft and Engines conform to the information
set forth above. LESSOR's execution and delivery of this Redelivery Certificate
represents LESSOR's acceptance of the above-described Aircraft and Engines for
all purposes of this Agreement.
IN WITNESS WHEREOF, LESSOR has caused this Redelivery Certificate to be
executed in its name, by its duly authorized officer(s) or representative(s),
pursuant to due corporate authority, all as of the date written in Section A
above.
LESSOR:
OLIVIA CORP.
By:___________________________
Name:
Title:
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EXHIBIT "G"
DELIVERY CONDITIONS
Upon delivery of the Aircraft to the LESSEE, the Aircraft shall comply
with the following (except to the extent any such items are to be accomplished
during the "C" check to be performed by LESSEE immediately following the
delivery of the Aircraft):
1. The Aircraft shall be delivered in an airworthy condition and have a
valid Swiss Aviation Authority certificate of airworthiness for export.
2. There shall be no deferred maintenance items on the Airframe or
Engines.
3. All AD notes and mandatory service bulletins modifications due for
compliance as of the Effective Date shall have been performed.
4. Immediately prior to delivery, LESSOR shall, at its cost, perform a
test flight of the Aircraft, not to exceed one and one-half (1 1/2) hours in
duration, for the purpose of demonstrating the serviceability of the Aircraft
and its systems. To the extent that any of the systems of the Aircraft which
affect the airworthiness thereof are not functioning in accordance with the
standards of the Manufacturer, LESSOR shall, at its sole cost and expense,
repair, or cause to be repaired, such systems.
5. As of the Effective Date, each Engine will have not less than 3,000
Cycles remaining until the next scheduled removal in accordance with Swissair's
standard engine maintenance program and no discrepancies noted in a borescope
inspection. In computing the time remaining with respect to the Engines, at any
time when same is required to be calculated under the provisions of this Lease,
the most time limited component shall be used as the measure.
6. All life limited components, other than Engine components, installed on
the Aircraft shall have not less than 12 months or 2,000 Cycles remaining, as
determined under the Swissair maintenance program.
7. All technical records and manuals will be up to date and complete and
in English with no deferred maintenance items.
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8. Any modifications necessary to integrate the Aircraft into LESSEE's
fleet shall be performed by LESSEE and LESSEE shall be solely responsible for
all such costs.
9. All documents listed on Exhibit "B" hereof shall have been delivered to
Lessee and any other documents necessary to obtain a United States Certificate
of Airworthiness and to be operable in compliance with Part 121.
10. Lessee shall pay Lessor for all fuel on board the Aircraft at delivery
of the Aircraft on the Effective Date.
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EXHIBIT "H"
LEASE IDENTIFICATION
OWNER: Olivia Corp.
LESSEE: Reno Air, Inc.
MORTGAGEE: Credit Lyonnais/PK AIRFINANCE, New York Branch
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LEASE SUPPLEMENT [49587] NO. 1
LEASE SUPPLEMENT [49587] NO. 1, dated November 16, 1995, between OLIVIA
CORP. ("LESSOR") and RENO AIR, INC. ("LESSEE").
LESSOR and LESSEE have heretofore entered into that certain Aircraft Lease
Agreement [49587], dated as of November 16, 1995, relating to one (1) McDonnell
Douglas MD-87 Aircraft (herein called the "Lease" and the defined terms therein
being hereinafter used with the same meanings). The Lease provides for the
execution and delivery of a Lease Supplement for the purpose of subjecting the
Aircraft and other property described in such Lease Supplement (collectively,
the "Equipment"), as and when delivered by LESSOR to LESSEE, to the terms of the
Lease.
The Lease relates to the Equipment described below and a counterpart of
the Lease is attached hereto and made a part hereof, and this Lease Supplement,
together with such attachment, is being filed for recordation on the date hereof
with the FAA as one document.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, LESSOR and LESSEE hereby agree as follows:
1. LESSOR hereby delivers and leases to LESSEE under the Lease, and LESSEE
hereby accepts delivery of and leases from LESSOR under the Lease, the following
described Equipment, which Equipment, as of the date hereof, is acknowledged and
accepted by LESSEE:
(i) Airframe: one (1) McDonnell Douglas MD-87 airframe, bearing
FAA Registration No. N753RA and Manufacturer's Serial No.
49587;
(ii) Engines: two (2) Pratt & Whitney Model JT8D-217C aircraft
engines, each of which has 750 or more rated takeoff
horsepower and bearing Manufacturer's Serial Nos. 708147 and
708177, respectively; and
(iii) The Aircraft Documents.
2. The Effective Date for the Equipment is the date of this Lease
Supplement set forth in the opening paragraph hereof.
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3. The Term is from the date of this Lease Supplement through and
including January 15, 2003.
4. LESSEE hereby confirms it has paid the Security Deposit to LESSOR in
the amount set forth on Schedule "1" attached hereto and forming a part hereof.
5. LESSEE hereby confirms its agreement to pay LESSOR Interim Rent and
Basic Rent, as applicable, for the Equipment throughout the Term, in the
installments and in the amounts provided for on Schedule "1", on each Rent Date.
6. LESSEE hereby confirms its agreement to pay LESSOR Reserves on each
Maintenance Reserve Date, subject to the provisions of 5(E) and in the amounts
provided for on Schedule "1".
7. LESSEE hereby confirms to LESSOR that LESSEE has accepted the Equipment
for all purposes hereof and of the Lease.
8. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement to the same extent as if fully set forth
herein.
9. This Lease Supplement 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.
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IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease Supplement
[49587] No. 1 to be duly executed and delivered as of the date and year first
above written.
LESSOR: LESSEE:
OLIVIA CORP. RENO AIR INC.
By: /s/ Aaron Mendelsohn By:
--------------------------- ---------------------------
Name: Aaron Mendelsohn Name:
Title: President Title:
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IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease Supplement
[49587] No. 1 to be duly executed and delivered as of the date and year first
above written.
LESSOR: LESSEE:
OLIVIA CORP. RENO AIR INC.
By: By: /s/ Robert M. Rowen
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Name: Name: Robert M. Rowen
Title: Title: Vice President and General Counsel
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Schedule "1"
1. Security Deposit. The Security Deposit shall equal $300,000.
2. Interim Rent. Interim Rent shall be payable by LESSEE to LESSOR in the
amount set forth in Section 5(A) of the Lease. The Minimum Basic Rent shall
equal $40,000.
3. Basic Rent.
(i) Basic Rent shall be paid by LESSEE to LESSOR, in advance, as set forth
in Section 5(A)(ii) of the Lease.
(ii) The monthly Basic Rent for each Rent Period during the periods set
forth below shall equal the amounts set forth next to such periods assuming that
LIBOR for such Rent Period is 5.8% per annum:
January 15, 1996 - July 14, 1996 - $87,500
July 15, 1996 - Expiration Date - $150,000
To the extent LIBOR on any given Rent Date (provided, however, if
such Rent Date is not a London Banking Day, then on the immediately following
London Banking Day), on which Basic Rent is to be paid is less than or greater
than 5.8% per annum, the Basic Rent payable by LESSEE to LESSOR on the next Rent
Date shall be adjusted upward (in the event that LIBOR is greater than 5.8% per
annum) or downward (in the event that LIBOR is less than 5.8% per annum) in
accordance with the following formula (the "Rent Adjustment"):
((L-5.8) x A) + B
L = the actual 30-day LIBOR rate for the preceding Rent
Date, however, L shall never be greater than 8.0 nor
less than 3.6
B = the Basic Rent
A = an adjustment factor equal to the amount set forth
below corresponding to the relevant Rent Period:
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Rent Period A
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Jan-15-1996 to Jan-14-1997 7,450
Jan-15-1997 to Jan-14-1998 6,700
Jan-15-1998 to Jan-14-1999 5,800
Jan-15-1999 to Jan-14-2000 4,900
Jan-15-2000 to Jan-14-2001 3,850
Jan-15-2001 to Jan-14-2002 2,750
Jan-15-2002 to Jan-15-2003 1,550
Notwithstanding anything set forth herein to the contrary, with
respect to the Basic Rent payable for the last Rent Period, the Rent Adjustment
shall be made on the Expiration Date. To the extent the Basic Rent is adjusted
upward for such Rent Period, LESSEE shall pay the Rent Adjustment to LESSOR on
the Expiration Date. To the extent the Basic Rent is adjusted downward for such
period and provided no Default or Related Lease Default has occurred and is
continuing, LESSOR shall pay LESSEE the Rent Adjustment on the later of the
Expiration Date or the date on which LESSEE has complied with all provisions
hereof.
4. Reserves.
(i) The Airframe Reserves shall be payable in an amount equal to thirty
($30.00) Dollars for each Flight Hour incurred on the Airframe for the previous
Rent Period;
(ii) The Engine Reserves shall be payable in an amount equal to seventy
($70.00) Dollars per each Cycle incurred on each Engine for the previous Rent
Period; and
(iii) the Landing Gear Reserves shall be ten ($10.00) Dollars per each
Cycle incurred on the Landing Gear for the previous Rent Period.
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EXHIBIT "I"
REDELIVERY CONDITIONS
A. The Aircraft will be redelivered in accordance with Section 17 of the
Lease and in accordance with the following provisions:
1) The Aircraft shall have a valid U.S. Certificate of Airworthiness or,
at LESSOR's request, a valid U.S. Certificate of Airworthiness for Export to a
jurisdiction designated by Lessor. If the Aircraft is to be registered in a
country other than in the United States after return from LESSEE, LESSOR may in
it's discretion require that LESSEE at its expense (to the extent such expense
is no greater than that LESSEE would have incurred in connection with this
subparagraph A(l), with any additional expense for LESSOR's account) put the
Aircraft in a condition to meet the requirements for issuance of a certificate
of airworthiness of the aviation authority of the next country of register,
provided, however, in the event that the foregoing causes a delay in the
redelivery of the Aircraft to Lessor, Lessee shall not be liable for any costs
associated with the delay in redelivery.
2) The Aircraft shall be in good operating condition and airworthy in
accordance with the Maintenance Program applicable to the Aircraft and the
Manufacturer's structural repair manual. All of the Aircraft equipment,
components, and systems shall be functioning in accordance with the Maintenance
Program.
3) The Aircraft shall be in passenger cabin configuration with 12F and
105Y seats.
4) The Aircraft shall be clean by international commercial airline
standards.
5) No special or unique Manufacturer, Engine manufacturer or FAA
inspection or check requirements which are specific to the Aircraft or Engines
(as opposed to all aircraft or engines of their types) will exist with respect
to the Airframe, Engines and Aircraft equipment, components and systems unless
there is no terminating action rectification available from any source.
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6) All Airworthiness Directives and other instructions of the FAA
applicable to the Aircraft which are issued prior to the date of return of the
Aircraft and require compliance (either by means of repetitive inspections,
modifications or terminating action) prior to return of the Aircraft to LESSOR
will have been complied with on the Aircraft on a terminating action basis.
Airworthiness Directives and instructions which do not have a terminating action
will be accomplished at the level of inspection or modification required to
clear the Aircraft for the lesser of the longest available interval between
inspections or one (1) year after the Expiration Date. If, after using best
efforts, LESSEE is unable to acquire the material, parts or components necessary
to accomplish such Airworthiness Directive, LESSEE will pay to LESSOR upon
return of the Aircraft the estimated cost of terminating such Airworthiness
Directive. If the estimated cost cannot be mutually agreed upon by LESSEE and
LESSOR, LESSEE and LESSOR will each obtain a reasonable estimate from reputable
FAA approved maintenance facility and the estimated cost will be the average of
the two estimates.
7) The Aircraft will be in compliance with Manufacturer's Corrosion
Prevention and Control Program (CPCP) specified for the model type by
Manufacturer.
8) All no-charge vendor and Manufacturer's service bulletin kits received
by LESSEE for the Aircraft but not installed thereon will be on board the
Aircraft as cargo. At LESSOR's request, any other service bulletin kit which
LESSEE paid for will also be delivered to LESSOR on board of the Aircraft, but
LESSOR will reimburse LESSEE for its actual out-of-pocket costs for such kit.
9) The Aircraft will be free of any system-related leaks and any damage
resulting therefrom. All repairs will have been performed on a permanent basis
in accordance with the applicable manufacturer's instructions.
10) If any waivers, alternate means of compliance (unless there exists no
permanent terminating action repair and such alternate means of compliance is
transferrable to other operators of the Aircraft), dispensations, extensions or
carry-overs with respect to Airworthiness Directives or operating or maintenance
requirements are granted by the FAA or permitted by the Maintenance Program,
LESSEE at its sole cost and expense will nonetheless perform such Airworthiness
Directives and other operating or maintenance requirements on a terminating
action basis as if such waivers, alternate means of compliance, dispensations or
extensions did not exist, provided, however, if such waivers, alternative means
of compliance, dispensations or extensions are generally available to operators
of MD-87 aircraft, Lessee shall not be required to terminate such Airworthiness
Directives and/or other operating or maintenance requirements but shall be
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required to perform such maintenance and inspections as it is performing on its
MD-87 fleet on a non-discriminatory basis.
11) At LESSOR's request, LESSEE will provide LESSOR with a written summary
of all sampling programs involving or affecting the Aircraft.
12) Lessee's livery shall be removed and the Aircraft shall be painted
over white.
13) At the time of redelivery of the Aircraft, the Aircraft shall:
(a) have installed the full complement of Engines, which Engines
shall be Pratt & Whitney JT8D-219 Engines, and Parts and other equipment,
accessories and loose equipment as would remain installed in such Aircraft and
shall be in a condition suitable for operation in commercial service;
(b) have performed, within the last 500 Flight Hours, by an
FAA-approved repair station, a full and complete zonal, systems and structural
check ("C" or its equivalent), the corresponding lower checks ("A" and "B" or
equivalent) and any other maintenance and inspections tasks, all in accordance
with the Maintenance Program. LESSEE will also weigh the Aircraft. Any
discrepancies revealed during such inspection will be corrected in accordance
with Manufacturer's maintenance and repair manuals or FAA-approved data. LESSEE
agrees to perform during such check any other work reasonably required by LESSOR
(and not otherwise required under this Lease) and LESSOR will reimburse LESSEE
for such work at LESSEE's preferred customer rates. LESSEE shall pay LESSOR
$25.00 per Flight Hour incurred on the Aircraft since the last "C" check.
(c) have had performed on it when required an internal and external
corrosion inspection in accordance with the CPCP and correct any discrepancies
in accordance with the recommendations of Manufacturer and the Structural Repair
Manual. In addition, all inspected areas will be properly treated with corrosion
inhibitor as recommended by Manufacturer; and
(d) comply with the Manufacturer's and Engine Manufacturer's
original specifications therefor and/or supported by relevant documentation
approved by the Manufacturer and Engine Manufacturer, as the case may be.
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14) The Aircraft shall, on the Redelivery Occasion, meet the requirements
of FAR Part 36, Appendix C, Stage 3 noise regulations without the need to obtain
a waiver or exemption therefrom.
15) LESSEE shall, at its sole cost and expense, immediately prior to
return of the Aircraft, perform a borescope inspection of the Engines (hot and
cold sections). All items beyond the applicable Engine Manufacturer's
maintenance manual limits will be rectified at LESSEE's sole cost and expense.
No Engine will be "on watch" for any reason requiring special or out of sequence
inspection.
16) In accordance with the applicable maintenance manual, accomplish a
maximum power assurance run and condition, acceleration and bleed valve
scheduling checks on the Engines. LESSEE will record and evaluate the Engine
performance, with LESSOR and/or its representative entitled to be present. The
performance and all operating parameters of each Engine will be within the
limits specified in the Manufacturer's maintenance manual.
17) Each APU shall be delivered in a serviceable condition having
completed a hot section inspection not earlier than during the last "C" check.
18) Each of the Engines shall have the same number of Cycles remaining
until the next scheduled removal as when the Engines were delivered to LESSEE.
The Aircraft shall be returned with the same Engines as installed at delivery
(except as otherwise permitted by the Lease). To the extent that the number of
Cycles remaining until the next scheduled removal of the Engines are either
fewer than or greater than the amount of Cycles remaining on such Engines as
existed on the Effective Date for same, a financial adjustment of $70.00 per
Cycle difference will be made by the party receiving the benefit to the other
party hereunder. Notwithstanding the foregoing, LESSOR shall not be obligated to
pay compensation for more than 500 Cycles. In computing the time remaining with
respect to the Engines, at any time when same is required to be calculated under
the provisions of this Lease, the most time limited component shall be used as
the measure.
19) Each Landing Gear will have not less than 6 months or 2,000 Cycles
remaining to operate pursuant to the Maintenance Program. To the extent that the
number of Cycles remaining to operate the Landing Gear are either fewer than or
greater than the amount of Cycles remaining on the Landing Gear as existed on
the Effective Date for same, a financial adjustment of $10.00 per Cycle
difference will be made by the party receiving the benefit to the other party
hereunder.
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20) Each component or Part of the Aircraft which has a hard time limit to
overhaul and each life-limited component or Part will have not less than the
lesser of (a) twelve (12) months or 2,000 Cycles remaining to operate pursuant
to the Maintenance Program, or (b) 100% of its total approved life remaining to
operate as of the "C" Check immediately preceding the Return Occasion.
21) Each component or Part which has a calendar limit will have remaining
to operate as of the "C" check immediately preceding redelivery at least (i) one
year from the date of return of the Aircraft to LESSOR or (ii) 100% of its total
approved life, whichever is less, pursuant to the Maintenance Program, except
that emergency equipment will have remaining to operate at least six (6) months
from the date of return of the Aircraft or 100% of its total approved life as of
the "C" check immediately preceding redelivery, whichever is less.
22) To the extent, on the Redelivery Occasion, the number of Flight Hours
on the Aircraft until the next "15,000 Hour" and "30,000 Hour" (or their
equivalent) heavy maintenance checks is either less than or greater than the
number of Flight Hours on the Aircraft on the Effective Date until the next
"15,000 Hour" and "30,000 Hour" heavy maintenance checks (assuming no change
after the Effective Date in the intervals between such checks not approved by
LESSOR), a financial adjustment of (i) $20.00 per Flight Hour difference with
respect to the next "30,000 Hour" check, and (ii) $10.00 per Flight Hour
difference with respect to the next "15,000 Hour" check, will be made by the
party receiving the benefit to the other party hereunder.
23) The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and
water) will be serviced to full and the waste tank serviced in accordance with
Manufacturer's instructions. Each fuel tank will be at least as full as at
Delivery. Lessor will compensate Lessee for the fuel on board the Aircraft on
the Redelivery Occasion.
24) All technical records and manuals shall be up to date, in English and
with no deferred maintenance items outstanding unless normally deferred until
the next heavy maintenance visit under the Maintenance Program.
25) The Aircraft shall be equipped with TCAS and windshear alert systems.
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EXHIBIT "J"
CREDIT STANDARDS
LESSEE shall be deemed to have satisfied the Credit Standards provided
LESSEE maintains (1) a Fixed Charge Coverage Ratio equal to not less than 1.05.
The "Fixed Charge Coverage Ratio" shall be the ratio of net income (excluding
any extraordinary or one-time items) before interest, taxes, depreciation,
amortization and operating lease rentals divided by the sum of interest expense,
operating lease rentals and mandatory principal payments on debt classified as
long term, all determined in accordance with Generally Accepted Accounting
Principles consistently applied and on a rolling twelve month basis, and (2) a
minimum tangible net worth of $4,000,000 at the end of each month in the rolling
twelve month period.
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EXHIBIT "K"
ASSIGNMENT OF LEASE AND CONSENT
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<PAGE>
ASSIGNMENT OF LEASE AND CONSENT
This ASSIGNMENT OF LEASE AND CONSENT dated as of November 16, 1995 (this
"Agreement") among OLIVIA CORP., a Delaware corporation (hereinafter "Lessor"),
CREDIT LYONNAIS/PK AIRFINANCE, New York Branch, a Luxembourg corporation
(hereinafter the "Lender"), and RENO AIR, INC., a Nevada corporation
(hereinafter "Lessee").
RECITALS:
(1) Pursuant to that certain Aircraft Lease Agreement [49587] dated as of
November 16, 1995 between Lessor and Lessee (the "Lease"), which Lease is being
filed with the Aircraft Registry of the Federal Aviation Administration
simultaneously herewith, Lessor has agreed to lease to Lessee, among other
things, the following:
Airframe: One (1) McDonnell Douglas Model MD-87 Aircraft;
Registration No.: N753RA
Manufacturer's Serial No.: 49587; and
Engines: Two (2) Pratt & Whitney JT8D-217C engines;
Manufacturer's Serial Nos.: 708147 and 708177;
(collectively, the "Aircraft"); and
(2) Lessor has obtained financing from the Lender in connection with the
Aircraft which is the subject of the Lease; and
(3) In order to secure the performance by Lessor of its obligations under,
among other things, that certain Secured Loan Agreement dated as of November 16,
1995 between the Lessor, as borrower, and the Lender, as lender (the "Loan
Agreement") and the Promissory Note (the "Note") made by Lessor and delivered to
the Lender in connection with the making of the loan pursuant to the Loan
Agreement, the Lender has required Lessor to, among other things, assign to the
Lender all of Lessor's right, title and interest in and to the Lease (but none
of its obligations) including, but not limited to, all amounts payable by Lessee
to Lessor under the Lease.
Transaction No. RNO51
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NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agree as follows:
1. Capitalized terms used but not defined in this Agreement shall have the
meaning ascribed to such terms in the Lease.
2. To secure the payment of the principal of, all interest and other sums
payable under the Loan Agreement, as from time to time amended or supplemented,
the Note and that certain Aircraft Chattel Mortgage and Security Agreement dated
as of November 16, 1995, between the Lender, as mortgagee, and Lessor, as
mortgagor, as from time to time amended or supplemented (the "Mortgage"), and
all other documents executed in connection therewith or contemplated thereby,
and the performance of, and compliance with, all of the terms of the Loan
Agreement and the Mortgage, Lessor hereby assigns, transfers, conveys and sets
over to the Lender, all of the Lessor's right, title and interest in, to and
under the Lease (but except as expressly set forth in Sections 6 and 7 below
none of its obligations thereunder) except for Lessor's right, title and
interest in Excluded Amounts (as defined in the Mortgage), including, without
limitation, the right to collect all rental payments, Reserves, the Security
Deposit, income, proceeds (including, but not limited to insurance proceeds),
awards, revenues and other sums payable by Lessee to Lessor pursuant to the
Lease and all of the Lessor's rights under Section 1110 of the U.S. Bankruptcy
Code 11 U.S.C. ss.ss. et seq. or any subsequently enacted statute of similar
import and, after an Event of Default (as defined in the Mortgage) has occurred
and is continuing, to enforce all of Lessor's rights and remedies under the
Lease.
3. The Lessee hereby acknowledges and consents, in accordance with the
terms hereof, to the assignment as herein provided of Lessor's rights under the
Lease to the Lender.
4. Lessor hereby directs Lessee and Lessee hereby agrees to pay directly
to the Lender, until such time as the Lender otherwise directs in writing, to
the account listed below all sums which are due and subsequently will become due
and payable by the Lessee to Lessor in accordance with the terms of the Lease.
All such payments shall be made by wire transfer in good, immediately available
funds to:
Credit Lyonnais, New York
Federal Routing No.: 026008073
Account No.: 01-22403-0001-00
In Favor Of: CL/PK AIRFINANCE
UID No.: 357771
Reference: RNO51
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5. Lessee hereby represents, warrants and agrees as follows:
(a) The Lease and the other Lease Documents (as defined in the
Lease) constitute the entire agreement of lease with respect to the Aircraft and
the Lease has not been amended, modified or supplemented;
(b) the Lease is in full force and effect;
(c) there is no Default or Event of Default under the Lease;
(d) there has been no prepayment of any Rent (as defined in the
Lease) payable under the Lease and the Rent is payable in the amounts set forth
in the Lease;
(e) Lessee will not permit any written amendments or waivers to the
Lease or permit any material provisions thereof to be amended or waived without
the prior, written consent of Lender, which will not be unreasonably withheld or
delayed;
(f) Lessee will promptly send to Lender all notices or demands which
Lessee shall be permitted or required to send to Lessor under the provisions of
the Lease or which Lessee receives from Lessor;
(g) Lessee acknowledges that the Lender has not made any
representations or warranties of any kind, nature or description in respect of
the Aircraft and that the Lender has not assumed any of the Lessor's duties or
obligations under the Lease and the Lessee shall continue to look solely to
Lessor for the performance and fulfillment of the terms, covenants and
conditions on Lessor's part to be performed under the Lease;
(h) Lessee will make all of the payments required to be paid under
the Lease in accordance with the terms of the Lease to the Lender as required in
paragraph 4 hereof;
(i) the Lender shall be entitled to the benefit of all
representations, warranties, covenants, indemnities and obligations to be made
or performed by Lessee pursuant to the Lease to the same extent as if the Lender
was originally named as "Lessor" in the Lease; and
(j) This Agreement has been duly authorized by all necessary action
and constitutes a valid, legal and binding obligation of the Lessee enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, reorganization,
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moratorium or other similar laws and by general principles of equity, whether
considered in a proceeding at law or in equity.
6. Lender and Lessee agree as follows: (a) wherever in the Lease rights
are granted to the Lender, whether as "Lender" or "Mortgagee" under the Lease,
the Lender hereby shall be entitled directly to exercise such rights in
accordance with the terms of the Lease and without relying on its rights as a
third party beneficiary; and (b) wherever in the Lease the consent of the Lessor
is required but is provided not to be unreasonably withheld by the Lessor, if
the Lessor requires the consent of the Lender in such matter under the Loan
Agreement, the Mortgage or any other document, such consent of the Lender shall
not be unreasonably withheld.
7. The Lender confirms to and agrees with the Lessee that the Lender's
rights and remedies as respects the Aircraft are subject in all respects to the
rights of the Lessee under the Lease and that so long as no Event of Default (as
defined in the Lease) has occurred and is continuing, neither the Lender nor any
person claiming by, through or under the Lender will disturb Lessee in the quiet
use, possession and enjoyment of the Aircraft in accordance with the Lease. The
Lender agrees that the terms and conditions of the Lease shall apply to, and be
binding upon, the Lender to the same extent as Lessor. The Lender shall not be
deemed to have assumed any obligations of Lessor under the Lease and Lender's
right to exercise any rights under the Lease shall not be adversely affected by
any failure of Lessor to have fulfilled its obligations thereunder; provided,
however, that in order for the Lender to exercise any right under the Lease, the
Lender shall be required to comply with all of the terms of the Lease pertaining
to the exercise of such right which would otherwise be binding on Lessor.
8. In the event that Lessor shall pay and discharge all of its obligations
under the Loan Agreement, Note and Mortgage, then at the request of Lessor,
Lender hereby agrees to send written notice to Lessee directing Lessee to make
all payments due and payable under the Lease to Lessor or such other party as
Lessor shall advise Lessee of in writing.
9. In the event that the Lender sends any notice to Lessor required to be
sent in accordance with the terms of the Loan Agreement in connection with a
Default or an Event of Default thereunder, Lender shall send a copy of any such
notice to Lessee.
10. (a) Every notice or demand under this Agreement shall be in writing
and may be given or made by telefax or by internationally recognized overnight
courier service.
(b) Every notice or demand under this Agreement or to the Lender
under the Lease shall be sent, in the case of overnight courier, to the Lender,
Lessor or Lessee,
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at their respective addresses and in the case of telefax, to their respective
telefax numbers, as follows:
To Lender:
Credit Lyonnais/PK AIRFINANCE, New York Branch
152 West 57th Street
New York, NY 10019
Attention: Mr. Anders Hebrand
Vice President Contracts
Telephone No.: 212-245-2575
Telefax No.: 212-397-9393
To Lessor or Lessee: to their address, telephone number and
telefax number as set forth in Section 21(D) of the Lease.
(c) Every notice or demand shall, except so far as otherwise
expressly provided by this Agreement, be deemed to have been received, in the
case of a telefax, at the time of actual receipt thereof, and in the case of an
internationally recognized overnight courier service, upon acknowledgment of
receipt or as of the date on which receipt of such notice delivered by overnight
courier is refused or such courier advises that such letter is not deliverable
at the address set out in paragraph 9(b).
(d) Lessor, Lessee or Lender may change its address by giving notice
in accordance with this paragraph 9.
A copy of every notice sent to Lender shall be sent to:
Credit Lyonnais/PK AIRFINANCE
10 rue de la Greve
L-1643 Luxembourg
Attention: Vice President Contracts
Telephone No.: 011-352-402-1721
Telefax No.: 011-352-482-544
Feltman, Karesh, Major & Farbman
152 West 57th Street
New York, New York 10019
Attention: Loren M. Dollet, Esq.
Telephone No.: 212-586-3800
Telefax No.: 212-586-0951
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(e) Lessor and Lessee agree that where the Lease permits actions to
be taken or notices to be given by the "Mortgagee", the Lessee shall be entitled
to rely that any such action or notice taken or given by the "Mortgagee" is
taken or given in accordance with the Loan Documents (as defined in the Loan
Agreement) and may be treated by the Lessee as the action or notice of the
Lessor.
11. This Agreement may be executed in one or more counterparts, each of
which shall constitute an original and all of such counterparts shall constitute
one and the same Agreement.
12. LENDER, LESSOR AND LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON OR ARISING OUT OF OR IN CONNECTION WITH THE
TRANSACTION CONTEMPLATED BY THIS AGREEMENT OR THE ACTIONS OF ANY OF THE PARTIES
HERETO.
13. This Agreement and the rights and obligations evidenced hereby shall
be binding upon and inure to the benefit of the successors and permitted assigns
of the parties hereto. Neither the Lessor nor Lessee may assign any of their
rights or obligations hereunder without the express prior written consent of the
Lender.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS ENTERED INTO IN AND BY
RESIDENTS OF THE STATE OF NEW YORK AND TO BE PERFORMED ENTIRELY WITHIN THE STATE
OF NEW YORK. The Lessor, Lessee and Lender consent to the jurisdiction and venue
of the New York State Supreme Court for the Borough of Manhattan, New York
County, New York and the United States District Court for the Southern District
of New York, in any action arising out of or connected in any way with this
Agreement, and the parties hereto further agree that the service of process or
of any other papers upon them or any of them by certified or registered mail,
return receipt requested, at their respective addresses set forth herein shall
be deemed good, proper and effective service upon them. The parties hereto
expressly consent to the jurisdiction of and venue in each of the aforementioned
courts and expressly waive any claim to lack of jurisdiction thereof or that
either such court is an inconvenient forum or that venue therein is improper.
6
<PAGE>
IN WITNESS WHEREOF, Lessor, Lessee and Lender have caused this Assignment
Of Lease and Consent to be duly executed by their duly authorized officers as of
the day and year first above written.
CREDIT LYONNAIS/PK AIRFINANCE OLIVIA CORP.
NEW YORK BRANCH
By:__________________________ By:_______________________
Title:_______________________ Title:____________________
RENO AIR, INC.
By:_______________________
Title:____________________
7
<PAGE>
LEASE SUPPLEMENT [49587] NO. 1
LEASE SUPPLEMENT [49587] NO. 1, dated November 16,1995, between OLIVIA
CORP. ("LESSOR") and RENO AIR, INC. ("LESSEE").
LESSOR and LESSEE have heretofore entered into that certain Aircraft Lease
Agreement [49587], dated as of November 16, 1995, relating to one (1) McDonnell
Douglas MD-87 Aircraft (herein called the "Lease" and the defined terms therein
being hereinafter used with the same meanings). The Lease provides for the
execution and delivery of a Lease Supplement for the purpose of subjecting the
Aircraft and other property described in such Lease Supplement (collectively,
the "Equipment"), as and when delivered by LESSOR to LESSEE, to the terms of the
Lease.
The Lease relates to the Equipment described below and a counterpart of
the Lease is attached hereto and made a part hereof, and this Lease Supplement,
together with such attachment, is being filed for recordation on the date hereof
with the FAA as one document.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, LESSOR and LESSEE hereby agree as follows:
1. LESSOR hereby delivers and leases to LESSEE under the Lease, and LESSEE
hereby accepts delivery of and leases from LESSOR under the Lease, the following
described Equipment, which Equipment, as of the date hereof, is acknowledged and
accepted by LESSEE:
(i) Airframe: one (1) McDonnell Douglas MD-87 airframe, bearing
FAA Registration No. N753RA and Manufacturer's Serial No.
49587;
(ii) Engines: two (2) Pratt & Whitney Model JT8D-217C aircraft
engines, each of which has 750 or more rated takeoff
horsepower and bearing Manufacturer's Serial Nos. 708147 and
708177, respectively; and
(iii) The Aircraft Documents.
2. The Effective Date for the Equipment is the date of this Lease
Supplement set forth in the opening paragraph hereof.
<PAGE>
3. The Term is from the date of this Lease Supplement through and
including January 15, 2003.
4. LESSEE hereby confirms it has paid the Security Deposit to LESSOR in
the amount set forth on Schedule "1" attached hereto and forming a part hereof.
5. LESSEE hereby confirms its agreement to pay LESSOR Interim Rent and
Basic Rent, as applicable, for the Equipment throughout the Term, in the
installments and in the amounts provided for on Schedule "1", on each Rent Date.
6. LESSEE hereby confirms its agreement to pay LESSOR Reserves on each
Maintenance Reserve Date, subject to the provisions of 5(E) and in the amounts
provided for on Schedule "1".
7. LESSEE hereby confirms to LESSOR that LESSEE has accepted the Equipment
for all purposes hereof and of the Lease.
8. All of the terms and provisions of the Lease are hereby incorporated by
reference in this Lease Supplement to the same extent as if fully set forth
herein.
9. This Lease Supplement 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.
2
<PAGE>
IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease Supplement
[49587] No. 1 to be duly executed and delivered as of the date and year first
above written.
LESSOR: LESSEE:
OLIVIA CORP. RENO AIR INC.
By: /s/ Aaron Mendelsohn By:
--------------------------- ---------------------------
Name: Aaron Mendelsohn Name:
Title: President Title:
3
<PAGE>
IN WITNESS WHEREOF, LESSOR and LESSEE have caused this Lease Supplement
[49587] No. 1 to be duly executed and delivered as of the date and year first
above written.
LESSOR: LESSEE:
OLIVIA CORP. RENO AIR INC.
By: By: /s/ Robert M. Rowen
--------------------------- ---------------------------
Name: Name: Robert M. Rowen
Title: Title: Vice President and General Counsel
3
<PAGE>
Schedule "1"
1. Security Deposit. The Security Deposit shall equal $300,000.
2. Interim Rent. Interim Rent shall be payable by LESSEE to LESSOR in the
amount set forth in Section 5(A) of the Lease. The Minimum Basic Rent shall
equal $40,000.
3. Basic Rent.
(i) Basic Rent shall be paid by LESSEE to LESSOR, in advance, as set forth
in Section 5(A)(ii) of the Lease.
(ii) The monthly Basic Rent for each Rent Period during the periods set
forth below shall equal the amounts set forth next to such periods assuming that
LIBOR for such Rent Period is 5.8% per annum:
January 15, 1996 - July 14, 1996 - $87,500
July 15, 1996 - Expiration Date - $150,000
To the extent LIBOR on any given Rent Date (provided, however, if
such Rent Date is not a London Banking Day, then on the immediately following
London Banking Day), on which Basic Rent is to be paid is less than or greater
than 5.8% per annum, the Basic Rent payable by LESSEE to LESSOR on the next Rent
Date shall be adjusted upward (in the event that LIBOR is greater than 5.8% per
annum) or downward (in the event that LIBOR is less than 5.8% per annum) in
accordance with the following formula (the "Rent Adjustment"):
((L-5.8) x A) + B
L = the actual 30-day LIBOR rate for the preceding Rent
Date, however, L shall never be greater than 8.0 nor
less than 3.6
B = the Basic Rent
A = an adjustment factor equal to the amount set forth
below corresponding to the relevant Rent Period:
4
<PAGE>
Rent Period A
----------- -
Jan-15-1996 to Jan-14-1997 7,450
Jan-15-1997 to Jan-14-1998 6,700
Jan-15-1998 to Jan-14-1999 5,800
Jan-15-1999 to Jan-14-2000 4,900
Jan-15-2000 to Jan-14-2001 3,850
Jan-15-2001 to Jan-14-2002 2,750
Jan-15-2002 to Jan-15-2003 1,550
Notwithstanding anything set forth herein to the contrary, with
respect to the Basic Rent payable for the last Rent Period, the Rent Adjustment
shall be made on the Expiration Date. To the extent the Basic Rent is adjusted
upward for such Rent Period, LESSEE shall pay the Rent Adjustment to LESSOR on
the Expiration Date. To the extent the Basic Rent is adjusted downward for such
period and provided no Default or Related Lease Default has occurred and is
continuing, LESSOR shall pay LESSEE the Rent Adjustment on the later of the
Expiration Date or the date on which LESSEE has complied with all provisions
hereof
4. Reserves.
(i) The Airframe Reserves shall be payable in an amount equal to thirty
($30.00) Dollars for each Flight Hour incurred on the Airframe for the previous
Rent Period;
(ii) The Engine Reserves shall be payable in an amount equal to seventy
($70.00) Dollars per each Cycle incurred on each Engine for the previous Rent
Period; and
(iii) the Landing Gear Reserves shall be ten ($10.00) Dollars per each
Cycle incurred on the Landing Gear for the previous Rent Period.
5
<PAGE>
PAPER NO. 02
THE SINGLE EXECUTED ORIGINAL OF THIS LEASE MARKED "ORIGINAL" SHALL BE THE
"ORIGINAL" AND ALL OTHER COUNTERPARTS OF THIS LEASE SHALL BE DUPLICATES AND
MARKED "DUPLICATE" OR "DUPLICATE ORIGINAL". TO THE EXTENT THAT THIS LEASE
CONSTITUTES CHATTEL PAPER, AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION, NO SECURITY INTEREST MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
"ORIGINAL".
-------------------------------------------------------------------
OPERATING LEASE AGREEMENT
between
TRUST COMPANY FOR USL, INC.,
not in its individual capacity, except as otherwise
expressly provided herein, but solely as Owner Trustee
under the Trust Agreement, dated as of April 30, 1992,
Lessor,
and
FINNAIR OY,
Lessee,
Dated as of April 30, 1992
-------------------------------------------------------------------
covering one McDonnell Douglas MD82 Aircraft
and its related Engines
Finnish Registration Mark OH-LMN
<PAGE>
LEASE AGREEMENT
TABLE OF CONTENTS
Page
----
SECTION 1. Definitions ........................................... 1
SECTION 2. Lease and Delivery of the Aircraft .................... 9
SECTION 3. Term and Rent ......................................... 10
SECTION 4. Representations, Warranties and Covenants ............. 12
SECTION 5. Return of the Aircraft ................................ 22
SECTION 6. Maintenance, Operation, Etc. .......................... 27
SECTION 7. Liens ................................................. 28
SECTION 8. [Intentionally Omitted] ............................... 28
SECTION 9. Possession ............................................ 28
SECTION 10. Event of Loss; Requisition for Use .................... 31
SECTION 11. Insurance ............................................. 34
SECTION 12. Replacement and Pooling; Modifications and
Additions ............................................. 38
SECTION 13. Insignia .............................................. 39
SECTION 14. Inspection/Information ................................ 40
SECTION 15. The Lessor's Right to Perform for the Lessee .......... 40
SECTION 16. Further Assurances .................................... 41
SECTION 17. Events of Default ..................................... 41
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<PAGE>
Page
----
SECTION 18. Remedies .............................................. 42
SECTION 19. Expenses .............................................. 45
SECTION 20. Assignment; Owner Trustee ............................. 46
SECTION 21. Notices ............................................... 46
SECTION 22. Net Lease, No Set-Off, Counterclaim, Etc. ............. 47
SECTION 23. Jurisdiction; Governing Law ........................... 48
SECTION 24. Miscellaneous ......................................... 50
SECTION 25. Title and Ownership ................................... 53
SECTION 26. WAIVER OF JURY TRIAL .................................. 53
SCHEDULE 1 - Aircraft Documents to Be Delivered
SCHEDULE 2 - Members of the OECD
EXHIBIT A TO LEASE AGREEMENT
Form of Lease Supplement (together with Schedule I to Lease Supplement,
Basic Rent and Stipulated Loss Value tables) and Receipt
EXHIBIT B TO LEASE AGREEMENT
Form of Redelivery Receipt of Aircraft and Engines
EXHIBIT C TO LEASE AGREEMENT
Form of legal opinion of Lessee's Finnish counsel
EXHIBIT D TO LEASE AGREEMENT
Form of Guaranty
-ii-
<PAGE>
OPERATING LEASE AGREEMENT
This OPERATING LEASE AGREEMENT, dated as of April 30, 1992, between
TRUST COMPANY FOR USL, INC., a trust company organized under the laws of the
State of Illinois, with its principal place of business at San Francisco,
California, not in its individual capacity, except as otherwise expressly
provided herein, but solely as owner trustee under the Trust Agreement (as
defined below) (the "Owner Trustee" or the "Lessor"), and FINNAIR OY, a
corporation organized under the laws of the Republic of Finland (the "Lessee")
(this "Lease" or "Agreement" or "Lease Agreement" (as it may be referred to in
other document, certificate, opinion or letter) which terms shall include, after
the delivery thereof, the Lease Supplement).
WITNESSETH:
WHEREAS, the Lessee desires to lease from the Lessor and the Lessor
is willing to lease to the Lessee the aircraft described and referred to herein
upon and subject to the terms and conditions of this Lease;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Lessee and the Lessor agree as follows:
SECTION 1. Definitions. The following terms shall have the
following meanings for all purposes of this Lease:
"Act" means the Applicable Law of Finland respecting the ownership,
registration and operation of aircraft registered with the CAA, together
with the regulations of the CAA, as each of the same may be in effect from
time to time.
"Additional Insureds" means the Lessor, the Guarantor, the Owner
Participant, the Trust Company and their respective successors, permitted
assigns (including any lender in connection with a permitted financing),
directors, officers, employees, servants, and agents.
"Affiliate", with respect to any Person, means any Person directly
or indirectly controlling, controlled by or under common control with such
Person, provided that, for purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any one Person,
shall mean the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or partnership interests or by contract or otherwise.
<PAGE>
"Aircraft" means the Airframe and the Engines described in the Lease
Supplement. Such Engines shall be deemed part of the "Aircraft" whether or
not from time to time attached to the Airframe or to another airframe or
on the ground.
"Aircraft Documents" means the documents listed on Schedule 1
hereto.
"Airframe" means the airframe described as the "Airframe" in the
Lease Supplement, together with any and all Parts (including, but not
limited to, landing gear and auxiliary power units but excluding Engines
or engines) so long as such Parts shall be either incorporated or
installed in or attached to the airframe or required to be subject to this
Lease as provided in Sections 9(a)(iv) and 12 hereof, or so long as title
thereto shall remain vested in the Lessor pursuant to this Lease.
"Applicable Jurisdiction" means the country where, pursuant to this
Lease, the Aircraft is registered from time to time.
"Applicable Law" means, without limitation, all applicable laws and
treaties, international agreements, judgments, decrees, injunctions, writs
and orders of any court, arbitration or governmental agency or authority
and rules, regulations, orders, directives, licenses, ordinances and
permits of any governmental body, instrumentality, agency or authority.
"Approved Maintenance Program" means a maintenance program certified
by the Lessee to the Lessor as applicable to the Airframe, the Engines,
any other engines installed on the Airframe from time to time or any
components or Parts and approved by the appropriate aeronautical
authorities of the Republic of Finland or of the Applicable Jurisdiction
from time to time.
"Base Rate" means the rate of interest per annum in effect from time
to time as announced publicly by Citibank, N.A. in New York, New York from
time to time as its base rate, computed on the basis of a year of 365 or
366 days, as the case may be, for the actual number of days elapsed,
including the first day but excluding the last day.
"Basic Rent" means the rent payable for the Aircraft pursuant to
Section 3(b) hereof.
"Bill of Sale" means a long form bill of sale, substantially in the
form of Exhibit B to the Purchase Agreement, signed by the Lessee as
"seller" and in favor of the Lessor as "buyer", covering the Aircraft.
-2-
<PAGE>
"Business Day" means a day of the year in which banks are not
authorized or required to close in New York City or Helsinki, Finland.
"CAA" means the Finnish Civil Aviation Administration, or any
successor thereto.
"C Check" has the meaning set forth in the Approved Maintenance
Program.
"Consent to Assignment of Warranties" means the Consent to
Assignment of Warranties obtained pursuant to Section 10 of the Purchase
Agreement from the Manufacturer and in form and substance satisfactory to
the Buyer.
"D Check" has the meaning set forth in the Approved Maintenance
Program.
"Default" means an event or condition which with the passage of time
or the giving of notice, or both, or the occurrence of any other event or
condition, would constitute an Event of Default.
"Delivery Date" has the meaning given such term in Section 2(a)
hereof.
"Delivery Location" means Helsinki-Vantaa Airport, Finland, or such
other place as may be mutually agreed upon by the Lessor and the Lessee
for the delivery of the Aircraft hereunder.
"Dollars" or "$" means the lawful currency of the United States.
"Engine" means each and all of the engines described as an "Engine"
in the Lease Supplement, or any other engine which may from time to time
replace an Engine leased hereunder in accordance with the terms of
Sections 5(a) or 10(b) hereof, together with any and all Parts so long as
the same shall be either incorporated or installed in or attached to such
engine or required to be subject to this Lease as provided in Sections
9(a)(iv) and 12 hereof. An Engine shall remain leased hereunder whether or
not from time to time attached to the Airframe or attached to any other
airframe or on the ground.
"Event of Default" has the meaning given such term in Section
17 hereof.
"Event of Loss" means any of the following events with respect
to any property:
(i) loss of such property or of the use thereof due to theft
or disappearance for a period exceeding one hundred eighty (180)
days (or, if
-3-
<PAGE>
earlier, either (a) the Lessee shall no longer be diligently
attempting to locate and pursue the return of such property or (b)
the Term shall have ended), or destruction, damage beyond repair or
so as to render repair uneconomic or rendition of such property
permanently unfit for normal use for any reason;
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of an actual,
constructive or compromised total loss;
(iii) the condemnation, confiscation or seizure of, or
requisition of title to or use of, such property by private persons
or by any other governmental or purported governmental authority
(other than requisition for use by the government of the Republic of
Finland or the United States of America not extending beyond the end
of the Term except as provided in Section 3(f)); or
(iv) as a result of any law, rule, regulation, proceeding,
decree, order or other action by the government of the Applicable
Jurisdiction for the time being, or any competent agency, authority
or instrumentality of any such government, including, without
limitation, any court of such Applicable Jurisdiction, the use of
such property in the normal course of domestic and international air
transportation shall have been prohibited for a period of twelve
consecutive months, or, if earlier, a period extending beyond the
last day of the Term as then in effect, except as provided in
Section 3(f).
An Event of Loss with respect to the Airframe shall be deemed to be
an Event of Loss with respect to the Aircraft.
"FAA" or "Federal Aviation Administration" means the United States
Federal Aviation Administration or any successor agency.
"FAR 121" means Part 121 of Subchapter G of Title 14 of the United
States Code of Federal Regulations promulgated by the FAA, as in effect
from time to time.
"Fair Market Rental Value" of the Aircraft shall be determined on
the basis of, and shall mean the amount which would be obtainable in, an
arm's-length transaction between an informed and willing lessee (other
than a lessee currently in possession) under no compulsion to lease and an
informed and willing lessor under no compulsion to lease, in accordance
with a lease on terms and conditions as herein provided. Such
determination shall be made on the basis of the condition of the Aircraft
assuming it was in the state of condition and repair required to be
returned by the terms of this Lease, except that for purposes of Section
18, such determination shall be made on the basis of the then "as-is
where-is" condition of the Aircraft,
-4-
<PAGE>
except that such value shall be deemed to be zero in the event that so
long as an Event of Default has occurred and is continuing, the Lessor
does not have possession of the Aircraft. If the Lessor and the Lessee are
unable to agree upon a determination of Fair Market Rental Value with
respect to the Airframe or an Engine within thirty (30) Business Days
after the Lessor's receipt of the Lessee's notice extending the initial
Term pursuant to Section 3(e) hereof, then such Fair Market Rental Value
shall be determined in accordance with the procedure for Independent
Appraisal.
"Fair Market Sales Value" of the Aircraft shall be determined on the
basis of, and shall mean the amount which would be obtainable in, an
arm's-length transaction between an informed and willing buyer or user
under no compulsion to buy and an informed and willing seller under no
compulsion to sell, and in such determination costs of removal from the
location of current use shall not be a deduction from such value and all
alternative uses in the hands of such buyer or user, including, without
limitation, the further leasing of the Aircraft, shall be taken into
consideration and it shall be assumed that the Aircraft is unencumbered by
this Lease or the renewal option hereunder and that the Aircraft is in the
state of condition and repair required to be returned by the terms of this
Lease, except that for purposes of Section 18, such determination shall be
made on the basis of its then "as-is where-is" condition, except that such
value shall be deemed to be zero in the event that so long as an Event of
Default has occurred and is continuing, the Lessor does not have
possession of the Aircraft. If the Lessor and the Lessee are unable to
agree upon a determination of Fair Market Sales Value of the Aircraft,
then such Fair Market Sales Value shall be determined in accordance with
the procedure for Independent Appraisal.
"Finland" means the Republic of Finland.
"Finnish Labor Index" means the Finnish Labor Index set forth in the
Wages and Salaries Index Industrial Workers, Men, Table 52.22, published
from time to time in the Bulletin of Statistics by the Central Statistical
Office of Finland.
"Guarantor" means United States Leasing International, Inc., a
Delaware corporation, or any other issuer of a Guaranty from time to time,
in each case so long as such Guaranty shall remain in full force and
effect.
"Guaranty" means the Guaranty Agreement delivered on the Delivery
Date to the Lessee by the Guarantor, or any other such guaranty which may
be issued pursuant to the Guaranty by a permitted transferee of the
Guarantor, in each case as the same may be amended, supplemented or
otherwise modified from time to time.
-5-
<PAGE>
"Immunities Act" means the United States Foreign Sovereign
Immunities Act of 1976, as amended from time to time, or any similar
legislation of the United States enacted to supersede, amend or supplement
such Immunities Act.
"Independent Appraisal" means an appraisal mutually agreed to by two
internationally recognized independent aircraft appraisers, one of whom
shall be chosen by the Lessor and one by the Lessee, or, if such
appraisers cannot agree on the amount of such appraisal, an amount equal
to the average of such two appraisals and a third appraisal of a third
internationally recognized independent aircraft appraiser chosen by the
mutual consent of such two appraisers, and paid for by the Lessee,
provided that, if either party shall fail to appoint an appraiser within
ten (10) days after a written request to do so by the other party, or if
such two appraisers cannot agree on the amount of such appraisal and fail
to appoint a third appraiser within ten (10) days after the date of the
appointment of the second of such two appraisers, then either party may,
within ten (10) days after such event, apply to any court having
jurisdiction to make such appointment; provided further, however, that in
calculating such average any appraisal which has a greater than fifteen
percent (15%) variance above or below the second highest of the three
appraisals shall be disregarded. Such appraisers shall be directed and
required to reach a determination within ten (10) days of the appointment
of the third appraiser.
"Lease", "this Lease", "this Agreement", "herein", "hereunder",
"hereby" and other like words mean this Lease Agreement as originally
executed and as amended, modified and supplemented from time to time in
accordance with the applicable provisions hereof and of the other
Operative Documents, including, without limitation, Lease Supplements
and other supplements to this Lease.
"Lease Supplement" means any Lease Supplement, substantially in the
form of Exhibit A hereto, entered into or to be entered into between the
Lessor and the Lessee for the purposes of leasing the Aircraft. The Lease
Supplement shall be deemed to incorporate all of the terms and conditions
of this Lease and such Lease Supplement shall constitute a complete and
enforceable lease agreement.
"Lessee" means Finnair Oy, a corporation organized under the laws of
Finland, its successors and, to the extent permitted by this Lease, its
assigns.
"Lessor" means Trust Company for USL, Inc., a corporation organized
under the laws of the State of Illinois, its successors and, to the extent
permitted by this Lease, its assigns.
"Lessor's Estate" means all estate, right, title and interest of the
Lessor in, to or under the Aircraft, this Lease, any Lease Supplement or
other supplement to the
-6-
<PAGE>
Lease, the Purchase Agreement, the Bill of Sale, the Consent to Assignment
of Warranties and any other Operative Document, including, without
limitation, all amounts of Basic Rent, Supplemental Rent, insurance and
requisition proceeds, condemnation awards, indemnity, guaranty or other
payments of any kind for or with respect to any of the foregoing.
"Lessor Liens" means Liens which result from or constitute claims
by, through or under the Lessor not related to the Lease or any other
Operative Document or the transactions contemplated by this Lease or any
other Operative Document.
"Lien" means any mortgage, security interest, lien, pledge, lease or
other charge or encumbrance or claim or right of others, including,
without limitation, rights of others under any airframe or engine
interchange or pooling agreement.
"Loss Payment Date" means each monthly date set forth in Schedule I
to the Lease Supplement.
"OECD" means any member nation of the Organization of Economic
Cooperation and Development which is described on Schedule 2 hereto.
"Operative Documents" means this Lease (including any Lease
Supplement and any other supplement to this Lease), the Purchase
Agreement, the Trust Agreement, the Bill of Sale and the Consent to
Assignment of Warranties.
"Overdue Payment Rate" means a rate per annum equal to one percent
(1%) above the Base Rate.
"Owner Participant" means United States Leasing International Inc.,
a Delaware corporation, its successors and, to the extent permitted by the
Purchase Agreement, its assigns.
"Owner Trustee" means Trust Company for USL, Inc., an Illinois trust
company, in its trust capacity, and its successors and, to the extent
permitted by the Trust Agreement, its assigns.
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings, components or other equipment of whatever nature
(other than complete Engines or engines) which may from time to time be
incorporated or installed in or attached to the Airframe or any Engine or
after removal thereof so long as title thereto remains vested in Lessor.
-7-
<PAGE>
"Permitted Liens" means: (i) Lessor Liens; (ii) Liens for taxes of
the Lessee either not yet due or 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 the
sale, forfeiture or loss of the Airframe or any Engine or right, title or
interest therein or thereto; (iii) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like Liens arising in the ordinary course
of the Lessee's business 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 the sale, forfeiture
or loss of the Airframe or any Engine or interest therein; and (iv) Liens
(other than for taxes) arising out of judgments or awards against the
Lessee with respect to which at the time an appeal or proceeding for
review is being prosecuted in good faith and with respect to which there
shall have been secured a stay of execution pending such appeal or
proceeding for review.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture or other entity, or a foreign state or political subdivision
thereof or any agency of such state or subdivision.
"Purchase Agreement" means the Purchase Agreement dated as of the
date hereof by and among the Lessor, as purchaser, and the Lessee, as
seller, and the Trust Company, as the same may be amended, supplemented or
otherwise modified from time to time.
"Records" has the meaning given such term in Section 5(a)
hereof.
"Redelivery Date" has the meaning given such term in Section
5(a) hereof.
"Redelivery Location" has the meaning given such term in
Section 5(a) hereof.
"Rent" means Basic Rent and Supplemental Rent.
"Rent Payment Date" means the Delivery Date and the day in January,
April, July and October which corresponds to the Delivery Date (or if
there is no such corresponding day in any such month then the last day of
such month), from and including the Delivery Date to and including the
applicable date specified in the Lease Supplement (or in the Lessee's
notice, if any, extending the Term pursuant to and in accordance with
Section 3(e)) as the final Rent Payment Date.
-8-
<PAGE>
"Responsible Officer" means, with respect to the subject matter of
any covenant, agreement or obligation of any party contained in any
Operative Document, the President, any Vice President, or the Treasurer,
who in the normal performance of his or her operational responsibility
would have knowledge of such matter and the requirements with respect
thereto.
"Stipulated Loss Value" of the Aircraft, as of any date during the
initial Term and, if applicable, any extension thereof, means the amount
set forth on Schedule I to the Lease Supplement as applicable for such
date.
"Supplemental Rent" means all amounts, liabilities, indemnifications
and obligations of any kind whatsoever (other than Basic Rent but
including any payment of Stipulated Loss Value or any amount calculated by
reference thereto) which the Lessee assumes, agrees to or is obligated to
pay hereunder or under any other Operative Document.
"Term" has the meaning given such term in Section 3(a) hereof.
"Trust Agreement" means the Trust Agreement dated as of the date
hereof by and between the Trust Company and the Owner Participant, as the
same may be amended, supplemented or otherwise modified from time to time.
"Trust Company" means Trust Company for USL, Inc., an Illinois trust
company, in its individual capacity, its successors and, to the extent
permitted by the Trust Agreement, its assigns.
"United States" means the United States of America.
"Wet Lease" means any arrangement whereby the Lessee agrees to
furnish the Airframe and Engines or engines installed thereon to a third
party pursuant to which such Airframe and Engine or engines (i) shall be
operated solely by regular employees of the Lessee possessing all current
certificates and licenses required by Applicable Law (it being understood
that cabin attendants need not be employees of the Lessee but that all
members of the cockpit crew will be such employees), and (ii) shall be
maintained in accordance with the maintenance provisions of this Lease.
SECTION 2. Lease and Delivery of the Aircraft. (a) Lease. The Lessor
agrees to lease to the Lessee, and the Lessee agrees to lease from the Lessor,
the Aircraft, on the terms and subject to the conditions of this Agreement.
Effective on such Business Day as the Lessee shall designate by at least two
Business Days prior notice to the Lessor or such other date as the parties may
agree in writing, but in any event not later than May 4, 1992 (the "Delivery
Date"), the Lessor agrees to lease to the Lessee, and the Lessee agrees
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to lease from the Lessor, the Aircraft, subject, however, to the satisfaction or
waiver of each of the conditions precedent set forth in the Purchase Agreement
on or before the Delivery Date.
(b) Delivery. Delivery of the Aircraft under this Lease shall occur
at the Delivery Location and on the Delivery Date. Delivery of the executed
Lease Supplement by the Lessee to the Lessor shall constitute, without further
act, unconditional and irrevocable acceptance by the Lessee of the Aircraft
under, and for all purposes of, this Lease.
SECTION 3. Term and Rent. (a) Term. The term for which the Aircraft
is leased hereunder (the "Term") shall commence on the Delivery Date and shall
continue until the expiry date set forth in the Lease Supplement dated the
Delivery Date (said period being sometimes referred to herein as the "initial
Term"), subject to extension at the Lessee's option in the manner provided in
Section 3(e) below, and termination at the Lessee's option in the manner, and
subject to the conditions, set forth in Section 4(c)(ii) below, and any other
earlier termination as herein provided (including, without limitation, pursuant
to Section 18).
(b) Basic Rent. The Lessee shall pay to the Lessor quarterly rental
for the Aircraft (the "Basic Rent"), payable in advance on each Rent Payment
Date during the Term, in the Dollar amount set forth for such Rent Payment Date
in Schedule I to the Lease Supplement corresponding to such Rent Payment Date.
(c) Method of Payment. All Rent hereunder shall be paid by the
Lessee not later than 12:00 noon, New York time, on the date due thereof in
Dollars and in immediately available funds to the Lessor by deposit with
Citibank, N.A., 399 Park Avenue, New York, New York, ABA No. 021-0000-89, for
the account of US Leasing, Int'l., Account No. 4052-9099, or to such other
account as the Lessor shall specify to the Lessee in writing. Any Rent due on a
day which is not a Business Day shall be due on the next Business Day.
(d) Supplemental Rent. The Lessee also agrees to pay or cause to be
paid to the Lessor (or to whomsoever shall be entitled thereto) any and all
Supplemental Rent (other than Supplemental Rent payable to Persons other than
the Lessor, which shall be payable to such other Persons in accordance with
instructions furnished to the Lessee by such Persons, as otherwise provided in
any of the Operative Documents or as required by law) promptly as the same shall
become due and owing or five (5) Business Days after demand therefor if no due
date is specified, and in the event of any failure on the part of the Lessee to
pay any Supplemental Rent, the Lessor shall have all rights, powers and remedies
provided for herein or in any other Operative Document or by law or equity or
otherwise in the case of nonpayment of Basic Rent. The Lessee will also pay, on
demand, as Supplemental Rent, to the extent permitted by Applicable Law, an
amount equal to interest at the Overdue Payment Rate on any part of any
installment of Basic Rent not paid when due for any period for
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which the same shall be overdue and on any payment of Supplemental Rent not paid
when demanded or due for any period for which the same shall be overdue, in each
case until the same shall have been paid in full. The expiration or other
termination of this Lease shall not limit or modify the obligations of any party
with respect to any indemnities contained in this Lease, all of which
indemnities shall survive the termination of this Lease.
(e) Renewal Options. Neither the Lessee nor the Lessor shall have
the right to extend or renew the Term of this Lease except as otherwise provided
in this Section 3(e). The Lessee, at its option, on two separate occasions, may
extend the Term of the Lease beyond the expiry date set forth in the initial
Lease Supplement by delivering not later than one hundred eighty (180) days
prior to such expiry date, a written notice to the Lessor stating that the Term
shall be extended for an additional period equal to one (1) year beyond the
initial Term, or the extended Term, as the case may be, and specifying the final
Rent Payment Date and the expiry date of the Term as extended. Any such notice
given by the Lessee shall be irrevocable and shall be binding on the Lessee and
the Lessor, and, thereupon, the Term shall be extended to such expiry date
specified in the Lessee's notice, provided in each case that no Default of the
type described in Sections 17(a), (b), (c)(i) or (e) or Default of the type
described in Sections 17(c)(ii) or (d) (which, in the case of Sections 17(c)(ii)
and (d), cannot be cured or the cure of which, if the same are capable of being
cured within the relevant period described in such Section 17(c)(ii) or (d), the
Lessee is not diligently pursuing) or Event of Default or Event of Loss shall
have occurred and be continuing on any of (i) the date of any such notice of the
Lessee, (ii) the last day of the initial Term or the Term as previously
extended, as the case may be, and (iii) the first day of the Term as extended.
(f) Extended Term. If an Event of Loss of the type described in
paragraph (iii) or (iv) of the definition of Event of Loss shall extend beyond
the end of the Term as then in effect, and, in the case of an Event of Loss of
the type described in such paragraph (iv), if the Aircraft shall have been
registered by the Lessee in the United States in the name of the Lessor, as
owner, and the Lessee, as operator, and there shall be no restrictions on the
use of the Aircraft, then, in the event there shall have occurred and be
continuing no Default of the type described in Section 17(a), (b), (c)(i) or (e)
or Default of the type described in Section 17(c)(ii) or (d) (which, in the case
of Section 17(c)(ii) or (d), cannot be cured or the cure of which, if the same
are capable of being cured within the relevant period described in such Section
17(c)(ii) or (d), the Lessee is not diligently pursuing) or Event of Default or
other Event of Loss, the Lessee, at its option, by giving thirty (30) days'
notice prior to the end of the Term as then in effect, may extend the Term for a
period of up to one (1) year (unless the Lessor shall have given its prior
written consent to any other period) so long as it shall continue to perform its
obligations under this Lease including, without limitation, the payment of such
Basic Rent as shall be in effect on the last day of the initial Term or the Term
as previously extended. The provisions of Section 10(c) shall apply (i) in the
case of an Event of Loss arising out of paragraph (iii) of the definition
thereof, and (ii) in the case of
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Event of Loss arising out of paragraph (iv) of the definition thereof, at the
time that the prohibition shall no longer exist.
SECTION 4. Representations, Warranties and Covenants. (a) The
Lessee's Representations and Warranties. The Lessee represents and warrants
to the Lessor as follows:
(i) The Lessee is a corporation duly incorporated, validly existing
and in good standing under the laws of the Republic of Finland, has full
power, legal right and authority (corporate and otherwise) to sell the
Aircraft to the Lessor, to own and hold under lease its properties and to
execute, deliver and perform and observe the provisions of this Lease and
the other Operative Documents, and holds all licenses, certificates,
approvals, consents and permits from the governmental authorities of the
Republic of Finland and of any other governmental authorities to use and
operate, maintain, repair, overhaul and test the Aircraft in accordance
with this Lease and Applicable Law.
(ii) The sale of the Aircraft by the Lessee to the Lessor and the
execution, delivery and performance by the Lessee of this Lease and the
other Operative Documents (A) have been duly authorized by all necessary
corporate action on behalf of the Lessee, (B) do not require the consent
or approval of the Lessee's stockholders or of any trustee or of the
holders of any indebtedness or obligations of the Lessee (except such as
have been obtained, or shall have been obtained, and shall be in full
force and effect on the Delivery Date, certified copies of which shall
have been furnished to the Lessor on or before the Delivery Date), (C) do
not require any notice to or approval (including exchange control
approval) or other action by or filing with any governmental authority or
regulatory body and (D) do not contravene, or result in the creation of
any Lien (other than Permitted Liens) under the Lessee's charter or
by-laws, or any Applicable Law, or any judgment or order relating to the
Lessee or any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which the Lessee is a party or
by which it or its properties is or are bound.
(iii) This Lease is, and each other Operative Document, when
executed and delivered shall constitute, the legal, valid and binding
obligations of the Lessee enforceable against the Lessee in accordance
with their respective terms. Without limitation of the foregoing, a court
in Finland would recognize and give full force and effect to the Lessor's
title to and ownership of the Aircraft, to the rights of the Lessor and
the Owner Participant under this Lease and the other Operative Documents,
and to the terms of Section 23(b) hereof and of Article 12 of the Purchase
Agreement and of the Bill of Sale providing that this Lease, the Purchase
Agreement and the Bill of Sale, respectively, will be governed by the laws
of the State of New York.
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Accordingly, to the extent that the remedies provided for in such Section
18, such Article 12 and the Bill of Sale are enforceable under New York
law, a court in Finland would give effect to the terms of such Section 18,
such Article 12 and the Bill of Sale and enable the Lessor to exercise the
same remedies against the Lessee (however designated) and with respect to
the Aircraft if the Aircraft were then in Finland (including the right to
repossess the Aircraft and to export the Aircraft from Finland).
(iv) There is no pending or, to the best of the Lessee's knowledge,
threatened action or proceeding affecting the Lessee before or by any
court, tribunal, governmental agency or arbitrator which might materially
adversely affect the financial condition or operations of the Lessee or
the ability of the Lessee to consummate the transactions contemplated by,
and perform its obligations under, this Lease or any other Operative
Document.
(v) The execution and delivery of this Lease and each other
Operative Document and the performance of the transactions contemplated
hereby and thereby constitute (for purposes of the Immunities Act and
otherwise) commercial activities of the Lessee, and the Lessee is subject
to private commercial law and to suit with respect thereto; the Lessee is
not entitled to any immunity whether on grounds of sovereign immunity or
otherwise, from set-off or from any legal proceedings in the United States
(by virtue of the waiver of immunity contained herein) or Finland to
enforce or collect upon this Lease or any other Operative Document or any
other liability or obligation of the Lessee related to or arising out of
the transactions contemplated hereby or thereby (including, without
limitation, immunity from service of process, immunity from jurisdiction
or judgment of any court or tribunal, immunity from execution of a
judgment, and immunity of any of its property from attachment prior to any
entry of judgment, or from attachment in aid of execution upon the
judgment).
(vi) Under present laws and tax treaty provisions:
(A) no taxes, levies, imposts, duties, charges or withholdings
will be imposed by Finland or any governmental subdivision or other taxing
authority thereof or therein upon or with respect to payments of Rent or
other amounts payable pursuant to this Lease or any other Operative
Document, provided that:
(1) either the Lessor or the Owner Participant is a
"resident" of the United States, as the term "resident" is used in
Article 4 of the Convention Between the United States of America and
the Republic of Finland for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income and on
Capital, signed on September 21, 1989 (the "Convention"), and
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(2) neither the Lessor nor the Owner Participant has a
"permanent establishment" in Finland, as the term "permanent
establishment" is defined in Article 5 of the Convention, with
respect to which the transaction contemplated by the Operative
Documents or the income from such transaction is attributable; and
(B) the operation of the Aircraft by the Lessee on flights to
or from Finland will not result in the Lessor or the Owner Participant
being subjected to any additional taxes, levies, imposts, duties, charges
or withholdings imposed by Finland or any governmental subdivision or
other taxing authority thereof or therein upon or with respect to the
Lessor's or the Owner Participant's other income, activities or
properties, subject to provisos (1) and (2) set forth in clause (A) above.
(vii) The qualification at any time of the Lessor to do business
under the laws of Finland or any political subdivision thereof does not
constitute a condition to, and the failure to so qualify does not affect,
the purchase by the Lessor of the Aircraft or the exercise by the Lessor
of any right, privilege or remedy accorded it in, under or in connection
with this Lease or any other Operative Document or the enforcement of such
right, privilege or remedy; the purchase by the Lessor of the Aircraft or
the performance by the Lessor of any action required under, or
contemplated by, this Lease or any other Operative Document or the
exercise of the remedies hereunder or thereunder (other than the operation
or other use (other than merely leasing from a place of business outside
of Finland) of the Aircraft by the Lessor) will not violate any
now-existing Applicable Law of Finland or any political subdivision
thereof or require any Finnish governmental filing, approval, consent, or
recordation (except as set forth in paragraph (viii) below) or result in
any tax liability (other than taxes required to be paid by the Lessee
pursuant to Article 9 of the Purchase Agreement) to the Lessor pursuant to
the now-existing Applicable Law of Finland or any political subdivision or
taxing authority thereof or any now-existing rule or regulation of any
federation or organization or similar entity of which Finland is a member.
(viii) Except for the registration of the Aircraft in Finland in the
name of the Lessor as owner with the CAA, (A) it is not necessary to
ensure the legality, validity, enforceability or admissibility in evidence
of this Lease or any other Operative Document in Finland that this Lease
or any other Operative Document or any other document be filed or recorded
with any court or other authority in Finland or that any stamp or similar
tax be paid on or in respect of this Lease or any other Operative Document
unless court action is taken, and (B) no further action by the Lessee in
Finland (including the giving or recording of any document) is necessary
in order to establish and perfect, in Finland, such title to and interest
in the Aircraft as against the Lessee or any third parties as shall be
conveyed by the Lessee to the Lessor on the Delivery Date.
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(ix) No default or Event of Default has occurred and is continuing.
(b) Representations and Warranties of the Trust Company and the
Lessor; Certain Agreements. The Trust Company makes the representations and
warranties contained in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii)
hereof solely as to itself in its individual capacity, and the Lessor makes all
the representations and warranties contained in this paragraph (b):
(i) Due Organization. The Trust Company is a trust company duly
organized and validly existing in good standing under the laws of the
State of Illinois, and has the power and authority to enter into and
perform its obligations under the Trust Agreement and, acting as trustee
thereunder, under this Lease, the Lease Supplement and the Purchase
Agreement.
(ii) Duly Appointed Trustee. The Trust Company is the duly appointed
trustee under the Trust Agreement.
(iii) Trust Agreement. The Trust Agreement has been duly executed
and delivered by one of the officers of the Trust Company who was duly
authorized to execute and deliver the Trust Agreement on behalf of the
Trust Company and, assuming due authorization, execution and delivery by
the Owner Participant, is the valid and binding obligation of the Trust
Company, enforceable in accordance with its terms, and the Trust Agreement
creates under the laws of the State of California for the Owner
Participant the beneficial interest in the Trust Estate (as such term is
defined in the Trust Agreement) it purports to create.
(iv) Lessor's Parent. The Trust company is a wholly-owned subsidiary
of United States Leasing International, Inc.
(v) Due Authorization; Enforceability. This Lease and the Purchase
Agreement have been duly authorized, executed and delivered by the Lessor
or the Trust Company, as the case may be, and the Lease Supplement has
been duly authorized by the Lessor, and on the Delivery Date the Lease
Supplement will be duly executed and delivered by the Lessor, and,
assuming the due authorization, execution and delivery thereof by the
Lessee and the other parties thereto, this Lease and the Purchase
Agreement are, or in the case of the Lease Supplement will be, when
delivered, valid and binding obligations of the Lessor or the Trust
Company, as the case may be, enforceable in accordance with their
respective terms.
(vi) No Violation. The execution and delivery by the Lessor of this
Lease and by the Trust Company of the Trust Agreement are not, and the
execution and delivery by the Lessor of the Lease Supplement and the
Purchase Agreement will not be, and the
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performance by the Lessor or by the Trust Company, as the case may be, of
its obligations under each of the foregoing documents will not be,
inconsistent with its charter or by-laws, do not and will not contravene
any material provision of any Applicable Law, any judgment or order
applicable to it, and do not and will not contravene any provision of, or
constitute a default under, any material indenture, mortgage, contract or
other instrument to which it is a party or by which it or its properties
is bound or require the consent or approval of, the giving of notice to,
the registration with or the taking of any action in respect of or by, any
federal, state or local governmental authority or agency or other Person,
except such as have been obtained, given or accomplished.
(vii) Title to the Aircraft. The Aircraft is being leased by the
Lessor to the Lessee hereunder ON A COMPLETELY "AS-IS" BASIS, AND THE
LESSOR DOES NOT MAKE, NOR SHALL IT BE DEEMED TO HAVE MADE, AND IT HEREBY
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY EXPRESS OR IMPLIED, AS
TO THE AIRCRAFT OR ANY PART THEREOF, INCLUDING, WITHOUT LIMITATION, TITLE,
AIRWORTHINESS, VALUE, CONDITION, DESIGN, PATENT, TRADEMARK OR COPYRIGHT
INFRINGEMENT, OPERATION, MERCHANTABILITY, CONSTRUCTION, CONDITION OF THE
AIRCRAFT OR FITNESS FOR A PARTICULAR USE OF THE AIRCRAFT OR ANY PART
THEREOF OR AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, OR AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT
LIABILITY IN TORT, OR NEGLIGENCE, OR AS TO THE QUALITY OF THE MATERIAL OR
WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF, OR ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO
THE AIRCRAFT AND EVERY PART THEREOF, AND THE LESSEE HEREBY WAIVES,
RELEASES AND RENOUNCES ANY WARRANTIES, REPRESENTATIONS OR GUARANTEES,
LIABILITIES AND OBLIGATIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE, WITH RESPECT TO THE AIRCRAFT, ANY PART, ANY DATA
OR ANY OTHER THING DELIVERED, LEASED, SOLD OR TRANSFERRED HEREUNDER OR
UNDER THE PURCHASE AGREEMENT (AND WHETHER OR NOT ARISING OUT OF THE
DELIVERY, USE, NON-USE, OPERATION, LEASE, SUBLEASE, TRANSFER, POSSESSION,
STORAGE, MANUFACTURE, MODIFICATION, ALTERATION, TESTING, MAINTENANCE,
REPAIR, SALE OR OTHER DISPOSITION THEREOF), INCLUDING, WITHOUT LIMITATION,
(I) ANY WARRANTIES, REPRESENTATIONS, GUARANTEES, LIABILITIES OR
OBLIGATIONS RELATING TO THE AIRWORTHINESS, VALUE, CONDITION, DESIGN,
OPERATION OF, OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, OR TITLE
TO, OR ANY DEFECT IN, THE AIRCRAFT, ANY PART, ANY
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DATA OR ANY OTHER THING DELIVERED, LEASED, SOLD OR TRANSFERRED HEREUNDER
OR UNDER THE PURCHASE AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, (II) ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A
PARTICULAR PURPOSE, AGAINST INFRINGEMENT OR THE LIKE, OR ARISING FROM
COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, (III) ANY
OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT WITH RESPECT TO THE
AIRCRAFT, ANY PART, ANY DATA OR ANY OTHER THING DELIVERED, LEASED, SOLD OR
TRANSFERRED HEREUNDER OR UNDER THE PURCHASE AGREEMENT OR ANY OTHER
OPERATIVE DOCUMENT, WHETHER OR NOT IN STRICT OR ABSOLUTE LIABILITY AND
WHETHER OR NOT ARISING FROM THE NEGLIGENCE, ACTUAL OR IMPUTED, OF THE
LESSOR, THE LESSEE OR THEIR RESPECTIVE ASSIGNS, OR (IV) ANY OBLIGATION,
LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF, OR DAMAGE TO, THE AIRCRAFT,
ANY PART, ANY DATA OR ANY OTHER THING, FOR ANY LOSS OF USE, REVENUE OR
PROFIT, OR FOR ANY OTHER DIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES, EXCEPT AS OTHERWISE PROVIDED IN SECTION 4(d)(iii), THE LESSEE
HEREBY ACKNOWLEDGING AND AGREEING THAT, AS BETWEEN THE LESSEE, ON THE ONE
HAND, AND THE LESSOR, EACH OWNER PARTICIPANT, THE TRUST COMPANY, THE OWNER
TRUSTEE AND EACH INDEMNITEE, AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS,
ON THE OTHER HAND, ALL RISKS, OBLIGATIONS AND LIABILITIES WITH RESPECT TO
ALL AND ANY OF THE FOREGOING AND ALL AND ANY OF THE MATTERS REFERRED TO IN
THE LAST SENTENCE OF THIS PARAGRAPH (vii) ARE SOLELY THOSE OF THE LESSEE,
except that on the Delivery Date, the Lessor will have received whatever
title to the Aircraft was conveyed to it by the Lessee, free of Lessor
Liens. The Lessor shall have no responsibility or liability to the Lessee
or any other Person, regardless of any negligence (other than gross
negligence or willful misconduct) of the Lessor, with respect to (i) any
liability, loss or damage caused or alleged to be caused directly or
indirectly by the Aircraft or any Part or any part of either thereof or by
any inadequacy thereof or deficiency or defect therein or by any other
circumstances in connection therewith, (ii) the condition, use, operation,
performance, non-use, repair, maintenance or testing of the Aircraft or
any Part or any part of either thereof or any of the other matters
previously referred to in this paragraph (vii), or any risks relating to
any thereof, (iii) any interruption of service, loss of business or
anticipated profits or consequential damages, or (iv) the delivery,
operations, servicing, maintenance, repair, replacement or improvement of
the Aircraft or any Part or any part of either thereof.
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(viii) Trust Agreement. The Trust Agreement has been duly executed
and delivered, constitutes the legal, valid and binding obligation of the
parties thereto, enforceable in accordance with its terms, and the Trust
Agreement creates under the laws of the State of California for the Owner
Participant the beneficial interest in the Trust Estate (as such term is
defined in the Trust Agreement) it purports to create.
(c) Lessee's Covenants.
(i) The Lessee will not operate, service, repair, maintain, overhaul
or test, or permit to be operated, serviced, repaired, maintained,
overhauled or tested, the Aircraft in any country wherein any thereof
would violate Applicable Law.
(ii) The Lessee agrees that if the Republic of Finland shall cease
to be, directly or indirectly, the owner of at least fifty and one-tenth
percent (50.1%) of the issued and outstanding shares of the Lessee's
capital stock entitled to vote the election of the Lessee's directors,
then at any time after the occurrence and continuance of such event, the
Lessee will give the Lessor prompt written notice after knowledge thereof
by a Responsible Officer of the Lessee, and the Lessee will, upon the
Lessor's written request, provide, within forty-five (45) Business Days
after the Lessee's receipt of such request, security for the obligations
of the Lessee under the Lease that qualifies as Collateral Security in the
manner provided in paragraph (iii) of this Section 4(c). At any time
during the Term when the Lessee is obligated to provide, or has provided,
Collateral Security (as defined below), the Lessee may, in its sole
discretion, purchase the Aircraft by paying the Lessor, and the Lessor
shall be obliged to transfer the Aircraft to the Lessee "as-is where-is",
free and clear of all Lessor Liens but otherwise without recourse or
warranty (all as described in the first sentence of paragraph (vii) of
Section 4(b) except that appropriate changes shall be made to the
references to the parties and to accommodate a sale and purchase rather
than a lease) upon receipt of an amount (the "Option Price") equal to the
higher of (y) the Fair Market Sales Value or (z) the Stipulated Loss Value
of the Aircraft, as of the date the Lessee makes such payment, which
Stipulated Loss Value shall be that Stipulated Loss Value set forth
opposite the Rent Payment Date corresponding to the date on which payment
is made of, if made on a Loss Payment Date which is other than a Rent
Payment Date, as of the immediately succeeding Loss Payment Date provided,
however, there shall be deducted from the amount payable by the Lessee an
amount equal to interest at the rate of 9.4% per annum (computed on the
basis of a 365 day year and actual days elapsed) on the amount of
Stipulated Loss Value as of such Rent Payment Date or Loss Payment Date,
as the case may be, computed on a daily basis, from and including the date
such payment is made by the Lessee, to but not including such Rent Payment
Date or Loss Payment Date, as the case may be, and provided further that
if such payment is made on a Rent Payment Date, the Lessee shall not pay
the scheduled amount of Basic Rent otherwise due on such Rent Payment
Date.
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The Lessor shall deliver a bill of sale for the Aircraft to the Lessee
transferring to the Lessee title to the Aircraft on an "as-is where-is"
basis, without recourse or warranty (all as described in the first
sentence of paragraph (vii) of Section 4(b) except that appropriate
changes shall be made to the references to the parties and to accommodate
a sale and purchase rather than a lease) except that the Lessor shall
warrant that the Aircraft is free and clear of all Lessor Liens. The
Lessor shall cooperate reasonably with the Lessee, at the Lessee's sole
cost and expense, in causing the Aircraft to be re-registered as the
Lessee may require in connection with any such transfer of the Aircraft to
the Lessee pursuant to this paragraph (iii). Upon payment of the Option
Price this Lease and all Basic Rent, if any, to the date of receipt of
such amount by the Lessor (prorated on a daily basis) and all accrued and
unpaid Supplemental Rent to such date of receipt and the Lessee's
obligation to pay Basic Rent accruing thereafter, shall terminate.
(iii) (A) For purposes of Section 4(c)(ii) above, "Collateral
Security" shall mean any one or more, at the Lessee's election, of (a)
Dollar deposits in an interest-bearing account in the Lessee's name (the
"Security Account") at a bank in Helsinki, Finland selected by the Lessee
and reasonably satisfactory to the Lessor, (b) a guarantee of the Lessee's
payment obligations under this Lease, issued by the Republic of Finland in
favor of the Lessor, and in form and substance reasonably satisfactory to
the Lessor, and (c) a letter of credit or letter of guarantee issued by a
bank to the Lessor, securing the Lessee's payment obligations under this
Lease, by a bank reasonably satisfactory to the Lessor and in form and
substance reasonably satisfactory to the Lessor. When required, Collateral
Security shall be provided in a cumulative amount equal to: 24.02% of the
Stipulated Loss Value for Rent Payment Dates occurring in April 1992
through July 1995; 24.20% of the Stipulated Loss Value for Rent Payment
Dates occurring in October 1995 through January 1999; 21.7% of Stipulated
Loss Value for Rent Payment Dates occurring in April 1999 through January
2000 (if the Term is renewed as provided in Section 3(e)); and 19.20% of
Stipulated Loss Value for Rent Payment Dates occurring in April 2000
through January 2001 (if the Term is renewed as provided in Section 3(e)).
(B) It shall be a term and condition of the Security Account,
any such governmental guarantee and any such letter of credit or letter of
guarantee, that, upon the certification by the Lessor to the Lessee, the
bank or the issuer, as the case may be, that with respect to an Event of
Default (other than any Event of Default described below in paragraph (C)
of this Section 4(c)(iii) in paragraph (e) of Section 17), if (1) such
Event of Default has occurred and is continuing unremedied after expiry of
all grace and cure periods under this Lease, (2) the Lessor has declared
in writing to the Lessee that this Lease is in default and the Lessor has
commenced to exercise one or more of the remedies available to it under
Section 18 of this Lease and (3) a period of at least thirty (30)
consecutive days has elapsed after such written
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declaration to the Lessee by the Lessor, then the Lessor shall be entitled
to claim such amounts of Collateral Security as it certifies are overdue
and unpaid to it by the Lessee under this Lease.
(C) It shall also be a term and condition of the Security
Account, any such governmental guarantee and any such letter of credit or
letter of guarantee, that, upon the certification by the Lessor to the
Lessee, the bank or the issuer, as the case may be, with respect to any
Event of Default described in paragraph (e) of Section 17, if (1) such
Event of Default has occurred and is continuing unremedied after expiry of
all the grace and cure periods provided for such Event of Default under
this Lease and (2) a period of at least ninety (90) consecutive days has
elapsed after such expiry, then the Lessor shall be entitled to claim such
amounts of Collateral Security as it certifies are overdue and unpaid to
it by the Lessee under this Lease.
(D) All such amounts from the Collateral Security paid to the
Lessor shall be applied by the Lessor in accordance with the terms of
Section 18 of this Lease and any excess shall be paid by the Lessor to the
Lessee. So long as no Event of Default has occurred and is continuing,
upon request of the Lessee, all amounts of interest, if any, standing to
the credit of the Security Account shall be paid to the Lessee quarterly
on the first Business Day next succeeding the date on which each quarterly
payment of Basic Rent has been received by the Lessor.
(E) All amounts standing to the credit of the Security
Account, including interest thereon, shall be paid to the Lessee, and all
other items of Collateral Security shall be terminated immediately upon,
as the case may be, (1) the indefeasible payment of the Option Price of
the Aircraft and all other amounts required to be paid pursuant to
paragraph (ii) of Section 4(c), (2) at such time as the Republic of
Finland owns at least fifty and one-tenth percent (50.1 %) of the Lessee's
issued and outstanding shares of capital stock entitled to vote the
election of directors, or (3) at such time as this Lease has been
terminated and all Rent then due and payable has been paid.
(iv) The Lessee's agent for service of process designated pursuant
to the requirements of the Federal Aviation Act of 1958, as amended, is
Finnair, General Manager North America presently located at Finnair
Executive Office, 10 East 40th St., New York, N.Y. 10016 and the Lessee
shall provide prompt written notice to the Lessor of any change in the
name or address of such agent. The Lessee, further, shall notify the
Lessor promptly if the Lessee shall cease to be a "foreign air carrier"
within the meaning of the Federal Aviation Act of 1958, as amended, and
thereupon shall specify whether or not the Lessee maintains an office in
the United States of America, its territories or possessions of the
Commonwealth of Puerto Rico, and, the address or addresses, if any, of
such office therein located.
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<PAGE>
(v) The Lessee shall not (without the prior written consent of the
Lessor) consolidate with any Person or merge into or convey, transfer or
lease all or substantially all its assets to any Person unless upon any
such consolidation, merger, conveyance, transfer or lease the new or
surviving entity, if not the Lessee, shall expressly or by operation of
law assume all the obligations of the Lessee under this Agreement and the
other Operative Documents.
(vi) The Lessee, upon reasonable request, shall promptly furnish to
the Lessor such information as may be reasonably required by the Lessor to
enable the Lessor to file any reports required to be filed by the Lessor
or the Owner Participant with any governmental authority because of the
Lessor's ownership or leasing of the Aircraft or the Owner Participant's
direct or indirect ownership of a beneficial interest in any part of the
Lessor's Estate.
(d) Lessor's Covenants. (i) The Lessor agrees that it will, at its
own cost and expense, promptly take such action as may be necessary to
duly discharge any Lessor Lien on the Aircraft.
(ii) The Lessor agrees that, so long as no Event of Default shall
have occurred and be continuing, the Lessor will not take any action or
cause to be taken any action or fail to prevent any action arising by,
through or under it, which causes interference with the Lessee's peaceful
and quiet use, operation and possession of the Aircraft in accordance with
the terms of this Lease.
(iii) The Lessor agrees that it shall and hereby does indemnify and
hold harmless the Lessee and its permitted assigns against any and all
claims, losses, liabilities and damages (including attorney fees and
disbursements) incurred in connection with any breach of the covenants of
this Section 4(d), provided, however, that the foregoing indemnity and
agreement to hold harmless shall be coextensive in scope with, and shall
in no way expand, waive or limit, such covenants or agreements or any
rights, remedies or defenses which are or would be available in connection
therewith.
(iv) Effective upon the execution and delivery of the Lease
Supplement on the Delivery Date but only as long as no Event of Default
shall have occurred and be continuing, the Lessor does hereby authorize
the Lessee, on behalf of and to the exclusion of the Lessor, for the
duration of the Term, to exercise in the Lessee's own name all existing
warranties, service life policies and patent indemnities of manufacturers
and maintenance and overhaul agencies of and for the Aircraft and Parts,
if any, and upon the request, and at the cost, of the Lessee, the Lessor
shall use its reasonable efforts to give the Lessee aid and assistance in
enforcing the rights of the Lessee arising under such warranties, service
life policies and patent indemnities.
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SECTION 5. Return of the Aircraft. (a) On the last Business Day of
the Term (or such earlier date as this Lease may be terminated pursuant to
Section 18 hereof) (the "Redelivery Date") all of the terms of this Section 5
shall apply and the Lessee at its expense will return the Aircraft to the Lessor
by delivering the same, at the Lessee's own risk and expense, to the Lessee's
maintenance facilities at Helsinki-Vantaa Airport, Finland (the "Redelivery
Location"), fully equipped with all Engines installed thereon. In the event that
any engine not an Engine shall be delivered with the returned Airframe as set
forth herein in connection with the termination of the Lease, all engines then
installed on the Airframe shall be of the same or another manufacturer of the
same or an improved model and suitable for use on the Airframe but all of the
same make and model and the Lessee, concurrently with such delivery, will, at
its own expense and at no cost or expense to the Lessor, furnish the Lessor with
a full warranty bill of sale from the Lessee, in form and substance satisfactory
to the Lessor, with respect to such engine, and with an opinion of the Lessee's
in house counsel to the effect that, upon such return, the Lessor will acquire
good and marketable title to such engine free and clear of all rights of third
parties under pooling, interchange, overhaul, repair and other arrangements and
all other Liens (other than Lessor Liens), and the Lessee shall take such other
action as the Lessor shall reasonably request, and thereupon the Lessor shall
transfer to the Lessee, "where-is", free and clear of all Lessor Liens, but
otherwise without recourse or warranty (all as described in the first sentence
of paragraph (vi) of Section 4(b), except that appropriate changes shall be made
to the references to the parties and to accommodate a sale and purchase rather
than a lease), its title, if any, to such Engine not installed on the Airframe
at the time of its return. The Lessor shall, subject to the terms and on the
conditions of this Section 5, accept return of the Aircraft from the Lessee by
executing and delivering to the Lessee a Redelivery Receipt of Aircraft and
Engines, substantially in the form of Exhibit B hereto, not later than 3:30 p.m.
local time on the Redelivery Date. At the Lessor's direction, the Lessee will
(1) store the Aircraft out-of doors at the Redelivery Location or out-of-doors
at another location in Europe utilized for the storage and maintenance of the
Lessee's aircraft, selected by the Lessee, in each case, at the Lessor's risk
and the Lessee's expense for a period not to exceed ninety (90) days; or (2) on
the Redelivery Date or at the end of the storage period referred to in the
preceding clause (1), ferry the Aircraft at the Lessee's sole expense (including
the cost of insurance of the type and in the amounts required during the Term
under Section 11 hereof) to any airport in Europe selected by the Lessor, or to
any other location selected by the Lessor at the Lessor's sole risk and expense,
provided, however, that the Aircraft remains registered in Finland at all times
during which it is under the Lessee's operational control. During such storage
period, the Lessee will, during normal business hours, permit authorized
representatives of the Lessor, each Owner Participant and any prospective
purchaser or user of the Aircraft or any part thereof to inspect the same at all
reasonable times and in any event without interfering with the Lessee's normal
operations, it being understood and agreed that all such inspections shall be at
the Lessor's risk and the Lessee shall have no obligation or liability
whatsoever in any way relating to any such inspection other than the obligation
to
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permit inspection of the Aircraft as provided in this sentence. Upon such
return, and at the Lessee's sole expense:
(i) the Aircraft (A) shall, at the election of the Lessee, be
registered in the Republic of Finland, except that the Aircraft shall be
registered in Finland or the United States if and as so elected by the
Lessee at any time in accordance with Section 6(c) (assuming the Lessor,
or its designee, is then, or its designee by a transfer may then be,
eligible to be the registered owner of the Aircraft); (B) shall be in
compliance with the provisions of Section 6 hereof; (C) shall be in as
good condition as when delivered to the Lessee hereunder, ordinary
operating wear and tear excepted, or, in the case of any such engines
owned by the Lessee or in substitution or replacement of the original
Engines, assuming that such Engine or Engines have the remaining useful
life required in Section 5(a)(vi), shall have a value, utility and useful
life at least equal to, and shall be in as good operating condition as
required by, the terms and provisions hereof with respect to the Engines;
(D) shall be clean by international commercial passenger airline operating
standards; (E) shall, except as otherwise provided herein or as otherwise
agreed by the Lessor, be in the same configuration as when the Aircraft
was originally delivered to the Lessee hereunder; and (F) shall be free
and clear of all Liens other than Lessor Liens;
(ii) the Aircraft shall (A) have a currently effective airworthiness
certificate and, at the Lessor's request, an airworthiness certificate for
export to the United States or to any member country of the OECD
designated by the Lessor (or to any other location as may be designated by
the Lessor and which is reasonably acceptable to the Lessee) issued by the
CAA or the equivalent aviation authority of the Applicable Jurisdiction,
as the case may be; (B) be duly certified as airworthy by the CAA or the
equivalent aviation authority of the Applicable Jurisdiction, as the case
may be; (C) be in compliance with all airworthiness directives and
mandatory requirements of the CAA or the equivalent aviation authority of
the Applicable Jurisdiction, as the case may be, and all applicable
environmental, noise, air pollution and other similar standards of Finland
and the International Civil Aviation Organization, in each case in
existence on the date of such return and requiring terminating compliance
within six (6) months (or the equivalent number of hours or cycles) of the
Redelivery Date then applicable to the Airframe and each Engine, without
regard to any waivers or exemptions delaying compliance with such
directives or requirements applicable solely to the Lessee's use of the
Aircraft but not applicable or available generally to any one or more
other European operators; (D) have all components and systems operational;
(E) have no deferred maintenance or inspection items, or placards and be
free of corrosion in accordance with the limits of the Approved
Maintenance Program; and (F) be configured and equipped as delivered for
passenger use under regulations of the CAA or the equivalent aviation
authority of the Applicable Jurisdiction, as the case may be;
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<PAGE>
(iii) the Airframe and each such Engine shall be in such condition
as shall be required to meet (A) all manufacturer's mandatory service
bulletins; and (B) all applicable airworthiness directives of the CAA or
the equivalent aviation authority of the Applicable Jurisdiction, as the
case may be and the Applicable Law thereof;
(iv) the special exterior markings of the Lessee and any sublessee
on the Airframe shall have been removed, or caused to have been removed,
by the Lessee and shall be painted over in a good and workmanlike manner;
(v) the Airframe shall have been maintained by the Lessee in
accordance with the Approved Maintenance Program with respect thereto and
(A) shall have not more than twenty (20) hours since having had a C Check
and any portion of a D Check applicable to such C Check, with no deferred
items under the Approved Maintenance Program; and (B) shall not have less
than four (4) years remaining until the next scheduled D Check, or its
equivalent, provided that in the event that (1) the Aircraft shall, on the
Redelivery Date, have more than four (4) years or its equivalent remaining
until the next D Check, the Lessor shall pay to the Lessee an amount equal
to Five Hundred Twenty-Five Dollars ($525.00) (adjusted as provided in
clause (3) of this subparagraph (v)) for each day or its equivalent by
which the period remaining until the next D Check exceeds four (4) years
or its equivalent except that the Lessor may offset such payment
obligation against any payment obligation of the Lessee under the
Operative Documents then due and unpaid; or (2) the Aircraft shall, on the
Redelivery Date, have less than four (4) years or its equivalent, but more
than two (2) years or its equivalent, remaining until the next D Check,
the Lessee shall pay to the Lessor an amount equal to Five Hundred
Twenty-Five Dollars ($525.00) (adjusted as provided in clause (3) of this
subparagraph (v)) for each day or its equivalent by which the period
remaining until the next D Check is less than four (4) years or its
equivalent; and provided, further, that (3) all payments made pursuant to
this subparagraph (v) will be adjusted by reference to the Finnish Labor
Index (limited to the maximum inflation adjustment of five percent (5%)
per annum) applied on an annual basis for each year and fraction thereof
from the Delivery Date to the Redelivery Date;
(vi) each Engine shall be "on condition" with "condition
monitoring", and shall have a remaining life of at least 4,000 hours or
4,000 cycles, whichever is more limiting, to removal of the most limiting
life-limited part or known scheduled repair visit under the Approved
Maintenance Program;
(vii) the Engines will have each undergone full hot and cold section
boroscope and isotope inspections in the presence of the Lessor's
representative at the Redelivery Location immediately prior to such
redelivery and after the Aircraft has been removed from service, and if
any Engine shall not have been certified to be within the then-
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<PAGE>
recommended manufacturer's maintenance manual limits and the limits of the
Approved Maintenance Program for further operation, then the Lessee shall
promptly cause such Engines to comply with such limits. The Lessee shall
deliver to the Lessor, at no expense to the Lessor, all "no-charge kits"
which have been offered to the Lessee by the manufacturer throughout the
Term and which have not been installed on the Aircraft prior to redelivery
to the Lessor; in addition, the Lessor may purchase from the Lessee at the
Lessee's cost any service bulletin kits purchased by the Lessee for the
Aircraft;
(viii) the nose landing gear shall have no less than 8,250 cycles or
48 months, whichever is more limiting, remaining until the next scheduled
overhaul or shop visit under the Approved Maintenance Program and the main
landing gear shall have on average no less than 10,000 cycles or 48
months, whichever is the more limiting, remaining until the next scheduled
overhaul or shop visit under the Approved Maintenance Program; and
(ix) the Auxiliary Power Unit shall, on the Redelivery Date, have at
least 2,400 cycles remaining until the next scheduled hot section
inspection or overhaul under the Approved Maintenance Program.
(b) On a date mutually agreed to by the Lessor and the Lessee at
least four (4) days prior to the Redelivery Date, a ground inspection of the
Aircraft shall be conducted, provided that any such inspection will not
interfere with the Lessee's normal operation of the Aircraft. The Lessee will
make the Aircraft and its Records (including historic and the most current
engine performance monitoring data) available for such inspection at the
Redelivery Location. At such inspection, the Aircraft will be inspected by
either, as the Lessor shall elect, an employee or agent of the Owner Participant
qualified to conduct such an inspection or an independent inspector, appointed
by the Lessor, who will perform such tests as are customary and reasonable upon
the return of used aircraft of the type leased hereunder, as are consistent with
the Approved Maintenance Program and as may be necessary or advisable to
determine whether the Aircraft complies with the terms of this Section 5(a); the
Lessor will promptly notify the Lessee of the results of such inspection and
will deliver a written report thereof in the event of any discrepancies for
receipt by the Lessee not later than two (2) days prior to the Redelivery Date.
Representatives of the Lessee and the Lessor will be present at such inspection.
Unless the parties otherwise agree in writing, the inspector shall remain at the
Redelivery Location until the Lessor has accepted redelivery of the Aircraft. In
addition, prior to or upon the expiration or earlier termination of this Lease,
the Lessee will conduct, at the request of the Lessor and at the Lessor's sole
expense, a sixty (60) minute test flight for the purpose of verification of the
operational conditions set forth herein of the Aircraft, its equipment and
systems and will permit not more than three (3) individuals designated as
observers by the Lessor to be on board such Aircraft during such flight. All
reasonable requests of the Lessor's representatives shall be carried out by the
Lessee's flight
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<PAGE>
crew during any such flight, provided that such requests do not endanger the
Aircraft and can be performed during the sixty (60) minute test flight. If as a
result of such inspection and test flight, the Aircraft is found not to comply
with the terms of this Section 5(a), the Lessee, at its expense, will forthwith
take or cause to be taken such action as may be required for such compliance and
for compliance with any of the other terms of this Section 5. The Lessor shall
compensate the Lessee for all fuel on board the Aircraft (at the price
applicable to such fuel on the Redelivery Date, including any applicable
into-plane charges) after completion of any test flight and the termination of
the Lease, but all other fluids and the like remaining on board shall, without
charge, together with such remaining fuel, become the property of the Lessor
upon the Lessee's receipt of payment for fuel and into-plane charges, as
aforesaid, and the Lessor's execution and delivery of the Redelivery Receipt.
(c) The Lessee will, from the date hereof until the expiration of
the Term, cooperate fully with the Lessor in permitting prospective purchasers
or lessees of the Aircraft to inspect the Aircraft and its records, provided
that any such inspection will not interfere with the Lessee's normal operation
of the Aircraft.
(d) Upon return of the Aircraft on the Redelivery Date to the Lessor
under this Section 5, the Lessee shall deliver all logs, manuals, certificates,
engineering and modification orders and data, records and data, and inspection,
modification, overhaul, repair and maintenance records and reports, and all
airworthiness directives of the CAA and other applicable authorities required to
be maintained with respect thereto by the CAA or otherwise under the Applicable
Laws of any Applicable Jurisdiction, and if any thereof shall not be in English,
English translations thereof but only to the extent required for registration of
the Aircraft with the FAA and copies (and, if and when permitted by the laws of
Finland, the United States and any other Applicable Jurisdiction, originals) of
any existing logs, manuals and records and data required by the FAA to permit
registration of the Aircraft under FAR 121, and operation of the Aircraft in,
the United States (collectively, together with such English translations, if
any, "Records").
(e) Effective upon the Lessor's acceptance of return of the Aircraft
on the Redelivery Date, the Lessee does hereby re-assign to the Lessor all
existing warranties, service life policies and patent indemnities, which by
their terms do not prohibit assignment by the Lessee, of manufacturers and
maintenance and overhaul agencies of and for the Aircraft and the Parts, if any,
which were acquired by the Lessee during the Term and upon the request of the
Lessor, from time to time after the Redelivery Date, the Lessee shall use its
reasonable efforts to give the Lessor aid and assistance in enforcing the rights
of the Lessee arising under each thereof, provided that the Lessor shall
indemnify the Lessee for all costs and expenses incurred by the Lessee in
connection with such aid and assistance rendered. The parties' respective
obligations under this paragraph (e) shall survive termination of this Lease.
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<PAGE>
(f) In the event of a dispute arising with respect to the condition
of the Aircraft on the Redelivery Date, the parties shall obtain an appraisal by
an internationally recognized independent appraiser mutually agreed to by the
Lessor and Lessee.
(g) The Lessor may assign its rights under Section 5 in accordance
with the terms and subject to the conditions and provisions thereof to any
Person who leases or purchases the Aircraft from the Lessor at or after the end
of the Term.
SECTION 6. Maintenance. Operation. Etc. (a) Registration.
Maintenance and Operation. The Lessee, at its own cost and expense, will at
all times during the Term: (i) cause the Aircraft to be in compliance with
all CAA regulations applicable to McDonnell Douglas MD 82 aircraft,
certificated for interstate and overseas operation under Finnish Applicable
Law or such other Applicable Law of such other Applicable Jurisdiction, as
the case may be, and to be and remain duly registered with the CAA in
accordance with the Act in the name of the Lessor as owner; (ii) maintain,
operate, service, repair, overhaul and test the Airframe and each Engine
(including but not limited to all program monitoring, program reliability
and program reporting requirements under the Approved Maintenance Program
and the Act), so as to keep the same in as good operating condition as when
originally leased hereunder, ordinary wear and tear excepted, in the same
manner and with the same care as used by the Lessee with similar aircraft
operated by the Lessee, and in such condition as may be necessary to enable
the airworthiness certificate of the Aircraft to be maintained in good
standing at all times under the Act, Finnish Applicable Law or such other
Applicable Law of such other Applicable Jurisdiction as the case may be,
and in accordance with all manufacturers' mandatory service bulletins with
respect thereto, (iii) maintain all records, logs, manuals, manufacturer's
service bulletins, CAA and FAA airworthiness directives, engineering and
modification orders, and other Records and data required by Finnish
Applicable Law or such other Applicable Law of such other Applicable
Jurisdiction as the case may be, to be maintained in respect of the
Airframe and each Engine; (iv) perform all obligations required to be
performed by it under the terms of all applicable warranties, service life
policies and patent indemnities of the manufacturer or supplier of the
Aircraft or any Part thereof, in respect of the Aircraft or any part
thereof. The Lessee shall comply with all (i) applicable requirements of
Finnish Applicable Law or such other Applicable Law of such Applicable
Jurisdiction, as the case may be, and all other applicable environmental,
noise, air pollution and other similar standards of Finland or such other
Applicable Jurisdiction, as the case may be, and the International Civil
Aviation Organization in effect from time to time to the extent that such
standards are required to be complied with (without regard to any exemption
waiving or delaying compliance therewith applicable solely to the Lessee's
use of the Aircraft but not applicable or available generally to any one or
more other European operators) and (ii) the Lessee, at its own expense,
forthwith upon the delivery thereof hereunder, shall cause the Aircraft to
be duly registered (provided the Lessor or its designee is eligible to be
the registered owner of the Aircraft) and at all times thereafter to remain
duly registered in compliance (provided the Lessor or its designee is
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eligible to be the registered owner of the Aircraft) with all Finnish
registration and airworthiness requirements or those of any other Applicable
Jurisdiction, as the case may be. The Lessee agrees that the Airframe and each
Engine will not be maintained, serviced, repaired, overhauled, tested, used or
operated: (A) in violation of any law or any rule, regulation or order of any
government or governmental authority having jurisdiction (domestic or foreign)
or other Applicable Law or in violation of the airworthiness certificates of the
Aircraft; (B) in any area excluded from coverage by, or in any manner or for any
purpose inconsistent with the terms of, any insurance required by the terms of
Section 11 hereof; or (C) in any recognized or threatened area of hostilities
unless fully covered to the Lessor's satisfaction by war risk insurance.
(b) Mandatory Service Items. All airworthiness directives of the CAA
and all manufacturer's mandatory service bulletins requiring inspections,
repair, replacement or CAA-required terminating action during the Term, or, in
the case of airworthiness directives requiring terminating action, within six
(6) months of the Redelivery Date, with respect to the Airframe and each Engine,
shall be complied with by the Lessee at the Lessee's expense.
(c) Re-registration. The Lessee may from time to time require the
Lessor, upon reasonable prior notice and at the Lessee's sole expense, to
re-register the Aircraft in Finland or the United States, as the case may be, in
the name of the Lessor, as owner, and of the Lessee, as lessee, if each is then
in compliance with all applicable registration requirements. During the period
the Aircraft is registered in the United States, all references in this Lease to
the "CAA" and to "Finnish Applicable Law", shall be deemed to refer to the FAA
and United States Applicable Law. The Lessor shall cooperate in connection with
any re-registration permitted under this paragraph (c).
SECTION 7. Liens. The Lessee will not, directly or indirectly,
create, incur, assume or suffer to exist any Lien upon or with respect to the
Aircraft, the Airframe or any Engine or any other portion of the Lessor's
Estate, except for the rights of the Lessor and the Lessee hereunder and
Permitted Liens.
SECTION 8. [Intentionally omitted.]
SECTION 9. Possession. (a) The Lessee will not, without the prior
written consent of the Lessor (such consent not to be unreasonably delayed or
withheld), assign any of its rights or obligations under this Lease or sublease
or otherwise in any manner deliver, transfer or relinquish possession or control
of, or transfer any estate, right, title or interest in or to, the Airframe or
any Engine or Part (whether through pooling or interchange agreements or
otherwise) or install any Engine, or permit any Engine to be installed, on any
airframe other than the Airframe or permit any Part to be installed on an
airframe or engine other than the Airframe or an Engine, provided that, so long
as no Default relating to an
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Event of Default under Section 17(e) and no Event of Default shall have occurred
and be continuing, the Lessee may, without the prior written consent of the
Lessor:
(i) deliver temporary possession and control of the Airframe or any
Engine or Part to the manufacturer thereof for testing, service,
maintenance, overhaul or repair or, to the extent permitted by Section 12
hereof, for modifications or additions;
(ii) install an Engine on an airframe owned by the Lessee free and
clear of all Liens except Permitted Liens;
(iii) install an Engine on an airframe leased to the Lessee or owned
by the Lessee and subject to a security agreement under which the Lessee
is the debtor, provided that such airframe is free and clear of all Liens
except the rights in and to the Airframe of the parties to such lease or
security agreement and except Permitted Liens, and provided ~ that if the
Lessor's title to any such Engine shall be divested under any such
agreement or arrangement, such divestiture shall be deemed to be an Event
of Loss with respect to such Engine and the Lessee shall comply with
Section 10(b) in respect thereof;
(iv) in the ordinary course of testing, servicing, maintenance,
repair or overhaul, remove any Part from the Airframe or any Engine,
provided that the Lessee replaces such Part as promptly as possible with a
Part which has a value and utility at least equal to the Part being
replaced (assuming it to be in the condition and state required by this
Lease) and is owned by the Lessee free and clear of all liens except
Permitted Liens; and any such replacement Part shall thereby become
subject to this Lease without necessity of further act; provided, however,
that any Part removed from the Airframe or any Engine for such purpose
shall remain subject to this Lease until replaced by a replacement Part as
provided in this clause (iv);
(v) enter into a Wet Lease for the Airframe and the Engines or
engines then installed thereon or for any Engine installed on any other
airframe owned (in accordance with the foregoing provisions of this
Section 9) or operated by the Lessee (or any permitted sublessee pursuant
to subclause (vi) hereof) with any third party, provided, however, that
the term of such Wet Lease shall not extend beyond the end of the Term;
(vi) sublease the Airframe, any Engine or engines then installed on
the Airframe
(x) to any Affiliate of the Lessee with respect to which, were it
the "Lessee" under this Lease, there shall have occurred and be continuing
no Default or Event of Default of the type described in Section 17(e)
hereof, (y) upon prior notice to the Lessor, to any air carrier with
respect to which, were it the "Lessee" under this Lease, there shall have
occurred and be continuing no Default or Event of Default of
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the type described in Section 17(e) hereof, and which carrier is based in
any member nation of the OECD, the Republic of Singapore, the Republic of
South Korea, or the Kingdom of Thailand, or (z) to any other air carrier
with respect to which, were it the "Lessee" under this Lease, there shall
have occurred and be continuing no Default or Event of Default of the
nature described in Section 17(e) hereof, in each case, on the date the
sublease is entered into, which carrier has been approved in advance in
writing by the Lessor, which approval the Lessor shall not unreasonably
withhold or delay, provided that (A) such sublease shall provide that the
sublessee will not transfer possession of or any other rights to the
subleased property other than to the Lessee or the Lessor; (B) such
sublease shall, by its terms, be made expressly subject and subordinate to
all of the terms of this Lease, including, without limitation, the rights
of any permitted assignee of the Lessor under Section 20 hereof and the
right of the Lessor to enforce all of the remedies under Section 18 hereof
upon the declaration of this Lease to be in default upon the occurrence of
any Event of Default and to terminate all rights of the sublessee to
possession of the subleased property irrespective of such sublessee not
being in default; (C) the term of such sublease shall not extend beyond
the end of the Term as then in effect; (D) such sublease shall contain
provisions for the operation, maintenance and insurance of the Airframe or
such Engine, as the case may be, which are substantially the same as such
provisions of this Lease; and (E) the Lessee shall provide the Lessor with
written notice of any sublease having a term greater than sixty (60) days
within thirty (30) days after such sublease shall become effective and,
promptly after the request of the Lessor, the Lessee shall provide a copy
thereof to the Lessor, certified as true by the Lessee (provided that the
Lessee may redact financial terms from such copy); and
(vii) in accordance with this Lease (including, without limitation,
Section 12) subject any Engine or Part to normal pooling agreements or
arrangements in each case customary in the airline industry and entered
into by the Lessee in the ordinary course of its business with one or more
air carriers.
(b) No pooling agreement, sublease or other relinquishment of
possession of the Airframe or any Engine shall in any way discharge or diminish
any of the Lessee's obligations to the Lessor hereunder or constitute a waiver
of the Lessor's rights or remedies hereunder. Without limiting the preceding
sentence and notwithstanding Section 9(a), the rights of any sublessee or other
recipient of possession of the Aircraft, however characterized, pursuant to any
arrangement permitted by Section 9(a) shall be subject and subordinate to, and
any sublease permitted by clause (vi) thereof shall be made expressly subject
and subordinate to, all the terms and provisions of this Lease, including,
without limitation, the Lessor's right to repossession and to avoid such
sublease upon such repossession or an Event of Default hereunder, and the Lessee
shall remain primarily liable hereunder for the performance and observance of
all the terms and provisions of this Lease and the other Operative Documents to
the same extent as if such transfer or sublease had not
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occurred, and all the terms and provisions of this Lease and the other Operative
Documents shall remain in full force and effect notwithstanding such transfer or
sublease.
(c) In connection with any sublease permitted under this Section 9,
so long as no Event of Default and no Default which would become an Event of
Default of the type described in Section 17(e) has occurred and is continuing,
the Lessee may from time to time prior to the Redelivery Date require the
Lessor, upon reasonable prior notice and at the Lessee's sole expense, to
re-register the Aircraft in a jurisdiction other than Finland or the United
States, as the case may be, which shall be a nation described in clause (y) of
Section 9(a)(vi) (such other jurisdiction, the "Other Jurisdiction"), provided
that the Lessee shall deliver to the Lessor at the time of such registration an
opinion of counsel (which counsel may be counsel to the sublessee) with respect
to such Other Jurisdiction to the effect that (a) the Lessor's rights to
repossession under this Lease and the sublease to be entered into pursuant to
this Section 9 are valid, binding and enforceable and this Lease is valid and
enforceable (subject to customary exceptions) under the laws of such Other
Jurisdiction, (b) it is not necessary for the Lessor, or any Owner Participant,
as a result of such sublease or change in registration, to register or qualify
to do business in such Other Jurisdiction, (c) the ownership interest of the
Lessor in the Aircraft has been preserved under the laws of such Other
Jurisdiction and, to the extent required thereunder, such ownership interest has
been duly registered under such laws, and (d) such registration will not result
in the imposition by such Other Jurisdiction of any Taxes on the Lessor, the
Owner Participant, the Aircraft (or any part thereof) or otherwise in connection
with the transactions contemplated hereby or by any other Operative Document for
which the Lessee is not required to indemnify the Lessor (provided that in lieu
of the opinion referred to in this clause (d), the Lessee may indemnify the
Lessor (in a manner reasonably acceptable to the Lessor) for any Taxes imposed
by such Other Jurisdiction in connection with or relating to the transactions
contemplated by the Operative Documents which would not have been imposed but
for such registration). In addition, it shall be a condition to such
registration that (i) the aircraft and engine maintenance program under the laws
of such Other Jurisdiction shall be substantially similar to that required by
the FAA or the CAA, and (ii) such registration shall not otherwise adversely
affect the interests of the Lessor in the Aircraft. During the period the
Aircraft is registered in such Other Jurisdiction, all references in this Lease
to the "CAA" shall be deemed to refer to the equivalent aviation authority of
such Other Jurisdiction, and all references to "Finnish Applicable Law", shall
be deemed to refer to the Applicable Law of such Other Jurisdiction. The Lessor
shall reasonably cooperate at the Lessee's request and expense in connection
with any re-registration permitted under this paragraph (c).
SECTION 10. Event of Loss; Requisition for Use. (a) If an Event of
Loss shall occur with respect to the Airframe, the Lessee will within ten (10)
days after actual knowledge by a Responsible Officer of the Lessee (and in any
event within twenty (20) days) of the occurrence of such Event of Loss) notify
the Lessor thereof in writing and will pay to the Lessor, in Dollars and in
immediately available funds, not later than the earlier of one
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hundred twenty (120) days after the date of the occurrence of such Event of Loss
or five (5) Business Days after the date of the Lessee's receipt of insurance
proceeds, an amount equal to the corresponding Stipulated Loss Value of the
Aircraft for the Loss Payment Date on which such payment is made (if payment is
made on a Loss Payment Date) or on the immediately succeeding Loss Payment Date
set forth in Schedule I to the Lease Supplement (if payment is made on a date
other than a Loss Payment Date); provided, however, that if the date such
payment is made by the Lessee is not a Loss Payment Date, there shall be
deducted from the Stipulated Loss Value amount payable by the Lessee an amount
equal to the interest at a rate of 9.4% per annum on such Stipulated Loss Value
(computed on the basis of a 365 day year and actual days elapsed) from and
including the date such payment is made by the Lessee, to but not including the
Loss Payment Date immediately following the date such payment is made by the
Lessee; and provided further, that if such payment is made on a Rent Payment
Date, the Lessee shall not pay the scheduled amount of Basic Rent otherwise due
on such Rent Payment Date. The Lessee will pay in full when due, but without
duplication, the Basic Rent for the Aircraft payable on each Rent Payment Date
occurring prior to such Loss Payment Date. In addition to the foregoing amounts,
the Lessee shall pay to the Lessor any Supplemental Rent then due and unpaid and
required to be paid on or prior to the date on which payment in full of such
Stipulated Loss Value and Basic Rent is required under this Section 10(a) to be
paid to the Lessor. In addition, if any such payment of Stipulated Loss Value
and Rent is not paid in full when due in accordance with the provisions of this
Section 10(a), the Lessee shall pay on demand interest on such unpaid amount at
the Overdue Payment Rate from and including the due date to but excluding the
date on which payment in full is received by the Lessor. Upon payment in full by
the Lessee of all amounts referred to above in this Section 10(a) and all other
amounts, if any, due and payable by the Lessee hereunder, (i) the Lessee shall
have no further obligation to pay Basic Rent due in respect of periods (or parts
thereof) commencing thereafter, (ii) this Lease shall terminate and (iii) upon
request of the insurers of the Aircraft, the Lessor will transfer to such
insurers "as-is where-is" title to the Airframe and each Engine, without any
recourse, representation or warranty (all as described in the first sentence of
paragraph (vi) of Section 4(b), except that appropriate changes shall be made to
the references to the parties and to accommodate a sale and purchase rather than
a lease), except that the Airframe and Engines are free and clear of Lessor
Liens. Notwithstanding the foregoing, such transfer shall not in any way affect
or limit the obligations or liabilities of the Lessee hereunder or under any
Operative Document not specifically discharged by such payment of Stipulated
Loss Value and Rent.
(b) If an Event of Loss shall occur with respect to an Engine under
circumstances in which there has not occurred an Event of Loss with respect to
the Airframe, the Lessee will within twenty (20) days after a Responsible
Officer of the Lessee has actual knowledge (and, in any event, within sixty (60)
days) of the occurrence of such Event of Loss notify the Lessor thereof in
writing and will, not later than one hundred twenty (120) days after the
occurrence of such Event of Loss, at its sole cost and expense, duly convey to
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the Lessor (or cause to be conveyed to the Lessor), as replacement for such
Engine, title to another engine of the same or an improved make and model which
shall be owned by the Lessee free of all Liens other than Permitted liens and
shall, in the opinion of the Lessor, have a value and utility at least equal to,
and in as good operating condition as, such Engine immediately prior to such
Event of Loss, assuming compliance by the Lessee with all of the terms of this
Lease with respect to such Engine. Prior to or at the time of such conveyance,
at the Lessee's sole expense the Lessee and the Lessor will enter into a
supplement to this Lease for purposes of subjecting such replacement engine to
this Lease and the Lessee, at the Lessee's sole expense will (i) cause to be
delivered to the Lessor evidence that the Lessor has acquired full warranty
title to such replacement engine free and clear of all Liens except Permitted
Liens and that such replacement engine is duly subjected to this Lease, such
supplement to this Lease and all other documents and instruments required to
effect or evidence the foregoing (including the bill of sale) to be in form and
substance reasonably satisfactory to the Lessor and the Lessee; and (ii) cause
to be delivered to the Lessor evidence satisfactory to the Lessor as to the due
compliance by the Lessee with the insurance provisions of Section 11 hereof with
respect to such replacement engine; and (iii) furnish to the Lessor an opinion
of the Lessee's counsel to the effect that, upon such conveyance, the Lessor
will acquire good and marketable title free and clear of all liens, other than
Permitted Liens, to such replacement engine and that it will be leased hereunder
to the same extent as the Engine replaced thereby, and as to the validity,
binding effect and enforceability of such supplement to this Lease and other
documents and instruments. Upon compliance by the Lessee with the foregoing
terms of this subsection (b) within the 120-period referred to above, the Lessor
will (A) upon request by the insurers of such Engine transfer title to such
insurers of the Engine so replaced "as-is, where-is" without any recourse,
representation or warranty (all as described in the first sentence of paragraph
(vi) of Section 4(b), except that appropriate changes shall be made to the
references to the parties and to accommodate a sale and purchase rather than a
lease), except that such Engine is free and clear of any Lessor Liens and (B)
execute and deliver to the Lessee a partial release, in recordable form,
releasing such Engine from this Lease. Such replacement engine shall thereupon
constitute an "Engine" for all purposes hereof. No such termination of this
Lease with respect to any Engine as contemplated by this Section 10(b) shall
result in any reduction of Rent.
(c) In the event of the requisition for use by the Finnish
Government or the government of any other Applicable Jurisdiction (including any
governmental authority, agency or instrumentality, including any court, thereof)
of the Airframe or any Engine during the Term, the Lessee shall promptly notify
the Lessor of such requisition and all the Lessee's obligations under this Lease
with respect to the Airframe or such Engine shall continue to the same extent as
if such requisition had not occurred; provided, however, that if the Airframe or
such Engine shall not be returned by the Finnish Government or such other
government prior to the end of the Term and the Lessee has given notice and
extended the Term in accordance with and as provided in Section 3(f), the Lessee
shall be obligated to return the Airframe or such Engine to the Lessor pursuant
to, and in all other respects to comply with
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the provisions of, Section 5 promptly upon its return by the Finnish Government
or such other government. All payments received by the Lessor or the Lessee from
the Finnish Government or such other government for the use of the Airframe or
such Engine during the Term shall be paid over to, or retained by, the Lessee
unless an Event of Default or Default shall have occurred and be continuing in
which event such amounts shall be paid over to or retained by the Lessor as
security for the obligations of the Lessee under this Lease and applied against
the Lessee's obligations hereunder, and upon the terms and conditions of Section
24(b)(ii) all such amounts and any gain thereon from Permitted Investments
required to be made pursuant to Section 24(b)(ii) shall be paid over by the
Lessor to the Lessee; and all payments received by the Lessor or the Lessee from
the Finnish Government or such other government for use of the Airframe or such
Engine after the Term shall be paid over to, or retained by, the Lessor.
(d) At any time during the Term so long as no Event of Default shall
have occurred and be continuing, the Lessee may, in its discretion, upon prior
reasonable notice to the Lessor, terminate this Lease with respect to any
Engine. In such event and on or before the date of such termination, the Lessee
shall replace such Engine hereunder by complying with the terms of Section 10(b)
hereof to the same extent as if an Event of Loss had occurred with respect to
such Engine, and the Lessor shall concomitantly therewith, as provided in
Sections 10(b) and 12, transfer all of its rights and interest in and to such
Engine to the Lessee as provided therein, and thereupon such replacement engine
shall constitute an "Engine" for all purposes hereof. Upon compliance by the
Lessee with the foregoing terms of this paragraph (d), the Lessor will execute
and deliver to the Lessee a partial release, in recordable form, releasing such
Engine from this Lease. No termination of this Lease with respect of any Engine
as contemplated by this Section 11(d) shall result in any reduction of Rent.
SECTION 11. Insurance. (a) The Lessee at its expense shall carry
public liability (including, without limitation, contractual, bodily damage and
property damage liability and passenger products and completed operations
liability and also war risk and allied perils liability in accordance with
Lloyds of London aviation clause AVN.52 or its equivalent) and property damage
insurance, payable in Dollars, with respect to the Airframe and the Engines (i)
in an amount at least equal to the greater of that normally carried, from time
to time, by the Lessee with respect to similar aircraft owned, leased or
operated by it, or that carried, from time to time, with respect to similar
aircraft by major commercial air carriers flying routes substantially similar to
those flown by the Lessee but in no event less than U.S. $500,000,000 per
occurrence, and (ii) with commercial insurers of internationally recognized
standing.
(b) The Lessee at its expense shall maintain in effect with insurers
of internationally recognized standing, and payable in Dollars all-risk aircraft
hull insurance for flight, taxiing and ground covering the Airframe and Engine
and any other engines on the
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Aircraft, and all-risk coverage with respect to any Engine while removed from
the Airframe, which is of the type and in substantially the amount usually
carried by corporations engaged in the same or similar business and similarly
situated as the Lessee (but specifically including war risk, governmental
confiscation (including the government of the Applicable Jurisdiction),
appropriation, and hijacking insurance (political and non-political risks),
except cover in respect of any hostile detonation of any weapon of war employing
atomic or nuclear fission, fusion or other radioactive force or matter);
provided that such insurance in respect of the Aircraft shall at any time not be
less than the Stipulated Loss Value for the Aircraft as of the date of
determination. The Lessee may self-insure, by way of deductible or premium
adjustment provisions in insurance policies, the risks required to be insured
against pursuant to this subsection (b), provided that such self-insurance shall
not apply in the case of a total loss or constructive or arranged total loss of
the Airframe and, in the case of any other loss, shall not exceed U.S.
$3,000,000 with respect to the Airframe and the Engines or engines then
installed thereon. Any policies of insurance required pursuant to this
subsection (b) shall provide that any loss in excess of U.S. $3,000,000 payable
with respect to the Airframe and the Engines or engines installed thereon or
with respect to an Engine while on the ground shall be payable and paid to the
Lessor.
(c) Any policies of insurance required pursuant to either subsection
(a) or subsection (b) above shall: (i) be amended to name the Lessor and the
other Additional Insureds as additional insureds warranted no operational
interest, but without the Lessor or the other Additional Insureds being liable
for premiums in respect of such insurance (other than by way of set-off as
mentioned in (vi) below), and in the case of each policy required pursuant to
subsection (b) above, shall name the Lessor and the other Additional Insureds as
loss payees; (ii) provide that, in respect of the interest of the Lessor and the
other Additional Insureds, in such policies, the insurance shall not be
invalidated by any action or inaction of the Lessee or any other Person (other
than the Additional Insureds, each for their respective interests) and shall
insure the interest of the Lessor and the other Additional Insureds, regardless
of any breach or violation by the Lessee or any other Person (other than the
Additional Insureds, each for their respective interests) of any warranty,
declaration or condition contained in such policies; (iii) provide that if such
insurance is cancelled for any reason whatsoever, or if any material change is
made in the coverage (including the scope thereof) which affects the interest of
the Lessor or the other Additional Insureds, or if such insurance is allowed to
lapse for nonpayment of premium, such cancellation, change or lapse shall not be
effective as to the Lessor or the other Additional Insureds for thirty (30) days
(seven (7) days or such lesser period as may be customarily available in the
case of any war risk and allied perils coverage) after the giving of notice to
the Lessor or such Additional Insured, as the case may be, of written notice
from such insurers to the addresses provided hereunder to the Lessee of such
cancellation, change or lapse; (iv) provide that as against the Lessor and the
other Additional Insureds, the insurers shall waive, to the fullest extent
permitted by Applicable Law, all rights of subrogation; (v) provide, in the case
of liability insurance policies (A) that all of the provisions thereof shall
operate in the same manner as if
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there were a separate policy covering each insured (provided that such policies
shall not operate to increase the insurer's limit of liability as set forth in
such policies), and (B) that the insurance shall be primary and without right of
contribution from any other insurance which may be available to the Lessor or
any Additional Insured; (vi) shall waive any right of the insurers to set-off,
counterclaim or any other deduction, whether by attachment or otherwise, against
the interests of the Additional Insureds (other than in respect of unpaid
premiums in respect of the Airframe and the Engines or engines installed thereon
or with respect to an Engine which is on the ground); and (vii) shall contain
with respect to hull all risks and hull war risks insurance a 50/50 clause per
AVN.103 or its equivalent. In the event that the Lessee shall fail to maintain
insurance as provided in this Section 11, the Lessor may at its sole option
provide such insurance and, in such event, the Lessee shall, upon demand,
reimburse the Lessor, as Supplemental Rent, for the reasonable market cost
thereof, without waiver of any other rights or remedies the Lessor may have
hereunder or under any other Operative Document.
(d)(i) On or before the Delivery Date, and thereafter at the time
of each renewal (but no less than annually), the Lessee, at its expense, will
furnish to the Lessor and each other Additional Insured insurance certificates
with respect to the Aircraft signed by a firm of independent aircraft insurance
brokers reasonably acceptable to the Lessor, describing in reasonable detail the
insurance then carried and maintained on or with respect to the Aircraft and
noting any geographical limits to the coverage provided thereby. The Lessee will
cause such firm (i) to dispatch the said insurance certificates to the Lessor
and each other Additional Insured no later than fourteen (14) days after the
renewal date of the relevant insurance policies, and (ii) to advise the Lessor
and each other Additional Insured in writing promptly of any default in the
payment of any premium and of any other act or omission on the part of the
Lessee, of which such firm has knowledge and which might invalidate or render
unenforceable, in whole or in part, any insurance on the Aircraft. The Lessee
will, and will also cause such firm to, advise the Lessor in writing as promptly
as practicable after a Responsible Officer of the Lessee or such firm, as the
case may be, acquires knowledge that an interruption or reduction of any
insurance carried and maintained on the Aircraft pursuant hereto will occur.
(ii) The Lessee covenants and agrees that it shall provide all
such notices and take all such actions as shall be necessary or advisable to
prevent, and the Lessee shall not suffer to occur, the invalidation of any
insurance benefit which may otherwise be available to any "Additional Insured"
but for any action or inaction of any "Additional Insureds" that occurs or is a
breach or violation of the insurance policy or any warranty, declaration or
condition contained therein of which the Additional Insured has no actual
knowledge or that results from any action or inaction of the Lessee (including,
without limitation, the filing of any claims and the giving of appropriate
notices so as to prevent any such invalidation).
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(iii) The Lessee covenants and agrees that it will pay to the
Lessor, or to whomever the same shall have experienced the set-off, as
Supplemental Rent, promptly upon any set-off described in Sections 11(c) and
11(d), an amount equal to the amount of any set-off pursuant to such Sections.
(e) All insurance payments received by the Lessor or the Lessee from
insurance referred to in Section 11(b) and paid as the result of the occurrence
of an Event of Loss with respect to the Airframe or an Engine (as well as any
requisition or other payments received by the Lessor or the Lessee as the result
of any such Event of Loss) shall be, if received by the Lessee, immediately paid
to the Lessor and shall be held and applied by the Lessor as follows:
(i) if such payment is received as the result of an Event of Loss
referred to in Section 10(a), such payment shall be applied in reduction
of the Lessee's obligation to make payment pursuant to Section 10(a) (and
any excess shall be paid to the Lessee) or, if the Lessee shall have
already made payment in full pursuant to said Section 10(a), all of such
payment shall be paid to the Lessee, provided that no Event of Default or
Default which would become an Event of Default of the type described in
Section 17(a), (b) or (e) shall have occurred and then be continuing; and
(ii) if such payment is received as the result of an Event of Loss
referred to in Section 10(b), such payment shall be paid to the Lessee
upon compliance by the Lessee with all of the terms of said subsection (b)
provided that no Event of Default or Default which would become an Event
of Default of the type described in Section 17(a), (b) or (e) shall have
occurred and then be continuing.
(f) All insurance payments received by the Lessor or the Lessee from
insurance referred to in Section 11(b) and paid other than as the result of an
Event of Loss with respect to the Airframe or an Engine shall be paid over to
the Lessee (i) upon the completion of repairs satisfactory to the Lessor and,
(ii) upon the Lessee's delivery of a certificate of a Responsible Officer of the
Lessee describing necessary repairs and specifying the amount of funds required
for making such repairs, and thereupon such funds shall be promptly applied by
the Lessee to the extent necessary to repair the damage to the Airframe or such
Engine, provided that the Lessee will make such payment to the Lessor, and the
Lessor shall not be required to make any such payment to the Lessee, if an Event
of Default or Default of the type referred to in Section 17(a), (b) or (e) has
occurred and is continuing. Any amount which would be payable to the Lessee or
any sublessee under any parallel provision pursuant to this subsection (f) or
Section 11(e) if a Default of the type described in such sections or an Event of
Default had not occurred and was not continuing shall be held by the Lessor as
security for the obligations of the Lessee under the Lease and applied against
the Lessee's obligations as and when due. If such Event of Default and no such
Default shall be cured and no other Event of Default and no such Default shall
have occurred
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and be continuing, such amount shall be paid to the Lessee to the extent not
previously applied in accordance with the terms hereof.
(g) The Lessor and each Owner Participant and each Affiliate of any
thereof may at its own expense carry insurance with respect to the Lessor's
interest in the Aircraft and the Lessor's Estate, provided, however, that such
insurance does not prevent the Lessee from carrying, or otherwise adversely
affect the coverage of, the insurance required by this Section 11, or adversely
affect such insurance or the coverage of any other insurance carried by the
Lessee with respect to its interest in the Aircraft. Any insurance payments
received with respect to any such insurance (including any residual value
insurance) shall be retained by the Lessor or such other Person, to the absolute
exclusion of the Lessee, without reducing or otherwise affecting the Lessee's
obligations or liabilities hereunder or under any other Operative Document.
SECTION 12. Replacement and Pooling; Modifications and Additions.
(a) The Lessee, at its own cost and expense, will promptly replace or cause to
be replaced 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, except as otherwise provided by the
provisions of this Section 12. All replacement Parts shall be free and clear of
all Liens (except Permitted Liens), shall be in as good an operating condition
as, and shall have the value and utility at least equal to, the Parts replaced
(assuming the same to be in the condition and state required by this Lease). All
Parts, at any time removed from the Airframe or any Engine, shall remain the
property of the Lessor, no matter where located, until such time as such Parts
shall be replaced by Parts which meet the requirements for replacement Parts
specified above. Immediately upon any replacement Part becoming incorporated or
installed in or attached to the Airframe or any Engine, without further act,
title shall vest in and such replacement Part shall become the property of the
Lessor, and shall become subject to this Agreement and be deemed a Part for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Airframe or such Engine.
(b) Any Part replacing a Part removed from the Airframe or any
Engine pursuant to a pooling or similar arrangement in accordance with Section 9
shall be incorporated or installed in or attached to the Airframe or such Engine
in accordance with Section 12(a) as promptly as possible after the removal of
such removed Part. In addition, any replacement Part when incorporated or
installed in or attached to the Airframe or any Engine in accordance with
Section 12(a) may be owned by a third Person subject to such a normal pooling
arrangement permitted by this Lease, provided that the Lessee, at its own
expense, as promptly thereafter as possible, but in any event not more than 180
days thereafter, either (i) obtains and, by operation of Section 12(a) conveys
to Lessor, title to such replacement Part to vest in the Lessor in accordance
with Section 12(a) free and clear of all Liens (except Permitted liens), or (ii)
replaces or procures the replacement of such
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replacement Part by the incorporation or installation in or attachment to such
Airframe or Engine of a further replacement Part free and clear of all Liens
(except Permitted Liens) and by causing title to such further replacement Part
to vest in the Lessor in accordance with Section 12(a) and such further
replacement Part shall forthwith be deemed part of the Airframe or Engine to the
same extent as the Part originally incorporated or installed in or attached to
the Airframe or such Engine and become subject to this Lease.
(c) The Lessee, at its expense, will make such modifications in and
additions to the Airframe and each Engine as may be required from time to time
in order to meet the standards of Applicable Law and in order for the Lessee to
comply fully with the terms of this Lease, including Sections 5 and 6 hereof. In
addition, so long as no Event of Default or Default which would become an Event
of Default of the type described in Section 17(e) shall have occurred and be
continuing, the Lessee, at its expense, may from time to time make such
modifications in and additions to the Airframe or any Engine as the Lessee may
deem desirable in the proper conduct of its business; provided, however, that no
such modification or addition shall diminish the value or utility of the
Airframe or such Engine, or impair the airworthiness or operating condition
thereof, below the value, utility, airworthiness and condition thereof
immediately prior to such modification or addition assuming the Airframe and
such Engine were in the condition and repair state required by this Lease. Title
to all Parts incorporated or installed in or attached or added to the Airframe
or an Engine, as the result of such modification or addition shall, without
further act, vest in the Lessor. Notwithstanding the foregoing terms of this
Section 12, so long as no Event of Default or Default which would become an
Event of Default of the type described in Section 17(e) shall have occurred and
be continuing, the Lessee may remove any Part, provided that (i) such Part is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated or installed in or attached to the Airframe or an Engine at the
time originally leased by the Lessor or 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 such Airframe or an Engine,
pursuant to the terms of this Lease, 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 and such Engine would have had at such time had such modification or
addition not occurred. Upon the removal by the Lessee of any Part as provided in
the immediately preceding sentence, title thereto shall, without further act,
vest in the 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 the Lessee
prior to the return of the Aircraft to the Lessor hereunder shall remain the
property of the Lessor.
SECTION 13. Insignia. On or prior to the Delivery Date, the
Lessee agrees to affix and maintain in the cockpit of the Airframe, in a
prominent position on the door, a metal nameplate bearing the following
inscription: "TRUST COMPANY FOR USL, INC.,
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OWNER TRUSTEE/LESSOR." The Lessee further agrees not to affix, or suffer to be
affixed, to or allow the name of any Person to be affixed to or placed on the
Airframe or any Part any indicia of ownership thereof by any person other than
the Lessor.
SECTION 14. Inspection/Information. (a) The Lessee will permit the
Lessor, at the Lessor's sole cost and expense (except if incurred in the
Lessor's exercise of remedies under Section 18), by its officers or agents to
inspect the Aircraft or any Parts or any part thereof and the Lessee's documents
and records relating thereto, and at such reasonable times during normal
business hours (or at any other time acceptable to the Lessee) as the Lessor may
from time to time request, provided, however, that such inspections shall not
interfere with the Lessee's normal operation of the Aircraft. The Lessor shall
have no duty to make any such inspection and shall not incur any liability or
obligation by reason of making or not making any such inspection. The Lessee
shall provide the Lessor (i) as soon as available and in any event within (x)
one hundred eighty (180) days after the end of each fiscal year of the Lessee, a
copy of the published annual report to its shareholders (in the English language
for the financial part) for such year for the Lessee, and (y) ninety (90) days
after the end of each second fiscal quarter of the Lessee, a copy of the
Lessee's published interim report to shareholders, and (ii) such other
information respecting the Lessee's financial conditions (to the extent made
available to the Lessee's shareholders and senior lenders) or operations or the
maintenance status of the Aircraft as the Lessor may from time to time
reasonably request.
(b) The Lessee agrees to provide to the Lessor not less than thirty
(30) days after the end of each fiscal quarter, a detailed report specifying the
actual number of hours/cycles utilized on the Airframe and each Engine during
the preceding fiscal quarter, the location of the Airframe and each Engine as of
the end of such quarter, any unscheduled maintenance work at or exceeding the
level of a C Check performed thereon during such quarter and any other such
information relating to the Airframe and Engines as the Lessor may reasonably
request.
(c) The Lessee will give notice of an Event of Default or a Default
which would become an Event of Default of the type described in Section 17(e)
when a Responsible Officer of the Lessee has actual knowledge thereof.
SECTION 15. The Lessor's Right to Perform for the Lessee. If the
Lessee fails to pay any Rent hereunder or fails to perform or comply with any of
its other agreements contained herein, the Lessor may, on behalf of the Lessee,
make such payment or perform or comply with such agreement, and the amount of
such payment and the amount of the reasonable costs and expenses incurred in
connection with such payment, performance or compliance, as the case may be
(together with an amount that is the equivalent of interest thereon at the
Overdue Payment Rate), shall be payable by the Lessee on demand as Supplemental
Rent (not as interest).
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SECTION 16. Further Assurances. The Lessee at its expense will
promptly and duly execute and deliver such documents and assurances and take
such action as may be necessary or desirable, or as the Lessor may from time to
time reasonably request, in order to more effectively carry out the intent and
purpose of this Lease and the other Operative Documents and to establish and
protect the Lessor's title to the Aircraft and its rights and remedies created
or intended to be created under this Lease and the other Operative Documents,
including, without limitation, the execution, delivery and filing of Uniform
Commercial Code financing and continuation statements with respect to this
Lease, in form and substance satisfactory to the Lessor, in such jurisdictions
as the Lessor may reasonably request.
SECTION 17. Events of Default. The following events shall constitute
Events of Default (whether any such event shall be voluntary or involuntary or
arise by operation of law or pursuant to or in compliance with any judgment,
decree, order, rule or regulation of any court or any administrative or
governmental body):
(a) The Lessee shall fail to make any payment of Basic Rent or
Stipulated Loss Value within seven (7) days after the earlier of (i)
written notice to the Lessee and (ii) actual knowledge by a Responsible
Officer of the Lessee that such payment shall not have been paid when due;
or
(b) The Lessee shall fail to make any other payment of Rent of any
kind when due and such failure shall continue unremedied for a period of
fifteen (15) days after the earlier of (i) written notice to the Lessee
and (ii) actual knowledge by a Responsible Officer of the Lessee that such
payment shall not have been paid when due; or
(c)(i) The Lessee shall fail to carry and maintain insurance in
accordance with Section 11 hereof, or the Lessee shall operate the
Aircraft at a time when insurance required by the provisions of Section 11
shall not be in effect; or
(ii) The Lessee shall fail in any material respect to perform or
observe any other covenant or agreement to be performed or observed by it
under this Lease or under any other Operative Document (other than such as
are the subject of Section 17(c)(i)) and such failure to perform or
observe such other covenant or agreement shall continue unremedied for a
period of thirty (30) days after written notice thereof to the Lessee by
the Lessor, except if such failure is curable and the Lessee is diligently
proceeding to cure such failure for a period not longer than ninety (90)
days after such notice; or
(d) Any representation or warranty made by the Lessee in this Lease
or in any other Operative Document or in any document or certificate
furnished by the Lessee
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in connection herewith or therewith shall have been incorrect in any
material respect at the time made and such incorrectness materially
adversely affects the rights of the Lessor under the Operative Documents
and the Lessor has given written notice thereof to the Lessee, or, if such
incorrectness is curable and the Lessee is diligently proceeding to cure
same, such incorrectness shall continue for a period not longer than
forty-five (45) days after the earlier of (i) such notice and (ii) actual
knowledge of such incorrectness by a Responsible Officer of the Lessee; or
(e) The Lessee shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of
creditors; or any proceeding or petition (voluntary or involuntary) shall
be instituted or commenced by or against the Lessee under the laws of any
country, now or hereafter in effect, seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its
debts under any law of any country relating to bankruptcy, insolvency,
moratorium or reorganization or relief of debtors, or seeking the entry of
an order, judgment or decree for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part of
its property and either such proceeding (in the case of an involuntary
proceeding only) shall remain undismissed or unstayed for a period of
ninety (90) days, or the Lessee shall take any corporate action to
authorize any of the actions set forth above in this subsection (e), or if
any competent court shall by final decision have declared the Lessee "en
disastre", bankrupt or insolvent or if, under the provisions of the
Applicable Law of Finland, any Finnish court of competent jurisdiction
shall assume jurisdiction, custody or control of the Lessee or of any
substantial part of its property and such jurisdiction, custody or control
shall remain in force unrelinquished or unstayed for a period of ninety
(90) days.
SECTION 18. Remedies. Upon the occurrence of any Event of Default
and at any time thereafter so long as the same shall be continuing, the Lessor
may, at its option, declare in writing to the Lessee that this Lease is in
default; and at any time thereafter, so long as the Lessee shall not have
remedied all outstanding Events of Default, the Lessor may do one or more of the
following with respect to the Airframe or any Engine, as the Lessor in its sole
discretion shall elect, to the extent permitted by, and subject to compliance
with any mandatory requirements of, Applicable Law then in effect:
(a) cause the Lessee, upon the written demand of the Lessor and at
the Lessee's expense, to return promptly, and the Lessee hereby agrees
that it shall return promptly, such of the Airframe and the Engines as the
Lessor may so demand to the Lessor or such Person as the Lessor may
designate pursuant to Applicable Law in the manner and condition required
by, and otherwise in accordance with all the provisions of, Section 5 as
if the Airframe or such Engine were being returned at the end of the Term,
or the Lessor or the Lessor's agent, at its option, may, but shall be
under no
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obligation to, enter upon the premises where all or any part of the Airframe or
any Engine is located and take immediate possession of and remove the same by
summary proceedings or otherwise, all without liability accruing to the Lessor
or the Lessor's agent for or by reason of such entry or taking of possession,
removal or storage whether for the restoration of damage to property caused by
any such action or otherwise;
(b) sell all or part of the Airframe or any Engine at public or
private sale, as the Lessor may determine, or otherwise dispose of, hold,
use, operate, lease to others or keep idle the Airframe or any Engine as
the Lessor may determine, all free and clear of any rights or claims 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;
(c) whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under Section 18(a) or
(b) above with respect to all or part of the Airframe or any Engine, the
Lessor, by written notice to the Lessee specifying a payment date not
earlier than ten (10) days from the date of such notice, may cause the
Lessee to pay to the Lessor, and the Lessee shall pay to the Lessor, on
the payment date specified in such notice, as liquidated damages for loss
of a bargain and not as a penalty (in lieu of the scheduled Basic Rent for
the Aircraft otherwise due on Rent Payment Dates occurring on and after
the payment date specified for payment in such notice), any unpaid Basic
Rent for the Aircraft due (or which would have been due in the absence of
the termination of this Lease) prior to the payment date specified in such
notice, any accrued, due and unpaid Supplemental Rent to and including
such payment date, plus whichever of the following amounts the Lessor, in
its sole discretion, shall specify in such notice (together with interest
on all amounts payable by the Lessee under this subsection (c) at the
Overdue Payment Rate from such specified payment date until the date of
actual payment): (i) an amount equal to the excess, if any, of the
Stipulated Loss Value for the Airframe or such Engine (computed as of the
Loss Payment Date immediately succeeding the date specified in such
notice), over the aggregate Fair Market Rental Value of the Airframe or
such Engine for a period equal to the remainder of the Term (or what would
have been the remainder of the Term in the absence of the termination of
this Lease) after discounting such aggregate Fair Market Rental Value
quarterly (effective on the dates which would have been Rent Payment Dates
in the absence of the termination of this Lease) to present worth as of
the payment date specified in such notice at the rate per annum equal to
the Overdue Payment Rate; or (ii) an amount equal to the excess, if any,
of the Stipulated Loss Value for the Airframe or such Engine (computed as
of the Loss Payment Date immediately succeeding the date specified in such
notice), over the Fair Market Sales Value of the Airframe or such Engine,
as of the payment date specified in such notice; provided, however, that
if such payment is not made on
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a Loss Payment Date, there shall be deducted from the amount payable by
the Lessee under this subsection (c) an amount equal to interest at the
rate of 9.4% per annum (computed on the basis of a 365 day year and actual
days elapsed) on the Stipulated Loss Value payable by the Lessee, from and
including the date such payment is due under this subsection (c), to but
not including the Loss Payment Date immediately following the date of such
payment;
(d) in the event the Lessor shall have sold the Airframe or any
Engine, the Lessor, in lieu of exercising its rights under Section 18(c)
with respect to the Airframe or such Engine, may, if it shall so elect,
require the Lessee to pay to the Lessor, and the Lessee shall pay to the
Lessor, on the date of such sale, as liquidated damages for loss of a
bargain and all other losses to the Lessor and not as a penalty, all
unpaid Basic Rent for the Aircraft due (or which would have been due in
the absence of the termination of this Lease) on each Rent Payment Date
occurring prior to the date of such sale, plus any Supplemental Rent that
is accrued, due and unpaid to the date of such sale plus the amount of any
deficiency between the net proceeds of such sale and the Stipulated Loss
Value of the Airframe or such Engine (computed as of the Loss Payment Date
occurring on (if payment is made on a Loss Payment Date) or immediately
following (if payment is made on a date other than a Loss Payment Date)
the date of such sale), together with interest at the Overdue Payment Rate
on all amounts payable by the Lessee under this subsection (d) from the
date of such sale until the date of actual payment; provided, however,
that if payment in respect of such sale is made on a date which is not a
Loss Payment Date, there shall be deducted from the amount payable by the
Lessee pursuant to this subdivision (d) an amount equal to interest at
9.4% per annum (computed on the basis of a 365 day year and actual days
elapsed) on the Stipulated Loss Value payable by the Lessee, from and
including the date of such sale, to but not including the Loss Payment
Date immediately following the date of such sale; and/or
(e) the Lessor may rescind this Lease or may exercise any other
right or remedy which may be available to it under Applicable Law, or to
proceed by appropriate court action to enforce the terms hereof or to
recover damages permitted by Applicable Law for breach hereof.
In addition, the Lessee shall be liable, except as otherwise
provided above, for any and all unpaid Rent due hereunder before, after or
during the exercise of any of the foregoing remedies 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 remedies with respect thereto, including all
reasonable costs and expenses incurred in connection with any retaking of the
Airframe or any Engine or in placing the Airframe or any Engine in the condition
and airworthiness required by Section 5. At any sale of the Airframe or any
Engine pursuant to this Section 18, the Owner Participant, the Lessor or the
Lessee, or any Affiliate of any
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thereof, may bid for and purchase such property. Except as otherwise expressly
provided above, no remedy referred to in this Section 18 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to the Lessor at law or in equity; and
the exercise or beginning of exercise by the Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by the Lessor of
any or all of such other remedies. No express or implied waiver by the Lessor of
any Event of Default or Default shall in any way be, or be construed to be, a
waiver of any future or subsequent Event of Default or Default. To the extent
permitted by Applicable Law, the Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise which may require the Lessor to
sell, lease or otherwise use or keep idle the Airframe or any Engine in
mitigation of the Lessor's damages except as set forth in this Section or which
may otherwise limit or modify any of the Lessor's rights or remedies under this
Section 18.
For the purpose of this Section 18, the "Stipulated Loss Value" as
of any date for the Airframe or any Engine means a portion of the Stipulated
Loss Value of such Aircraft, computed as of such date, which bears the same
ratio to such Stipulated Loss Value of the Aircraft as the original cost to the
Lessor of the Airframe or such Engine (as the case may be), as reasonably
computed by the Lessor, bears to the original cost to the Lessor of the
Aircraft.
SECTION 19. Expenses.
(a) Each party shall pay all costs and expenses (including legal
fees and expenses of counsel) it has incurred in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Lease, any other Operative Document and the other documents to be delivered
hereunder or thereunder, as the case may be, except as otherwise provided below
in this Section 19, provided that in no event shall the Lessee pay any costs or
fees or any amounts of any nature whatsoever relating to the Owner Trustee or
any successor trustee or co-trustee under the Trust Agreement or administration
of the Trust Estate.
(b) The Lessor shall pay all the costs of any mortgage taxes or
security filings incurred in connection with any financings or refinancing of
the Aircraft, except as otherwise provided below in clause (d).
(c) In connection with any financing or re-financing of the Aircraft
occurring after the Delivery Date, the Lessor shall pay on demand all reasonable
out-of-pocket costs and expenses (including reasonable legal fees and expenses
of counsel) incurred by the Lessee in connection with any such financing or
re-financing, except as otherwise provided below in clause (d).
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(d) In connection with the amendment or modification to the Lease,
or registration or deregistration of the Aircraft, in each case requested by the
Lessee after the Delivery Date, or any amendment or modification to the Lease
required in connection with an Event of Loss with respect to an Engine or a
substitution of engines by the Lessee pursuant to Section 10(b) or 10(d),
respectively, and in each other instance under this Lease or any other Operative
Document where it is expressly stated that costs or expenses are to be borne by
the Lessee, the Lessee shall pay on demand all reasonable out-of-pocket costs
and expenses (including reasonable legal fees and expenses of counsel) incurred
by the Lessor, including but not limited to, any reasonable costs incurred by
the Lessor in connection with such registration or deregistration, or such Event
of Loss or engine substitution under or pursuant to any financing or refinancing
arrangement then in place.
(e) Any party may, to the extent permitted by Applicable Law, seek
payment by the other party of all its costs and expenses (including legal fees
and expenses of counsel) incurred in connection with any legal suit, action,
proceeding or arbitration arising out of or relating to this Lease or any of the
Operative Documents, provided that in any such legal suit, action or proceeding
or arbitration in which final judgment has been entered, the party against whom
such judgment has been entered shall pay all such costs and expenses (including
legal fees and expenses of counsel) incurred by the prevailing party.
SECTION 20. Assignment; Owner Trustee. Except as otherwise
provided in Section 13 of the Purchase Agreement or as the parties may
otherwise agree in writing, the Lessor agrees that it will not, at any time
after the execution and delivery of this Lease and prior to the expiry of
the Term, assign or convey its right, title and interest in and to this
Lease or the Aircraft without the written prior consent of the Lessee.
SECTION 21. Notices. All notices required under the terms and
provisions hereof shall be in writing or by telecommunication, in the English
language, and any such notice shall become effective when received by the other
party, by hand, by registered mail with proper postage for airmail prepaid, or,
if in the form of a telegram, telex or telecopy, upon confirmation of receipt
thereof, in each case addressed (i) if to the Lessee:
FINNAIR OY
Dagmarinkatu 4
00100 Helsinki
Finland
Attention: Group Treasurer
Telex: 124946 Answerback: fnair sf
Telecopier: 358-0-818-7457
Telephone: 358-0-818-81
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or to such other address as the Lessee shall from time to time designate in
writing to the Lessor, or (ii) if to the Lessor:
Trust Company for USL, Inc.
615 Battery Street
San Francisco, California 94111
Attention: President
Telecopy: 415-627-9420
or to such other address as the Lessor shall from time to time designate in
writing to the Lessee.
SECTION 22. Net Lease, No Set-Off, Counterclaim, Etc. All Rent shall
be paid by the Lessee in the manner provided in Section 3(b). This Lease is a
net lease, and the Lessee will pay all costs, charges, fees and expenses
associated with the use, non-use, possession, control, operation, maintenance
and repair of the Aircraft and the Parts, except as expressly provided herein.
The Lessee's obligation to pay all Rent payable hereunder shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which the Lessee may have against the Lessor, any Owner Participant, the
manufacturer of the Airframe or of any Engine or of any Part or any other Person
for any reason whatsoever (whether in connection with the transactions
contemplated hereby or in connection with any unrelated transaction), (ii) any
defect in the title, airworthiness, eligibility for registration under
Applicable Law, condition, design, operation, merchantability, or fitness for
use of, any other matter referred to in the first sentence of paragraph (vii) of
Section 4(b), or any damage to or loss or destruction of, or any Lien upon, the
Airframe or any Engine, or any interruption or cessation in the use or
possession thereof by the Lessee for any reason whatsoever, including by reason
of governmental authority or action, (iii) any insolvency, bankruptcy,
reorganization, "en disastre", moratorium or similar proceedings by or against
the Lessee, the Lessor or any other Person, (iv) the invalidity or
unenforceability of any of the Operative Documents, (v) any restriction on the
exchange of any currency into any other currency, including, without limitation,
an exchange of Finnish Marks into Dollars, or on the transfer of funds to the
United States or from Finland, (vi) the Lessee at any time having immunity from
suit or execution on the grounds of sovereignty, enforceability of judgment or
otherwise, (vii) any other circumstance, happening or event whatsoever, whether
or not similar to any of the foregoing. If for any reason whatsoever this Lease
shall be terminated as to the Airframe or any Engine in whole or in part by
operation of Applicable Law, or otherwise, except as specifically provided
herein, the Lessee nonetheless agrees to pay to the Lessor an amount equal to
each Basic Rent payment for the Aircraft at the time such payment would have
become due and payable in accordance with the terms hereof had this Lease not
been so terminated in whole or in part. The Lessee hereby waives, and hereby
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agrees to waive at any future time at the request of the Lessor, to the extent
permitted by Applicable Law, any and all rights which it may now have or which
at any time hereafter may be conferred upon it, by statute or otherwise, to
terminate, cancel, quit or surrender this Lease except in accordance with the
express terms hereof and all rights of "set-off", notice and demand. Each
payment of Rent made by or on behalf of the Lessee to the Lessor shall be final
as to the Lessee and the Lessor. The Lessee will not seek to recover all or any
part of any such payment of Rent made to the Lessor or any Indemnitee for any
reason whatsoever and, to the extent permitted by Applicable Law, waives all
rights to any such recovery and right to seek the same. The Lessor shall not be
required to reimburse any portion of any payment of any Basic Rent by reason of
any early termination of this Lease. Nothing in this Section 22 shall be
construed to preclude the Lessee or the Lessor from bringing any suit at law or
in equity against any Person which it would otherwise be entitled for breach of
any representation, warranty, covenant or duty hereunder.
SECTION 23. Jurisdiction: Governing Law.
(a) Each of the Lessor and the Lessee hereby irrevocably agrees
that, to the extent that it or any of its assets has or hereafter may acquire or
become entitled to any right of immunity, as against the other party hereto or
its respective successors and assigns, whether characterized as sovereign
immunity or otherwise, from any legal proceedings, action or suit, from set-off
or counterclaim, from the jurisdiction of any competent court, from service of
process, from attachment prior to judgment, from attachment in aid of execution,
or from execution prior to judgment, or other legal process, whether in the
United States of America or the Republic of Finland or any other jurisdiction,
but only to the extent required to enforce or collect upon this Lease or any
other Operative Document or any other liability or obligation of it related to
or arising from the transactions contemplated by this Lease or any other
Operative Document, including, without limitation, immunity from service of
process, immunity from jurisdiction or judgment of any court or tribunal,
immunity from execution of a judgment, and immunity of any of its property from
attachment prior to any entry of judgment or from attachment in aid of execution
upon a judgment, it hereby expressly and irrevocably and unconditionally waives
and agrees not to plead or claim any such immunity but only with respect to its
obligations or liabilities or any other matter under or arising out of or in
connection with this Lease or any other Operative Document or the subject matter
hereof or thereof. Such agreement and waiver shall be irrevocable and not
subject to withdrawal in any and all jurisdictions, including, without
limitation, under the Foreign Sovereign Immunities Act of 1976 of the United
States.
(b) Each of the Lessor and the Lessee irrevocably agrees that any
legal suit, action or proceeding arising out of or relating solely to this Lease
or any other Operative Document, or any of the transactions contemplated hereby
or thereby or any document referred to herein or therein, may be instituted in
the State or Federal courts in the County of New York, State of New York, and it
hereby irrevocably waives, to the fullest extent
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permitted by law, any objection which it may have now or hereafter to the laying
of the venue or the jurisdiction or the convenience of the forum of any such
legal suit, action or proceeding and irrevocably submits generally and
unconditionally to the non-exclusive jurisdiction of any such court but only in
any such suit, action or proceeding. In the case of the said courts, the Lessee
hereby designates, appoints and empowers Finnair, General Manager North America
Finnair Executive Office, or any successor thereof, currently located at 10 East
40th Street, New York, New York 10016, as its authorized agent to accept,
receive and acknowledge for and on behalf of it and its property service of any
and all process which may be served but only in any action, suit or proceeding
of the nature referred to above in the County of New York, State of New York.
Each of the Lessor and the Lessee further agrees that such service of process
may be made personally or by mailing or delivering a copy of the summons and
complaint or other legal process in any such legal suit, action or proceeding to
it in care of such agent at the aforesaid address, and, in the case of the
Lessor, at the address set forth in Section 21, and such agent is hereby
authorized to accept, receive and acknowledge the same for and on behalf of it
and to admit service with respect thereto. Upon such service of process being
made on such agent or the Lessor as aforesaid, a copy of the summons and
complaint or other legal process served shall be mailed by the plaintiff to the
Lessee or the Lessor, as the case may be, registered mail, return receipt
requested, at its address specified in Section 21 hereof (as the same may be
changed from time to time pursuant to said Section 21). Such service upon such
agent shall be deemed to be personal service on the Lessee and shall be legal
and binding upon it for all purposes notwithstanding any failure to mail copies
of such legal process to it, or any failure on the part of it to receive the
same, and shall be deemed completed upon the delivery thereof to such agent
whether or not such agent shall give notice thereof to it or upon the earliest
other date permitted by Applicable Law (including, without limitation, the
Immunities Act). Each of the Lessor and the Lessee further irrevocably agrees to
the service of process of any of the aforementioned courts but only in any suit,
action or proceeding of the nature referred to above by the mailing of the
copies thereof by certified air mail, postage prepaid, return receipt requested,
to it at its address specified in Section 21 hereof (as the same may be changed
from time to time pursuant to Section 21 hereof), such service to be effective
upon the date of receipt indicated on the postal receipt returned from it.
(c) The Lessee agrees that it will at all times continuously
maintain an agent or an office to receive service of process in the County of
New York, State of New York on behalf of itself and its property with respect to
the parties to this Lease and any other Operative Document, and, in the event
that for any reason the agent mentioned above or such office shall not serve as
agent for it to receive service of process in the County of New York, State of
New York on its behalf, it shall promptly appoint a successor satisfactory to
the Lessee and the Lessor so to serve, advise the Lessee and deliver to the
Lessee evidence thereof.
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(d) Subject to any rights pursuant to Section 23(e), final judgment
against the Lessee or the Lessor in any suit shall be conclusive in any court
proceeding, and may be enforced in other jurisdictions by suit on the judgment,
a certified or true copy of which shall be conclusive evidence of the fact and
of the amount of any indebtedness or liability of the Lessee or the Lessor, as
the case may be, therein described.
(e) Notwithstanding subsection (b) in this Section 23, and in
addition to any of its rights to otherwise pursue remedies under or in respect
of this Lease, each of the Lessor and the Lessee shall have the right, at its
option, under all circumstances, to institute binding arbitration, and that if
such arbitration is so elected, with respect to any matter governed by this
Lease or any other Operative Document or in respect of any of the transactions
contemplated hereby or thereby, or the breach, termination or invalidity thereof
or in connection therewith, and any dispute, controversy and claim relating
thereto, shall be settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce, with the place of
arbitration in Stockholm, Sweden, and each party hereby irrevocably agrees that,
if either party shall elect to pursue such arbitration, the other party hereto
shall submit thereto and will be bound thereby. The Arbitral Panel shall be
composed of three (3) arbitrators. The language to be used in the arbitral
proceedings shall be English. This agreement shall be governed by the internal
laws of the State of New York (without regard to conflicts of laws principles).
(f) THIS LEASE HAS BEEN NEGOTIATED AND DELIVERED IN THE STATE OF NEW
YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF
LAWS RULE WHICH MIGHT RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER
JURISDICTION), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
SECTION 24. Miscellaneous. (a) 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 or rendering unenforceable the remaining provisions hereof, and any
such prohibitions or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. To the extent
permitted by Applicable Law, each of the Lessor and the Lessee hereby waives any
provision of Applicable Law which renders any provision hereof prohibited or
unenforceable in any respect. No term or provision of this Lease may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which the enforcement of the change, waiver,
discharge or termination is sought. This Lease shall constitute an agreement of
lease, and nothing herein shall be construed as conveying to the Lessee any
right, title or interest in the Aircraft except as a lessee only.
-50-
<PAGE>
(b) (i) This Lease constitutes an international transaction in which
the specification of Dollars and the payment at the designated place of payment
is of the essence, and Dollars shall be the currency of account in all events,
including for all payments of Rent and any other amount payable hereunder or
under any other Operative Document. The payment obligations of the Lessee under
this Lease shall not be discharged by an amount paid in another currency or in
another place, whether pursuant to a judgment or otherwise, to the extent that
the amount so paid on prompt conversion to Dollars (as quoted in New York, New
York) and transfer to the designated place of payment under normal banking
procedures does not yield the amount of Dollars due hereunder. If any expense
required to be reimbursed pursuant to this Agreement or any other Operative
Document is originally incurred in a currency other than Dollars, the Lessee or
the Lessor, as the case may be, shall nonetheless make reimbursement of that
expense in Dollars, in an amount equal to the amount in Dollars that would have
been required for the Person that incurred that expense to have purchased, in
accordance with normal banking procedures, at New York, New York the sum paid in
such other currency (after any premium and costs of exchange) on the date of
payment of such expenses. To the fullest extent permitted by Applicable Law, the
obligation of the Lessee or the Lessor, as the case may be, in respect of any
amount due under this Agreement or any other Operative Document shall,
notwithstanding any payment in any other currency (whether pursuant to a
judgment or otherwise), be discharged only to the extent of the amount in
Dollars that the Person entitled to receive that payment may, in accordance with
normal banking procedures, purchase [at,] and transfer to, New York, New York
with the sum paid in that other currency (after any premium and costs of
exchange) on the Business Day immediately following the day on which that Person
receives that payment. If the amount in Dollars that may be so purchased for any
reason falls short of the amount originally due, the Lessee or the Lessor, as
the case may be, shall pay and indemnify for such additional amounts, in
Dollars, as may be necessary to compensate for the shortfall. Any obligation of
the Lessee or the Lessor, as the case may be, not discharged by that payment
shall, to the fullest extent permitted by Applicable Law, be due as a separate
and independent obligation and, until discharged as provided herein by the full
payment of all outstanding amounts in Dollars as herein provided, shall continue
in full force and effect.
(ii) (A) Any monies (but excluding any Collateral Security described
in Section 4(c)(iii) hereof) paid to or retained by the Lessor which are
required to be paid to the Lessee or applied for the benefit of the Lessee
(including, without limitation, amounts payable to the Lessee under Sections 10
and 11), but which the Lessor or any Person acting by or through the Lessor is
entitled to hold under the terms hereof pending the occurrence of some event or
the performance of some act (including, without limitation, the remedying of a
Default or an Event of Default), shall, until paid to the Lessee or applied as
provided herein, be invested by the Lessor from time to time at the direction,
risk and expense of the Lessee in Permitted Investments (defined below). There
shall be promptly remitted to the Lessee any gain (including interest received)
realized as the result of any such investment (net of any fees, commissions and
other expenses, if any, incurred in connection with such investment)
-51-
<PAGE>
unless an Event of Default, or any Default described in paragraph (e) of Section
17, shall have occurred and be continuing, in which case such gains shall be
held subject to the preceding sentence. The Lessee will promptly pay to the
Lessor, on demand, as collateral security for its obligations hereunder, the
amount of any loss realized as the result of any such investment (together with
any fees, commissions and other expenses, if any, incurred in connection with
such investment).
(B) "Permitted Investments" means obligations of, or guaranteed by,
the United States Government maturing within 91 days after such investment.
(c) This Lease, including all agreements, covenants, representations
and warranties, shall be binding upon and inure to the benefit of, and may be
enforced by, (1) the Lessor and its successors and permitted assigns and (2) the
Lessee and its successors and, to the extent permitted hereby, assigns. The
obligations of the Lessee under Sections 8 and 19 of this Lease are expressly
made for the benefit of, and shall be enforceable by, each Indemnitee entitled
thereto, without declaring this Lease to be in default or taking action in
respect of such declaration under Section 17 hereof.
(d) The section and subsection headings in and the table of contents
to this Lease are for convenience of reference only and shall not modify,
define, expand or limit any of the terms or provisions hereof, and all
references herein to numbered sections, unless otherwise indicated, are to
sections of this Lease.
(e) In the event of a discrepancy between the terms of this Lease
and any of the other Operative Documents, the terms of this Lease shall govern.
(f) This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.
(g) This Lease represents the agreement of the Lessor and the Lessee
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Lessor relative to the
subject matter hereof not expressly set forth or referred to herein or in the
other Operative Documents or in the other agreements, documents and instruments
referred to herein or therein delivered pursuant hereto or thereto.
(h) Each of the Lessee and the Lessor agrees that it shall perform
the agreements, covenants and indemnities to be performed by it set forth in the
Purchase Agreement and the other Operative Documents, which agreements,
covenants and documents are hereby incorporated herein by reference as fully and
to the same extent and with the same force and effect as if set forth in full in
this Section 24(h).
-52-
<PAGE>
SECTION 25. Title and Ownership. The Lessee acknowledges that full
legal title to the ownership of the Aircraft shall remain vested in the Lessor,
subject to the rights of the Lessee under the Lease, notwithstanding the
possession and use thereof by the Lessee.
SECTION 26. WAIVER OF JURY TRIAL. BY ITS SIGNATURE BELOW WRITTEN
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL BY JURY OF ANY
CLAIM, COUNTERCLAIM, ACTION OR PROCEEDING BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE OPERATIVE DOCUMENTS, OR RELATING TO THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OPERATIVE
DOCUMENT, OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
[The remainder of this page has been left blank intentionally.]
-53-
<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed as of the date and year first above written.
TRUST COMPANY FOR USL, INC.,
not in its individual capacity,
except as otherwise expressly
provided herein, but solely as
Owner Trustee,
Lessor
By: /s/ Stanley E. Gutman
----------------------------
Stanley E. Gutman
Vice President
FINNAIR OY,
Lessee
By:
---------------------------
Title:
THE SINGLE EXECUTED ORIGINAL OF THIS LEASE MARKED "ORIGINAL" SHALL BE THE
"ORIGINAL" AND ALL OTHER COUNTERPARTS OF THIS LEASE SHALL BE DUPLICATES AND
MARKED "DUPLICATE" OR "DUPLICATE ORIGINAL". TO THE EXTENT THAT THIS LEASE
CONSTITUTES CHATTEL PAPER, AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION, NO SECURITY INTEREST MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
"ORIGINAL".
<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed as of the date and year first above written.
TRUST COMPANY FOR USL, INC.,
not in its individual capacity,
except as otherwise expressly
provided herein, but solely as
Owner Trustee,
Lessor
By:
----------------------------
Title
FINNAIR OY,
Lessee
By: /s/ Kai Soveri
---------------------------
Title: Legal Counsel
THE SINGLE EXECUTED ORIGINAL OF THIS LEASE MARKED "ORIGINAL" SHALL BE THE
"ORIGINAL" AND ALL OTHER COUNTERPARTS OF THIS LEASE SHALL BE DUPLICATES AND
MARKED "DUPLICATE" OR "DUPLICATE ORIGINAL". TO THE EXTENT THAT THIS LEASE
CONSTITUTES CHATTEL PAPER, AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION, NO SECURITY INTEREST MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
"ORIGINAL".
<PAGE>
SCHEDULE 1
TO LEASE AGREEMENT
AIRCRAFT DOCUMENTS
TO BE DELIVERED
1. TECHNICAL DOCUMENTS (ORIGINAL OF EACH)
1) Historical Brief - Aircraft
2) AD and SB Compliance List - Aircraft
3) AD and SB Compliance List - Engine
4) List of All Modifications Performed by Finnair
5) Time and Cycle Status - Aircraft and Engine
6) Original Export Certificate of Airworthiness (At Time of
Purchase By Finnair)
7) Status of Aircraft in McDonnell Douglas Significant Structural
Inspection Program (If Applicable)
8) Difference of McDonnell Douglas Readiness Log Master Equipment
List Between Delivery and Present Configuration
9) List of Major Repairs and Alterations
10) Copy of STC's Incorporated and STC Supplements, With FAA Form 337's
for Installation
2. MAINTENANCE RECORDS
1) Aircraft Log Book
2) Engine Records
3) APU Records
4) List of Components with Time Data
5) Engine Life Limited Parts with Time Data
6) Engine Historical Records - Latest EHM Work Book
7) Shop Maintenance Summary
8) Engine Test Cell Records
9) FAA Form 337 for Last EHM
10) Airframe Life Limited Parts
11) Aircraft Weighing Data
<PAGE>
3. MANUALS
1) FAA Approved Airplane Flight Manual (AFM) [current and updated]
2) Manufacturers Flight Crew Operating Manager (FCOM)
3) Airline Flight Crew Operating Manual (FCOM)
4) Weight Balance Manual
5) Minimum Equipment List (MEL)
6) MEL Procedures Manual
7) Aircraft Maintenance Manual (AMM)
8) Aircraft Wiring Manual (AWM)
9) Aircraft Wiring Listings (AWL)
10) Systems Schematics (LAMMS)
11) Aircraft Maintenance and Inspection Program Manual
-2-
<PAGE>
SCHEDULE 2
TO LEASE AGREEMENT
ORGANIZATION OF ECONOMIC
COOPERATION AND DEVELOPMENT
For purposes of the definition of "OECD" set forth in the Operating
Lease Agreement, the following are the member nations:
1. Australia
2. Austria
3. Belgium
4. Canada
5. Denmark
6. Finland
7. France
8. Federal Republic of Germany
9. Greece
10. Iceland
11. Ireland
12. Italy
13. Japan
14. Luxembourg
15. The Netherlands
16. New Zealand
17. Norway
18. Portugal
19. Spain
20. Sweden
21. Switzerland
22. Turkey
23. The United Kingdom
24. The United States of America
<PAGE>
EXHIBIT A
TO LEASE AGREEMENT
FORM OF
LEASE SUPPLEMENT NO. 1
LEASE SUPPLEMENT NO. 1, dated April 30, 1992 between TRUST COMPANY
FOR USL, INC., not in its individual capacity, except as otherwise expressly
provided herein, but solely as owner trustee under the Trust Agreement dated as
of April _, 1992 (the "Lessor"), and FINNAIR OY (the "Lessee").
The Lessor and the Lessee have heretofore entered into that certain
Lease Agreement, dated as of April _, 1992, relating to one McDonnell Douglas
MD82 aircraft (herein called the "Lease" and the defined terms therein being
hereinafter used with the same meanings). The Lease provides for the execution
and delivery of a Lease Supplement for the purpose of leasing the Aircraft under
the Lease if agreed upon by the Lessor to the Lessee in accordance with the
terms thereof.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, the Lessor and the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee under the
Lease, and the Lessee hereby accepts and leases from the Lessor under the Lease,
the following described McDonnell Douglas MD82 aircraft (the "Aircraft"), which
as of the date hereof consists of the following components:
(i) Airframe: Finnish Registration Mark OH-LMN; and manufacturer's
serial number: 49150
(ii) Engines: two Pratt & Whitney Model JT8D-219 engines bearing,
respectively, manufacturer's serial numbers
718072, and
709707
(each of which engines has 750 or more rated takeoff horsepower or the
equivalent of such horsepower).
2. The Lessee hereby confirms its agreement to pay to the Lessor
Basic Rent for the Aircraft throughout the Term on the dates and in the amounts
specified in, and otherwise in accordance with all of the terms of, Section 3 of
the Lease.
<PAGE>
3. The parties confirm that the Delivery Date is April 30, 1992.
4. The parties confirm that the final Rent Payment Date is January
30, 1999, and the last day of the Term (without regard to renewals pursuant to
Section 3(e) of the Lease) is April 30, 1999.
5. The parties confirm that the purchase price paid by the Lessor to
the Lessee for the Aircraft under the Purchase Agreement is U.S. $16,800,000;
and the Lessee confirms that it has received payment in full of such purchase
price from the Lessor.
6. The Lessee hereby confirms to the Lessor that (i) the Lessee has
accepted the Aircraft for all purposes hereof and of the Lease as being
airworthy, in accordance with specifications, in good working order and repair
and without defect or inherent vice in title, condition, design, operation or
fitness for use, whether or not discoverable by the Lessee as of the date
hereof, and as otherwise described in the Lease, and (ii) the Engines are
delivered.
7. The Stipulated Loss Values for the Aircraft are the amounts as
set forth on the Schedule I attached hereto.
8. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
9. This Lease Supplement 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.
-2-
<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
Supplement to be duly executed as of the date and year first above written.
TRUST COMPANY FOR USL, INC.,
not in its individual capacity,
except as otherwise expressly
provided herein, but solely as
Owner Trustee,
Lessor
By:
----------------------------
Stanley E. Gutman
Vice President
FINNAIR OY,
Lessee
By:
---------------------------
Title:
-3-
<PAGE>
SCHEDULE 1
TO LEASE SUPPLEMENT
RENT PAYMENTS
MD82 Aircraft M.S.N. 49150
Basic Rent Pay- Basic Rent
ment Date Occur- Payment Due
ring In/Loss (U.S. Dollars)
- ------------ --------------
April 1992 $658,225.68
July 1992 $658,225.68
October 1992 $658,225.68
January 1993 $658,225.68
April 1993 $658,225.68
July 1993 $658,225.68
October 1993 $658,225.68
January 1994 $658,225.68
April 1994 $658,225.68
July 1994 $658,225.68
October 1994 $658,225.68
January 1995 $658,225.68
April 1995 $658,225.68
July 1995 $658,225.68
October 1995 $538,547.52
January 1996 $538,547.52
April 1996 $538,547.52
July 1996 $538,547.52
October 1996 $538,547.52
January 1997 $538,547.52
April 1997 $538,547.52
July 1997 $538,547.52
October 1997 $538,547.52
January 1998 $538,547.52
April 1998 $538,547.52
July 1998 $538,547.52
October 1998 $538,547.52
January 1999 $538,547.52
<PAGE>
Basic Rent Pay- Basic Rent
ment Date Occur- Payment Due
ring In/Loss (U.S. Dollars)
- ------------ --------------
April 1999 $538,547.52
July 1999 $538,547.52
October 1999 $538,547.52
January 2000 $538,547.52
April 2000 $538,547.52
July 2000 $538,547.52
October 2000 $538,547.52
January 2001 $538,547.52
April 2001 $538,547.52
<PAGE>
SCHEDULE 2
TO LEASE SUPPLEMENT
STIPULATED LOSS VALUE
MD82 Aircraft M.S.N. 49150
Loss Payment Date
Occurring In Stipulated
Or Before Loss Value
----------------- ----------
4/30/92 $17,377,000
5/30/92 $16,869,706
6/30/92 $17,021,475
7/30/92 $17,175,022
8/30/92 $16,665,291
9/30/92 $16,814,610
10/30/92 $16,965,694
11/30/92 $16,453,486
12/30/92 $16,600,314
1/30/93 $16,748,893
2/30/93 $16,234,167
3/30/93 $16,378,463
4/30/93 $16,523,976
5/30/93 $16,007,051
6/30/93 $16,149,136
7/30/93 $16,292,895
8/30/93 $15,773,322
9/30/93 $15,912,744
10/30/93 $16,053,825
11/30/93 $15,531,560
12/30/93 $15,668,274
1/30/94 $15,806,633
2/30/94 $15,281,629
3/30/94 $15,415,591
4/30/94 $15,550,689
5/30/94 $15,023,293
6/30/94 $15,154,847
7/30/94 $15,288,018
8/30/94 $14,757,797
9/30/94 $14,886,513
<PAGE>
Loss Payment Date
Occurring In Stipulated
Or Before Loss Value
----------------- ----------
10/30/94 $15,016,828
11/30/94 $14,483,736
12/30/94 $14,609,565
1/30/95 $14,736,977
2/30/95 $14,200,966
3/30/95 $14,323,859
4/30/95 $14,447,828
5/30/95 $13,909,147
6/30/95 $14,029,356
7/30/95 $14,151,025
8/30/95 $13,609,239
9/30/95 $13,726,325
10/30/95 $13,844,854
11/30/95 $13,420,662
12/30/95 $13,535,652
1/30/96 $13,652,074
2/30/96 $13,225,763
3/30/96 $13,338,624
4/30/96 $13,452,463
5/30/96 $13,024,072
6/30/96 $13,134,840
7/30/96 $13,246,741
8/30/96 $12,815,883
9/30/96 $12,924,171
10/30/96 $13,033,577
11/30/96 $12,600,211
12/30/96 $12,705,978
1/30/97 $12,812,848
2/30/97 $12,376,933
3/30/97 $12,480,135
4/30/97 $12,584,140
5/30/97 $12,145,860
6/30/97 $12,246,684
7/30/97 $12,348,585
8/30/97 $11,907,673
9/30/97 $12,005,850
10/30/97 $12,105,090
11/30/97 $11,661,501
-2-
<PAGE>
Loss Payment Date
Occurring In Stipulated
Or Before Loss Value
----------------- ----------
12/30/97 $11,756,987
1/30/98 $11,853,520
2/30/98 $11,407,210
3/30/98 $11,499,960
4/30/98 $11,593,455
5/30/98 $11,144,606
6/30/98 $11,234,803
7/30/98 $11,326,018
8/30/98 $10,874,360
9/30/98 $10,961,732
10/30/98 $11,050,106
11/30/98 $10,595,592
12/30/98 $10,680,091
1/30/99 $10,765,577
2/30/99 $10,308,158
3/30/99 $10,389,738
4/30/99 $10,472,000
-3-
<PAGE>
EXHIBIT B
TO LEASE AGREEMENT
REDELIVERY RECEIPT OF AIRCRAFT AND ENGINES
(1) Aircraft Manufacturer and Model McDonnell Douglas MD82
Finnish Registration OH-LMN
Aircraft Manufacturer's
Serial No. 49150
Engine Manufacturer and Model Pratt & Whitney
JT8D-219
Engine Manufacturer's 1.
Serial Nos.: 2.
(2) Received at Helsinki-Vantaa Airport, Finland
Date: April _, 1999. Local time: _________.
(3) Reference is made to the Lease Agreement, dated as of April __, 1992,
between Trust Company for USL, Inc., Lessor, and Finnair Oy, Lessee (the
"Lease"). Receipt is hereby acknowledged on behalf of the Lessor of
delivery to it by the Lessee, in accordance with the Lease, of the
foregoing described aircraft together with all equipment and the Engines
(as defined in the Lease) installed thereon.
The Lessor hereby confirms that the Airframe and the two above
described installed Engines (as defined in the Lease) and all equipment and
components, documents and records have been examined by its duly appointed and
authorized representative(s) to the Lessor's satisfaction.
The Lessor hereby confirms that the Aircraft and its installed
Engines (as defined in the Lease) were duly accepted by the Lessor and that the
Lessee has performed its obligations under Section 5 of the said Lease
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Lessor has caused this Redelivery
Receipt of Aircraft and Engines to be executed in its corporate name, by its
representative thereunto duly authorized as of the day and year first above
written.
TRUST COMPANY FOR USL, INC.,
not in its individual capacity,
except as otherwise expressly
provided herein, but solely as
Owner Trustee,
Lessor
By
---------------------------
Title
------------------------
Dated: April __, 1999
-2-
<PAGE>
EXHIBIT C
April 30, 1992
Trust Company for USL., Inc. as Owner Trustee for the Owner Participant
below named
c/o United States Leasing International, Inc.
615 Battery Street
San Francisco, California 94111
United States Leasing International, Inc.
615 Battery Street
San Francisco, California 94111
(For the appropriate transaction)
Haight, Gardner, Poor & Havens
195 Broadway
New York, New York 10007
Dear Sirs:
I am assistant Secretary and in-house Counsel of Finnair Oy, a corporation
organized under the laws of the Republic of Finland (the "Lessee"). As such, I
am familiar with the sale, purchase and lease of one McDonnell Douglas MD82
Aircraft bearing Finnish Registration mark OH-LMN pursuant to (i) the Aircraft
Purchase Agreement, dated as of April 30 1992 (the "Purchase Agreement"), among
the Lessee, as the Seller, United States Leasing International, Inc. as an Owner
Participant, and Trust Company for USL, Inc., and (ii) the Lease Agreement dated
as of April 30, 1992 (the "Lease") between the Lessee and Trust Company for USL,
Inc., not in its individual capacity except as expressly provided, but solely as
owner Trustee under the Trust Agreement dated as of April 30, 1992 (the "Trust
Agreement") with United States Leasing International, Inc. as Owner Participant,
as Lessor. Terms defined in the Lease and not otherwise defined herein are used
in this opinion with the meanings defined in the Lease.
In connection with the foregoing, I have examined originals or photostatic or
certified copies of all such corporate records, certificates, affidavits and of
all such other documents as I have deemed relevant and necessary as the basis of
my opinions hereinafter set forth. I have personal knowledge that Lessee
originally acquired the Aircraft from McDonnell Douglas.
For the purposes of the opinions expressed below, I have assumed (i) the
authenticity of all documents submitted to me as originals (ii) the conformity
to the originals of all documents submitted as certified or photostatic copies
and
<PAGE>
the authenticity of the originals, (iii) the legal capacity of natural persons,
and (iv) the due authorization, execution and delivery of all documents by all
parties and the validity and binding effect thereof (other than the
authorization, execution and delivery of the documents by the Lessee and the
validity and binding effect thereof upon the Lessee).
As to certain factual matters, I have relied upon representations included in
the Purchase Agreement and the Lease, upon certificates of certain officers of
the Lessee and upon certificates of public officials.
Based upon the foregoing and such other information and documents as I have
considered necessary for the purposes hereof, I am of the opinion that:
1. The Lessee has been duly incorporated and is validly existing and in good
standing under the laws of the Republic of Finland, with the corporate power and
authority to own, sell and lease its properties and conduct its business, as the
same is presently being conducted and to own, operate and sell the Aircraft.
2. The Lessee has full corporate power and authority to enter into and carry out
the terms of the Operative Documents.
3. Each of the Operative Documents has been authorized by all necessary
corporate and shareholder action and has been duly executed and delivered by the
Lessee. The Operative Documents constitute valid and legally binding obligations
of the Lessee, enforceable against the Lessee in accordance with their terms.
Without limiting the foregoing, a court in Finland would recognize and give full
force and effect to the Lessor's title to and ownership of the Aircraft, to the
rights of the Lessor and the Owner Participants under the Lease and other
Operative Documents, and to the terms of Section 23(f) of the Lease, Article 12
of the Purchase Agreement and the Bill of Sale providing that the Lease, the
Purchase Agreement and the Bill of Sale, respectively, will be governed by the
laws of the State of New York subject to the proviso in paragraph 12 hereof. To
the extent that the remedies provided for in Section 18 of the Lease are
enforceable under New York law, a court in Finland would give effect to the
terms thereof and enable the lessor and the Owner Participants to exercise the
same remedies against the Lessee (however designated) and with respect to the
Aircraft if the Aircraft were then in Finland (including the right to repossess
the Aircraft and to export the Aircraft from Finland).
4. The execution and delivery of the Operative Documents by the Lessee, and the
performance by the Lessee under the Operative Documents will not, (a) violate
the Articles of Association of the Lessee or Lessee's Extract from the Finnish
Trade Register, or (b) result in a breach of, or
<PAGE>
constitute a default under, or result in creation of any Lien upon any of the
property of Lessee, any judgment, decree or order binding on the Lessee, or its
respective properties, or any material indenture, mortgage, contract or other
instrument to which either the Lessee is a party or by which it is bound, (c)
require any stockholder approval or approval of any trustee or holders of any
debt or other obligations of Lessee (except such as has been duly obtained), or
(d) contravene any provision of any law, governmental rule, regulation or order
binding on the Lessee.
5. No consent, approval, notice to, authorization or order, or other action of
any court or governmental agency or body or official is required for the
execution, delivery and performance (including without limitation, any foreign
exchange control or any entity regulating exchange control) by the Lessee of any
of the Operative Documents.
6. To the best of my knowledge after due inquiry, there is no action, suit,
proceeding or investigation pending or threatened before or by any court,
administrative agency, arbitrator or governmental body against, or which
directly relates to, the Lessee which concerns any of the Operative Documents or
the Aircraft or which, if adversely determined could adversely affect the
financial condition of the Lessee or compliance by the Lessee with any of the
Operative Documents.
7. Pursuant to Bill of Sale and Purchase Agreement the Lessee has conveyed to
the Lessor good and marketable title to the Aircraft, free and clear of all
liens other than Permitted Liens.
8. The execution and delivery of the Operative Documents and the performance of
the transactions contemplated therein constitute commercial activities of the
Lessee, and the Lessee is subject to private commercial law and to suit with
respect thereto, and the Lessee is not entitled to any immunity whether on
grounds of sovereign immunity or otherwise, from set-off or from any legal
proceedings in Finland or any other liability or obligations of the Lessee
related to or arising from the transactions contemplated hereby or thereby.
9. No taxes, levies, imposts, duties, charges or withholdings will be imposed by
Finland or any governmental subdivision or other taxing authority with respect
to any payments of amounts due under the Operative Documents provided that (1)
the Lessor is a "resident" of the United States, as such term is defined in
Article 4 of the Convention Between the United States of America and the
Republic of Finland for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income and on Capital (the
"Convention"); and (2) the Lessor does not have a "permanent establishment" in
Finland, as such term is defined in Article 5 of the Convention, with respect to
the transactions contemplated by the Operative Documents or the income from such
transactions is attributable. The operation of the Aircraft
<PAGE>
by the Lessee on flights to or from Finland will not result in the Lessor being
subjected to any additional taxes, levies, imposts, duties, charges or
withholdings imposed by Finland or any other governmental subdivision or other
taxing authority thereof or therein upon or with respect to the Lessor's other
income, activities or properties, subject to provisos (1) and (2) set forth
above.
10. The qualification at any time of the Lessor to do business under the laws of
Finland or any political subdivision thereof or any federation or organization
of similar entity of which Finland is a member does not constitute a condition
to, and the failure to so qualify does not affect, the purchase by the Lessor of
the Aircraft, the leasing of the Aircraft to and by the Lessee or the exercise
by the Lessor of any right, privilege or remedy accorded it in, under or in
connection with the Operative Documents or the enforcement of such right,
privilege or remedy; the purchase by the Lessor of the Aircraft, the leasing of
the Aircraft to and by the Lessee or the performance by the Lessor of any action
required under, or contemplated by, any of the Operative Documents (other than
the operation or other use (other than merely leasing from a business outside of
Finland) of the Aircraft by the Lessor) will not violate any now-existing
Applicable law of Finland or any political subdivision thereof or any federation
or organization or similar entity of which Finland is a member or result in any
tax liability (other than taxes required to be paid by the Lessee pursuant to
Section 8 of the Lease) to the Lessor pursuant to the now-existing Applicable
law of Finland or any political subdivision or taxing authority thereof or any
now existing rule or regulation of any federation or organization or similar
entity of which Finland is a member.
11. Except for the registration of the Aircraft in Finland in the name of the
Lessor as owner with the CAA, it is not necessary to ensure the legality,
validity, enforceability or admissibility in evidence of any of the Operative
Documents in Finland, that the Operative Documents or any other document be
filed or recorded with any court or other authority in Finland or that any stamp
or similar tax be paid on or in respect of any of the Operative Documents unless
court action is taken.
With respect to registration of the Aircraft with the Civil Aviation
Administration in Finland in the name of the Lessor, as owner, and the Lessee,
as operator, none of the Operative Documents other than the Bill Of Sale, and no
document other than a power of attorney, incumbency certificate and certified
corporate documents of the Lessor, need be filed, recorded or registered with
any court, public office or other governmental authority in Finland or any
political subdivision thereof. The delivery of the Bill of Sale to the Lessor,
title to the Aircraft solely vested in the Lessor as against all third parties
and the Lessee's title will be recognized by all applicable governmental
agencies, instrumentalities and courts in Finland.
<PAGE>
12. The choice of New York law and the Lessee's submission to the jurisdiction
of certain courts in New York set forth in Section 23 of the Lease are valid,
legally binding and enforceable obligations of the Lessee, provided that, a
court in Finland could refuse to enforce such obligations if it determined that
such obligations were to conflict with, or violate, any law, decree, or the
public policy of Finland; however, I know of no such law, decree or public
policy that would conflict with such obligation as of the date hereof.
13. An arbitral award properly obtained by any of the parties to the Aircraft
Purchase Agreement to the Lease Agreement pursuant to Section ____ of the
Aircraft Purchase Agreement or to Section ____ of the Lease Agreement will in
the Republic of Finland be subject to and enforceable under the Convention on
the Recognition and Enforcement of Foreign Arbitral Awards made in New York in
1958 and to the procedural rules existent in the Republic of Finland.
My opinion is subject to the qualifications that (i) the enforcement of the
Operative Documents may be limited by bankruptcy, insolvency, moratorium and
other similar laws affecting the rights of creditors generally; and (ii) the
fact the some of the remedial provisions of the instruments referred to herein
may be limited or rendered unenforceable (but, nevertheless, on my opinion the
laws involved and the instruments referred to contain reasonable remedies for
the realization of the benefits of the security intended to be afforded by the
instruments) or by the laws of other countries where enforcement may be sought.
No opinion is expressed as to the availability of specific or equitable remedies
as such for the enforcement of any of the Operative Documents.
I do not purport to express an opinion on any laws other than those of the
Republic of Finland. This opinion is furnished to you pursuant to Section
4(a)(ix) of the Purchase Agreement for your sole benefit, and no other person or
entity shall be entitled to rely on this opinion without my express written
consent. This opinion may not be published or reproduced in any manner or
distributed or circulated to any person or entity without my express written
consent. This opinion is limited to the matters stated herein, and no opinion is
implied or may be inferred beyond the matters expressly stated herein.
Very truly yours,
Kai Soveri
In-House Counsel
<PAGE>
EXHIBIT D
================================================================================
GUARANTY AGREEMENT
Dated as of April 30, 1992
of
UNITED STATES LEASING INTERNATIONAL, INC.
as Guarantor
for the benefit of
FINNAIR OY,
as Beneficiary
-------------------------------
One McDonnell Douglas MD82 Aircraft
Finnish Registration Mark OH-LMN
-------------------------------
================================================================================
<PAGE>
Table of Contents
Page
----
SECTION 1. Definitions .......................................................
SECTION 2. Guaranty ..........................................................
SECTION 3. General Provisions Relating to this
Agreement ..................................................
SECTION 4. Guarantor's Waivers, Representations and Warranties ...............
(a) Successive Transactions ..........................................
(b) Obligations Joint and Several; Separate Actions; Waiver of
Statute of Limitations ...........................................
(c) Authorizations To Beneficiaries ..................................
(d) Guarantor's Waivers ..............................................
(e) Other Representations and Warranties .............................
SECTION 5. Miscellaneous .....................................................
(a) Amendment of Trust Agreement and the Operative
Documents ........................................................
(b) Binding Effect ...................................................
(c) Waivers; Cumulative Effect .......................................
(d) Amendments; Waivers ..............................................
(e) Section Headings; Table of Contents ..............................
(f) Severability .....................................................
(g) Notices ..........................................................
(h) Counterparts .....................................................
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<PAGE>
(i) Indemnity; Further Assurances ....................................
(j) Jurisdiction; Governing Law ......................................
(k) Waiver of Jury Trial .............................................
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<PAGE>
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (this "Agreement"), dated as of April 30,
1992, by UNITED STATES LEASING INTERNATIONAL, INC., a Delaware corporation (the
"Guarantor"), for the benefit of FINNAIR OY, a Finnish corporation (the
"Beneficiary") (this "Agreement").
WITNESSETH:
WHEREAS, a Purchase Agreement, dated as of the date hereof (as the
same may be supplemented, amended or otherwise modified from time to time, the
"Purchase Agreement"), has been or shall be entered into among the Beneficiary,
as Seller, Trust Company for USL, Inc. (the "Trust Company"), not in its
individual capacity, except as otherwise expressly provided therein, but solely
as Owner Trustee under a Trust Agreement, dated as of the date hereof (as the
same may be supplemented, amended, or otherwise modified from time to time, the
"Trust Agreement"), for the benefit of United States Leasing International,
Inc., in its capacity as the Owner Participant (the "Owner Trustee"), as Buyer,
and United States Leasing International, Inc., in its capacity as the Owner
Participant (the "Owner Participant"), relating to the sale and purchase of the
McDonnell Douglas MD82 Aircraft therein described, upon the terms and conditions
therein set forth; and
WHEREAS, the Owner Trustee, as Lessor, and the Beneficiary, as
Lessee, shall enter or have entered into a Lease Agreement, dated as of the date
hereof (as the same may be supplemented, amended or otherwise modified from time
to time, the "Lease"), relating to the Aircraft; and
WHEREAS, it is a condition precedent to the obligations of the
Beneficiary to sell the Aircraft to the Owner Trustee under the Purchase
Agreement and to lease the Aircraft from the Owner Trustee under the Lease that
the Guarantor shall have executed and delivered this Agreement to the
Beneficiary; and
WHEREAS, the Guarantor owns all of the outstanding voting stock of
the Trust Company.
NOW, THEREFORE, in order to induce the Beneficiary to enter into the
Purchase Agreement and the Lease, and in consideration of the premises, the
Guarantor hereby agrees as follows:
SECTION 1. Definitions. Except as otherwise defined herein, all
capitalized terms used herein shall have the meanings given or referred to
in the Lease.
<PAGE>
SECTION 2. Guaranty.
(a) The Guarantor hereby unconditionally (except as hereinafter set
forth) and irrevocably guarantees as primary obligor and not merely as surety,
without offset or deduction, to the Beneficiary
(i) the performance by the Trust Company, in its individual
capacity, of all its obligations undertaken in its individual capacity,
whether direct or indirect, actual or contingent, now or hereinafter
incurred, under the Purchase Agreement and the Lease, except such
obligations of the Trust Company as arise after or relate solely to such
time after the earlier to occur of (A) the time, if ever, that the Trust
Company shall have assigned or transferred to one or more eligible
transferees (but excluding any such assignment or transfer by way of
security), in accordance with, and to the extent permitted by, Article XI
or Article XIV of the Trust Agreement, all or a portion of the Trust
Company's or the Owner Trustee's right, title and interest in and to the
Trust Estate or the Lease Property, or there shall be a successor trustee
in accordance with Article XI of the Trust Agreement, (B) the time, if
ever, that an Owner Participant shall have (1) assigned or transferred to
one or more eligible transferees (but excluding any such assignment or
transfer by way of security), in accordance with, and to the extent
permitted by, Article 13 of the Purchase Agreement, all or a portion of
such Owner Participant's right, title and interest in and to the Trust
Estate, and (2) delivered or caused to be delivered to the Beneficiary a
guaranty, in form and substance substantially identical to this Agreement
(except as to the portion of the obligations so guaranteed), by each of
such transferees or by an entity meeting the qualifications of such
Article 13 guaranteeing the obligations of the Trust Company, and (C) the
termination of the Lease; and
(ii) the performance by the Owner Trustee, in its capacities as the
Buyer and the Lessor, and not in its individual capacity, of all its
obligations undertaken in such capacities (except to the extent that such
obligation or the event or circumstance giving rise to the same is
attributable to an Owner Participant), whether direct or indirect, actual
or contingent, now or hereinafter incurred, under the Purchase Agreement
and the Lease, except such obligations of the Owner Trustee in either of
such capacities as arise after or relate solely to such time after the
earlier to occur of (A) the time, if ever, that an Owner Participant shall
have (1) assigned or transferred to one or more eligible transferees (but
excluding any such assignment or transfer by way of security), in
accordance with, and to the extent permitted by, Article 13 of the
Purchase Agreement, all or a portion of such Owner Participant's right,
title and interest in and to the Trust Estate, and (2) delivered or caused
to be delivered to the Beneficiary a guaranty, in form and substance
substantially identical to this Agreement (except as to the portion of the
obligations so guaranteed), by each of such assignees or transferees or by
an entity meeting the qualifications of such Article 13
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<PAGE>
guaranteeing the obligations of the Owner Trustee; and (B) the
termination of the Lease.
To the extent that the obligations of the Guarantor hereunder have
been assumed or guaranteed by a subsequent Owner Participant or other qualified
Person in accordance with either Section 2(a)(i) or 2(a)(ii), the obligations of
the Guarantor hereunder shall be relieved and discharged to the extent of the
obligations so assumed or guaranteed by such subsequent Owner Participant or
other qualified Person.
(b) THE GUARANTY PURSUANT TO SECTION 2(a) HEREOF IS A GUARANTY OF
PAYMENT AND PERFORMANCE AND NOT OF COLLECTION AND IS IRREVOCABLE, ABSOLUTE,
UNCONDITIONAL AND CONTINUING AND THE GUARANTOR WAIVES ANY RIGHT TO REQUIRE THAT
ANY ACTION AGAINST THE TRUST COMPANY, THE OWNER TRUSTEE OR ANY OTHER PERSON BE
TAKEN OR ADJUSTED PRIOR TO DEMAND BEING MADE ON OR ACTION BEING TAKEN AGAINST
THE GUARANTOR.
(c) The Guarantor hereby agrees that, to the extent of its guaranty
pursuant to Section 2(a) hereof, in the event the Trust Company or the Owner
Trustee fails to perform any guaranteed obligation for any reason (including,
without limitation, the liquidation, dissolution, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar proceedings
affecting the status, existence, assets or obligations of, the Trust Company or
the Owner Trustee or the disaffirmance with respect to the Trust Company or the
Owner Trustee of the Purchase Agreement or the Lease in any such proceeding) as
promptly as practicable, but in any event not later than 5 Business Days after
the date on which such guaranteed obligation is required to be performed, the
Guarantor shall perform or cause such guaranteed obligation to be performed on
first demand as promptly as practicable, but in any event not later than 5
Business Days following the Guarantor's receipt of notice from the Beneficiary
(a copy of such notice to be sent to the Lessor to the extent the Beneficiary is
not stayed or prevented from doing so by operation of law) stating that such
guaranteed obligation was not performed when required.
SECTION 3. General Provisions Relating to this Agreement.
(a) The obligations of the Guarantor under this Agreement shall
remain in full force and effect until each and all of such obligations shall
have been fully discharged in accordance with the terms and provisions hereof.
(b) This Agreement and the liability of the Guarantor hereunder, to
the fullest extent permitted by Applicable Law, shall not be affected by and
shall remain in full force and effect irrespective of: (i) the legality,
validity, regularity, genuineness or enforceability,
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<PAGE>
in whole or in part, of any document or agreement, including, without
limitation, the Trust Agreement, the Operative Documents or any of them, or of
any assignment (other than as contemplated by Section 2(a) hereof), amendment,
modification, waiver or termination of the Trust Agreement; (ii) the transfer,
assignment, subletting or mortgaging or the purported transfer, assignment,
subletting or mortgaging of all or any part of the interest of any Person in the
Aircraft; (iii) any failure of title with respect to the Aircraft; (iv) any
merger or consolidation of any Person into or with any other Person or any sale,
lease or transfer of any of the assets of any Person to any other Person; (v)
any change in the ownership of any partnership interest or shares of capital
stock other than an assignment or transfer permitted by Article 13 of the
Purchase Agreement or by the Trust Agreement; or (vi) any other occurrence or
circumstance that might otherwise constitute a legal or equitable defense or
discharge of the liabilities of a guarantor or surety or that might otherwise
limit recourse against the Guarantor as a guarantor, including, without
limitation, any defense arising out of any laws of the Republic of Finland or of
the United States or any State thereof that would either exempt, modify or delay
the due or punctual performance of the obligations of the Guarantor hereunder.
(c) The obligations of the Guarantor set forth herein constitute the
full recourse obligations of the Guarantor enforceable against it to the full
extent of all its assets and properties.
(d) The obligations and liabilities of the Guarantor hereunder shall
not be impaired, diminished, abated or otherwise affected (i) by any setoff,
defense or counterclaim that the Trust Company, the Owner Trustee or the
Guarantor or any other Person may have or claim to have, at any time or from
time to time (other than full payment or performance of the guaranteed
obligations), or (ii) by the commencement by or against the Trust Company, the
Owner Trustee or the Guarantor or any other Person of any proceedings under any
bankruptcy or insolvency law or laws relating to fraudulent conveyance, the
relief of debtors, readjustment of indebtedness, reorganizations, arrangements,
compositions or extension or other similar laws.
(e) Except as otherwise expressly set forth herein, no act or
omission of any kind or at any time on the part of the Owner Trustee, any
beneficiary under the Trust Agreement, the Lessee, or any other Person in
respect of any matter whatsoever including, without limitation, any omission in
performance of their respective obligations under any document or agreement,
including, without limitation, the Trust Agreement or any of the Operative
Documents, shall in any way affect or impair the guaranty hereunder, save for an
express written waiver, release or discharge or the like or variation of its
terms, which shall be effective only with respect to the Person granting the
same, or performance by any thereof of the terms of any Operative Document.
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<PAGE>
(f) The guaranty hereunder shall continue to be effective or be
reinstated, as the case may be, if, at any time, payment, or any part thereof,
of any of the obligations hereunder, under the Trust Agreement or under any of
the Operative Documents is rescinded or must otherwise be restored or returned
by the Beneficiary upon the insolvency, bankruptcy or reorganization of the
Trust Company, the Owner Trustee or otherwise, all as though such payment had
not been made.
SECTION 4. Guarantor's Waivers, Representations and Warranties.
(a) Successive Transactions. This is a continuing guaranty and all
rights, powers and remedies hereunder shall apply to all the obligations of the
Trust Company and the Owner Trustee to the Beneficiary guaranteed by the
Guarantor pursuant to Section 2(a), including those arising under successive
transactions, which shall either continue the Guarantor's obligations hereunder,
or increase or decrease them, and notwithstanding the dissolution, liquidation
or bankruptcy of the Trust Company, the Owner Trustee or the Guarantor or any
other Person, or any other event or proceeding affecting the Trust Company, the
Owner Trustee or the Guarantor or any other Person.
(b) Obligations Joint And Several; Separate Actions; Waiver of
Statute of Limitations. The obligations hereunder are joint and several and
independent of the obligations of the Trust Company and the Owner Trustee and a
separate action or actions may be brought and prosecuted against the Guarantor
whether action is brought against the Trust Company, the Owner Trustee or any
other Person, or whether the Trust Company, the Owner Trustee or any other
Person is joined in any such action or actions. The Guarantor acknowledges that
there are no conditions precedent to the effectiveness of this Guaranty, and
that this Guaranty is in full force and effect and is binding on the Guarantor
as of the date written below, regardless of whether the Beneficiary obtains
collateral or any guaranties from others or take any other action contemplated
by the Guarantor. The Guarantor waives the benefit of any statute of limitations
affecting the Guarantor's liability hereunder or the enforcement thereof except
to the extent that a statute of limitations shall affect the obligations of the
Trust Company or the Owner Trustee, and the Guarantor agrees that any payment or
performance of any obligation of the Trust Company or the Owner Trustee or other
act which shall toll any statute of limitations applicable thereto shall
similarly operate to toll such statute of limitations applicable to the
Guarantor's liability hereunder.
(c) Authorizations To Beneficiary. The Guarantor hereby authorizes
the Beneficiary without notice to or demand on the Guarantor and without
affecting the Guarantor's liability hereunder, from time to time, to the extent
permitted by and in accordance with the terms and provisions of the Operative
Documents, to: (i) alter, compromise, renew, extend, accelerate or otherwise
change the time for payment or performance of, or otherwise change the terms of
the obligations guaranteed hereunder or
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<PAGE>
any part thereof, including increase or decrease of any amount due or which may
become due or is the rate of interest thereon; (ii) take and hold security for
the payment of this Guaranty or the obligations guaranteed hereunder or any
portion thereof, and exchange, enforce, waive and release any such security;
(iii) apply such security and direct the order or manner of sale thereof,
including, without limitation, a non-judicial sale permitted by the terms of the
controlling agreement, as the Beneficiary in its discretion may determine; and
(iv) release (without increasing the several obligations of any other party) or
substitute any one or more of the endorsers or any other guarantors of the
obligations guaranteed hereunder. The Beneficiary may not assign this Guaranty
in whole or in part without the prior written consent of the Guarantor. The
Guarantor agrees to provide to the Beneficiary upon request copies of the
Guarantor's financial statements and a copy of any reports made available to
shareholders by sending the same to such party's address as set forth in Section
5(g) hereof.
(d) Guarantor's Waivers. The Guarantor waives any right to require
the Beneficiary to: (i) make any claim or demand or proceed against any Person,
including without limitation, the Trust Company, the Owner Trustee or any other
guarantor of the guaranteed obligations; (ii) make any claim or demand or
proceed against or exhaust any security held from the Trust Company, the Owner
Trustee or any other guarantor of the guaranteed obligations or any other
Person; (iii) pursue any other remedy in the Beneficiary's power; (iv) give
notice of any default by the Trust Company or the Owner Trustee or to give
notice of any matters affecting the Trust Company or the Owner Trustee (except
to the extent provided in Section 2(c)); or (v) make any presentations or
demands for performance, or give any notices of non-performance, protests,
notices of protest or notices of dishonor in connection with any obligations or
evidences of indebtedness held by the Beneficiary as security, in connection
with any other obligations or evidences of indebtedness which constitute in
whole or in part the obligations guaranteed hereunder, or in connection with the
creation of new or additional obligations. The Guarantor waives notice of
acceptance of this Agreement by any Beneficiary.
The Guarantor waives to the fullest extent possible under Applicable
Law any defense based upon or arising by reason of: (i) any disability or other
defense (other than of payment or performance) of the Trust Company or the Owner
Trustee or any other Person; (ii) the cessation or limitation from any cause
whatsoever, other than final payment in full or performance, of all obligations
of the Trust Company or the Owner Trustee guaranteed hereunder or of any other
Person; (iii) any lack of authority of any officer, director, partner, agent or
any other Person acting or purporting to act on behalf of the Trust Company or
the Owner Trustee, or any defect in the creation or existence of the Trust, the
Trust Estate, the Trust Company or the Owner Trustee; (iv) the use by the Trust
Company of the Aircraft or of the proceeds therefrom; (v) any act or omission by
any Owner Participant which, directly or indirectly, results in or aids the
discharge of the Trust Company or the Owner Trustee or any of its obligations
guaranteed hereunder by operation of law or otherwise (other than of
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<PAGE>
payment or performance); (vi) any act or omission of the Beneficiary which
impairs any collateral for the obligations of the Trust Company or the Owner
Trustee guaranteed hereunder including, without limitation, surrender, release,
failure to perfect, or delay in perfection of, any security interest for such
indebtedness, and the exchange, substitution, dealing with or taking additional
collateral, or abstaining from taking advantage of or realizing upon any
security interest or guaranty; (vii) any errors and omissions in connection with
the administration by the Trust Company or the Owner Trustee guaranteed
hereunder; or (viii) any modification of the Trust Agreement, in any form
whatsoever, of the obligations of the Trust Company or the Owner Trustee
guaranteed under Section 2(a), including any modification made after any
attempted revocation hereof to any obligations incurred prior to any such
attempted revocation, and including, without limitation, the renewal, extension,
acceleration or other change in time for payment or performance of such
obligations, or other change in the terms of the obligations of the Trust
Company or the Owner Trustee guaranteed under Section 2(a) or any part thereof,
including any increase or decrease in the amount of payment due or which may
become due, or increase or decrease of the rate of interest thereon. Until all
obligations of the Trust Company and the Owner Trustee guaranteed under Section
2(a) shall have been finally performed and paid in full, the Guarantor shall
have no right of subrogation, and the Guarantor waives any defense the Guarantor
may have based upon any election of remedies by the Beneficiary which impairs or
destroys the Guarantor's subrogation rights or the Guarantor's right to proceed
against the Trust Company or the Owner Trustee for reimbursement. Until all
obligations of the Trust Company and the Owner Trustee guaranteed hereunder
shall have been finally performed and paid in full, the Guarantor, for the
benefit of the Beneficiary, further waives any right, and agrees it shall not
take any action, to enforce any remedy which the Beneficiary now has or may
hereafter have against the Trust Company, the Trust Estate, any other Owner
Participant or the Owner Trustee, and waives, and agrees it shall refrain from
seeking, any benefit of, or any right to participate in, any security whatsoever
now or hereafter held by the Beneficiary.
(e) Other Representations and Warranties. The Guarantor hereby
further represents and covenants to the Beneficiary as follows:
(i) The Guarantor is a corporation duly organized and validly
existing pursuant to the laws of the State of Delaware and has the
corporate power and authority to carry on its business as now conducted
and to enter into and perform its obligations under this Agreement.
(ii) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action on the part of
the Guarantor, do not require any approval or other action of any
stockholder of the Guarantor or any approval or consent of any trustee or
holders of any indebtedness or obligations of the Guarantor (or that any
such approval or consent as is required has been obtained), and
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<PAGE>
neither the execution and delivery of this Agreement by the Guarantor nor
the performance by the Guarantor of its obligations hereunder contravenes
any material Applicable Law, or contravenes or results in any breach of,
or constitutes any default under, any material term of any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract,
bank loan or credit agreement, or any material term of any other agreement
or instrument, corporate charter, by-law or permit issued by any
governmental authority under Applicable Law to which the Guarantor is a
party or by which the Guarantor or its properties may be bound.
(iii) Neither the execution and delivery by the Guarantor of
this Agreement nor the performance by the Guarantor of the obligations
undertaken hereunder 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, any governmental authority under Applicable Law.
(iv) This Agreement has been duly executed and delivered by
the Guarantor and constitutes the valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights and remedies generally, and by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 5. Miscellaneous.
(a) Amendment of Trust Agreement and the Operative Documents. Each
of the Trust Company, the Owner Trustee and the Beneficiary may, in their
discretion, as permitted by and in accordance with the terms and provisions of
the Operative Documents to which it is a party, agree to amendments of the Trust
Agreement and the Operative Documents, give or withhold consents, approvals or
waivers and exercise or refrain from exercising their respective rights under
the Trust Agreement and the Operative Documents.
(b) Binding Effect. This Agreement and every part hereof shall be
binding upon the Guarantor and its successors and assigns, and shall inure to
the benefit of, and shall be directly enforceable by, the Beneficiary and its
successors and assigns.
(c) Waivers; Cumulative Effect. A waiver by the Beneficiary of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Beneficiary would otherwise have had on any future
occasion with regard to any subsequent breach. Neither a failure to exercise,
nor any delay in exercising, on the part of the Beneficiary, any right, power or
privilege it may have hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege
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<PAGE>
hereunder nor any course of dealing preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by
Applicable Law.
(d) Amendments; Waivers. None of the terms or provisions of this
Agreement may be amended, waived, altered, modified or terminated except as
contemplated hereby and except by an instrument in writing signed by a written
consent of the Beneficiary and the Guarantor. The invalidity, illegality or
unenforceability of any provision of this Agreement shall not affect the
validity, legality or enforceability of any other provisions of this Agreement.
(e) Section Headings; Table of Contents. The section headings in and
the table of contents to this Agreement are for convenience of reference only
and shall neither be deemed to be part of this Agreement nor modify, define,
expand or limit any of the terms or provisions hereof.
(f) 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 or any provisions in the Trust
Agreement or any Operative Document, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(g) Notices. All communications, notices, consents and waivers
provided for herein or given in connection herewith shall be in writing and
shall become effective when received by telecopy, international courier or
registered United States mails, addressed, (i) if to Beneficiary:
FINNAIR OY
Dagmarinkatu 4
00100 Helsinki
Finland
Attention: Group Treasurer
Telex:124946 Answerback: fnair sf
Telecopier: 358-0-818-7457
Telephone: 358-0-818-81
or to such other address as the Beneficiary shall from time to time designate in
writing to the Guarantor, or (ii) if to the Guarantor to:
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<PAGE>
United States Leasing International, Inc.
615 Battery Street
San Francisco, California 94111
Attention: Executive Vice President, Transportation
Financing
Telex: 278031
Telecopy: 415-627-9240
or to such other address as the Guarantor shall from time to time designate in
writing to the Beneficiary.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on 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.
(i) Indemnity; Further Assurance. The Guarantor agrees to indemnify
the Beneficiary from and against any and all liabilities and losses incurred by
the Beneficiary in any way relating to or arising out of the breach by the
Guarantor of any of its agreements contained herein, including all reasonable
expenses, including attorney's fees and expenses, that may be incurred in
enforcing such agreements against the Guarantor, provided, however, that the
foregoing indemnity and agreement to hold harmless shall be coextensive in scope
with, and shall in no way expand, waive or limit, such covenants or agreements
or any rights, remedies or defenses which are or would be available in
connection therewith.
(j) Jurisdiction; Governing Law.
(i) The Guarantor hereby irrevocably agrees that, to the
extent that it or any of its assets has or hereafter may acquire any right
of immunity, as against the other party hereto or its respective
successors and assigns, whether characterized as sovereign immunity or
otherwise, from any legal proceedings, whether in the United States of
America or the Republic of Finland or any other jurisdiction, but only to
the extent required to enforce or collect upon this Agreement or any other
liability or obligation of it related to or arising solely from the
transactions contemplated by this Agreement, including, without
limitation, immunity from service of process, immunity from jurisdiction
or judgment of any court or tribunal, immunity from execution of a
judgment, and immunity of any of its property from attachment prior to any
entry of judgment or from attachment in aid of execution upon a judgment,
it hereby expressly and irrevocably waives any such immunity.
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<PAGE>
(ii) The Guarantor irrevocably agrees that any legal suit,
action or proceeding arising out of or relating solely to this Agreement,
the Trust Agreement or any Operative Document, or any of the transactions
contemplated hereby or thereby or any document referred to herein or
therein, may be instituted in the State or Federal courts in the County of
New York, State of New York, or the Superior Court, City and County of San
Francisco, San Francisco, California, and it hereby irrevocably waives, to
the fullest extent permitted by law, any objection which it may have now
or hereafter to the laying of the venue or the jurisdiction or the
convenience of the forum of any such legal suit, action or proceeding and
irrevocably submits generally and unconditionally to the non-exclusive
jurisdiction of any such court but only in any such suit, action or
proceeding. The Guarantor further agrees that such service of process may
be made personally or by mailing or delivering a copy of the summons and
complaint or other legal process in any such legal suit, action or
proceeding, registered mail, return receipt requested, at its address
specified in Section 5 hereof (as the same may be changed from time to
time pursuant to said Section 5). The Guarantor further irrevocably agrees
to the service of process of any of the aforementioned courts but only in
any suit, action or proceeding of the nature referred to above by the
mailing of the copies thereof by certified air mail, postage prepaid,
return receipt requested, to it at its address specified in Section 5
hereof (as the same may be changed from time to time pursuant to Section 5
hereof), such service to be effective upon the date of receipt indicated
on the postal receipt returned from it.
(iii) Final judgment against the Guarantor in any suit shall
be conclusive, and may be enforced in other jurisdictions by suit on the
judgment, a certified or true copy of which shall be conclusive evidence
of the fact and of the amount of any indebtedness or liability of the
Guarantor as therein described.
(iv) THIS AGREEMENT HAS BEEN NEGOTIATED AND DELIVERED IN THE
STATE OF NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO ANY CONFLICT OF LAWS RULE WHICH MIGHT RESULT IN THE APPLICATION
OF THE LAWS OF ANY OTHER JURISDICTION), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.
(k) WAIVER OF JURY TRIAL. BY ITS SIGNATURE BELOW WRITTEN THE
GUARANTOR HEREBY IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL BY JURY OF ANY CLAIM,
COUNTERCLAIM, ACTION OR PROCEEDING BASED UPON OR ARISING OUT OF THIS AGREEMENT,
THE TRUST AGREEMENT, THE OPERATIVE DOCUMENTS, OR RELATING TO THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. THIS WAIVER SHALL APPLY TO ANY
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<PAGE>
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE TRUST AGREEMENT, ANY OPERATIVE DOCUMENT, OR ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THIS TRANSACTION. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be
duly executed as of the date first set forth above.
UNITED STATES LEASING
INTERNATIONAL, INC.,
as Guarantor
By_______________________
Name:
Title:
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<PAGE>
PAPER NO. 02
THE SINGLE EXECUTED ORIGINAL OF THIS LEASE MARKED "ORIGINAL" SHALL BE THE
"ORIGINAL" AND ALL OTHER COUNTERPARTS OF THIS LEASE SHALL BE DUPLICATES AND
MARKED "DUPLICATE" OR "DUPLICATE ORIGINAL". TO THE EXTENT THAT THIS LEASE
CONSTITUTES CHATTEL PAPER, AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION, NO SECURITY INTEREST MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
"ORIGINAL".
-------------------------------------------------------------------
OPERATING LEASE AGREEMENT
between
TRUST COMPANY FOR USL, INC.,
not in its individual capacity, except as otherwise
expressly provided herein, but solely as Owner Trustee
under the Trust Agreement, dated as of April 30, 1992,
Lessor,
and
FINNAIR OY,
Lessee,
Dated as of April 30, 1992
-------------------------------------------------------------------
covering one McDonnell Douglas MD82 Aircraft
and its related Engines
Finnish Registration Mark OH-LMO
<PAGE>
LEASE AGREEMENT
TABLE OF CONTENTS
Page
----
SECTION 1. Definitions ............................................. 1
SECTION 2. Lease and Delivery of the Aircraft ...................... 9
SECTION 3. Term and Rent ........................................... 10
SECTION 4. Representations, Warranties and Covenants ............... 12
SECTION 5. Return of the Aircraft .................................. 22
SECTION 6. Maintenance, Operation, Etc. ............................ 27
SECTION 7. Liens ................................................... 28
SECTION 8. [Intentionally Omitted] ................................. 28
SECTION 9. Possession .............................................. 28
SECTION 10. Event of Loss; Requisition for Use ...................... 31
SECTION 11. Insurance ............................................... 34
SECTION 12. Replacement and Pooling; Modifications and
Additions ............................................... 38
SECTION 13. Insignia ................................................ 39
SECTION 14. Inspection/Information .................................. 40
SECTION 15. The Lessor's Right to Perform for the Lessee ............ 40
SECTION 16. Further Assurances ...................................... 41
SECTION 17. Events of Default ....................................... 41
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Page
----
SECTION 18. Remedies ................................................ 42
SECTION 19. Expenses ................................................ 45
SECTION 20. Assignment; Owner Trustee ............................... 46
SECTION 21. Notices ................................................. 46
SECTION 22. Net Lease, No Set-Off, Counterclaim, Etc. ............... 47
SECTION 23. Jurisdiction; Governing Law ............................. 48
SECTION 24. Miscellaneous ........................................... 50
SECTION 25. Title and Ownership ..................................... 53
SECTION 26. WAIVER OF JURY TRIAL .................................... 53
SCHEDULE 1 - Aircraft Documents to Be Delivered
SCHEDULE 2 - Members of the OECD
EXHIBIT A TO LEASE AGREEMENT
Form of Lease Supplement (together with Schedule I to Lease Supplement, Basic
Rent and Stipulated Loss Value tables) and Receipt
EXHIBIT B TO LEASE AGREEMENT
Form of Redelivery Receipt of Aircraft and Engines
EXHIBIT C TO LEASE AGREEMENT
Form of legal opinion of Lessee's Finnish counsel
EXHIBIT D TO LEASE AGREEMENT
Form of Guaranty
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<PAGE>
OPERATING LEASE AGREEMENT
This OPERATING LEASE AGREEMENT, dated as of April 30, 1992, between
TRUST COMPANY FOR USL, INC., a trust company organized under the laws of the
State of Illinois, with its principal place of business at San Francisco,
California, not in its individual capacity, except as otherwise expressly
provided herein, but solely as owner trustee under the Trust Agreement (as
defined below) (the "Owner Trustee" or the "Lessor"), and FINNAIR OY, a
corporation organized under the laws of the Republic of Finland (the "Lessee")
(this "Lease" or "Agreement" or "Lease Agreement" (as it may be referred to in
other document, certificate, opinion or letter) which terms shall include, after
the delivery thereof, the Lease Supplement).
WITNESSETH:
WHEREAS, the Lessee desires to lease from the Lessor and the Lessor
is willing to lease to the Lessee the aircraft described and referred to herein
upon and subject to the terms and conditions of this Lease;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Lessee and the Lessor agree as follows:
SECTION 1. Definitions. The following terms shall have the following
meanings for all purposes of this Lease:
"Act" means the Applicable Law of Finland respecting the ownership,
registration and operation of aircraft registered with the CAA, together
with the regulations of the CAA, as each of the same may be in effect from
time to time.
"Additional Insureds" means the Lessor, the Guarantor, the Owner
Participants, the Trust Company and their respective successors, permitted
assigns (including any lender in connection with a permitted financing),
directors, officers, employees, servants, and agents.
"Affiliates", with respect to any Person, means any Person directly
or indirectly controlling, controlled by or under common control with such
Person, provided that, for purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any one Person,
shall mean the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or partnership interests or by contract or otherwise.
<PAGE>
"Aircraft" means the Airframe and the Engines described in the Lease
Supplement. Such Engines shall be deemed part of the "Aircraft" whether or
not from time to time attached to the Airframe or to another airframe or
on the ground.
"Aircraft Documents" means the documents listed on Schedule 1
hereto.
"Airframe" means the airframe described as the "Airframe" in the
Lease Supplement, together with any and all Parts (including, but not
limited to, landing gear and auxiliary power units but excluding Engines
or engines) so long as such Parts shall be either incorporated or
installed in or attached to the airframe or required to be subject to this
Lease as provided in Sections 9(a)(iv) and 12 hereof, or so long as title
thereto shall remain vested in the Lessor pursuant to this Lease.
"Applicable Jurisdiction" means the country where, pursuant to this
Lease, the Aircraft is registered from time to time.
"Applicable Law" means, without limitation, all applicable laws and
treaties, international agreements, judgments, decrees, injunctions, writs
and orders of any court, arbitration or governmental agency or authority
and rules, regulations, orders, directives, licenses, ordinances and
permits of any governmental body, instrumentality, agency or authority.
"Approved Maintenance Program" means a maintenance program certified
by the Lessee to the Lessor as applicable to the Airframe, the Engines,
any other engines installed on the Airframe from time to time or any
components or Parts and approved by the appropriate aeronautical
authorities of the Republic of Finland or of the Applicable Jurisdiction
from time to time.
"Base Rate" means the rate of interest per annum in effect from time
to time as announced publicly by Citibank, N.A. in New York, New York from
time to time as its base rate, computed on the basis of a year of 365 or
366 days, as the case may be, for the actual number of days elapsed,
including the first day but excluding the last day.
"Basic Rent" means the rent payable for the Aircraft pursuant to
Section 3(b) hereof.
"Bill of Sale" means a long form bill of sale, substantially in the
form of Exhibit B to the Purchase Agreement, signed by the Lessee as
"seller" and in favor of the Lessor as "buyer", covering the Aircraft.
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<PAGE>
"Business Day" means a day of the year in which banks are not
authorized or required to close in New York City or Helsinki, Finland.
"CAA" means the Finnish Civil Aviation Administration, or any
successor thereto.
"C Check" has the meaning set forth in the Approved Maintenance
Program.
"Consent to Assignment of Warranties" means the Consent to
Assignment of Warranties obtained pursuant to Section 10 of the Purchase
Agreement from the Manufacturer and in form and substance satisfactory to
the Buyer.
"D Check" has the meaning set forth in the Approved Maintenance
Program.
"Default" means an event or condition which with the passage of time
or the giving of notice, or both, or the occurrence of any other event or
condition, would constitute an Event of Default.
"Delivery Date" has the meaning given such term in Section 2(a)
hereof.
"Delivery Location" means Helsinki-Vantaa Airport, Finland, or such
other place as may be mutually agreed upon by the Lessor and the Lessee
for the delivery of the Aircraft hereunder.
"Dollars" or "$" means the lawful currency of the United States.
"Engine" means each and all of the engines described as an "Engine"
in the Lease Supplement, or any other engine which may from time to time
replace an Engine leased hereunder in accordance with the terms of
Sections 5(a) or 10(b) hereof, together with any and all Parts so long as
the same shall be either incorporated or installed in or attached to such
engine or required to be subject to this Lease as provided in Sections
9(a)(iv) and 12 hereof. An Engine shall remain leased hereunder whether or
not from time to time attached to the Airframe or attached to any other
airframe or on the ground.
"Event of Default" has the meaning given such term in Section 17
hereof.
"Event of Loss" means any of the following events with respect to
any property:
(i) loss of such property or of the use thereof due to theft
or disappearance for a period exceeding one hundred eighty (180)
days (or, if
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<PAGE>
earlier, either (a) the Lessee shall no longer be diligently
attempting to locate and pursue the return of such property or (b)
the Term shall have ended), or destruction, damage beyond repair or
so as to render repair uneconomic or rendition of such property
permanently unfit for normal use for any reason;
(ii) any damage to such property which results in an insurance
settlement with respect to such property on the basis of an actual,
constructive or compromised total loss;
(iii) the condemnation, confiscation or seizure of, or
requisition of title to or use of, such property by private persons
or by any other governmental or purported governmental authority
(other than requisition for use by the government of the Republic of
Finland or the United States of America not extending beyond the end
of the Term except as provided in Section 3(f)); or
(iv) as a result of any law, rule, regulation, proceeding,
decree, order or other action by the government of the Applicable
Jurisdiction for the time being, or any competent agency, authority
or instrumentality of any such government, including, without
limitation, any court of such Applicable Jurisdiction, the use of
such property in the normal course of domestic and international air
transportation shall have been prohibited for a period of twelve
consecutive months, or, if earlier, a period extending beyond the
last day of the Term as then in effect, except as provided in
Section 3(f).
An Event of Loss with respect to the Airframe shall be deemed to be
an Event of Loss with respect to the Aircraft.
"FAA" or "Federal Aviation Administration" means the United States
Federal Aviation Administration or any successor agency.
"FAR 121" means Part 121 of Subchapter G of Title 14 of the United
States Code of Federal Regulations promulgated by the FAA, as in effect
from time to time.
"Fair Market Rental Value" of the Aircraft shall be determined on
the basis of, and shall mean the amount which would be obtainable in, an
arm's-length transaction between an informed and willing lessee (other
than a lessee currently in possession) under no compulsion to lease and an
informed and willing lessor under no compulsion to lease, in accordance
with a lease on terms and conditions as herein provided. Such
determination shall be made on the basis of the condition of the Aircraft
assuming it was in the state of condition and repair required to be
returned by the terms of this Lease, except that for purposes of Section
18, such determination shall be made on the basis of the then "as-is
where-is" condition of the Aircraft,
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<PAGE>
except that such value shall be deemed to be zero in the event that so
long as an Event of Default has occurred and is continuing, the Lessor
does not have possession of the Aircraft. If the Lessor and the Lessee are
unable to agree upon a determination of Fair Market Rental Value with
respect to the Airframe or an Engine within thirty (30) Business Days
after the Lessor's receipt of the Lessee's notice extending the initial
Term pursuant to Section 3(e) hereof, then such Fair Market Rental Value
shall be determined in accordance with the procedure for Independent
Appraisal.
"Fair Market Sales Value" of the Aircraft shall be determined on the
basis of, and shall mean the amount which would be obtainable in, an
arm's-length transaction between an informed and willing buyer or user
under no compulsion to buy and an informed and willing seller under no
compulsion to sell, and in such determination costs of removal from the
location of current use shall not be a deduction from such value and all
alternative uses in the hands of such buyer or user, including, without
limitation, the further leasing of the Aircraft, shall be taken into
consideration and it shall be assumed that the Aircraft is unencumbered by
this Lease or the renewal option hereunder and that the Aircraft is in the
state of condition and repair required to be returned by the terms of this
Lease, except that for purposes of Section 18, such determination shall be
made on the basis of its then "as-is where-is" condition, except that such
value shall be deemed to be zero in the event that so long as an Event of
Default has occurred and is continuing, the Lessor does not have
possession of the Aircraft. If the Lessor and the Lessee are unable to
agree upon a determination of Fair Market Sales Value of the Aircraft,
then such Fair Market Sales Value shall be determined in accordance with
the procedure for Independent Appraisal.
"Finland" means the Republic of Finland.
"Finnish Labor Index" means the Finnish Labor Index set forth in the
Wages and Salaries Index Industrial Workers, Men, Table 52.22, published
from time to time in the Bulletin of Statistics by the Central Statistical
Office of Finland.
"Guarantor" means United States Leasing International, Inc., a
Delaware corporation, or any other issuer of a Guaranty from time to time,
in each case so long as such Guaranty shall remain in full force and
effect.
"Guaranty" means the Guaranty Agreement delivered on the Delivery
Date to the Lessee by the Guarantor, or any other such guaranty which may
be issued pursuant to the Guaranty by a permitted transferee of the
Guarantor, in each case as the same may be amended, supplemented or
otherwise modified from time to time.
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<PAGE>
"Immunities Act" means the United States Foreign Sovereign
Immunities Act of 1976, as amended from time to time, or any similar
legislation of the United States enacted to supersede, amend or supplement
such Immunities Act.
"Indemnitee", for the purposes of Article 9 of the Purchase
Agreement, has the meaning given in such Article 9, and, for all other
purposes, has the meaning given in paragraph (a) of Article 8 of the
Purchase Agreement.
"Independent Appraisal" means an appraisal mutually agreed to by two
internationally recognized independent aircraft appraisers, one of whom
shall be chosen by the Lessor and one by the Lessee, or, if such
appraisers cannot agree on the amount of such appraisal, an amount equal
to the average of such two appraisals and a third appraisal of a third
internationally recognized independent aircraft appraiser chosen by the
mutual consent of such two appraisers, and paid for by the Lessee,
provided that, if either party shall fail to appoint an appraiser within
ten (10) days after a written request to do so by the other party, or if
such two appraisers cannot agree on the amount of such appraisal and fail
to appoint a third appraiser within ten (10) days after the date of the
appointment of the second of such two appraisers, then either party may,
within ten (10) days after such event, apply to any court having
jurisdiction to make such appointment; provided further, however, that in
calculating such average any appraisal which has a greater than fifteen
percent (15%) variance above or below the second highest of the three
appraisals shall be disregarded. Such appraisers shall be directed and
required to reach a determination within ten (10) days of the appointment
of the third appraiser.
"Lease", "this Lease", "this Agreement", "herein", "hereunder",
"hereby" and other like words mean this Lease Agreement as originally
executed and as amended, modified and supplemented from time to time in
accordance with the applicable provisions hereof and of the other
Operative Documents, including, without limitation, Lease Supplements and
other supplements to this Lease.
"Lease Supplement" means any Lease Supplement, substantially in the
form of Exhibit A hereto, entered into or to be entered into between the
Lessor and the Lessee for the purposes of leasing the Aircraft. The Lease
Supplement shall be deemed to incorporate all of the terms and conditions
of this Lease and such Lease Supplement shall constitute a complete and
enforceable lease agreement.
"Lessee" means Finnair Oy, a corporation organized under the laws of
Finland, its successors and, to the extent permitted by this Lease, its
assigns.
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<PAGE>
"Lessor" means Trust Company for USL, Inc., a corporation organized
under the laws of the State of Illinois, its successors and, to the extent
permitted by this Lease, its assigns.
"Lessor's Estate" means all estate, right, title and interest of the
Lessor in, to or under the Aircraft, this Lease, any Lease Supplement or
other supplement to the Lease, the Purchase Agreement, the Bill of Sale,
the Consent to Assignment of Warranties and any other Operative Document,
including, without limitation, all amounts of Basic Rent, Supplemental
Rent, insurance and requisition proceeds, condemnation awards, indemnity,
guaranty or other payments of any kind for or with respect to any of the
foregoing.
"Lessor Liens" means Liens which result from or constitute claims
by, through or under the Lessor not related to the Lease or any other
Operative Document or the transactions contemplated by this Lease or any
other Operative Document.
"Lien" means any mortgage, security interest, lien, pledge, lease or
other charge or encumbrance or claim or right of others, including,
without limitation, rights of others under any airframe or engine
interchange or pooling agreement.
"Loss Payment Date" means each monthly date set forth in Schedule I
to the Lease Supplement.
"OECD" means any member nation of the Organization of Economic
Cooperation and Development which is described on Schedule 2 hereto.
"Operative Documents" means this Lease (including any Lease
Supplement and any other supplement to this Lease), the Purchase
Agreement, the Trust Agreement, the Bill of Sale and the Consent to
Assignment of Warranties.
"Overdue Payment Rate" means a rate per annum equal to one percent
(1%) above the Base Rate.
"Owner Participants" means United States Leasing International Inc.,
a Delaware corporation, its successors and, to the extent permitted by the
Purchase Agreement, its assigns, and Airlease Ltd., a California Limited
Partnership, its successors and, to the extent permitted by the Purchase
Agreement, its assigns, and "Owner Participant" means either thereof.
"Owner Trustee" means Trust Company for USL, Inc., an Illinois trust
company, in its trust capacity, and its successors and, to the extent
permitted by the Trust Agreement, its assigns.
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<PAGE>
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings, components or other equipment of whatever nature
(other than complete Engines or engines) which may from time to time be
incorporated or installed in or attached to the Airframe or any Engine or
after removal thereof so long as title thereto remains vested in Lessor.
"Permitted Liens" means: (i) Lessor Liens; (ii) Liens for taxes of
the Lessee either not yet due or 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 the
sale, forfeiture or loss of the Airframe or any Engine or right, title or
interest therein or thereto; (iii) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like Liens arising in the ordinary course
of the Lessee's business 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 the sale, forfeiture
or loss of the Airframe or any Engine or interest therein; and (iv) Liens
(other than for taxes) arising out of judgments or awards against the
Lessee with respect to which at the time an appeal or proceeding for
review is being prosecuted in good faith and with respect to which there
shall have been secured a stay of execution pending such appeal or
proceeding for review.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture or other entity, or a foreign state or political subdivision
thereof or any agency of such state or subdivision.
"Purchase Agreement" means the Purchase Agreement dated as of the
date hereof by and among the Lessor, as purchaser, the Lessee, as seller,
and the Owner Participants, as the same may be amended, supplemented or
otherwise modified from time to time.
"Records" has the meaning given such term in Section 5(a) hereof.
"Redelivery Date" has the meaning given such term in Section 5(a)
hereof.
"Rent" means Basic Rent and Supplemental Rent.
"Rent Payment Date" means the Delivery Date and the day in January,
April, July and October which corresponds to the Delivery Date (or if
there is no such
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<PAGE>
corresponding day in any such month then the last day of such month), from
and including the Delivery Date to and including the applicable date
specified in the Lease Supplement (or in the Lessee's notice, if any,
extending the Term pursuant to and in accordance with Section 3(e)) as the
final Rent Payment Date.
"Responsible Officer" means, with respect to the subject matter of
any covenant, agreement or obligation of any party contained in any
Operative Document, the President, any Vice President, or the Treasurer,
who in the normal performance of his or her operational responsibility
would have knowledge of such matter and the requirements with respect
thereto.
"Stipulated Loss Value" of the Aircraft, as of any date during the
initial Term and, if applicable, any extension thereof, means the amount
set forth on Schedule I to the Lease Supplement as applicable for such
date.
"Supplemental Rent" means all amounts, liabilities, indemnifications
and obligations of any kind whatsoever (other than Basic Rent but
including any payment of Stipulated Loss Value or any amount calculated by
reference thereto) which the Lessee assumes, agrees to or is obligated to
pay hereunder or under any other Operative Document.
"Term" has the meaning given such term in Section 3(a) hereof.
"Trust Agreement" means the Trust Agreement dated as of the date
hereof by and between the Trust Company and the Owner Participants, as the
same may be amended, supplemented or otherwise modified from time to time.
"Trust Company" means Trust Company for USL, Inc., an Illinois trust
company, in its individual capacity, its successors and, to the extent
permitted by the Trust Agreement, its assigns.
"United States" means the United States of America.
"Wet Lease" means any arrangement whereby the Lessee agrees to
furnish the Airframe and Engines or engines installed thereon to a third
party pursuant to which such Airframe and Engine or engines (i) shall be
operated solely by regular employees of the Lessee possessing all current
certificates and licenses required by Applicable Law (it being understood
that cabin attendants need not be employees of the Lessee but that all
members of the cockpit crew will be such employees), and (ii) shall be
maintained in accordance with the maintenance provisions of this Lease.
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SECTION 2. Lease and Delivery of the Aircraft. (a) Lease. The Lessor
agrees to lease to the Lessee, and the Lessee agrees to lease from the Lessor,
the Aircraft, on the terms and subject to the conditions of this Agreement.
Effective on such Business Day as the Lessee shall designate by at least two
Business Days prior notice to the Lessor or such other date as the parties may
agree in writing, but in any event not later than May 4, 1992 (the "Delivery
Date"), the Lessor agrees to lease to the Lessee, and the Lessee agrees to lease
from the Lessor, the Aircraft, subject, however, to the satisfaction or waiver
of each of the conditions precedent set forth in the Purchase Agreement on or
before the Delivery Date.
(b) Delivery. Delivery of the Aircraft under this Lease shall occur
at the Delivery Location and on the Delivery Date. Delivery of the executed
Lease Supplement by the Lessee to the Lessor shall constitute, without further
act, unconditional and irrevocable acceptance by the Lessee of the Aircraft
under, and for all purposes of, this Lease.
SECTION 3. Term and Rent. (a) Term. The term for which the Aircraft
is leased hereunder (the "Term") shall commence on the Delivery Date and shall
continue until the expiry date set forth in the Lease Supplement dated the
Delivery Date (said period being sometimes referred to herein as the "initial
Term"), subject to extension at the Lessee's option in the manner provided in
Section 3(e) below, and termination at the Lessee's option in the manner, and
subject to the conditions, set forth in Section 4(c)(ii) below, and any other
earlier termination as herein provided (including, without limitation, pursuant
to Section 18).
(b) Basic Rent. The Lessee shall pay to the Lessor quarterly rental
for the Aircraft (the "Basic Rent"), payable in advance on each Rent Payment
Date during the Term, in the Dollar amount set forth for such Rent Payment Date
in Schedule I to the Lease Supplement corresponding to such Rent Payment Date.
(c) Method of Payment. All Rent hereunder shall be paid by the
Lessee not later than 12:00 noon, New York time, on the date due thereof in
Dollars and in immediately available funds to the Lessor by deposit with
Citibank, N.A., 399 Park Avenue, New York, New York, ABA No. 021-0000-89, for
the account of US Leasing, Int'l., Account No. 4052-9099, or to such other
account as the Lessor shall specify to the Lessee in writing. Any Rent due on a
day which is not a Business Day shall be due on the next Business Day.
(d) Supplemental Rent. The Lessee also agrees to pay or cause to be
paid to the Lessor (or to whomsoever shall be entitled thereto) any and all
Supplemental Rent (other than Supplemental Rent payable to Persons other than
the Lessor, which shall be payable to such other Persons in accordance with
instructions furnished to the Lessee by such Persons, as otherwise provided in
any of the Operative Documents or as required by law) promptly as the same shall
become due and owing or five (5) Business Days after demand therefor if no
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due date is specified, and in the event of any failure on the part of the Lessee
to pay any Supplemental Rent, the Lessor shall have all rights, powers and
remedies provided for herein or in any other Operative Document or by law or
equity or otherwise in the case of nonpayment of Basic Rent. The Lessee will
also pay, on demand, as Supplemental Rent, to the extent permitted by Applicable
Law, an amount equal to interest at the Overdue Payment Rate on any part of any
installment of Basic Rent not paid when due for any period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when demanded
or due for any period for which the same shall be overdue, in each case until
the same shall have been paid in full. The expiration or other termination of
this Lease shall not limit or modify the obligations of any party with respect
to any indemnities contained in this Lease, all of which indemnities shall
survive the termination of this Lease.
(e) Renewal Options. Neither the Lessee nor the Lessor shall have
the right to extend or renew the Term of this Lease except as otherwise provided
in this Section 3(e). The Lessee, at its option, on two separate occasions, may
extend the Term of the Lease beyond the expiry date set forth in the initial
Lease Supplement by delivering not later than one hundred eighty (180) days
prior to such expiry date, a written notice to the Lessor stating that the Term
shall be extended for an additional period equal to one (1) year beyond the
initial Term, or the extended Term, as the case may be, and specifying the final
Rent Payment Date and the expiry date of the Term as extended. Any such notice
given by the Lessee shall be irrevocable and shall be binding on the Lessee and
the Lessor, and, thereupon, the Term shall be extended to such expiry date
specified in the Lessee's notice, provided in each case that no Default of the
type described in Sections 17(a), (b), (c)(i) or (e) or Default of the type
described in Sections 17(c)(ii) or (d) (which, in the case of Sections 17(c)(ii)
and (d), cannot be cured or the cure of which, if the same are capable of being
cured within the relevant period described in such Section 17(c)(ii) or (d), the
Lessee is not diligently pursuing) or Event of Default or Event of Loss shall
have occurred and be continuing on any of (i) the date of any such notice of the
Lessee, (ii) the last day of the initial Term or the Term as previously
extended, as the case may be, and (iii) the first day of the Term as extended.
(f) Extended Term. If an Event of Loss of the type described in
paragraph (iii) or (iv) of the definition of Event of Loss shall extend beyond
the end of the Term as then in effect, and, in the case of an Event of Loss of
the type described in such paragraph (iv), if the Aircraft shall have been
registered by the Lessee in the United States in the name of the Lessor, as
owner, and the Lessee, as operator, and there shall be no restrictions on the
use of the Aircraft, then, in the event there shall have occurred and be
continuing no Default of the type described in Section 17(a), (b), (c)(i) or (e)
or Default of the type described in Section 17(c)(ii) or (d) (which, in the case
of Section 17(c)(ii) or (d), cannot be cured or the cure of which, if the same
are capable of being cured within the relevant period described in such Section
17(c)(ii) or (d), the Lessee is not diligently pursuing) or Event of Default or
other Event of Loss, the Lessee, at its option, by giving thirty (30) days'
notice prior to the
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end of the Term as then in effect, may extend the Term for a period of up to one
(1) year (unless the Lessor shall have given its prior written consent to any
other period) so long as it shall continue to perform its obligations under this
Lease including, without limitation, the payment of such Basic Rent as shall be
in effect on the last day of the initial Term or the Term as previously
extended. The provisions of Section 10(c) shall apply (i) in the case of an
Event of Loss arising out of paragraph (iii) of the definition thereof, and (ii)
in the case of Event of Loss arising out of paragraph (iv) of the definition
thereof, at the time that the prohibition shall no longer exist.
SECTION 4. Representations, Warranties and Covenants. (a) The
Lessee's Representations and Warranties. The Lessee represents and warrants to
the Lessor as follows:
(i) The Lessee is a corporation duly incorporated, validly existing
and in good standing under the laws of the Republic of Finland, has full
power, legal right and authority (corporate and otherwise) to sell the
Aircraft to the Lessor, to own and hold under lease its properties and to
execute, deliver and perform and observe the provisions of this Lease and
the other Operative Documents, and holds all licenses, certificates,
approvals, consents and permits from the governmental authorities of the
Republic of Finland and of any other governmental authorities to use and
operate, maintain, repair, overhaul and test the Aircraft in accordance
with this Lease and Applicable Law.
(ii) The sale of the Aircraft by the Lessee to the Lessor and the
execution, delivery and performance by the Lessee of this Lease and the
other Operative Documents (A) have been duly authorized by all necessary
corporate action on behalf of the Lessee, (B) do not require the consent
or approval of the Lessee's stockholders or of any trustee or of the
holders of any indebtedness or obligations of the Lessee (except such as
have been obtained, or shall have been obtained, and shall be in full
force and effect on the Delivery Date, certified copies of which shall
have been furnished to the Lessor on or before the Delivery Date), (C) do
not require any notice to or approval (including exchange control
approval) or other action by or filing with any governmental authority or
regulatory body and (D) do not contravene, or result in the creation of
any Lien (other than Permitted Liens) under the Lessee's charter or
by-laws, or any Applicable Law, or any judgment or order relating to the
Lessee or any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which the Lessee is a party or
by which it or its properties is or are bound.
(iii) This Lease is, and each other Operative Document, when
executed and delivered shall constitute, the legal, valid and binding
obligations of the Lessee enforceable against the Lessee in accordance
with their respective terms. Without
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limitation of the foregoing, a court in Finland would recognize and give
full force and effect to the Lessor's title to and ownership of the
Aircraft, to the rights of the Lessor and the Owner Participants under
this Lease and the other Operative Documents, and to the terms of Section
23(b) hereof and of Article 12 of the Purchase Agreement and of the Bill
of Sale providing that this Lease, the Purchase Agreement and the Bill of
Sale, respectively, will be governed by the laws of the State of New York.
Accordingly, to the extent that the remedies provided for in such Section
18, such Article 12 and the Bill of Sale are enforceable under New York
law, a court in Finland would give effect to the terms of such Section 18,
such Article 12 and the Bill of Sale and enable the Lessor to exercise the
same remedies against the Lessee (however designated) and with respect to
the Aircraft if the Aircraft were then in Finland (including the right to
repossess the Aircraft and to export the Aircraft from Finland).
(iv) There is no pending or, to the best of the Lessee's knowledge,
threatened action or proceeding affecting the Lessee before or by any
court, tribunal, governmental agency or arbitrator which might materially
adversely affect the financial condition or operations of the Lessee or
the ability of the Lessee to consummate the transactions contemplated by,
and perform its obligations under, this Lease or any other Operative
Document.
(v) The execution and delivery of this Lease and each other
Operative Document and the performance of the transactions contemplated
hereby and thereby constitute (for purposes of the Immunities Act and
otherwise) commercial activities of the Lessee, and the Lessee is subject
to private commercial law and to suit with respect thereto; the Lessee is
not entitled to any immunity whether on grounds of sovereign immunity or
otherwise, from set-off or from any legal proceedings in the United States
(by virtue of the waiver of immunity contained herein) or Finland to
enforce or collect upon this Lease or any other Operative Document or any
other liability or obligation of the Lessee related to or arising out of
the transactions contemplated hereby or thereby (including, without
limitation, immunity from service of process, immunity from jurisdiction
or judgment of any court or tribunal, immunity from execution of a
judgment, and immunity of any of its property from attachment prior to any
entry of judgment, or from attachment in aid of execution upon the
judgment).
(vi) Under present laws and tax treaty provisions:
(A) no taxes, levies, imposts, duties, charges or withholdings
will be imposed by Finland or any governmental subdivision or other
taxing authority thereof or therein upon or with respect to payments
of Rent or other amounts payable pursuant to this Lease or any other
Operative Document, provided that:
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(1) any of the Lessor or the Owner Participants is a
"resident" of the United States, as the term "resident" is
used in Article 4 of the Convention Between the United States
of America and the Republic of Finland for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and on Capital, signed on September
21, 1989 (the "Convention"), and
(2) neither the Lessor nor any Owner Participant has a
"permanent establishment" in Finland, as the term "permanent
establishment" is defined in Article 5 of the Convention, with
respect to which the transaction contemplated by the Operative
Documents or the income from such transaction is attributable;
and
(B) the operation of the Aircraft by the Lessee on flights to
or from Finland will not result in the Lessor or any Owner
Participant being subjected to any additional taxes, levies,
imposts, duties, charges or withholdings imposed by Finland or any
governmental subdivision or other taxing authority thereof or
therein upon or with respect to the Lessor's or such Owner
Participant's other income, activities or properties, subject to
provisos (1) and (2) set forth in clause (A) above.
(vii) The qualification at any time of the Lessor to do business
under the laws of Finland or any political subdivision thereof does not
constitute a condition to, and the failure to so qualify does not affect,
the purchase by the Lessor of the Aircraft or the exercise by the Lessor
of any right, privilege or remedy accorded it in, under or in connection
with this Lease or any other Operative Document or the enforcement of such
right, privilege or remedy; the purchase by the Lessor of the Aircraft or
the performance by the Lessor of any action required under, or
contemplated by, this Lease or any other Operative Document or the
exercise of the remedies hereunder or thereunder (other than the operation
or other use (other than merely leasing from a place of business outside
of Finland) of the Aircraft by the Lessor) will not violate any
now-existing Applicable Law of Finland or any political subdivision
thereof or require any Finnish governmental filing, approval, consent, or
recordation (except as set forth in paragraph (viii) below) or result in
any tax liability (other than taxes required to be paid by the Lessee
pursuant to Article 9 of the Purchase Agreement) to the Lessor pursuant to
the now-existing Applicable Law of Finland or any political subdivision or
taxing authority thereof or any now-existing rule or regulation of any
federation or organization or similar entity of which Finland is a member.
(viii) Except for the registration of the Aircraft in Finland in the
name of the Lessor as owner with the CAA, (A) it is not necessary to
ensure the legality, validity, enforceability or admissibility in evidence
of this Lease or any other Operative Document in Finland that this Lease
or any other Operative Document or any other
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document be filed or recorded with any court or other authority in Finland
or that any stamp or similar tax be paid on or in respect of this Lease or
any other Operative Document unless court action is taken, and (B) no
further action by the Lessee in Finland (including the giving or recording
of any document) is necessary in order to establish and perfect, in
Finland, such title to and interest in the Aircraft as against the Lessee
or any third parties as shall be conveyed by the Lessee to the Lessor on
the Delivery Date.
(ix) No Default or Event of Default has occurred and is continuing.
(b) Representations and Warranties of the Trust Company and the
Lessor; Certain Agreements. The Trust Company makes the representations and
warranties contained in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii)
hereof solely as to itself in its individual capacity, and the Lessor makes all
the representations and warranties contained in this paragraph (b):
(i) Due Organization. The Trust Company is a trust company duly
organized and validly existing in good standing under the laws of the
State of Illinois, and has the power and authority to enter into and
perform its obligations under the Trust Agreement and, acting as trustee
thereunder, under this Lease, the Lease Supplement and the Purchase
Agreement.
(ii) Duly Appointed Trustee. The Trust Company is the duly appointed
trustee under the Trust Agreement.
(iii) Trust Agreement. The Trust Agreement has been duly executed
and delivered by one of the officers of the Trust Company who was duly
authorized to execute and deliver the Trust Agreement on behalf of the
Trust Company and, assuming due authorization, execution and delivery by
the Owner Participants, is the valid and binding obligation of the Trust
Company, enforceable in accordance with its terms, and the Trust Agreement
creates under the laws of the State of California for the Owner
Participants the beneficial interest in the Trust Estate (as such term is
defined in the Trust Agreement) it purports to create.
(iv) Lessor's Parent. The Trust Company is a wholly-owned subsidiary
of United States Leasing International, Inc.
(v) Due Authorization; Enforceability. This Lease and the Purchase
Agreement have been duly authorized, executed and delivered by the Lessor
or the Trust Company, as the case may be, and the Lease Supplement has
been duly authorized by the Lessor, and on the Delivery Date the Lease
Supplement will be duly executed and delivered by the Lessor, and,
assuming the due authorization, execution and delivery
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thereof by the Lessee and the other parties thereto, this Lease and the
Purchase Agreement are, or in the case of the Lease Supplement will be,
when delivered, valid and binding obligations of the Lessor or the Trust
Company, as the case may be, enforceable in accordance with their
respective terms.
(vi) No Violation. The execution and delivery by the Lessor of this
Lease and by the Trust Company of the Trust Agreement are not, and the
execution and delivery by the Lessor of the Lease Supplement and the
Purchase Agreement will not be, and the performance by the Lessor or by
the Trust Company, as the case may be, of its obligations under each of
the foregoing documents will not be, inconsistent with its charter or
by-laws, do not and will not contravene any material provision of any
Applicable Law, any judgment or order applicable to it, and do not and
will not contravene any provision of, or constitute a default under, any
material indenture, mortgage, contract or other instrument to which it is
a party or by which it or its properties is bound or require the consent
or approval of, the giving of notice to, the registration with or the
taking of any action in respect of or by, any federal, state or local
governmental authority or agency or other Person, except such as have been
obtained, given or accomplished.
(vii) Title to the Aircraft. The Aircraft is being leased by the
Lessor to the Lessee hereunder ON A COMPLETELY "AS-IS" BASIS, AND THE
LESSOR DOES NOT MAKE, NOR SHALL IT BE DEEMED TO HAVE MADE, AND IT HEREBY
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY EXPRESS OR IMPLIED, AS
TO THE AIRCRAFT OR ANY PART THEREOF, INCLUDING, WITHOUT LIMITATION, TITLE,
AIRWORTHINESS, VALUE, CONDITION, DESIGN, PATENT, TRADEMARK OR COPYRIGHT
INFRINGEMENT, OPERATION, MERCHANTABILITY, CONSTRUCTION, CONDITION OF THE
AIRCRAFT OR FITNESS FOR A PARTICULAR USE OF THE AIRCRAFT OR ANY PART
THEREOF OR AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, OR AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT
LIABILITY IN TORT, OR NEGLIGENCE, OR AS TO THE QUALITY OF THE MATERIAL OR
WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF, OR ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO
THE AIRCRAFT AND EVERY PART THEREOF, AND THE LESSEE HEREBY WAIVES,
RELEASES AND RENOUNCES ANY WARRANTIES, REPRESENTATIONS OR GUARANTEES,
LIABILITIES AND OBLIGATIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE, WITH RESPECT TO THE AIRCRAFT, ANY PART, ANY DATA
OR ANY OTHER THING DELIVERED, LEASED, SOLD OR TRANSFERRED HEREUNDER OR
UNDER THE PURCHASE AGREEMENT (AND WHETHER OR NOT ARISING OUT OF THE
DELIVERY, USE, NON-
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USE, OPERATION, LEASE, SUBLEASE, TRANSFER, POSSESSION, STORAGE,
MANUFACTURE, MODIFICATION, ALTERATION, TESTING, MAINTENANCE, REPAIR, SALE
OR OTHER DISPOSITION THEREOF), INCLUDING, WITHOUT LIMITATION, (I) ANY
WARRANTIES, REPRESENTATIONS, GUARANTEES, LIABILITIES OR OBLIGATIONS
RELATING TO THE AIRWORTHINESS, VALUE, CONDITION, DESIGN, OPERATION OF, OR
THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, OR TITLE TO, OR ANY DEFECT
IN, THE AIRCRAFT, ANY PART, ANY DATA OR ANY OTHER THING DELIVERED, LEASED,
SOLD OR TRANSFERRED HEREUNDER OR UNDER THE PURCHASE AGREEMENT OR ANY OTHER
OPERATIVE DOCUMENT, (II) ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, AGAINST INFRINGEMENT OR THE
LIKE, OR ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF
TRADE, (III) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT
WITH RESPECT TO THE AIRCRAFT, ANY PART, ANY DATA OR ANY OTHER THING
DELIVERED, LEASED, SOLD OR TRANSFERRED HEREUNDER OR UNDER THE PURCHASE
AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, WHETHER OR NOT IN STRICT OR
ABSOLUTE LIABILITY AND WHETHER OR NOT ARISING FROM THE NEGLIGENCE, ACTUAL
OR IMPUTED, OF THE LESSOR, THE LESSEE OR THEIR RESPECTIVE ASSIGNS, OR (IV)
ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF, OR DAMAGE
TO, THE AIRCRAFT, ANY PART, ANY DATA OR ANY OTHER THING, FOR ANY LOSS OF
USE, REVENUE OR PROFIT, OR FOR ANY OTHER DIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, EXCEPT AS OTHERWISE PROVIDED IN SECTION 4(d)(iii),
THE LESSEE HEREBY ACKNOWLEDGING AND AGREEING THAT, AS BETWEEN THE LESSEE,
ON THE ONE HAND, AND THE LESSOR, EACH OWNER PARTICIPANT, THE TRUST
COMPANY, THE OWNER TRUSTEE AND EACH INDEMNITEE, AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS, ON THE OTHER HAND, ALL RISKS, OBLIGATIONS AND
LIABILITIES WITH RESPECT TO ALL AND ANY OF THE FOREGOING AND ALL AND ANY
OF THE MATTERS REFERRED TO IN THE LAST SENTENCE OF THIS PARAGRAPH (vii)
ARE SOLELY THOSE OF THE LESSEE, except that on the Delivery Date, the
Lessor will have received whatever title to the Aircraft was conveyed to
it by the Lessee, free of Lessor Liens. The Lessor shall have no
responsibility or liability to the Lessee or any other Person, regardless
of any negligence (other than gross negligence or willful misconduct) of
the Lessor, with respect to (i) any liability, loss or damage caused or
alleged to be caused directly or indirectly by the Aircraft or any Part or
any part of either thereof or by any inadequacy thereof or deficiency or
defect therein or by any other circumstances in connection therewith, (ii)
the condition, use, operation, performance, non-use,
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repair, maintenance or testing of the Aircraft or any Part or any part of
either thereof or any of the other matters previously referred to in this
paragraph (vii), or any risks relating to any thereof, (iii) any
interruption of service, loss of business or anticipated profits or
consequential damages, or (iv) the delivery, operations, servicing,
maintenance, repair, replacement or improvement of the Aircraft or any
Part or any part of either thereof.
(viii) Trust Agreement. The Trust Agreement has been duly executed
and delivered, constitutes the legal, valid and binding obligation of the
parties thereto, enforceable in accordance with its terms, and the Trust
Agreement creates under the laws of the State of California for any Owner
Participant the beneficial interest in the Trust Estate (as such term is
defined in the Trust Agreement) it purports to create.
(c) Lessee's Covenants.
(i) The Lessee will not operate, service, repair, maintain, overhaul
or test, or permit to be operated, serviced, repaired, maintained,
overhauled or tested, the Aircraft in any country wherein any thereof
would violate Applicable Law.
(ii) The Lessee agrees that if the Republic of Finland shall cease
to be, directly or indirectly, the owner of at least fifty and one-tenth
percent (50.1%) of the issued and outstanding shares of the Lessee's
capital stock entitled to vote the election of the Lessee's directors,
then at any time after the occurrence and continuance of such event, the
Lessee will give the Lessor prompt written notice after knowledge thereof
by a Responsible Officer of the Lessee, and the Lessee will, upon the
Lessor's written request, provide, within forty-five (45) Business Days
after the Lessee's receipt of such request, security for the obligations
of the Lessee under the Lease that qualifies as Collateral Security in the
manner provided in paragraph (iii) of this Section 4(c). At any time
during the Term when the Lessee is obligated to provide, or has provided,
Collateral Security (as defined below), the Lessee may, in its sole
discretion, purchase the Aircraft by paying the Lessor, and the Lessor
shall be obliged to transfer the Aircraft to the Lessee "as-is where-is",
free and clear of all Lessor Liens but otherwise without recourse or
warranty (all as described in the first sentence of paragraph (vii) of
Section 4(b) except that appropriate changes shall be made to the
references to the parties and to accommodate a sale and purchase rather
than a lease) upon receipt of an amount (the "Option Price") equal to the
higher of (y) the Fair Market Sales Value or (z) the Stipulated Loss Value
of the Aircraft, as of the date the Lessee makes such payment, which
Stipulated Loss Value shall be that Stipulated Loss Value set forth
opposite the Rent Payment Date corresponding to the date on which payment
is made, or, if made on a Loss Payment Date which is other than a Rent
Payment Date, as of the immediately succeeding Loss Payment Date provided,
however, that if such payment date is other than a Rent Payment Date,
there shall be
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deducted from the amount payable by the Lessee an amount equal to interest
at the rate of 9.4% per annum (computed on the basis of a 365 day year and
actual days elapsed) on the amount of Stipulated Loss Value as of such
Loss Payment Date, computed on a daily basis, from and including the date
such payment is made by the Lessee, to but not including such Loss Payment
Date, as the case may be, and provided further that if such payment is
made on a Rent Payment Date, the Lessee shall not pay the scheduled amount
of Basic Rent otherwise due on such Rent Payment Date. The Lessor shall
deliver a bill of sale for the Aircraft to the Lessee transferring to the
Lessee title to the Aircraft on an "as-is where-is" basis, without
recourse or warranty (all as described in the first sentence of paragraph
(vii) of Section 4(b) except that appropriate changes shall be made to the
references to the parties and to accommodate a sale and purchase rather
than a lease) except that the Lessor shall warrant that the Aircraft is
free and clear of all Lessor Liens. The Lessor shall cooperate reasonably
with the Lessee, at the Lessee's sole cost and expense, in causing the
Aircraft to be re-registered as the Lessee may require in connection with
any such transfer of the Aircraft to the Lessee pursuant to this paragraph
(iii). Upon payment of the Option Price this Lease and all Basic Rent, if
any, to the date of receipt of such amount by the Lessor (prorated on a
daily basis) and all accrued and unpaid Supplemental Rent to such date of
receipt and the Lessee's obligation to pay Basic Rent accruing thereafter,
shall terminate.
(iii) (A) For purposes of Section 4(c)(ii) above, "Collateral
Security" shall mean any one or more, at the Lessee's election, of (a)
Dollar deposits in an interest-bearing account in the Lessee's name (the
"Security Account") at a bank in Helsinki, Finland selected by the Lessee
and reasonably satisfactory to the Lessor, (b) a guarantee of the Lessee's
payment obligations under this Lease, issued by the Republic of Finland in
favor of the Lessor, and in form and substance reasonably satisfactory to
the Lessor, and (c) a letter of credit or letter of guarantee issued by a
bank to the Lessor, securing the Lessee's payment obligations under this
Lease, by a bank reasonably satisfactory to the Lessor and in form and
substance reasonably satisfactory to the Lessor. When required, Collateral
Security shall be provided in a cumulative amount equal to: 24.02% of the
Stipulated Loss Value for Rent Payment Dates occurring in April 1992
through July 1995; 24.20% of the Stipulated Loss Value for Rent Payment
Dates occurring in October 1995 through January 1999; 21.70% of Stipulated
Loss Value for Rent Payment Dates occurring in April 1999 through January
2000 (if the Term is renewed as provided in Section 3(e)); and 19.20% of
Stipulated Loss Value for Rent Payment Dates occurring in April 2000
through January 2001 (if the Term is renewed as provided in Section 3(e)).
(B) It shall be a term and condition of the Security Account, any
such governmental guarantee and any such letter of credit or letter of
guarantee, that, upon the certification by the Lessor to the Lessee, the
bank or the issuer, as the case may
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be, that with respect to an Event of Default (other than any Event of
Default described below in paragraph (C) of this Section 4(c)(iii) in
paragraph (e) of Section 17), if (1) such Event of Default has occurred
and is continuing unremedied after expiry of all grace and cure periods
under this Lease, (2) the Lessor has declared in writing to the Lessee
that this Lease is in default and the Lessor has commenced to exercise one
or more of the remedies available to it under Section 18 of this Lease and
(3) a period of at least thirty (30) consecutive days has elapsed after
such written declaration to the Lessee by the Lessor, then the Lessor
shall be entitled to claim such amounts of Collateral Security as it
certifies are overdue and unpaid to it by the Lessee under this Lease.
(C) It shall also be a term and condition of the Security Account,
any such governmental guarantee and any such letter of credit or letter of
guarantee, that, upon the certification by the Lessor to the Lessee, the
bank or the issuer, as the case may be, with respect to any Event of
Default described in paragraph (e) of Section 17, if (1) such Event of
Default has occurred and is continuing unremedied after expiry of all the
grace and cure periods provided for such Event of Default under this Lease
and (2) a period of at least ninety (90) consecutive days has elapsed
after such expiry, then the Lessor shall be entitled to claim such amounts
of Collateral Security as it certifies are overdue and unpaid to it by the
Lessee under this Lease.
(D) All such amounts from the Collateral Security paid to the Lessor
shall be applied by the Lessor in accordance with the terms of Section 18
of this Lease and any excess shall be paid by the Lessor to the Lessee. So
long as no Event of Default has occurred and is continuing, upon request
of the Lessee, all amounts of interest, if any, standing to the credit of
the Security Account shall be paid to the Lessee quarterly on the first
Business Day next succeeding the date on which each quarterly payment of
Basic Rent has been received by the Lessor.
(E) All amounts standing to the credit of the Security Account,
including interest thereon, shall be paid to the Lessee, and all other
items of Collateral Security shall be terminated immediately upon, as the
case may be, (1) the indefeasible payment of the Option Price of the
Aircraft and all other amounts required to be paid pursuant to paragraph
(ii) of Section 4(c), (2) at such time as the Republic of Finland owns at
least fifty and one-tenth percent (50.1%) of the Lessee's issued and
outstanding shares of capital stock entitled to vote the election of
directors, or (3) at such time as this Lease has been terminated and all
Rent then due and payable has been paid.
(iv) The Lessee's agent for service of process designated pursuant
to the requirements of the Federal Aviation Act of 1958, as amended, is
Finnair, General Manager North America presently located at Finnair
Executive Office, 10 East 40th
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St., New York, N.Y. 10016 and the Lessee shall provide prompt written
notice to the Lessor of any change in the name or address of such agent.
The Lessee, further, shall notify the Lessor promptly if the Lessee shall
cease to be a "foreign air carrier" within the meaning of the Federal
Aviation Act of 1958, as amended, and thereupon shall specify whether or
not the Lessee maintains an office in the United States of America, its
territories or possessions of the Commonwealth of Puerto Rico, and, the
address or addresses, if any, of such office therein located.
(v) The Lessee shall not (without the prior written consent of the
Lessor) consolidate with any Person or merge into or convey, transfer or
lease all or substantially all its assets to any Person unless upon any
such consolidation, merger, conveyance, transfer or lease the new or
surviving entity, if not the Lessee, shall expressly or by operation of
law assume all the obligations of the Lessee under this Agreement and the
other Operative Documents.
(vi) The Lessee, upon reasonable request, shall promptly furnish to
the Lessor such information as may be reasonably required by the Lessor to
enable the Lessor to file any reports required to be filed by the Lessor
or the Owner Participants with any governmental authority because of the
Lessor's ownership or leasing of the Aircraft or the Owner Participants'
direct or indirect ownership of a beneficial interest in any part of the
Lessor's Estate.
(d) Lessor's Covenants. (i) The Lessor agrees that it will, at its
own cost and expense, promptly take such action as may be necessary to
duly discharge any Lessor Lien on the Aircraft.
(ii) The Lessor agrees that, so long as no Event of Default shall
have occurred and be continuing, the Lessor will not take any action or
cause to be taken any action or fail to prevent any action arising by,
through or under it, which causes interference with the Lessee's peaceful
and quiet use, operation and possession of the Aircraft in accordance with
the terms of this Lease.
(iii) The Lessor agrees that it shall and hereby does indemnify and
hold harmless the Lessee and its permitted assigns against any and all
claims, losses, liabilities and damages (including attorney fees and
disbursements) incurred in connection with any breach of the covenants of
this Section 4(d), provided, however, that the foregoing indemnity and
agreement to hold harmless shall be coextensive in scope with, and shall
in no way expand, waive or limit, such covenants or agreements or any
rights, remedies or defenses which are or would be available in connection
therewith.
(iv) Effective upon the execution and delivery of the Lease
Supplement on the Delivery Date but only as long as no Event of Default
shall have occurred and be
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continuing, the Lessor does hereby authorize the Lessee, on behalf of and
to the exclusion of the Lessor, for the duration of the Term, to exercise
in the Lessee's own name all existing warranties, service life policies
and patent indemnities of manufacturers and maintenance and overhaul
agencies of and for the Aircraft and Parts, if any, and upon the request,
and at the cost, of the Lessee, the Lessor shall use its reasonable
efforts to give the Lessee aid and assistance in enforcing the rights of
the Lessee arising under such warranties, service life policies and patent
indemnities.
SECTION 5. Return of the Aircraft. (a) On the last Business Day of
the Term (or such earlier date as this Lease may be terminated pursuant to
Section 18 hereof) (the "Redelivery Date") all of the terms of this Section 5
shall apply and the Lessee at its expense will return the Aircraft to the Lessor
by delivering the same, at the Lessee's own risk and expense, to the Lessee's
maintenance facilities at Helsinki-Vantaa Airport, Finland (the "Redelivery
Location"), fully equipped with all Engines installed thereon. In the event that
any engine not an Engine shall be delivered with the returned Airframe as set
forth herein in connection with the termination of the Lease, all engines then
installed on the Airframe shall be of the same or another manufacturer of the
same or an improved model and suitable for use on the Airframe but all of the
same make and model and the Lessee, concurrently with such delivery, will, at
its own expense and at no cost or expense to the Lessor, furnish the Lessor with
a full warranty bill of sale from the Lessee, in form and substance satisfactory
to the Lessor, with respect to such engine, and with an opinion of the Lessee's
in house counsel to the effect that, upon such return, the Lessor will acquire
good and marketable title to such engine free and clear of all rights of third
parties under pooling, interchange, overhaul, repair and other arrangements and
all other Liens (other than Lessor Liens), and the Lessee shall take such other
action as the Lessor shall reasonably request, and thereupon the Lessor shall
transfer to the Lessee, "as-is", "where-is", free and clear of all Lessor Liens,
but otherwise without recourse or warranty (all as described in the first
sentence of paragraph (vi) of Section 4(b), except that appropriate changes
shall be made to the references to the parties and to accommodate a sale and
purchase rather than a lease), its title, if any, to such Engine not installed
on the Airframe at the time of its return. The Lessor shall, subject to the
terms and on the conditions of this Section 5, accept return of the Aircraft
from the Lessee by executing and delivering to the Lessee a Redelivery Receipt
of Aircraft and Engines, substantially in the form of Exhibit B hereto, not
later than 3:30 p.m. local time on the Redelivery Date. At the Lessor's
direction, the Lessee will (1) store the Aircraft out-of-doors at the Redelivery
Location or out-of-doors at another location in Europe utilized for the storage
and maintenance of the Lessee's aircraft, selected by the Lessee, in each case,
at the Lessor's risk and the Lessee's expense for a period not to exceed ninety
(90) days; or (2) on the Redelivery Date or at the end of the storage period
referred to in the preceding clause (1), ferry the Aircraft at the Lessee's sole
expense (including the cost of insurance of the type and in the amounts required
during the Term under Section 11 hereof) to any airport in Europe selected by
the Lessor, or to any other location selected by the
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Lessor at the Lessor's sole risk and expense, provided, however, that the
Aircraft remains registered in Finland at all times during which it is under the
Lessee's operational control. During such storage period, the Lessee will,
during normal business hours, permit authorized representatives of the Lessor,
each Owner Participant and any prospective purchaser or user of the Aircraft or
any part thereof to inspect the same at all reasonable times and in any event
without interfering with the Lessee's normal operations, it being understood and
agreed that all such inspections shall be at the Lessor's risk and the Lessee
shall have no obligation or liability whatsoever in any way relating to any such
inspection other than the obligation to permit inspection of the Aircraft as
provided in this sentence. Upon such return, and at the Lessee's sole expense:
(i) the Aircraft (A) shall, at the election of the Lessee, be
registered in the Republic of Finland, except that the Aircraft shall be
registered in Finland or the United States if and as so elected by the
Lessee at any time in accordance with Section 6(c), (assuming the Lessor,
or its designee, is then, or its designee by a transfer may then be,
eligible to be the registered owner of the Aircraft); (B) shall be in
compliance with the provisions of Section 6 hereof; (C) shall be in as
good condition as when delivered to the Lessee hereunder, ordinary
operating wear and tear excepted, or, in the case of any such engines
owned by the Lessee or in substitution or replacement of the original
Engines, assuming that such Engine or Engines have the remaining useful
life required in Section 5(a)(vi), shall have a value, utility and useful
life at least equal to, and shall be in as good operating condition as
required by, the terms and provisions hereof with respect to the Engines;
(D) shall be clean by international commercial passenger airline operating
standards; (B) shall, except as otherwise provided herein or as otherwise
agreed by the Lessor, be in the same configuration as when the Aircraft
was originally delivered to the Lessee hereunder; and (F) shall be free
and clear of all Liens other than Lessor Liens;
(ii) the Aircraft shall (A) have a currently effective airworthiness
certificate and, at the Lessor's request, an airworthiness certificate for
export to the United States or to any member country of the OECD
designated by the Lessor (or to any other location as may be designated by
the Lessor and which is reasonably acceptable to the Lessee) issued by the
CAA or the equivalent aviation authority of the Applicable Jurisdiction,
as the case may be; (B) be duly certified as airworthy by the CAA or the
equivalent aviation authority of the Applicable Jurisdiction, as the case
may be; (C) be in compliance with all airworthiness directives and
mandatory requirements of the CAA or the equivalent aviation authority of
the Applicable Jurisdiction, as the case may be, and all applicable
environmental, noise, air pollution and other similar standards of Finland
and the International Civil Aviation Organization, in each case in
existence on the date of such return and requiring terminating compliance
within six (6) months (or the equivalent number of hours or cycles) of the
Redelivery Date then applicable to the Airframe and each Engine, without
regard to any waivers or
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exemptions delaying compliance with such directives or requirements
applicable solely to the Lessee's use of the Aircraft but not applicable
or available generally to any one or more other European operators; (D)
have all components and systems operational; (E) have no deferred
maintenance or inspection items, or placards and be free of corrosion in
accordance with the limits of the Approved Maintenance Program; and (F) be
configured and equipped as delivered for passenger use under regulations
of the CAA or the equivalent aviation authority of the Applicable
Jurisdiction, as the case may be;
(iii) the Airframe and each such Engine shall be in such condition
as shall be required to meet (A) all manufacturer's mandatory service
bulletins; and (B) all applicable airworthiness directives of the CAA or
the equivalent aviation authority of the Applicable Jurisdiction, as the
case may be and the Applicable Law thereof;
(iv) the special exterior markings of the Lessee and any sublessee
on the Airframe shall have been removed, or caused to have been removed,
by the Lessee and shall be painted over in a good and workmanlike manner;
(v) the Airframe shall have been maintained by the Lessee in
accordance with the Approved Maintenance Program with respect thereto and
(A) shall have not more than twenty (20) hours since having had a C Check
and any portion of a D Check applicable to such C Check, with no deferred
items under the Approved Maintenance Program; and (B) shall not have less
than four (4) years remaining until the next scheduled D Check, or its
equivalent, provided that in the event that (1) the Aircraft shall, on the
Redelivery Date, have more than four (4) years or its equivalent remaining
until the next D Check, the Lessor shall pay to the Lessee an amount equal
to Five Hundred Twenty-Five Dollars ($525.00) (adjusted as provided in
clause (3) of this subparagraph (v)) for each day or its equivalent by
which the period remaining until the next D Check exceeds four (4) years
or its equivalent except that the Lessor may offset such payment
obligation against any payment obligation of the Lessee under the
Operative Documents then due and unpaid; or (2) the Aircraft shall, on the
Redelivery Date, have less than four (4) years or its equivalent, but more
than two (2) years or its equivalent, remaining until the next D Check,
the Lessee shall pay to the Lessor an amount equal to Five Hundred
Twenty-Five Dollars ($525.00) (adjusted as provided in clause (3) of this
subparagraph (v)) for each day or its equivalent by which the period
remaining until the next D Check is less than four (4) years or its
equivalent; and provided, further, that (3) all payments made pursuant to
this subparagraph (v) will be adjusted by reference to the Finnish Labor
Index (limited to the maximum inflation adjustment of five percent (5%)
per annum) applied on an annual basis for each year and fraction thereof
from the Delivery Date to the Redelivery Date;
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<PAGE>
(vi) each Engine shall be "on condition" with "condition
monitoring", and shall have a remaining life of at least 4,000 hours or
4,000 cycles, whichever is more limiting, to removal of the most limiting
life-limited part or known scheduled repair visit under the Approved
Maintenance Program;
(vii) the Engines will have each undergone full hot and cold section
boroscope and isotope inspections in the presence of the Lessor's
representative at the Redelivery Location immediately prior to such
redelivery and after the Aircraft has been removed from service, and if
any Engine shall not have been certified to be within the then-recommended
manufacturer's maintenance manual limits and the limits of the Approved
Maintenance Program for further operation, then the Lessee shall promptly
cause such Engines to comply with such limits. The Lessee shall deliver to
the Lessor, at no expense to the Lessor, all "no-charge kits" which have
been offered to the Lessee by the manufacturer throughout the Term and
which have not been installed on the Aircraft prior to redelivery to the
Lessor; in addition, the Lessor may purchase from the Lessee at the
Lessee's cost any service bulletin kits purchased by the Lessee for the
Aircraft;
(viii) the nose landing gear shall have no less than 8,250 cycles or
48 months, whichever is more limiting, remaining until the next scheduled
overhaul or shop visit under the Approved Maintenance Program and the main
landing gear shall have on average no less than 10,000 cycles or 48
months, whichever is the more limiting, remaining until the next scheduled
overhaul or shop visit under the Approved Maintenance Program; and
(ix) the Auxiliary Power Unit shall, on the Redelivery Date, have at
least 2,400 cycles remaining until the next scheduled hot section
inspection or overhaul under the Approved Maintenance Program.
(b) On a date mutually agreed to by the Lessor and the Lessee at
least four (4) days prior to the Redelivery Date, a ground inspection of the
Aircraft shall be conducted, provided that any such inspection will not
interfere with the Lessee's normal operation of the Aircraft. The Lessee will
make the Aircraft and its Records (including historic and the most current
engine performance monitoring data) available for such inspection at the
Redelivery Location. At such inspection, the Aircraft will be inspected by
either, as the Lessor shall elect, an employee or agent of any Owner Participant
qualified to conduct such an inspection or an independent inspector, appointed
by the Lessor, who will perform such tests as are customary and reasonable upon
the return of used aircraft of the type leased hereunder, as are consistent with
the Approved Maintenance Program and as may be necessary or advisable to
determine whether the Aircraft complies with the terms of this Section 5(a); the
Lessor will promptly notify the Lessee of the results of such inspection and
will deliver a written report thereof in the event of any discrepancies for
receipt by the Lessee not later than two
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<PAGE>
(2) days prior to the Redelivery Date. Representatives of the Lessee and the
Lessor will be present at such inspection. Unless the parties otherwise agree in
writing, the inspector shall remain at the Redelivery Location until the Lessor
has accepted redelivery of the Aircraft. In addition, prior to or upon the
expiration or earlier termination of this Lease, the Lessee will conduct, at the
request of the Lessor and at the Lessor's sole expense, a sixty (60) minute test
flight for the purpose of verification of the operational conditions set forth
herein of the Aircraft, its equipment and systems and will permit not more than
three (3) individuals designated as observers by the Lessor to be on board such
Aircraft during such flight. All reasonable requests of the Lessor's
representatives shall be carried out by the Lessee's flight crew during any such
flight, provided that such requests do not endanger the Aircraft and can be
performed during the sixty (60) minute test flight. If as a result of such
inspection and test flight, the Aircraft is found not to comply with the terms
of this Section 5(a), the Lessee, at its expense, will forthwith take or cause
to be taken such action as may be required for such compliance and for
compliance with any of the other terms of this Section 5. The Lessor shall
compensate the Lessee for all fuel on board the Aircraft (at the price
applicable to such fuel on the Redelivery Date, including any applicable
into-plane charges) after completion of any test flight and the termination of
the Lease, but all other fluids and the like remaining on board shall, without
charge, together with such remaining fuel, become the property of the Lessor
upon the Lessee's receipt of payment for fuel and into-plane charges, as
aforesaid, and the Lessor's execution and delivery of the Redelivery Receipt.
(c) The Lessee will, from the date hereof until the expiration of
the Term, cooperate fully with the Lessor in permitting prospective purchasers
or lessees of the Aircraft to inspect the Aircraft and its records, provided
that any such inspection will not interfere with the Lessee's normal operation
of the Aircraft.
(d) Upon return of the Aircraft on the Redelivery Date to the Lessor
under this Section 5, the Lessee shall deliver all logs, manuals, certificates,
engineering and modification orders and data, records and data, and inspection,
modification, overhaul, repair and maintenance records and reports, and all
airworthiness directives of the CAA and other applicable authorities required to
be maintained with respect thereto by the CAA or otherwise under the Applicable
Laws of any Applicable Jurisdiction, and if any thereof shall not be in English,
English translations thereof but only to the extent required for registration of
the Aircraft with the FAA and copies (and, if and when permitted by the laws of
Finland, the United States and any other Applicable Jurisdiction, originals) of
any existing logs, manuals and records and data required by the FAA to permit
registration of the Aircraft under FAR 121, and operation of the Aircraft in,
the United States (collectively, together with such English translations, if
any, "Records").
(e) Effective upon the Lessor's acceptance of return of the Aircraft
on the Redelivery Date, the Lessee does hereby re-assign to the Lessor all
existing warranties, service life policies and patent indemnities, which by
their terms do not prohibit assignment
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by the Lessee, of manufacturers and maintenance and overhaul agencies of and for
the Aircraft and the Parts, if any, which were acquired by the Lessee during the
Term and upon the request of the Lessor, from time to time after the Redelivery
Date, the Lessee shall use its reasonable efforts to give the Lessor aid and
assistance in enforcing the rights of the Lessee arising under each thereof,
provided that the Lessor shall indemnify the Lessee for all costs and expenses
incurred by the Lessee in connection with such aid and assistance rendered. The
parties' respective obligations under this paragraph (e) shall survive
termination of this Lease.
(f) In the event of a dispute arising with respect to the condition
of the Aircraft on the Redelivery Date, the parties shall obtain an appraisal by
an internationally recognized independent appraiser mutually agreed to by the
Lessor and Lessee.
(g) The Lessor may assign its rights under Section in accordance
with the terms and subject to the conditions and provisions thereof to any
Person who leases or purchases the Aircraft from the Lessor at or after the end
of the Term.
SECTION 6. Maintenance. Operation, Etc. (a) Registration.
Maintenance and Operation. The Lessee, at its own cost and expense, will at all
times during the Term: (i) cause the Aircraft to be in compliance with all CAA
regulations applicable to McDonnell Douglas MD 82 aircraft, certificated for
interstate and overseas operation under Finnish Applicable Law or such other
Applicable Law of such other Applicable Jurisdiction, as the case may be, and to
be and remain duly registered with the CAA in accordance with the Act in the
name of the Lessor as owner; (ii) maintain, operate, service, repair, overhaul
and test the Airframe and each Engine (including but not limited to all program
monitoring, program reliability and program reporting requirements under the
Approved Maintenance Program and the Act), so as to keep the same in as good
operating condition as when originally leased hereunder, ordinary wear and tear
excepted, in the same manner and with the same care as used by the Lessee with
similar aircraft operated by the Lessee, and in such condition as may be
necessary to enable the airworthiness certificate of the Aircraft to be
maintained in good standing at all times under the Act, Finnish Applicable Law
or such other Applicable Law of such other Applicable Jurisdiction as the case
may be, and in accordance with all manufacturers' mandatory service bulletins
with respect thereto, (iii) maintain all records, logs, manuals, manufacturer's
service bulletins, CAA and FAA airworthiness directives, engineering and
modification orders, and other Records and data required by Finnish Applicable
Law or such other Applicable Law of such other Applicable Jurisdiction as the
case may be, to be maintained in respect of the Airframe and each Engine; (iv)
perform all obligations required to be performed by it under the terms of all
applicable warranties, service life policies and patent indemnities of the
manufacturer or supplier of the Aircraft or any Part thereof, in respect of the
Aircraft or any part thereof. The Lessee shall comply with all (i) applicable
requirements of Finnish Applicable Law or such other Applicable Law of such
Applicable Jurisdiction, as the case may be, and all other applicable
environmental,
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noise, air pollution and other similar standards of Finland or such other
Applicable Jurisdiction, as the case may be, and the International Civil
Aviation Organization in effect from time to time to the extent that such
standards are required to be complied with (without regard to any exemption
waiving or delaying compliance therewith applicable solely to the Lessee's use
of the Aircraft but not applicable or available generally to any one or more
other European operators) and (ii) the Lessee, at its own expense, forthwith
upon the delivery thereof hereunder, shall cause the Aircraft to be duly
registered (provided the Lessor or its designee is eligible to be the registered
owner of the Aircraft) and at all times thereafter to remain duly registered in
compliance (provided the Lessor or its designee is eligible to be the registered
owner of the Aircraft) with all Finnish registration and airworthiness
requirements or those of any other Applicable Jurisdiction, as the case may be.
The Lessee agrees that the Airframe and each Engine will not be maintained,
serviced, repaired, overhauled, tested, used or operated: (A) in violation of
any law or any rule, regulation or order of any government or governmental
authority having jurisdiction (domestic or foreign) or other Applicable Law or
in violation of the airworthiness certificates of the Aircraft; (B) in any area
excluded from coverage by, or in any manner or for any purpose inconsistent with
the terms of, any insurance required by the terms of Section 11 hereof; or (C)
in any recognized or threatened area of hostilities unless fully covered to the
Lessor's satisfaction by war risk insurance.
(b) Mandatory Service Items. All airworthiness directives of the CAA
and all manufacturer's mandatory service bulletins requiring inspections,
repair, replacement or CAA-required terminating action during the Term, or, in
the case of airworthiness directives requiring terminating action, within six
(6) months of the Redelivery Date, with respect to the Airframe and each Engine,
shall be complied with by the Lessee at the Lessee's expense.
(c) Re-registration. The Lessee may from time to time require the
Lessor, upon reasonable prior notice and at the Lessee's sole expense, to
re-register the Aircraft in Finland or the United States, as the case may be, in
the name of the Lessor, as owner, and of the Lessee, as lessee, if each is then
in compliance with all applicable registration requirements. During the period
the Aircraft is registered in the United States, all references in this Lease to
the "CAA" and to "Finnish Applicable Law", shall be deemed to refer to the FAA
and United States Applicable Law. The Lessor shall cooperate in connection with
any re-registration permitted under this paragraph (c).
SECTION 7. Liens. The Lessee will not, directly or indirectly,
create, incur, assume or suffer to exist any Lien upon or with respect to the
Aircraft, the Airframe or any Engine or any other portion of the Lessor's
Estate, except for the rights of the Lessor and the Lessee hereunder and
Permitted Liens.
SECTION 8. [Intentionally omitted.]
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SECTION 9. Possession. (a) The Lessee will not, without the prior
written consent of the Lessor (such consent not to be unreasonably delayed or
withheld), assign any of its rights or obligations under this Lease or sublease
or otherwise in any manner deliver, transfer or relinquish possession or control
of, or transfer any estate, right, title or interest in or to, the Airframe or
any Engine or Part (whether through pooling or interchange agreements or
otherwise) or install any Engine, or permit any Engine to be installed, on any
airframe other than the Airframe or permit any Part to be installed on an
airframe or engine other than the Airframe or an Engine, provided that, so long
as no Default relating to an Event of Default under Section 17(e) and no Event
of Default shall have occurred and be continuing, the Lessee may, without the
prior written consent of the Lessor:
(i) deliver temporary possession and control of the Airframe or any
Engine or Part to the manufacturer thereof for testing, service,
maintenance, overhaul or repair or, to the extent permitted by Section 12
hereof, for modifications or additions;
(ii) install an Engine on an airframe owned by the Lessee free and
clear of all Liens except Permitted Liens;
(iii) install an Engine on an airframe leased to the Lessee or owned
by the Lessee and subject to a security agreement under which the Lessee
is the debtor, provided that such airframe is free and clear of all Liens
except the rights in and to the Airframe of the parties to such lease or
security agreement and except Permitted Liens, and provided further, that
if the Lessor's title to any such Engine shall be divested under any such
agreement or arrangement, such divestiture shall be deemed to be an Event
of Loss with respect to such Engine and the Lessee shall comply with
Section 10(b) in respect thereof;
(iv) in the ordinary course of testing, servicing, maintenance,
repair or overhaul, remove any Part from the Airframe or any Engine,
provided that the Lessee replaces such Part as promptly as possible with a
Part which has a value and utility at least equal to the Part being
replaced (assuming it to be in the condition and state required by this
Lease) and is owned by the Lessee free and clear of all Liens except
Permitted Liens; and any such replacement Part shall thereby become
subject to this Lease without necessity of further act; provided, however,
that any Part removed from the Airframe or any Engine for such purpose
shall remain subject to this Lease until replaced by a replacement Part as
provided in this clause (iv);
(v) enter into a Wet Lease for the Airframe and the Engines or
engines then installed thereon or for any Engine installed on any other
airframe owned (in accordance with the foregoing provisions of this
Section 9) or operated by the Lessee (or any permitted sublessee pursuant
to subclause (vi) hereof) with any third party,
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provided, however, that the term of such Wet Lease shall not extend beyond
the end of the Term;
(vi) sublease the Airframe, any Engine or engines then installed on
the Airframe (x) to any Affiliate of the Lessee with respect to which,
were it the "Lessee" under this Lease, there shall have occurred and be
continuing no Default or Event of Default of the type described in Section
17(e) hereof, (y) upon prior notice to the Lessor, to any air carrier with
respect to which, were it the "Lessee" under this Lease, there shall have
occurred and be continuing no Default or Event of Default of the type
described in Section 17(e) hereof, and which carrier is based in any
member nation of the OECD, the Republic of Singapore, the Republic of
South Korea, or the Kingdom of Thailand, or (z) to any other air carrier
with respect to which, were it the "Lessee" under this Lease, there shall
have occurred and be continuing no Default or Event of Default of the
nature described in Section 17(e) hereof, in each case, on the date the
sublease is entered into, which carrier has been approved in advance in
writing by the Lessor, which approval the Lessor shall not unreasonably
withhold or delay, provided that (A) such sublease shall provide that the
sublessee will not transfer possession of or any other rights to the
subleased property other than to the Lessee or the Lessor; (B) such
sublease shall, by its terms, be made expressly subject and subordinate to
all of the terms of this Lease, including, without limitation, the rights
of any permitted assignee of the Lessor under Section 20 hereof and the
right of the Lessor to enforce all of the remedies under Section 18 hereof
upon the declaration of this Lease to be in default upon the occurrence of
any Event of Default and to terminate all rights of the sublessee to
possession of the subleased property irrespective of such sublessee not
being in default; (C) the term of such sublease shall not extend beyond
the end of the Term as then in effect; (D) such sublease shall contain
provisions for the operation, maintenance and insurance of the Airframe or
such Engine, as the case may be, which are substantially the same as such
provisions of this Lease; and (E) the Lessee shall provide the Lessor with
written notice of any sublease having a term greater than sixty (60) days
within thirty (30) days after such sublease shall become effective and,
promptly after the request of the Lessor, the Lessee shall provide a copy
thereof to the Lessor, certified as true by the Lessee (provided that the
Lessee may redact financial terms from such copy); and
(vii) in accordance with this Lease (including, without limitation,
Section 12) subject any Engine or Part to normal pooling agreements or
arrangements in each case customary in the airline industry and entered
into by the Lessee in the ordinary course of its business with one or more
air carriers.
(b) No pooling agreement, sublease or other relinquishment of
possession of the Airframe or any Engine shall in any way discharge or diminish
any of the Lessee's obligations to the Lessor hereunder or constitute a waiver
of the Lessor's rights or remedies
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hereunder. Without limiting the preceding sentence and notwithstanding Section
9(a), the rights of any sublessee or other recipient of possession of the
Aircraft, however characterized, pursuant to any arrangement permitted by
Section 9(a) shall be subject and subordinate to, and any sublease permitted by
clause (vi) thereof shall be made expressly subject and subordinate to, all the
terms and provisions of this Lease, including, without limitation, the Lessor's
right to repossession and to avoid such sublease upon such repossession or an
Event of Default hereunder, and the Lessee shall remain primarily liable
hereunder for the performance and observance of all the terms and provisions of
this Lease and the other Operative Documents to the same extent as if such
transfer or sublease had not occurred, and all the terms and provisions of this
Lease and the other Operative Documents shall remain in full force and effect
notwithstanding such transfer or sublease.
(c) In connection with any sublease permitted under this Section 9,
so long as no Event of Default and no Default which would become an Event of
Default of the type described in Section 17(e) has occurred and is continuing,
the Lessee may from time to time prior to the Redelivery Date require the
Lessor, upon reasonable prior notice and at the Lessee's sole expense, to
re-register the Aircraft in a jurisdiction other than Finland or the United
States, as the case may be, which shall be a nation described in clause (y) of
Section 9(a)(vi) (such other jurisdiction, the "Other Jurisdiction"), provided
that the Lessee shall deliver to the Lessor at the time of such registration an
opinion of counsel (which counsel may be counsel to the sublessee) with respect
to such Other Jurisdiction to the effect that (a) the Lessor's rights to
repossession under this Lease and the sublease to be entered into pursuant to
this Section 9 are valid, binding and enforceable and this Lease is valid and
enforceable (subject to customary exceptions) under the laws of such Other
Jurisdiction, (b) it is not necessary for the Lessor, or any Owner Participant,
as a result of such sublease or change in registration, to register or qualify
to do business in such Other Jurisdiction, (c) the ownership interest of the
Lessor in the Aircraft has been preserved under the laws of such Other
Jurisdiction and, to the extent required thereunder, such ownership interest has
been duly registered under such laws, and (d) such registration will not result
in the imposition by such Other Jurisdiction of any Taxes on the Lessor, any
Owner Participant, the Aircraft (or any part thereof) or otherwise in connection
with the transactions contemplated hereby or by any other Operative Document for
which the Lessee is not required to indemnify the Lessor (provided that in lieu
of the opinion referred to in this clause (d), the Lessee may indemnify the
Lessor (in a manner reasonably acceptable to the Lessor) for any Taxes imposed
by such Other Jurisdiction in connection with or relating to the transactions
contemplated by the Operative Documents which would not have been imposed but
for such registration). In addition, it shall be a condition to such
registration that (i) the aircraft and engine maintenance program under the laws
of such Other Jurisdiction shall be substantially similar to that required by
the FAA or the CAA, and (ii) such registration shall not otherwise adversely
affect the interests of the Lessor in the Aircraft. During the period the
Aircraft is registered in such Other Jurisdiction, all references in this Lease
to the "CAA" shall be deemed to refer to the equivalent aviation authority of
such Other Jurisdiction, and all
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references to "Finnish Applicable Law", shall be deemed to refer to the
Applicable Law of such Other Jurisdiction. The Lessor shall reasonably cooperate
at the Lessee's request and expense in connection with any re-registration
permitted under this paragraph (c).
SECTION 10. Event of Loss; Requisition for Use. (a) If an Event of
Loss shall occur with respect to the Airframe, the Lessee will within ten (10)
days after actual knowledge by a Responsible Officer of the Lessee (and in any
event within twenty (20) days) of the occurrence of such Event of Loss) notify
the Lessor thereof in writing and will pay to the Lessor, in Dollars and in
immediately available funds, not later than the earlier of one hundred twenty
(120) days after the date of the occurrence of such Event of Loss or five (5)
Business Days after the date of the Lessee's receipt of insurance proceeds, an
amount equal to the corresponding Stipulated Loss Value of the Aircraft for the
Loss Payment Date on which such payment is made (if payment is made on a Loss
Payment Date) or on the immediately succeeding Loss Payment Date set forth in
Schedule I to the Lease Supplement (if payment is made on a date other than a
Loss Payment Date); provided, however, that if the date such payment is made by
the Lessee is not a Loss Payment Date, there shall be deducted from the
Stipulated Loss Value amount payable by the Lessee an amount equal to the
interest at a rate of 9.4% per annum on such Stipulated Loss Value (computed on
the basis of a 365 day year and actual days elapsed) from and including the date
such payment is made by the Lessee, to but not including the Loss Payment Date
immediately following the date such payment is made by the Lessee; and provided
further, that if such payment is made on a Rent Payment Date, the Lessee shall
not pay the scheduled amount of Basic Rent otherwise due on such Rent Payment
Date. The Lessee will pay in full when due, but without duplication, the Basic
Rent for the Aircraft payable on each Rent Payment Date occurring prior to such
Loss Payment Date. In addition to the foregoing amounts, the Lessee shall pay to
the Lessor any Supplemental Rent then due and unpaid and required to be paid on
or prior to the date on which payment in full of such Stipulated Loss Value and
Basic Rent is required under this Section 10(a) to be paid to the Lessor. In
addition, if any such payment of Stipulated Loss Value and Rent is not paid in
full when due in accordance with the provisions of this Section 10(a), the
Lessee shall pay on demand interest on such unpaid amount at the Overdue Payment
Rate from and including the due date to but excluding the date on which payment
in full is received by the Lessor. Upon payment in full by the Lessee of all
amounts referred to above in this Section 10(a) and all other amounts, if any,
due and payable by the Lessee hereunder, (i) the Lessee shall have no further
obligation to pay Basic Rent due in respect of periods (or parts thereof)
commencing thereafter, (ii) this Lease shall terminate and (iii) upon request of
the insurers of the Aircraft, the Lessor will transfer to such insurers "as-is
where-is" title to the Airframe and each Engine, without any recourse,
representation or warranty (all as described in the first sentence of paragraph
(vi) of Section 4(b), except that appropriate changes shall be made to the
references to the parties and to accommodate a sale and purchase rather than a
lease), except that the Airframe and Engines are free and clear of Lessor Liens.
Notwithstanding the foregoing, such transfer shall not in any way affect or
limit the obligations or liabilities of the Lessee hereunder or
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under any Operative Document not specifically discharged by such payment of
Stipulated Loss Value and Rent.
(b) If an Event of Loss shall occur with respect to an Engine under
circumstances in which there has not occurred an Event of Loss with respect to
the Airframe, the Lessee will within twenty (20) days after a Responsible
Officer of the Lessee has actual knowledge (and, in any event, within sixty (60)
days) of the occurrence of such Event of Loss notify the Lessor thereof in
writing and will, not later than one hundred twenty (120) days after the
occurrence of such Event of Loss, at its sole cost and expense, duly convey to
the Lessor (or cause to be conveyed to the Lessor), as replacement for such
Engine, title to another engine of the same or an improved make and model which
shall be owned by the Lessee free of all Liens other than Permitted Liens and
shall, in the opinion of the Lessor, have a value and utility at least equal to,
and in as good operating condition as, such Engine immediately prior to such
Event of Loss, assuming compliance by the Lessee with all of the terms of this
Lease with respect to such Engine. Prior to or at the time of such conveyance,
at the Lessee's sole expense the Lessee and the Lessor will enter into a
supplement to this Lease for purposes of subjecting such replacement engine to
this Lease and the Lessee, at the Lessee's sole expense will (i) cause to be
delivered to the Lessor evidence that the Lessor has acquired full warranty
title to such replacement engine free and clear of all Liens except Permitted
Liens and that such replacement engine is duly subjected to this Lease, such
supplement to this Lease and all other documents and instruments required to
effect or evidence the foregoing (including the bill of sale) to be in form and
substance reasonably satisfactory to the Lessor and the Lessee; and (ii) cause
to be delivered to the Lessor evidence satisfactory to the Lessor as to the due
compliance by the Lessee with the insurance provisions of Section 11 hereof with
respect to such replacement engine; and (iii) furnish to the Lessor an opinion
of the Lessee's counsel to the effect that, upon such conveyance, the Lessor
will acquire good and marketable title free and clear of all Liens, other than
Permitted Liens, to such replacement engine and that it will be leased hereunder
to the same extent as the Engine replaced thereby, and as to the validity,
binding effect and enforceability of such supplement to this Lease and other
documents and instruments. Upon compliance by the Lessee with the foregoing
terms of this subsection (b) within the 120-period referred to above, the Lessor
will (A) upon request by the insurers of such Engine transfer title to such
insurers of the Engine so replaced "as-is, where-is" without any recourse,
representation or warranty (all as described in the first sentence of paragraph
(vi) of Section 4(b), except that appropriate changes shall be made to the
references to the parties and to accommodate a sale and purchase rather than a
lease), except that such Engine is free and clear of any Lessor Liens and (B)
execute and deliver to the Lessee a partial release, in recordable form,
releasing such Engine from this Lease. Such replacement engine shall thereupon
constitute an "Engine" for all purposes hereof. No such termination of this
Lease with respect to any Engine as contemplated by this Section 10(b) shall
result in any reduction of Rent.
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(c) In the event of the requisition for use by the Finnish
Government or the government of any other Applicable Jurisdiction (including any
governmental authority, agency or instrumentality, including any court, thereof)
of the Airframe or any Engine during the Term, the Lessee shall promptly notify
the Lessor of such requisition and all the Lessee's obligations under this Lease
with respect to the Airframe or such Engine shall continue to the same extent as
if such requisition had not occurred; provided, however, that if the Airframe or
such Engine shall not be returned by the Finnish Government or such other
government prior to the end of the Term and the Lessee has given notice and
extended the Term in accordance with and as provided in Section 3(f), the Lessee
shall be obligated to return the Airframe or such Engine to the Lessor pursuant
to, and in all other respects to comply with the provisions of, Section 5
promptly upon its return by the Finnish Government or such other government. All
payments received by the Lessor or the Lessee from the Finnish Government or
such other government for the use of the Airframe or such Engine during the Term
shall be paid over to, or retained by, the Lessee unless an Event of Default or
Default shall have occurred and be continuing in which event such amounts shall
be paid over to or retained by the Lessor as security for the obligations of the
Lessee under this Lease and applied against the Lessee's obligations hereunder,
and upon the terms and conditions of Section 24(b)(ii) all such amounts and any
gain thereon from Permitted Investments required to be made pursuant to Section
24(b)(ii) shall be paid over by the Lessor to the Lessee; and all payments
received by the Lessor or the Lessee from the Finnish Government or such other
government for use of the Airframe or such Engine after the Term shall be paid
over to, or retained by, the Lessor.
(d) At any time during the Term so long as no Event of Default shall
have occurred and be continuing, the Lessee may, in its discretion, upon prior
reasonable notice to the Lessor, terminate this Lease with respect to any
Engine. In such event and on or before the date of such termination, the Lessee
shall replace such Engine hereunder by complying with the terms of Section 10(b)
hereof to the same extent as if an Event of Loss had occurred with respect to
such Engine, and the Lessor shall concomitantly therewith, as provided in
Sections 10(b) and 12, transfer all of its rights and interest in and to such
Engine to the Lessee as provided therein, and thereupon such replacement engine
shall constitute an "Engine" for all purposes hereof. Upon compliance by the
Lessee with the foregoing terms of this paragraph (d), the Lessor will execute
and deliver to the Lessee a partial release, in recordable form, releasing such
Engine from this Lease. No termination of this Lease with respect of any Engine
as contemplated by this Section 11(d) shall result in any reduction of Rent.
SECTION 11. Insurance. (a) The Lessee at its expense shall carry
public liability (including, without limitation, contractual, bodily damage and
property damage liability and passenger products and completed operations
liability and also war risk and allied perils liability in accordance with
Lloyds of London aviation clause AVN.52 or its equivalent) and property damage
insurance, payable in Dollars, with respect to the Airframe
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and the Engines (i) in an amount at least equal to the greater of that normally
carried, from time to time, by the Lessee with respect to similar aircraft
owned, leased or operated by it, or that carried, from time to time, with
respect to similar aircraft by major commercial air carriers flying routes
substantially similar to those flown by the Lessee but in no event less than
U.S. $500,000,000 per occurrence, and (ii) with commercial insurers of
internationally recognized standing.
(b) The Lessee at its expense shall maintain in effect with insurers
of internationally recognized standing, and payable in Dollars all-risk aircraft
hull insurance for flight, taxiing and ground covering the Airframe and Engine
and any other engines on the Aircraft, and all-risk coverage with respect to any
Engine while removed from the Airframe, which is of the type and in
substantially the amount usually carried by corporations engaged in the same or
similar business and similarly situated as the Lessee (but specifically
including war risk, governmental confiscation (including the government of the
Applicable Jurisdiction), appropriation, and hijacking insurance (political and
non-political risks), except cover in respect of any hostile detonation of any
weapon of war employing atomic or nuclear fission, fusion or other radioactive
force or matter), provided that such insurance in respect of the Aircraft shall
at any time not be less than the Stipulated Loss Value for the Aircraft as of
the date of determination. The Lessee may self-insure, by way of deductible or
premium adjustment provisions in insurance policies, the risks required to be
insured against pursuant to this subsection (b), provided that such
self-insurance shall not apply in the case of a total loss or constructive or
arranged total loss of the Airframe and, in the case of any other loss, shall
not exceed U.S. $3,000,000 with respect to the Airframe and the Engines or
engines then installed thereon. Any policies of insurance required pursuant to
this subsection (b) shall provide that any loss in excess of U.S. $3,000,000
payable with respect to the Airframe and the Engines or engines installed
thereon or with respect to an Engine while on the ground shall be payable and
paid to the Lessor.
(c) Any policies of insurance required pursuant to either subsection
(a) or subsection (b) above shall: (i) be amended to name the Lessor and the
other Additional Insureds as additional insureds warranted no operational
interest, but without the Lessor or the other Additional Insureds being liable
for premiums in respect of such insurance (other than by way of set-off as
mentioned in (vi) below), and in the case of each policy required pursuant to
subsection (b) above, shall name the Lessor and the other Additional Insureds as
loss payees; (ii) provide that, in respect of the interest of the Lessor and the
other Additional Insureds, in such policies, the insurance shall not be
invalidated by any action or inaction of the Lessee or any other Person (other
than the Additional Insureds, each for their respective interests) and shall
insure the interest of the Lessor and the other Additional Insureds, regardless
of any breach or violation by the Lessee or any other Person (other than the
Additional Insureds, each for their respective interests) of any warranty,
declaration or condition contained in such policies; (iii) provide that if such
insurance is cancelled for any reason whatsoever, or if any material change is
made in the coverage (including the scope
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thereof) which affects the interest of the Lessor or the other Additional
Insureds, or if such insurance is allowed to lapse for nonpayment of premium,
such cancellation, change or lapse shall not be effective as to the Lessor or
the other Additional Insureds for thirty (30) days (seven (7) days or such
lesser period as may be customarily available in the case of any war risk and
allied perils coverage) after the giving of notice to the Lessor or such
Additional Insured, as the case may be, of written notice from such insurers to
the addresses provided hereunder to the Lessee of such cancellation, change or
lapse; (iv) provide that as against the Lessor and the other Additional
Insureds, the insurers shall waive, to the fullest extent permitted by
Applicable Law, all rights of subrogation; (v) provide, in the case of liability
insurance policies (A) that all of the provisions thereof shall operate in the
same manner as if there were a separate policy covering each insured (provided
that such policies shall not operate to increase the insurer's limit of
liability as set forth in such policies), and (B) that the insurance shall be
primary and without right of contribution from any other insurance which may be
available to the Lessor or any Additional Insured; (vi) shall waive any right of
the insurers to set-off, counterclaim or any other deduction, whether by
attachment or otherwise, against the interests of the Additional Insureds (other
than in respect of unpaid premiums in respect of the Airframe and the Engines or
engines installed thereon or with respect to an Engine which is on the ground);
and (vii) shall contain with respect to hull all risks and hull war risks
insurance a 50/50 clause per AVN. 103 or its equivalent. In the event that the
Lessee shall fail to maintain insurance as provided in this Section 11, the
Lessor may at its sole option provide such insurance and, in such event, the
Lessee shall, upon demand, reimburse the Lessor, as Supplemental Rent, for the
reasonable market cost thereof, without waiver of any other rights or remedies
the Lessor may have hereunder or under any other Operative Document.
(d) (i) On or before the Delivery Date, and thereafter at the time
of each renewal (but no less than annually), the Lessee, at its expense, will
furnish to the Lessor and each other Additional Insured insurance certificates
with respect to the Aircraft signed by a firm of independent aircraft insurance
brokers reasonably acceptable to the Lessor, describing in reasonable detail the
insurance then carried and maintained on or with respect to the Aircraft and
noting any geographical limits to the coverage provided thereby. The Lessee will
cause such firm (i) to dispatch the said insurance certificates to the Lessor
and each other Additional Insured no later than fourteen (14) days after the
renewal date of the relevant insurance policies, and (ii) to advise the Lessor
and each other Additional Insured in writing promptly of any default in the
payment of any premium and of any other act or omission on the part of the
Lessee, of which such firm has knowledge and which might invalidate or render
unenforceable, in whole or in part, any insurance on the Aircraft. The Lessee
will, and will also cause such firm to, advise the Lessor in writing as promptly
as practicable after a Responsible Officer of the Lessee or such firm, as the
case may be, acquires knowledge that an interruption or reduction of any
insurance carried and maintained on the Aircraft pursuant hereto will occur.
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(ii) The Lessee covenants and agrees that it shall provide all
such notices and take all such actions as shall be necessary or advisable to
prevent, and the Lessee shall not suffer to occur, the invalidation of any
insurance benefit which may otherwise be available to any additional insured but
for any action or inaction of any additional insureds that occurs or is a breach
or violation of the insurance policy or any warranty, declaration or condition
contained therein of which the Additional Insured has no actual knowledge or
that results from any action or inaction of the Lessee (including, without
limitation, the filing of any claims and the giving of appropriate notices so as
to prevent any such invalidation).
(iii) The Lessee covenants and agrees that it will pay to the
Lessor, or to whomever the same shall have experienced the set-off, as
Supplemental Rent, promptly upon any set-off described in Sections 11(c) and
11(d), an amount equal to the amount of any set-off pursuant to such Sections.
(e) All insurance payments received by the Lessor or the Lessee from
insurance referred to in Section 11(b) and paid as the result of the occurrence
of an Event of Loss with respect to the Airframe or an Engine (as well as any
requisition or other payments received by the Lessor or the Lessee as the result
of any such Event of Loss) shall be, if received by the Lessee, immediately paid
to the Lessor and shall be held and applied by the Lessor as follows:
(i) if such payment is received as the result of an Event of Loss
referred to in Section 10(a), such payment shall be applied in reduction
of the Lessee's obligation to make payment pursuant to Section 10(a) (and
any excess shall be paid to the Lessee) or, if the Lessee shall have
already made payment in full pursuant to said Section 10(a), all of such
payment shall be paid to the Lessee, provided that no Event of Default or
Default which would become an Event of Default of the type described in
Section 17(a), (b) or (e) shall have occurred and then be continuing; and
(ii) if such payment is received as the result of an Event of Loss
referred to in Section 10(b), such payment shall be paid to the Lessee
upon compliance by the Lessee with all of the terms of said subsection (b)
provided that no Event of Default or Default which would become an Event
of Default of the type described in Section 17(a), (b) or (e) shall have
occurred and then be continuing.
(f) All insurance payments received by the Lessor or the Lessee from
insurance referred to in Section 11(b) and paid other than as the result of an
Event of Loss with respect to the Airframe or an Engine shall be paid over to
the Lessee (i) upon the completion of repairs satisfactory to the Lessor and,
(ii) upon the Lessee's delivery of a certificate of a Responsible Officer of the
Lessee describing necessary repairs and specifying the amount of funds required
for making such repairs, and thereupon such funds shall be promptly applied by
the Lessee to the extent necessary to repair the damage to the Airframe
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or such Engine, provided that the Lessee will make such payment to the Lessor,
and the Lessor shall not be required to make any such payment to the Lessee, if
an Event of Default or Default of the type referred to in Section 17(a), (b) or
(e) has occurred and is continuing. Any amount which would be payable to the
Lessee or any sublessee under any parallel provision pursuant to this subsection
(f) or Section 11(e) if a Default of the type described in such sections or an
Event of Default had not occurred and was not continuing shall be held by the
Lessor as security for the obligations of the Lessee under the Lease and applied
against the Lessee's obligations as and when due. If such Event of Default and
no such Default shall be cured and no other Event of Default and no such Default
shall have occurred and be continuing, such amount shall be paid to the Lessee
to the extent not previously applied in accordance with the terms hereof.
(g) The Lessor and each Owner Participant and each Affiliate of any
thereof may at its own expense carry insurance with respect to the Lessor's
interest in the Aircraft and the Lessor's Estate, provided, however, that such
insurance does not prevent the Lessee from carrying, or otherwise adversely
affect the coverage of, the insurance required by this Section 11, or adversely
affect such insurance or the coverage of any other insurance carried by the
Lessee with respect to its interest in the Aircraft. Any insurance payments
received with respect to any such insurance (including any residual value
insurance) shall be retained by the Lessor or such other Person, to the absolute
exclusion of the Lessee, without reducing or otherwise affecting the Lessee's
obligations or liabilities hereunder or under any other Operative Document.
SECTION 12. Replacement and Pooling; Modifications and Additions.
(a) The Lessee, at its own cost and expense, will promptly replace or cause to
be replaced 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, except as otherwise provided by the
provisions of this Section 12. All replacement Parts shall be free and clear of
all Liens (except Permitted Liens), shall be in as good an operating condition
as, and shall have the value and utility at least equal to, the Parts replaced
(assuming the same to be in the condition and state required by this Lease). All
Parts, at any time removed from the Airframe or any Engine, shall remain the
property of the Lessor, no matter where located, until such time as such Parts
shall be replaced by Parts which meet the requirements for replacement Parts
specified above. Immediately upon any replacement Part becoming incorporated or
installed in or attached to the Airframe or any Engine, without further act,
title shall vest in and such replacement Part shall become the property of the
Lessor, and shall become subject to this Agreement and be deemed a Part for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Airframe or such Engine.
(b) Any Part replacing a Part removed from the Airframe or any
Engine pursuant to a pooling or similar arrangement in accordance with Section 9
shall be
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incorporated or installed in or attached to the Airframe or such Engine in
accordance with Section 12(a) as promptly as possible after the removal of such
removed Part. In addition, any replacement Part when incorporated or installed
in or attached to the Airframe or any Engine in accordance with Section 12(a)
may be owned by a third Person subject to such a normal pooling arrangement
permitted by this Lease, provided that the Lessee, at its own expense, as
promptly thereafter as possible, but in any event not more than 180 days
thereafter, either (i) obtains and, by operation of Section 12(a) conveys to
Lessor, title to such replacement Part to vest in the Lessor in accordance with
Section 12(a) free and clear of all Liens (except Permitted Liens), or (ii)
replaces or procures the replacement of such replacement Part by the
incorporation or installation in or attachment to such Airframe or Engine of a
further replacement Part free and clear of all Liens (except Permitted Liens)
and by causing title to such further replacement Part to vest in the Lessor in
accordance with Section 12(a) and such further replacement Part shall forthwith
be deemed part of the Airframe or Engine to the same extent as the Part
originally incorporated or installed in or attached to the Airframe or such
Engine and become subject to this Lease.
(c) The Lessee, at its expense, will make such modifications in and
additions to the Airframe and each Engine as may be required from time to time
in order to meet the standards of Applicable Law and in order for the Lessee to
comply fully with the terms of this Lease, including Sections 5 and 6 hereof. In
addition, so long as no Event of Default or Default which would become an Event
of Default of the type described in Section 17(e) shall have occurred and be
continuing, the Lessee, at its expense, may from time to time make such
modifications in and additions to the Airframe or any Engine as the Lessee may
deem desirable in the proper conduct of its business; provided, however, that no
such modification or addition shall diminish the value or utility of the
Airframe or such Engine, or impair the airworthiness or operating condition
thereof, below the value, utility, airworthiness and condition thereof
immediately prior to such modification or addition assuming the Airframe and
such Engine were in the condition and repair state required by this Lease. Title
to all Parts incorporated or installed in or attached or added to the Airframe
or an Engine, as the result of such modification or addition shall, without
further act, vest in the Lessor. Notwithstanding the foregoing terms of this
Section 12, so long as no Event of Default or Default which would become an
Event of Default of the type described in Section 17(e) shall have occurred and
be continuing, the Lessee may remove any Part, provided that (i) such Part is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated or installed in or attached to the Airframe or an Engine at the
time originally leased by the Lessor or 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 such Airframe or an Engine,
pursuant to the terms of this Lease, 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 and such Engine would have had at such time had such modification or
addition not occurred.
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Upon the removal by the Lessee of any Part as provided in the immediately
preceding sentence, title thereto shall, without further act, vest in the 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 the Lessee prior to the return of
the Aircraft to the Lessor hereunder shall remain the property of the Lessor.
SECTION 13. Insignia. On or prior to the Delivery Date, the Lessee
agrees to affix and maintain in the cockpit of the Airframe, in a prominent
position on the door, a metal nameplate bearing the following inscription:
"TRUST COMPANY FOR USL, INC., OWNER TRUSTEE/LESSOR". The Lessee further agrees
not to affix, or suffer to be affixed, to or allow the name of any Person to be
affixed to or placed on the Airframe or any Part any indicia of ownership
thereof by any person other than the Lessor.
SECTION 14. Inspection/Information. (a) The Lessee will permit the
Lessor, at the Lessor's sole cost and expense (except if incurred in the
Lessor's exercise of remedies under Section 18), by its officers or agents to
inspect the Aircraft or any Parts or any part thereof and the Lessee's documents
and records relating thereto, and at such reasonable times during normal
business hours (or at any other time acceptable to the Lessee) as the Lessor may
from time to time request, provided, however, that such inspections shall not
interfere with the Lessee's normal operation of the Aircraft. The Lessor shall
have no duty to make any such inspection and shall not incur any liability or
obligation by reason of making or not making any such inspection. The Lessee
shall provide the Lessor (i) as soon as available and in any event within (x)
one hundred eighty (180) days after the end of each fiscal year of the Lessee, a
copy of the published annual report to its shareholders (in the English language
for the financial part) for such year for the Lessee, and (y) ninety (90) days
after the end of each second fiscal quarter of the Lessee, a copy of the
Lessee's published interim report to shareholders, and (ii) such other
information respecting the Lessee's financial conditions (to the extent made
available to the Lessee's shareholders and senior lenders) or operations or the
maintenance status of the Aircraft as the Lessor may from time to time
reasonably request.
(b) The Lessee agrees to provide to the Lessor not less than thirty
(30) days after the end of each fiscal quarter, a detailed report specifying the
actual number of hours/cycles utilized on the Airframe and each Engine during
the preceding fiscal quarter, the location of the Airframe and each Engine as of
the end of such quarter, any unscheduled maintenance work at or exceeding the
level of a C Check performed thereon during such quarter and any other such
information relating to the Airframe and Engines as the Lessor may reasonably
request.
(c) The Lessee will give notice of an Event of Default or a Default
which would become an Event of Default of the type described in Section 17(e)
when a Responsible Officer of the Lessee has actual knowledge thereof.
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SECTION 15. The Lessor's Right to Perform for the Lessee. If the
Lessee fails to pay any Rent hereunder or fails to perform or comply with any of
its other agreements contained herein, the Lessor may, on behalf of the Lessee,
make such payment or perform or comply with such agreement, and the amount of
such payment and the amount of the reasonable costs and expenses incurred in
connection with such payment, performance or compliance, as the case may be
(together with an amount that is the equivalent of interest thereon at the
Overdue Payment Rate), shall be payable by the Lessee on demand as Supplemental
Rent (not as interest).
SECTION 16. Further Assurances. The Lessee at its expense will
promptly and duly execute and deliver such documents and assurances and take
such action as may be necessary or desirable, or as the Lessor may from time to
time reasonably request, in order to more effectively carry out the intent and
purpose of this Lease and the other Operative Documents and to establish and
protect the Lessor's title to the Aircraft and its rights and remedies created
or intended to be created under this Lease and the other Operative Documents,
including, without limitation, the execution, delivery and filing of Uniform
Commercial Code financing and continuation statements with respect to this
Lease, in form and substance satisfactory to the Lessor, in such jurisdictions
as the Lessor may reasonably request.
SECTION 17. Events of Default. The following events shall constitute
Events of Default (whether any such event shall be voluntary or involuntary or
arise by operation of law or pursuant to or in compliance with any judgment,
decree, order, rule or regulation of any court or any administrative or
governmental body):
(a) The Lessee shall fail to make any payment of Basic Rent or
Stipulated Loss Value within seven (7) days after the earlier of (i)
written notice to the Lessee and (ii) actual knowledge by a Responsible
Officer of the Lessee that such payment shall not have been paid when due;
or
(b) The Lessee shall fail to make any other payment of Rent of any
kind when due and such failure shall continue unremedied for a period of
fifteen (15) days after the earlier of (i) written notice to the Lessee
and (ii) actual knowledge by a Responsible Officer of the Lessee that such
payment shall not have been paid when due; or
(c)(i) The Lessee shall fail to carry and maintain insurance in
accordance with Section 11 hereof, or the Lessee shall operate the
Aircraft at a time when insurance required by the provisions of Section 11
shall not be in effect; or
(ii) The Lessee shall fail in any material respect to perform or
observe any other covenant or agreement to be performed or observed by it
under this Lease or
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under any other Operative Document (other than such as are the subject of
Section 17(c)(i)) and such failure to perform or observe such other
covenant or agreement shall continue unremedied for a period of thirty
(30) days after written notice thereof to the Lessee by the Lessor, except
if such failure is curable and the Lessee is diligently proceeding to cure
such failure for a period not longer than ninety (90) days after such
notice; or
(d) Any representation or warranty made by the Lessee in this Lease
or in any other Operative Document or in any document or certificate
furnished by the Lessee in connection herewith or therewith shall have
been incorrect in any material respect at the time made and such
incorrectness materially adversely affects the rights of the Lessor under
the Operative Documents and the Lessor has given written notice thereof to
the Lessee, or, if such incorrectness is curable and the Lessee is
diligently proceeding to cure same, such incorrectness shall continue for
a period not longer than forty-five (45) days after the earlier of (i)
such notice and (ii) actual knowledge of such incorrectness by a
Responsible Officer of the Lessee; or
(e) The Lessee shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of
creditors; or any proceeding or petition (voluntary or involuntary) shall
be instituted or commenced by or against the Lessee under the laws of any
country, now or hereafter in effect, seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its
debts under any law of any country relating to bankruptcy, insolvency,
moratorium or reorganization or relief of debtors, or seeking the entry of
an order, judgment or decree for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part of
its property and either such proceeding (in the case of an involuntary
proceeding only) shall remain undismissed or unstayed for a period of
ninety (90) days, or the Lessee shall take any corporate action to
authorize any of the actions set forth above in this subsection (e), or if
any competent court shall by final decision have declared the Lessee "en
disastre", bankrupt or insolvent or if, under the provisions of the
Applicable Law of Finland, any Finnish court of competent jurisdiction
shall assume jurisdiction, custody or control of the Lessee or of any
substantial part of its property and such jurisdiction, custody or control
shall remain in force unrelinquished or unstayed for a period of ninety
(90) days.
SECTION 18. Remedies. Upon the occurrence of any Event of Default
and at any time thereafter so long as the same shall be continuing, the Lessor
may, at its option, declare in writing to the Lessee that this Lease is in
default; and at any time thereafter, so long as the Lessee shall not have
remedied all outstanding Events of Default, the Lessor may do one or more of the
following with respect to the Airframe or any Engine, as the Lessor in
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its sole discretion shall elect, to the extent permitted by, and subject to
compliance with any mandatory requirements of, Applicable Law then in effect:
(a) cause the Lessee, upon the written demand of the Lessor and at
the Lessee's expense, to return promptly, and the Lessee hereby agrees
that it shall return promptly, such of the Airframe and the Engines as the
Lessor may so demand to the Lessor or such Person as the Lessor may
designate pursuant to Applicable Law in the manner and condition required
by, and otherwise in accordance with all the provisions of, Section 5 as
if the Airframe or such Engine were being returned at the end of the Term,
or the Lessor or the Lessor's agent, at its option, may, but shall be
under no obligation to, enter upon the premises where all or any part of
the Airframe or any Engine is located and take immediate possession of and
remove the same by summary proceedings or otherwise, all without liability
accruing to the Lessor or the Lessor's agent for or by reason of such
entry or taking of possession, removal or storage whether for the
restoration of damage to property caused by any such action or otherwise;
(b) sell all or part of the Airframe or any Engine at public or
private sale, as the Lessor may determine, or otherwise dispose of, hold,
use, operate, lease to others or keep idle the Airframe or any Engine as
the Lessor may determine, all free and clear of any rights or claims 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;
(c) whether or not the Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under Section 18(a) or
(b) above with respect to all or part of the Airframe or any Engine, the
Lessor, by written notice to the Lessee specifying a payment date not
earlier than ten (10) days from the date of such notice, may cause the
Lessee to pay to the Lessor, and the Lessee shall pay to the Lessor, on
the payment date specified in such notice, as liquidated damages for loss
of a bargain and not as a penalty (in lieu of the scheduled Basic Rent for
the Aircraft otherwise due on Rent Payment Dates occurring on and after
the payment date specified for payment in such notice), any unpaid Basic
Rent for the Aircraft due (or which would have been due in the absence of
the termination of this Lease) prior to the payment date specified in such
notice, any accrued, due and unpaid Supplemental Rent to and including
such payment date, plus whichever of the following amounts the Lessor, in
its sole discretion, shall specify in such notice (together with interest
on all amounts payable by the Lessee under this subsection (c) at the
Overdue Payment Rate from such specified payment date until the date of
actual payment): (i) an amount equal to the excess, if any, of the
Stipulated Loss Value for the Airframe or such Engine (computed as of the
Loss Payment Date immediately succeeding the date specified in such
notice), over the aggregate Fair Market Rental Value of the Airframe or
such
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Engine for a period equal to the remainder of the Term (or what would have
been the remainder of the Term in the absence of the termination of this
Lease) after discounting such aggregate Fair Market Rental Value quarterly
(effective on the dates which would have been Rent Payment Dates in the
absence of the termination of this Lease) to present worth as of the
payment date specified in such notice at the rate per annum equal to the
Overdue Payment Rate; or (ii) an amount equal to the excess, if any, of
the Stipulated Loss Value for the Airframe or such Engine (computed as of
the Loss Payment Date immediately succeeding the date specified in such
notice), over the Fair Market Sales Value of the Airframe or such Engine,
as of the payment date specified in such notice; provided, however, that
if such payment is not made on a Loss Payment Date, there shall be
deducted from the amount payable by the Lessee under this subsection (c)
an amount equal to interest at the rate of 9.4% per annum (computed on the
basis of a 365 day year and actual days elapsed) on the Stipulated Loss
Value payable by the Lessee, from and including the date such payment is
due under this subsection (c), to but not including the Loss Payment Date
immediately following the date of such payment;
(d) in the event the Lessor shall have sold the Airframe or any
Engine, the Lessor, in lieu of exercising its rights under Section 18(c)
with respect to the Airframe or such Engine, may, if it shall so elect,
require the Lessee to pay to the Lessor, and the Lessee shall pay to the
Lessor, on the date of such sale, as liquidated damages for loss of a
bargain and all other losses to the Lessor and not as a penalty, all
unpaid Basic Rent for the Aircraft due (or which would have been due in
the absence of the termination of this Lease) on each Rent Payment Date
occurring prior to the date of such sale, plus any Supplemental Rent that
is accrued, due and unpaid to the date of such sale plus the amount of any
deficiency between the net proceeds of such sale and the Stipulated Loss
Value of the Airframe or such Engine (computed as of the Loss Payment Date
occurring on (if payment is made on a Loss Payment Date) or immediately
following (if payment is made on a date other than a Loss Payment Date)
the date of such sale), together with interest at the Overdue Payment Rate
on all amounts payable by the Lessee under this subsection (d) from the
date of such sale until the date of actual payment; provided, however,
that if payment in respect of such sale is made on a date which is not a
Loss Payment Date, there shall be deducted from the amount payable by the
Lessee pursuant to this subdivision (d) an amount equal to interest at
9.4% per annum (computed on the basis of a 365 day year and actual days
elapsed) on the Stipulated Loss Value payable by the Lessee, from and
including the date of such sale, to but not including the Loss Payment
Date immediately following the date of such sale; and/or
(e) the Lessor may rescind this Lease or may exercise any other
right or remedy which may be available to it under Applicable Law, or to
proceed by
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appropriate court action to enforce the terms hereof or to recover damages
permitted by Applicable Law for breach hereof.
In addition, the Lessee shall be liable, except as otherwise
provided above, for any and all unpaid Rent due hereunder before, after or
during the exercise of any of the foregoing remedies 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 remedies with respect thereto, including all
reasonable costs and expenses incurred in connection with any retaking of the
Airframe or any Engine or in placing the Airframe or any Engine in the condition
and airworthiness required by Section 5. At any sale of the Airframe or any
Engine pursuant to this Section 18, the Owner Participant, the Lessor or the
Lessee, or any Affiliate of any thereof, may bid for and purchase such property.
Except as otherwise expressly provided above, no remedy referred to in this
Section 18 is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to the
Lessor at law or in equity; and the exercise or beginning of exercise by the
Lessor of any one or more of such remedies shall not preclude the simultaneous
or later exercise by the Lessor of any or all of such other remedies. No express
or implied waiver by the Lessor of any Event of Default or Default shall in any
way be, or be construed to be, a waiver of any future or subsequent Event of
Default or Default. To the extent permitted by Applicable Law, the Lessee hereby
waives any rights now or hereafter conferred by statute or otherwise which may
require the Lessor to sell, lease or otherwise use or keep idle the Airframe or
any Engine in mitigation of the Lessor's damages except as set forth in this
Section or which may otherwise limit or modify any of the Lessor's rights or
remedies under this Section 18.
For the purpose of this Section 18, the "Stipulated Loss Value" as
of any date for the Airframe or any Engine means a portion of the Stipulated
Loss Value of such Aircraft, computed as of such date, which bears the same
ratio to such Stipulated Loss Value of the Aircraft as the original cost to the
Lessor of the Airframe or such Engine (as the case may be), as reasonably
computed by the Lessor, bears to the original cost to the Lessor of the
Aircraft.
SECTION 19. Expenses.
(a) Each party shall pay all costs and expenses (including legal
fees and expenses of counsel) it has incurred in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Lease, any other Operative Document and the other documents to be delivered
hereunder or thereunder, as the case may be, except as otherwise provided below
in this Section 19, provided that in no event shall the Lessee pay any costs or
fees or any amounts of any nature whatsoever relating to the Owner Trustee or
any successor trustee or co-trustee under the Trust Agreement or administration
of the Trust Estate.
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(b) The Lessor shall pay all the costs of any mortgage taxes or
security filings incurred in connection with any financings or refinancing of
the Aircraft, except as otherwise provided below in clause (d).
(c) In connection with any financing or re-financing of the Aircraft
occurring after the Delivery Date, the Lessor shall pay on demand all reasonable
out-of-pocket costs and expenses (including reasonable legal fees and expenses
of counsel) incurred by the Lessee in connection with any such financing or
re-financing, except as otherwise provided below in clause (d).
(d) In connection with the amendment or modification to the Lease,
or registration or deregistration of the Aircraft, in each case requested by the
Lessee after the Delivery Date, or any amendment or modification to the Lease
required in connection with an Event of Loss with respect to an Engine or a
substitution of engines by the Lessee pursuant to Section 10(b) or 10(d),
respectively, and in each other instance under this Lease or any other Operative
Document where it is expressly stated that costs or expenses are to be borne by
the Lessee, the Lessee shall pay on demand all reasonable out-of-pocket costs
and expenses (including reasonable legal fees and expenses of counsel) incurred
by the Lessor, including but not limited to, any reasonable costs incurred by
the Lessor in connection with such registration or deregistration, or such Event
of Loss or engine substitution under or pursuant to any financing or refinancing
arrangement then in place.
(e) Any party may, to the extent permitted by Applicable Law, seek
payment by the other party of all its costs and expenses (including legal fees
and expenses of counsel) incurred in connection with any legal suit, action,
proceeding or arbitration arising out of or relating to this Lease or any of the
Operative Documents, provided that in any such legal suit, action or proceeding
or arbitration in which final judgment has been entered, the party against whom
such judgment has been entered shall pay all such costs and expenses (including
legal fees and expenses of counsel) incurred by the prevailing party.
SECTION 20. Assignment; Owner Trustee. Except as otherwise provided
in Section 13 of the Purchase Agreement or as the parties may otherwise agree in
writing, the Lessor agrees that it will not, at any time after the execution and
delivery of this Lease and prior to the expiry of the Term, assign or convey its
right, title and interest in and to this Lease or the Aircraft without the
written prior consent of the Lessee.
SECTION 21. Notices. All notices required under the terms and
provisions hereof shall be in writing or by telecommunication, in the English
language, and any such notice shall become effective when received by the other
party, by hand, by registered mail with proper postage for airmail prepaid, or,
if in the form of a telegram, telex or telecopy, upon confirmation of receipt
thereof, in each case addressed (i) if to the Lessee:
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FINNAIR OY
Dagmarinkatu 4
00100 Helsinki
Finland
Attention: Group Treasurer
Telex:124946 Answerback: fnair sf
Telecopier: 358-0-818-7457
Telephone: 358-0-818-81
or to such other address as the Lessee shall from time to time designate in
writing to the Lessor, or (ii) if to the Lessor:
Trust Company for USL, Inc.
615 Battery Street
San Francisco, California 94111
Attention: President
Telecopy: 415-627-9420
or to such other address as the Lessor shall from time to time designate in
writing to the Lessee.
SECTION 22. Net Lease. No Set-Off. Counterclaim. Etc. All Rent shall
be paid by the Lessee in the manner provided in Section 3(b). This Lease is a
net lease, and the Lessee will pay all costs, charges, fees and expenses
associated with the use, non-use, possession, control, operation, maintenance
and repair of the Aircraft and the Parts, except as expressly provided herein.
The Lessee's obligation to pay all Rent payable hereunder shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which the Lessee may have against the Lessor, any Owner Participant, the
manufacturer of the Airframe or of any Engine or of any Part or any other Person
for any reason whatsoever (whether in connection with the transactions
contemplated hereby or in connection with any unrelated transaction), (ii) any
defect in the title, airworthiness, eligibility for registration under
Applicable Law, condition, design, operation, merchantability, or fitness for
use of, any other matter referred to in the first sentence of paragraph (vii) of
Section 4(b), or any damage to or loss or destruction of, or any Lien upon, the
Airframe or any Engine, or any interruption or cessation in the use or
possession thereof by the Lessee for any reason whatsoever, including by reason
of governmental authority or action, (iii) any insolvency, bankruptcy,
reorganization, "en disastre", moratorium or similar proceedings by or against
the Lessee, the Lessor or any other Person, (iv) the invalidity or
unenforceability of any of the Operative Documents, (v) any restriction on the
exchange of any currency into any other
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currency, including, without limitation, an exchange of Finnish Marks into
Dollars, or on the transfer of funds to the United States or from Finland, (vi)
the Lessee at any time having immunity from suit or execution on the grounds of
sovereignty, enforceability of judgment or otherwise, (vii) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing. If for any reason whatsoever this Lease shall be terminated as to
the Airframe or any Engine in whole or in part by operation of Applicable Law,
or otherwise, except as specifically provided herein, the Lessee nonetheless
agrees to pay to the Lessor an amount equal to each Basic Rent payment for the
Aircraft at the time such payment would have become due and payable in
accordance with the terms hereof had this Lease not been so terminated in whole
or in part. The Lessee hereby waives, and hereby agrees to waive at any future
time at the request of the Lessor, to the extent permitted by Applicable Law,
any and all rights which it may now have or which at any time hereafter may be
conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease except in accordance with the express terms hereof and all
rights of "set-off', notice and demand. Each payment of Rent made by or on
behalf of the Lessee to the Lessor shall be final as to the Lessee and the
Lessor. The Lessee will not seek to recover all or any part of any such payment
of Rent made to the Lessor or any Indemnitee for any reason whatsoever and, to
the extent permitted by Applicable Law, waives all rights to any such recovery
and right to seek the same. The Lessor shall not be required to reimburse any
portion of any payment of any Basic Rent by reason of any early termination of
this Lease. Nothing in this Section 22 shall be construed to preclude the Lessee
or the Lessor from bringing any suit at law or in equity against any Person
which it would otherwise be entitled for breach of any representation, warranty,
covenant or duty hereunder.
SECTION 23. Jurisdiction; Governing Law.
(a) Each of the Lessor and the Lessee hereby irrevocably agrees
that, to the extent that it or any of its assets has or hereafter may acquire or
become entitled to any right of immunity, as against the other party hereto or
its respective successors and assigns, whether characterized as sovereign
immunity or otherwise, from any legal proceedings, action or suit, from set-off
or counterclaim, from the jurisdiction of any competent court, from service of
process, from attachment prior to judgment, from attachment in aid of execution,
or from execution prior to judgment, or other legal process, whether in the
United States of America or the Republic of Finland or any other jurisdiction,
but only to the extent required to enforce or collect upon this Lease or any
other Operative Document or any other liability or obligation of it related to
or arising from the transactions contemplated by this Lease or any other
Operative Document, including, without limitation, immunity from service of
process, immunity from jurisdiction or judgment of any court or tribunal,
immunity from execution of a judgment, and immunity of any of its property from
attachment prior to any entry of judgment or from attachment in aid of execution
upon a judgment, it hereby expressly and irrevocably and unconditionally waives
and agrees not to plead or claim any such immunity but only with respect to its
obligations or liabilities or any
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other matter under or arising out of or in connection with this Lease or any
other Operative Document or the subject matter hereof or thereof. Such agreement
and waiver shall be irrevocable and not subject to withdrawal in any and all
jurisdictions, including, without limitation, under the Foreign Sovereign
Immunities Act of 1976 of the United States.
(b) Each of the Lessor and the Lessee irrevocably agrees that any
legal suit, action or proceeding arising out of or relating solely to this Lease
or any other Operative Document, or any of the transactions contemplated hereby
or thereby or any document referred to herein or therein, may be instituted in
the State or Federal courts in the County of New York, State of New York, and it
hereby irrevocably waives, to the fullest extent permitted by law, any objection
which it may have now or hereafter to the laying of the venue or the
jurisdiction or the convenience of the forum of any such legal suit, action or
proceeding and irrevocably submits generally and unconditionally to the
non-exclusive jurisdiction of any such court but only in any such suit, action
or proceeding. In the case of the said courts, the Lessee hereby designates,
appoints and empowers Finnair, General Manager North America Finnair Executive
Office, or any successor thereof, currently located at 10 East 40th Street, New
York, New York 10016, as its authorized agent to accept, receive and acknowledge
for and on behalf of it and its property service of any and all process which
may be served but only in any action, suit or proceeding of the nature referred
to above in the County of New York, State of New York. Each of the Lessor and
the Lessee further agrees that such service of process may be made personally or
by mailing or delivering a copy of the summons and complaint or other legal
process in any such legal suit, action or proceeding to it in care of such agent
at the aforesaid address, and, in the case of the Lessor, at the address set
forth in Section 21, and such agent is hereby authorized to accept, receive and
acknowledge the same for and on behalf of it and to admit service with respect
thereto. Upon such service of process being made on such agent or the Lessor as
aforesaid, a copy of the summons and complaint or other legal process served
shall be mailed by the plaintiff to the Lessee or the Lessor, as the case may
be, registered mail, return receipt requested, at its address specified in
Section 21 hereof (as the same may be changed from time to time pursuant to said
Section 21). Such service upon such agent shall be deemed to be personal service
on the Lessee and shall be legal and binding upon it for all purposes
notwithstanding any failure to mail copies of such legal process to it, or any
failure on the part of it to receive the same, and shall be deemed completed
upon the delivery thereof to such agent whether or not such agent shall give
notice thereof to it or upon the earliest other date permitted by Applicable Law
(including, without limitation, the Immunities Act). Each of the Lessor and the
Lessee further irrevocably agrees to the service of process of any of the
aforementioned courts but only in any suit, action or proceeding of the nature
referred to above by the mailing of the copies thereof by certified air mail,
postage prepaid, return receipt requested, to it at its address specified in
Section 21 hereof (as the same may be changed from time to time pursuant to
Section 21 hereof), such service to be effective upon the date of receipt
indicated on the postal receipt returned from it.
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(c) The Lessee agrees that it will at all times continuously
maintain an agent or an office to receive service of process in the County of
New York, State of New York on behalf of itself and its property with respect to
the parties to this Lease and any other Operative Document, and, in the event
that for any reason the agent mentioned above or such office shall not serve as
agent for it to receive service of process in the County of New York, State of
New York on its behalf, it shall promptly appoint a successor satisfactory to
the Lessee and the Lessor so to serve, advise the Lessee and deliver to the
Lessee evidence thereof.
(d) Subject to any rights pursuant to Section 23(e), final judgment
against the Lessee or the Lessor in any suit shall be conclusive in any court
proceeding, and may be enforced in other jurisdictions by suit on the judgment,
a certified or true copy of which shall be conclusive evidence of the fact and
of the amount of any indebtedness or liability of the Lessee or the Lessor, as
the case may be, therein described.
(e) Notwithstanding subsection (b) in this Section 23, and in
addition to any of its rights to otherwise pursue remedies under or in respect
of this Lease, each of the Lessor and the Lessee shall have the right, at its
option, under all circumstances, to institute binding arbitration, and that if
such arbitration is so elected, with respect to any matter governed by this
Lease or any other Operative Document or in respect of any of the transactions
contemplated hereby or thereby, or the breach, termination or invalidity thereof
or in connection therewith, and any dispute, controversy and claim relating
thereto, shall be settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce, with the place of
arbitration in Stockholm, Sweden, and each party hereby irrevocably agrees that,
if either party shall elect to pursue such arbitration, the other party hereto
shall submit thereto and will be bound thereby. The Arbitral Panel shall be
composed of three (3) arbitrators. The language to be used in the arbitral
proceedings shall be English. This agreement shall be governed by the internal
laws of the State of New York (without regard to conflicts of laws principles).
(f) THIS LEASE HAS BEEN NEGOTIATED AND DELIVERED IN THE STATE OF NEW
YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF
LAWS RULE WHICH MIGHT RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER
JURISDICTION), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
SECTION 24. Miscellaneous. (a) 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 or rendering unenforceable the remaining provisions hereof, and any
such prohibitions or unenforceability
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in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction. To the extent permitted by Applicable Law, each of
the Lessor and the Lessee hereby waives any provision of Applicable Law which
renders any provision hereof prohibited or unenforceable in any respect. No term
or provision of this Lease may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
the enforcement of the change, waiver, discharge or termination is sought. This
Lease shall constitute an agreement of lease, and nothing herein shall be
construed as conveying to the Lessee any right, title or interest in the
Aircraft except as a lessee only.
(b)(i) This Lease constitutes an international transaction in which
the specification of Dollars and the payment at the designated place of payment
is of the essence, and Dollars shall be the currency of account in all events,
including for all payments of Rent and any other amount payable hereunder or
under any other Operative Document. The payment obligations of the Lessee under
this Lease shall not be discharged by an amount paid in another currency or in
another place, whether pursuant to a judgment or otherwise, to the extent that
the amount so paid on prompt conversion to Dollars (as quoted in New York, New
York) and transfer to the designated place of payment under normal banking
procedures does not yield the amount of Dollars due hereunder. If any expense
required to be reimbursed pursuant to this Agreement or any other Operative
Document is originally incurred in a currency other than Dollars, the Lessee or
the Lessor, as the case may be, shall nonetheless make reimbursement of that
expense in Dollars, in an amount equal to the amount in Dollars that would have
been required for the Person that incurred that expense to have purchased, in
accordance with normal banking procedures, at New York, New York the sum paid in
such other currency (after any premium and costs of exchange) on the date of
payment of such expenses. To the fullest extent permitted by Applicable Law, the
obligation of the Lessee or the Lessor, as the case may be, in respect of any
amount due under this Agreement or any other Operative Document shall,
notwithstanding any payment in any other currency (whether pursuant to a
judgment or otherwise), be discharged only to the extent of the amount in
Dollars that the Person entitled to receive that payment may, in accordance with
normal banking procedures, purchase and transfer to, New York, New York with the
sum paid in that other currency (after any premium and costs of exchange) on the
Business Day immediately following the day on which that Person receives that
payment. If the amount in Dollars that may be so purchased for any reason falls
short of the amount originally due, the Lessee or the Lessor, as the case may
be, shall pay and indemnify for such additional amounts, in Dollars, as may be
necessary to compensate for the shortfall. Any obligation of the Lessee or the
Lessor, as the case may be, not discharged by that payment shall, to the fullest
extent permitted by Applicable Law, be due as a separate and independent
obligation and, until discharged as provided herein by the full payment of all
outstanding amounts in Dollars as herein provided, shall continue in full force
and effect.
-51-
<PAGE>
(ii) (A) Any monies (but excluding any Collateral Security described
in Section 4(c)(iii) hereof) paid to or retained by the Lessor which are
required to be paid to the Lessee or applied for the benefit of the Lessee
(including, without limitation, amounts payable to the Lessee under Sections 10
and 11), but which the Lessor or any Person acting by or through the Lessor is
entitled to hold under the terms hereof pending the occurrence of some event or
the performance of some act (including, without limitation, the remedying of a
Default or an Event of Default), shall, until paid to the Lessee or applied as
provided herein, be invested by the Lessor from time to time at the direction,
risk and expense of the Lessee in Permitted Investments (defined below). There
shall be promptly remitted to the Lessee any gain (including interest received)
realized as the result of any such investment (net of any fees, commissions and
other expenses, if any, incurred in connection with such investment) unless an
Event of Default, or any Default described in paragraph (e) of Section 17, shall
have occurred and be continuing, in which case such gains shall be held subject
to the preceding sentence. The Lessee will promptly pay to the Lessor, on
demand, as collateral security for its obligations hereunder, the amount of any
loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment).
(B) "Permitted Investments" means obligations of, or guaranteed by,
the United States Government maturing within 91 days after such investment.
(c) This Lease, including all agreements, covenants, representations
and warranties, shall be binding upon and inure to the benefit of, and may be
enforced by, (1) the Lessor and its successors and permitted assigns and (2) the
Lessee and its successors and, to the extent permitted hereby, assigns. The
obligations of the Lessee under Sections 8 and 19 of this Lease are expressly
made for the benefit of, and shall be enforceable by, each Indemnitee entitled
thereto, without declaring this Lease to be in default or taking action in
respect of such declaration under Section 17 hereof.
(d) The section and subsection headings in and the table of contents
to this Lease are for convenience of reference only and shall not modify,
define, expand or limit any of the terms or provisions hereof, and all
references herein to numbered sections, unless otherwise indicated, are to
sections of this Lease.
(e) In the event of a discrepancy between the terms of this Lease
and any of the other Operative Documents, the terms of this Lease shall govern.
(f) This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.
-52-
<PAGE>
(g) This Lease represents the agreement of the Lessor and the Lessee
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Lessor relative to the
subject matter hereof not expressly set forth or referred to herein or in the
other Operative Documents or in the other agreements, documents and instruments
referred to herein or therein delivered pursuant hereto or thereto.
(h) Each of the Lessee and the Lessor agrees that it shall perform
the agreements, covenants and indemnities to be performed by it set forth in the
Purchase Agreement and the other Operative Documents, which agreements,
covenants and documents are hereby incorporated herein by reference as fully and
to the same extent and with the same force and effect as if set forth in full in
this Section 24(h).
SECTION 25. Title and Ownership. The Lessee acknowledges that full
legal title to the ownership of the Aircraft shall remain vested in the Lessor,
subject to the rights of the Lessee under the Lease, notwithstanding the
possession and use thereof by the Lessee.
SECTION 26. WAIVER OF JURY TRIAL. BY ITS SIGNATURE BELOW WRITTEN
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL BY JURY OF ANY
CLAIM, COUNTERCLAIM, ACTION OR PROCEEDING BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE OPERATIVE DOCUMENTS, OR RELATING TO THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OPERATIVE
DOCUMENT, OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
[The remainder of this page has been left blank intentionally.]
-53-
<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed as of the date and year first above written.
TRUST COMPANY FOR USL, INC.,
not in its individual capacity, except as
otherwise expressly provided herein, but
solely as Owner Trustee,
Lessor
By: /s/ Stanley E. Gutman
-----------------------------------
Stanley E. Gutman
Vice President
FINNAIR OY,
Lessee
By:
-----------------------------------
Title:
THE SINGLE EXECUTED ORIGINAL OF THIS LEASE MARKED "ORIGINAL" SHALL BE THE
"ORIGINAL" AND ALL OTHER COUNTERPARTS OF THIS LEASE SHALL BE DUPLICATES AND
MARKED "DUPLICATE" OR "DUPLICATE ORIGINAL". TO THE EXTENT THAT THIS LEASE
CONSTITUTES CHATTEL PAPER, AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION, NO SECURITY INTEREST MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
"ORIGINAL".
<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Lease to be duly executed as of the date and year first above written.
TRUST COMPANY FOR USL, INC.,
not in its individual capacity, except as
otherwise expressly provided herein, but
solely as Owner Trustee,
Lessor
By:
-----------------------------------
Title:
FINNAIR OY,
Lessee
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: Legal Counsel
THE SINGLE EXECUTED ORIGINAL OF THIS LEASE MARKED "ORIGINAL" SHALL BE THE
"ORIGINAL" AND ALL OTHER COUNTERPARTS OF THIS LEASE SHALL BE DUPLICATES AND
MARKED "DUPLICATE" OR "DUPLICATE ORIGINAL". TO THE EXTENT THAT THIS LEASE
CONSTITUTES CHATTEL PAPER, AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION, NO SECURITY INTEREST MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
"ORIGINAL".
<PAGE>
SCHEDULE 1
TO LEASE AGREEMENT
AIRCRAFT DOCUMENTS
TO BE DELIVERED
1. TECHNICAL DOCUMENTS (ORIGINAL OF EACH)
1) Historical Brief - Aircraft
2) AD and SB Compliance List - Aircraft
3) AD and SB Compliance List - Engine
4) List of All Modifications Performed by Finnair
5) Time and Cycle Status - Aircraft and Engine
6) Original Export Certificate of Airworthiness (At Time of Purchase
By Finnair)
7) Status of Aircraft in McDonnell Douglas Significant Structural
Inspection Program (If Applicable)
8) Difference of McDonnell Douglas Readiness Log Master Equipment
List Between Delivery and Present Configuration
9) List of Major Repairs and Alterations
10) Copy of STC's Incorporated and STC Supplements, With FAA Form 337's
for Installation
2. MAINTENANCE RECORDS
1) Aircraft Log Book
2) Engine Records
3) APU Records
4) List of Components with Time Data
5) Engine Life Limited Parts with Time Data
6) Engine Historical Records - Latest EHM Work Book
7) Shop Maintenance Summary
8) Engine Test Cell Records
9) FAA Form 337 for Last EHM
10) Airframe Life Limited Parts
11) Aircraft Weighing Data
<PAGE>
3. MANUALS
1) FAA Approved Airplane Flight Manual (AFM) [current and updated]
2) Manufacturers Flight Crew Operating Manager (FCOM)
3) Airline Flight Crew Operating Manual (FCOM)
4) Weight Balance Manual
5) Minimum Equipment List (MEL)
6) MEL Procedures Manual
7) Aircraft Maintenance Manual (AMM)
8) Aircraft Wiring Manual (AWM)
9) Aircraft Wiring Listings (AWL)
10) Systems Schematics (LAMMS)
11) Aircraft Maintenance and Inspection Program Manual
-2-
<PAGE>
SCHEDULE 2
TO LEASE AGREEMENT
ORGANIZATION OF ECONOMIC
COOPERATION AND DEVELOPMENT
For purposes of the definition of "OECD" set forth in the Operating
Lease Agreement, the following are the member nations:
1. Australia
2. Austria
3. Belgium
4. Canada
5. Denmark
6. Finland
7. France
8. Federal Republic of Germany
9. Greece
10. Iceland
11. Ireland
12. Italy
13. Japan
14. Luxembourg
15. The Netherlands
16. New Zealand
17. Norway
18. Portugal
19. Spain
20. Sweden
21. Switzerland
22. Turkey
23. The United Kingdom
24. The United States of America
<PAGE>
EXHIBIT A
TO LEASE AGREEMENT
FORM OF
LEASE SUPPLEMENT NO. 1
LEASE SUPPLEMENT NO. 1, dated April 30, 1992 between TRUST COMPANY
FOR USL, INC., not in its individual capacity, except as otherwise expressly
provided herein, but solely as owner trustee under the Trust Agreement dated as
of April 30, 1992 (the "Lessor"), and FINNAIR OY (the "Lessee").
The Lessor and the Lessee have heretofore entered into that certain
Lease Agreement, dated as of April 30, 1992, relating to one McDonnell Douglas
MD82 aircraft (herein called the "Lease" and the defined terms therein being
hereinafter used with the same meanings). The Lease provides for the execution
and delivery of a Lease Supplement for the purpose of leasing the Aircraft under
the Lease if agreed upon by the Lessor to the Lessee in accordance with the
terms thereof.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, the Lessor and the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee under the
Lease, and the Lessee hereby accepts and leases from the Lessor under the Lease,
the following described McDonnell Douglas MD82 aircraft (the "Aircraft"), which
as of the date hereof consists of the following components:
(i) Airframe: Finnish Registration Mark OH-LMO; and manufacturer's
serial number: 49151
(ii) Engines: two Pratt & Whitney Model JT8D-219 engines bearing,
respectively, manufacturer's serial numbers
709730, and
718110
(each of which engines has 750 or more rated takeoff horsepower or the
equivalent of such horsepower).
2. The Lessee hereby confirms its agreement to pay to the Lessor
Basic Rent for the Aircraft throughout the Term on the dates and in the amounts
specified in, and otherwise in accordance with all of the terms of, Section 3 of
the Lease.
<PAGE>
3. The parties confirm that the Delivery Date is April 30, 1992.
4. The parties confirm that the final Rent Payment Date is January
30, 1999, and the last day of the Term (without regard to renewals pursuant to
Section 3(e) of the Lease) is April 30, 1999.
5. The parties confirm that the purchase price paid by the Lessor to
the Lessee for the Aircraft under the Purchase Agreement is U.S. $16,800,000;
and the Lessee confirms that it has received payment in full of such purchase
price from the Lessor.
6. The Lessee hereby confirms to the Lessor that (i) the Lessee has
accepted the Aircraft for all purposes hereof and of the Lease as being
airworthy, in accordance with specifications, in good working order and repair
and without defect or inherent vice in title, condition, design, operation or
fitness for use, whether or not discoverable by the Lessee as of the date
hereof, and as otherwise described in the Lease, and (ii) the Engines are
delivered.
7. The Stipulated Loss Values for the Aircraft are the amounts as
set forth on the Schedule I attached hereto.
8. All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.
9. This Lease Supplement 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.
-2-
<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
Supplement to be duly executed as of the date and year first above written.
TRUST COMPANY FOR USL, INC.,
not in its individual capacity, except as otherwise
expressly provided herein, but solely as Owner Trustee,
Lessor
By:
-------------------------------
Stanley E. Gutman
Vice President
FINNAIR OY,
Lessee
By:
-------------------------------
Title:
-3-
<PAGE>
SCHEDULE I
TO LEASE SUPPLEMENT
RENT PAYMENTS
MD82 Aircraft M.S.N. 49151
Basic Rent Pay- Basic Rent
ment Date Occur- Payment Due
ring In/Loss (U.S. Dollars)
---------------- --------------
April 1992 $658,225.68
July 1992 $658,225.68
October 1992 $658,225.68
January 1993 $658,225.68
April 1993 $658,225.68
July 1993 $658,225.68
October 1993 $658,225.68
January 1994 $658,225.68
April 1994 $658,225.68
July 1994 $658,225.68
October 1994 $658,225.68
January 1995 $658,225.68
April 1995 $658,225.68
July 1995 $658,225.68
October 1995 $538,547.52
January 1996 $538,547.52
April 1996 $538,547.52
July 1996 $538,547.52
October 1996 $538,547.52
January 1997 $538,547.52
April 1997 $538,547.52
July 1997 $538,547.52
October 1997 $538,547.52
January 1998 $538,547.52
April 1998 $538,547.52
July 1998 $538,547.52
October 1998 $538,547.52
January 1999 $538,547.52
<PAGE>
Basic Rent Pay- Basic Rent
ment Date Occur- Payment Due
ring In/Loss (U.S. Dollars)
---------------- --------------
April 1999 $538,547.52
July 1999 $538,547.52
October 1999 $538,547.52
January 2000 $538,547.52
April 2000 $538,547.52
July 2000 $538,547.52
October 2000 $538,547.52
January 2001 $538,547.52
April 2001 $538,547.52
-2-
<PAGE>
SCHEDULE 2
TO LEASE SUPPLEMENT
STIPULATED LOSS VALUE
MD82 Aircraft M.S.N. 49151
Loss Payment Date
Occurring In Stipulated
Or Before Loss Value
----------------- -----------
4/30/92 $17,377,000
5/30/92 $16,869,706
6/30/92 $17,021,475
7/30/92 $17,175,022
8/30/92 $16,665,291
9/30/92 $16,814,610
10/30/92 $16,965,694
11/30/92 $16,453,486
12/30/92 $16,600,314
1/30/93 $16,748,893
2/30/93 $16,234,167
3/30/93 $16,378,463
4/30/93 $16,523,976
5/30/93 $16,007,051
6/30/93 $16,149,136
7/30/93 $16,292,895
8/30/93 $15,773,322
9/30/93 $15,912,744
10/30/93 $16,053,825
11/30/93 $15,531,560
12/30/93 $15,668,274
1/30/94 $15,806,633
2/30/94 $15,281,629
3/30/94 $15,415,591
4/30/94 $15,550,689
5/30/94 $15,023,293
6/30/94 $15,154,847
7/30/94 $15,288,018
8/30/94 $14,757,797
9/30/94 $14,886,513
<PAGE>
Loss Payment Date
Occurring In Stipulated
Or Before Loss Value
----------------- -----------
10/30/94 $15,016,828
11/30/94 $14,483,736
12/30/94 $14,609,565
1/30/95 $14,736,977
2/30/95 $14,200,966
3/30/95 $14,323,859
4/30/95 $14,447,828
5/30/95 $13,909,147
6/30/95 $14,029,356
7/30/95 $14,151,025
8/30/95 $13,609,239
9/30/95 $13,726,325
10/30/95 $13,844,854
11/30/95 $13,420,662
12/30/95 $13,535,652
1/30/96 $13,652,074
2/30/96 $13,225,763
3/30/96 $13,338,624
4/30/96 $13,452,463
5/30/96 $13,024,072
6/30/96 $13,134,840
7/30/96 $13,246,741
8/30/96 $12,815,883
9/30/96 $12,924,171
10/30/96 $13,033,577
11/30/96 $12,600,211
12/30/96 $12,705,978
1/30/97 $12,812,848
2/30/97 $12,376,933
3/30/97 $12,480,135
4/30/97 $12,584,140
5/30/97 $12,145,860
6/30/97 $12,246,684
7/30/97 $12,348,585
8/30/97 $11,907,673
9/30/97 $12,005,850
10/30/97 $12,105,090
11/30/97 $11,661,501
-2-
<PAGE>
Loss Payment Date
Occurring In Stipulated
Or Before Loss Value
----------------- -----------
12/30/97 $11,756,987
1/30/98 $11,853,520
2/30/98 $11,407,210
3/30/98 $11,499,960
4/30/98 $11,593,455
5/30/98 $11,144,606
6/30/98 $11,234,803
7/30/98 $11,326,018
8/30/98 $10,874,360
9/30/98 $10,961,732
10/30/98 $11,050,106
11/30/98 $10,595,592
12/30/98 $10,680,091
1/30/99 $10,765,577
2/30/99 $10,308,158
3/30/99 $10,389,738
4/30/99 $10,472,000
-3-
<PAGE>
EXHIBIT B
TO LEASE AGREEMENT
REDELIVERY RECEIPT OF AIRCRAFT AND ENGINES
(1) Aircraft Manufacturer and Model McDonnell Douglas MD82
Finnish Registration OH-LMO
Aircraft Manufacturer's
Serial No. 49151
Engine Manufacturer and Model Pratt & Whitney
JT8D-219
Engine Manufacturer's 1.
Serial Nos.: 2.
(2) Received at Helsinki-Vantaa Airport, Finland
Date: April __, 1999. Local time:_____________.
(3) Reference is made to the Lease Agreement, dated as of April 30, 1992,
between Trust Company for USL, Inc., Lessor, and Finnair Oy, Lessee (the
"Lease"). Receipt is hereby acknowledged on behalf of the Lessor of
delivery to it by the Lessee, in accordance with the Lease, of the
foregoing described aircraft together with all equipment and the Engines
(as defined in the Lease) installed thereon.
The Lessor hereby confirms that the Airframe and the two above
described installed Engines (as defined in the Lease) and all equipment and
components, documents and records have been examined by its duly appointed and
authorized representative(s) to the Lessor's satisfaction.
The Lessor hereby confirms that the Aircraft and its installed
Engines (as defined in the Lease) were duly accepted by the Lessor and that the
Lessee has performed its obligations under Section 5 of the said Lease
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Lessor has caused this Redelivery Receipt of
Aircraft and Engines to be executed in its corporate name, by its representative
thereunto duly authorized as of the day and year first above written.
TRUST COMPANY FOR USL, INC., not in its individual
capacity, except as otherwise expressly provided herein,
but solely as Owner Trustee, Lessor
By
---------------------------
Title
------------------------
Dated: April __,1999
-2-
<PAGE>
EXHIBIT C
April 30, 1992
Trust Company for USL., Inc. as Owner Trustee
for the Owner Participants below named
c/o United States Leasing International, Inc.
615 Battery Street
San Francisco, California 94111
United States Leasing International, Inc.
615 Battery Street
San Francisco, California 94111
(For the appropriate transaction)
Airlease Ltd., A California limited partnership
do United States Leasing International, Inc.
615 Battery Street
San Francisco, California 94111
Haight, Gardner, Poor & Havens
195 Broadway
New York, New York 10007
Dear Sirs:
I am assistant Secretary and in-house Counsel of Finnair Oy, a corporation
organized under the laws of the Republic of Finland (the "Lessee"). As such, I
am familiar with the sale, purchase and lease of one McDonnell Douglas MD82
Aircraft bearing Finnish Registration mark OH-LMO pursuant to (i) the Aircraft
Purchase Agreement, dated as of April 30 1992 (the "Purchase Agreement"), among
the Lessee, as the Seller, United States Leasing International, Inc. as an Owner
Participant, Airlease Ltd., A California limited partnership, as an Owner
Participant and Trust Company for USL, Inc., and (ii) the Lease Agreement dated
as of April 30, 1992 (the "Lease") between the Lessee and Trust Company for USL,
Inc., not in its individual capacity except as expressly provided, but solely as
owner Trustee under the Trust Agreement dated as of April 30, 1992 (the "Trust
Agreement") with United States Leasing International, Inc. and Airlease, Ltd., A
California Limited Partnership, as Owner Participants, as Lessor. Terms defined
in the Lease and not otherwise defined herein are used in this opinion with the
meanings defined in the Lease.
In connection with the foregoing, I have examined originals or photostatic or
certified copies of all such corporate records, certificates, affidavits and of
all such other documents as I have deemed relevant and necessary as the basis of
my opinions hereinafter set forth. I have personal knowledge that Lessee
originally acquired the Aircraft from McDonnell Douglas.
For the purposes of the opinions expressed below, I have assumed (i) the
authenticity of all documents submitted to me as originals (ii) the conformity
to the originals of all documents submitted as certified or photostatic copies
and
<PAGE>
the authenticity of the originals, (iii) the legal capacity of natural persons,
and (iv) the due authorization, execution and delivery of all documents by all
parties and the validity and binding effect thereof (other than the
authorization, execution and delivery of the documents by the Lessee and the
validity and binding effect thereof upon the Lessee).
As to certain factual matters, I have relied upon representations included in
the Purchase Agreement and the Lease, upon certificates of certain officers of
the Lessee and upon certificates of public officials.
Based upon the foregoing and such other information and documents as I have
considered necessary for the purposes hereof, I am of the opinion that:
1. The Lessee has been duly incorporated and is validly existing and in good
standing under the laws of the Republic of Finland, with the corporate power and
authority to own, sell and lease its properties and conduct its business, as the
same is presently being conducted and to own, operate and sell the Aircraft.
2. The Lessee has full corporate power and authority to enter into and carry out
the terms of the Operative Documents.
3. Each of the Operative Documents has been authorized by all necessary
corporate and shareholder action and has been duly executed and delivered by the
Lessee. The Operative Documents constitute valid and legally binding obligations
of the Lessee, enforceable against the Lessee in accordance with their terms.
Without limiting the foregoing, a court in Finland would recognize and give full
force and effect to the Lessor's title to and ownership of the Aircraft, to the
rights of the Lessor and the Owner Participants under the Lease and other
Operative Documents, and to the terms of Section 23(f) of the Lease, Article 12
of the Purchase Agreement and the Bill of Sale providing that the Lease, the
Purchase Agreement and the Bill of Sale, respectively, will be governed by the
laws of the State of New York subject to the proviso in paragraph 12 hereof. To
the extent that the remedies provided for in Section 18 of the Lease are
enforceable under New York law, a court in Finland would give effect to the
terms thereof and enable the lessor and the Owner Participants to exercise the
same remedies against the Lessee (however designated) and with respect to the
Aircraft if the Aircraft were then in Finland (including the right to repossess
the Aircraft and to export the Aircraft from Finland).
4. The execution and delivery of the Operative Documents by the Lessee, and the
performance by the Lessee under the Operative Documents will not, (a) violate
the Articles of Association of the Lessee or Lessee's Extract from the Finnish
Trade Register, or (b) result in a breach of, or
<PAGE>
constitute a default under, or result in creation of any Lien upon any of the
property of Lessee, any judgment, decree or order binding on the Lessee, or its
respective properties, or any material indenture, mortgage, contract or other
instrument to which either the Lessee is a party or by which it is bound, (c)
require any stockholder approval or approval of any trustee or holders of any
debt or other obligations of Lessee (except such as has been duly obtained), or
(d) contravene any provision of any law, governmental rule, regulation or order
binding on the Lessee.
5. No consent, approval, notice to, authorization or order, or other action of
any court or governmental agency or body or official is required for the
execution, delivery and performance (including without limitation, any foreign
exchange control or any entity regulating exchange control) by the Lessee of any
of the Operative Documents.
6. To the best of my knowledge after due inquiry, there is no action, suit,
proceeding or investigation pending or threatened before or by any court,
administrative agency, arbitrator or governmental body against, or which
directly relates to, the Lessee which concerns any of the Operative Documents or
the Aircraft or which, if adversely determined could adversely affect the
financial condition of the Lessee or compliance by the Lessee with any of the
Operative Documents.
7. Pursuant to Bill of Sale and Purchase Agreement the Lessee has conveyed to
the Lessor good and marketable title to the Aircraft, free and clear of all
liens other than Permitted Liens.
8. The execution and delivery of the Operative Documents and the performance of
the transactions contemplated therein constitute commercial activities of the
Lessee, and the Lessee is subject to private commercial law and to suit with
respect thereto, and the Lessee is not entitled to any immunity whether on
grounds of sovereign immunity or otherwise, from set-off or from any legal
proceedings in Finland or any other liability or obligations of the Lessee
related to or arising from the transactions contemplated hereby or thereby.
9. No taxes, levies, imposts, duties, charges or withholdings will be imposed by
Finland or any governmental subdivision or other taxing authority with respect
to any payments of amounts due under the Operative Documents provided that (1)
the Lessor is a "resident" of the United States, as such term is defined in
Article 4 of the Convention Between the United States of America and the
Republic of Finland for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income and on Capital (the
"Convention"); and (2) the Lessor does not have a "permanent establishment" in
Finland, as such term is defined in Article 5 of the Convention, with respect to
the transactions contemplated by the Operative Documents or the income from such
transactions is attributable. The operation of the Aircraft
<PAGE>
by the Lessee on flights to or from Finland will not result in the Lessor being
subjected to any additional taxes, levies, imposts, duties, charges or
withholdings imposed by Finland or any other governmental subdivision or other
taxing authority thereof or therein upon or with respect to the Lessor's other
income, activities or properties, subject to provisos (1) and (2) set forth
above.
10. The qualification at any time of the Lessor to do business under the laws of
Finland or any political subdivision thereof or any federation or organization
of similar entity of which Finland is a member does not constitute a condition
to, and the failure to so qualify does not affect, the purchase by the Lessor of
the Aircraft, the leasing of the Aircraft to and by the Lessee or the exercise
by the Lessor of any right, privilege or remedy accorded it in, under or in
connection with the Operative Documents or the enforcement of such right,
privilege or remedy; the purchase by the Lessor of the Aircraft, the leasing of
the Aircraft to and by the Lessee or the performance by the Lessor of any action
required under, or contemplated by, any of the Operative Documents (other than
the operation or other use (other than merely leasing from a business outside of
Finland) of the Aircraft by the Lessor) will not violate any now-existing
Applicable law of Finland or any political subdivision thereof or any federation
or organization or similar entity of which Finland is a member or result in any
tax liability (other than taxes required to be paid by the Lessee pursuant to
Section 8 of the Lease) to the Lessor pursuant to the now-existing Applicable
law of Finland or any political subdivision or taxing authority thereof or any
now existing rule or regulation of any federation or organization or similar
entity of which Finland is a member.
11. Except for the registration of the Aircraft in Finland in the name of the
Lessor as owner with the CAA, it is not necessary to ensure the legality,
validity, enforceability or admissibility in evidence of any of the Operative
Documents in Finland, that the Operative Documents or any other document be
filed or recorded with any court or other authority in Finland or that any stamp
or similar tax be paid on or in respect of any of the Operative Documents unless
court action is taken.
With respect to registration of the Aircraft with the Civil Aviation
Administration in Finland in the name of the Lessor, as owner, and the Lessee,
as operator, none of the Operative Documents other than the Bill Of Sale, and no
document other than a power of attorney, incumbency certificate and certified
corporate documents of the Lessor, need be filed, recorded or registered with
any court, public office or other governmental authority in Finland or any
political subdivision thereof. The delivery of the Bill of Sale to the Lessor,
title to the Aircraft solely vested in the Lessor as against all third parties
and the Lessee's title will be recognized by all applicable governmental
agencies, instrumentalities and courts in Finland.
<PAGE>
12. The choice of New York law and the Lessee's submission to the jurisdiction
of certain courts in New York set forth in Section 23 of the Lease are valid,
legally binding and enforceable obligations of the Lessee, provided that, a
court in Finland could refuse to enforce such obligations if it determined that
such obligations were to conflict with, or violate, any law, decree, or the
public policy of Finland; however, I know of no such law, decree or public
policy that would conflict with such obligation as of the date hereof.
13. An arbitral award properly obtained by any of the parties to the Aircraft
Purchase Agreement to the Lease Agreement pursuant to Section of the Aircraft
Purchase Agreement or to Section of the Lease Agreement will in the Republic
of Finland be subject to and enforceable under the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards made in New York in 1958 and to the
procedural rules existent in the Republic of Finland.
My opinion is subject to the qualifications that (i) the enforcement of the
Operative Documents may be limited by bankruptcy, insolvency, moratorium and
other similar laws affecting the rights of creditors generally; and (ii) the
fact the some of the remedial provisions of the instruments referred to herein
may be limited or rendered unenforceable (but, nevertheless, on my opinion the
laws involved and the instruments referred to contain reasonable remedies for
the realization of the benefits of the security intended to be afforded by the
instruments) or by the laws of other countries where enforcement may be sought.
No opinion is expressed as to the availability of specific or equitable remedies
as such for the enforcement of any of the Operative Documents.
I do not purport to express an opinion on any laws other than those of the
Republic of Finland. This opinion is furnished to you pursuant to Section
4(a)(ix) of the Purchase Agreement for your sole benefit, and no other person or
entity shall be entitled to rely on this opinion without my express written
consent. This opinion may not be published or reproduced in any manner or
distributed or circulated to any person or entity without my express written
consent. This opinion is limited to the matters stated herein, and no opinion is
implied or may be inferred beyond the matters expressly stated herein.
Very truly yours,
Kai Soveri
In-House Counsel
<PAGE>
EXHIBIT D
================================================================================
GUARANTY AGREEMENT
Dated as of April 30, 1992
of
UNITED STATES LEASING INTERNATIONAL, INC.
as Guarantor
for the benefit of
FINNAIR OY,
as Beneficiary
--------------------------------
One McDonnell Douglas MD82 Aircraft
Finnish Registration Mark OH-LMO
--------------------------------
================================================================================
<PAGE>
Table of Contents
Page
----
SECTION 1. Definitions .................................................... 2
SECTION 2. Guaranty ....................................................... 2
SECTION 3. General Provisions Relating to this
Agreement ............................................... 3
SECTION 4. Guarantor's Waivers, Representations and Warranties ............ 5
(a) Successive Transactions ........................................ 5
(b) Obligations Joint and Several; Separate Actions; Waiver of
Statute of Limitations ......................................... 5
(c) Authorizations To Beneficiaries ................................ 5
(d) Guarantor's Waivers ............................................ 6
(e) Other Representations and Warranties ........................... 7
SECTION 5. Miscellaneous .................................................. 8
(a) Amendment of Trust Agreement and the Operative
Documents ...................................................... 8
(b) Binding Effect ................................................. 8
(c) Waivers; Cumulative Effect ..................................... 8
(d) Amendments; Waivers ............................................ 9
(e) Section Headings; Table of Contents ............................ 9
(f) Severability ................................................... 9
(g) Notices ........................................................ 9
(h) Counterparts ................................................... 10
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<PAGE>
(i) Indemnity; Further Assurances .................................. 10
(j) Jurisdiction; Governing Law .................................... 10
(k) Waiver of Jury Trial ........................................... 11
-ii-
<PAGE>
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (this "Agreement"), dated as of April 30,
1992, by UNITED STATES LEASING INTERNATIONAL, INC., a Delaware corporation (the
"Guarantor"), for the benefit of FINNAIR OY, a Finnish corporation (the
"Beneficiary") (this "Agreement").
WITNESSETH:
WHEREAS, a Purchase Agreement, dated as of the date hereof (as the
same may be supplemented, amended or otherwise modified from time to time, the
"Purchase Agreement"), has been or shall be entered into among the Beneficiary,
as Seller, Trust Company for USL, Inc. (the "Trust Company"), not in its
individual capacity, except as otherwise expressly provided therein, but solely
as Owner Trustee under a Trust Agreement, dated as of the date hereof (as the
same may be supplemented, amended, or otherwise modified from time to time, the
"Trust Agreement"), for the benefit of United States Leasing International,
Inc., in its capacity as the Owner Participant (the "Owner Trustee"), as Buyer,
Airlease Ltd., a California Limited Partnership, in its capacity as an Owner
Participant, and United States Leasing International, Inc., in its capacity as
the Owner Participant (each an "Owner Participant" and collectively the "Owner
Participants"), relating to the sale and purchase of the McDonnell Douglas MD82
Aircraft therein described, upon the terms and conditions therein set forth; and
WHEREAS, the Owner Trustee, as Lessor, and the Beneficiary, as
Lessee, shall enter or have entered into a Lease Agreement, dated as of the date
hereof (as the same may be supplemented, amended or otherwise modified from time
to time, the "Lease"), relating to the Aircraft; and
WHEREAS, it is a condition precedent to the obligations of the
Beneficiary to sell the Aircraft to the Owner Trustee under the Purchase
Agreement and to lease the Aircraft from the Owner Trustee under the Lease that
the Guarantor shall have executed and delivered this Agreement to the
Beneficiary; and
WHEREAS, the Guarantor owns all of the outstanding voting stock of
the Trust Company.
NOW, THEREFORE, in order to induce the Beneficiary to enter into the
Purchase Agreement and the Lease, and in consideration of the premises, the
Guarantor hereby agrees as follows:
<PAGE>
SECTION 1. Definitions. Except as otherwise defined herein, all
capitalized terms used herein shall have the meanings given or referred to in
the Lease.
SECTION 2. Guaranty.
(a) The Guarantor hereby unconditionally (except as hereinafter set
forth) and irrevocably guarantees as primary obligor and not merely as surety,
without offset or deduction, to the Beneficiary
(i) the performance by the Trust Company, in its individual
capacity, of all its obligations undertaken in its individual capacity,
whether direct or indirect, actual or contingent, now or hereinafter
incurred, under the Purchase Agreement and the Lease, except such
obligations of the Trust Company as arise after or relate solely to such
time after the earlier to occur of (A) the time, if ever, that the Trust
Company shall have assigned or transferred to one or more eligible
transferees (but excluding any such assignment or transfer by way of
security), in accordance with, and to the extent permitted by, Article XI
or Article XIV of the Trust Agreement, all or a portion of the Trust
Company's or the Owner Trustee's right, title and interest in and to the
Trust Estate or the Lease Property, or there shall be a successor trustee
in accordance with Article XI of the Trust Agreement, (B) the time, if
ever, that an Owner Participant shall have (1) assigned or transferred to
one or more eligible transferees (but excluding any such assignment or
transfer by way of security), in accordance with, and to the extent
permitted by, Article 13 of the Purchase Agreement, all or a portion of
such Owner Participant's right, title and interest in and to the Trust
Estate, and (2) delivered or caused to be delivered to the Beneficiary a
guaranty, in form and substance substantially identical to this Agreement
(except as to the portion of the obligations so guaranteed), by each of
such transferees or by an entity meeting the qualifications of such
Article 13 guaranteeing the obligations of the Trust Company, and (C) the
termination of the Lease; and
(ii) the performance by the Owner Trustee, in its capacities as the
Buyer and the Lessor, and not in its individual capacity, of all its
obligations undertaken in such capacities (except to the extent that such
obligation or the event or circumstance giving rise to the same is
attributable to an Owner Participant), whether direct or indirect, actual
or contingent, now or hereinafter incurred, under the Purchase Agreement
and the Lease, except such obligations of the Owner Trustee in either of
such capacities as arise after or relate solely to such time after the
earlier to occur of (A) the time, if ever, that an Owner Participant shall
have (1) assigned or transferred to one or more eligible transferees (but
excluding any such assignment or transfer by way of security), in
accordance with, and to the extent permitted by, Article 13 of the
Purchase Agreement, all or a portion of such Owner Participant's right,
title and interest in and to the Trust Estate, and (2) delivered or caused
to be delivered to the
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<PAGE>
Beneficiary a guaranty, in form and substance substantially identical to
this Agreement (except as to the portion of the obligations so
guaranteed), by each of such assignees or transferees or by an entity
meeting the qualifications of such Article 13 guaranteeing the obligations
of the Owner Trustee; and (B) the termination of the Lease.
To the extent that the obligations of the Guarantor hereunder have
been assumed or guaranteed by a subsequent Owner Participant or other qualified
Person in accordance with either Section 2(a)(i) or 2(a)(ii), the obligations of
the Guarantor hereunder shall be relieved and discharged to the extent of the
obligations so assumed or guaranteed by such subsequent Owner Participant or
other qualified Person.
(b) THE GUARANTY PURSUANT TO SECTION 2(a) HEREOF IS A GUARANTY OF
PAYMENT AND PERFORMANCE AND NOT OF COLLECTION AND IS IRREVOCABLE, ABSOLUTE,
UNCONDITIONAL AND CONTINUING AND THE GUARANTOR WANES ANY RIGHT TO REQUIRE THAT
ANY ACTION AGAINST THE TRUST COMPANY, THE OWNER TRUSTEE OR ANY OTHER PERSON BE
TAKEN OR ADJUSTED PRIOR TO DEMAND BEING MADE ON OR ACTION BEING TAKEN AGAINST
THE GUARANTOR.
(c) The Guarantor hereby agrees that, to the extent of its guaranty
pursuant to Section 2(a) hereof, in the event the Trust Company or the Owner
Trustee fails to perform any guaranteed obligation for any reason (including,
without limitation, the liquidation, dissolution, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar proceedings
affecting the status, existence, assets or obligations of, the Trust Company or
the Owner Trustee or the disaffirmance with respect to the Trust Company or the
Owner Trustee of the Purchase Agreement or the Lease in any such proceeding) as
promptly as practicable, but in any event not later than 5 Business Days after
the date on which such guaranteed obligation is required to be performed, the
Guarantor shall perform or cause such guaranteed obligation to be performed on
first demand as promptly as practicable, but in any event not later than 5
Business Days following the Guarantor's receipt of notice from the Beneficiary
(a copy of such notice to be sent to the Lessor to the extent the Beneficiary is
not stayed or prevented from doing so by operation of law) stating that such
guaranteed obligation was not performed when required.
SECTION 3. General Provisions Relating to this Agreement.
(a) The obligations of the Guarantor under this Agreement shall
remain in full force and effect until each and all of such obligations shall
have been fully discharged in accordance with the terms and provisions hereof.
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<PAGE>
(b) This Agreement and the liability of the Guarantor hereunder, to
the fullest extent permitted by Applicable Law, shall not be affected by and
shall remain in full force and effect irrespective of: (i) the legality,
validity, regularity, genuineness or enforceability, in whole or in part, of any
document or agreement, including, without limitation, the Trust Agreement, the
Operative Documents or any of them, or of any assignment (other than as
contemplated by Section 2(a) hereof), amendment, modification, waiver or
termination of the Trust Agreement; (ii) the transfer, assignment, subletting or
mortgaging or the purported transfer, assignment, subletting or mortgaging of
all or any part of the interest of any Person in the Aircraft; (iii) any failure
of title with respect to the Aircraft; (iv) any merger or consolidation of any
Person into or with any other Person or any sale, lease or transfer of any of
the assets of any Person to any other Person; (v) an assignment or any change in
the ownership of any partnership interest or shares of capital stock other than
transfer permitted by Article 13 of the Purchase Agreement or by the Trust
Agreement; or (vi) any other occurrence or circumstance that might otherwise
constitute a legal or equitable defense or discharge of the liabilities of a
guarantor or surety or that might otherwise limit recourse against the Guarantor
as a guarantor, including, without limitation, any defense arising out of any
laws of the Republic of Finland or of the United States or any State thereof
that would either exempt, modify or delay the due or punctual performance of the
obligations of the Guarantor hereunder.
(c) The obligations of the Guarantor set forth herein constitute the
full recourse obligations of the Guarantor enforceable against it to the full
extent of all its assets and properties.
(d) The obligations and liabilities of the Guarantor hereunder shall
not be impaired, diminished, abated or otherwise affected (i) by any setoff,
defense or counterclaim that the Trust Company, the Owner Trustee or the
Guarantor or any other Person may have or claim to have, at any time or from
time to time (other than full payment or performance of the guaranteed
obligations), or (ii) by the commencement by or against the Trust Company, the
Owner Trustee or the Guarantor or any other Person of any proceedings under any
bankruptcy or insolvency law or laws relating to fraudulent conveyance, the
relief of debtors, readjustment of indebtedness, reorganizations, arrangements,
compositions or extension or other similar laws.
(e) Except as otherwise expressly set forth herein, no act or
omission of any kind or at any time on the part of the Owner Trustee, any
beneficiary under the Trust Agreement, the Lessee, or any other Person in
respect of any matter whatsoever including, without limitation, any omission in
performance of their respective obligations under any document or agreement,
including, without limitation, the Trust Agreement or any of the Operative
Documents, shall in any way affect or impair the guaranty hereunder, save for an
express written waiver, release or discharge or the like or variation of its
terms, which shall
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<PAGE>
be effective only with respect to the Person granting the same, or performance
by any thereof of the terms of any Operative Document.
(f) The guaranty hereunder shall continue to be effective or be
reinstated, as the case may be, if, at any time, payment, or any part thereof,
of any of the obligations hereunder, under the Trust Agreement or under any of
the Operative Documents is rescinded or must otherwise be restored or returned
by the Beneficiary upon the insolvency, bankruptcy or reorganization of the
Trust Company, the Owner Trustee or otherwise, all as though such payment had
not been made.
SECTION 4. Guarantor's Waivers, Representations and Warranties.
(a) Successive Transactions. This is a continuing guaranty and all
rights, powers and remedies hereunder shall apply to all the obligations of the
Trust Company and the Owner Trustee to the Beneficiary guaranteed by the
Guarantor pursuant to Section 2(a), including those arising under successive
transactions, which shall either continue the Guarantor's obligations hereunder,
or increase or decrease them, and notwithstanding the dissolution, liquidation
or bankruptcy of the Trust Company, the Owner Trustee or the Guarantor or any
other Person, or any other event or proceeding affecting the Trust Company, the
Owner Trustee or the Guarantor or any other Person.
(b) Obligations Joint And Several; Separate Actions; Waiver of
Statute of Limitations. The obligations hereunder are joint and several and
independent of the obligations of the Trust Company and the Owner Trustee and a
separate action or actions may be brought and prosecuted against the Guarantor
whether action is brought against the Trust Company, the Owner Trustee or any
other Person, or whether the Trust Company, the Owner Trustee or any other
Person is joined in any such action or actions. The Guarantor acknowledges that
there are no conditions precedent to the effectiveness of this Guaranty, and
that this Guaranty is in full force and effect and is binding on the Guarantor
as of the date written below, regardless of whether the Beneficiary obtains
collateral or any guaranties from others or take any other action contemplated
by the Guarantor. The Guarantor waives the benefit of any statute of limitations
affecting the Guarantor's liability hereunder or the enforcement thereof except
to the extent that a statute of limitations shall affect the obligations of the
Trust Company or the Owner Trustee, and the Guarantor agrees that any payment or
performance of any obligation of the Trust Company or the Owner Trustee or other
act which shall toll any state of limitations applicable thereto shall similarly
operate to toll such statute of limitations applicable to the Guarantor's
liability hereunder.
(c) Authorizations To Beneficiary. The Guarantor hereby authorizes
the Beneficiary without notice to or demand on the Guarantor and without
affecting the Guarantor's liability hereunder, from time to time, to the extent
permitted by and in
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<PAGE>
accordance with the terms and provisions of the Operative Documents, to: (i)
alter, compromise, renew, extend, accelerate or otherwise change the time for
payment or performance of, or otherwise change the terms of the obligations
guaranteed hereunder or any part thereof, including increase or decrease of any
amount due or which may become due or is the rate of interest thereon; (ii) take
and hold security for the payment of this Guaranty or the obligations guaranteed
hereunder or any portion thereof, and exchange, enforce, waive and release any
such security; (iii) apply such security and direct the order or manner of sale
thereof, including, without limitation, a non-judicial sale permitted by the
terms of the controlling agreement, as the Beneficiary in its discretion may
determine; and (iv) release (without increasing the several obligations of any
other party) or substitute any one or more of the endorsers or any other
guarantors of the obligations guaranteed hereunder. The Beneficiary may not
assign this Guaranty in whole or in part without the prior written consent of
the Guarantor. The Guarantor agrees to provide to the Beneficiary upon request
copies of the Guarantor's financial statements and a copy of any reports made
available to shareholders by sending the same to such party's address as set
forth in Section 5(g) hereof.
(d) Guarantor's Waivers. The Guarantor waives any right to require
the Beneficiary to: (i) make any claim or demand or proceed against any Person,
including without limitation, the Trust Company, the Owner Trustee or any other
guarantor of the guaranteed obligations; (ii) make any claim or demand or
proceed against or exhaust any security held from the Trust Company, the Owner
Trustee or any other guarantor of the guaranteed obligations or any other
Person; (iii) pursue any other remedy in the Beneficiary's power; (iv) give
notice of any default by the Trust Company or the Owner Trustee or to give
notice of any matters affecting the Trust Company or the Owner Trustee (except
to the extent provided in Section 2(c)); or (v) make any presentations or
demands for performance, or give any notices of non-performance, protests,
notices of protest or notices of dishonor in connection with any obligations or
evidences of indebtedness held by the Beneficiary as security, in connection
with any other obligations or evidences of indebtedness which constitute in
whole or in part the obligations guaranteed hereunder, or in connection with the
creation of new or additional obligations. The Guarantor waives notice of
acceptance of this Agreement by any Beneficiary.
The Guarantor waives to the fullest extent possible under Applicable
Law any defense based upon or arising by reason of: (i) any disability or other
defense (other than of payment or performance) of the Trust Company or the Owner
Trustee or any other Person; (ii) the cessation or limitation from any cause
whatsoever, other than final payment in full or performance, of all obligations
of the Trust Company or the Owner Trustee guaranteed hereunder or of any other
Person; (iii) any lack of authority of any officer, director, partner, agent or
any other Person acting or purporting to act on behalf of the Trust Company or
the Owner Trustee, or any defect in the creation or existence of the Trust, the
Trust Estate, the Trust Company or the Owner Trustee; (iv) the use by the Trust
Company of the Aircraft or
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<PAGE>
of the proceeds therefrom; (v) any act or omission by any Owner Participant
which, directly or indirectly, results in or aids the discharge of the Trust
Company or the Owner Trustee or any of its obligations guaranteed hereunder by
operation of law or otherwise (other than of payment or performance); (vi) any
act or omission of the Beneficiary which impairs any collateral for the
obligations of the Trust Company or the Owner Trustee guaranteed hereunder
including, without limitation, surrender, release, failure to perfect, or delay
in perfection of, any security interest for such indebtedness, and the exchange,
substitution, dealing with or taking additional collateral, or abstaining from
taking advantage of or realizing upon any security interest or guaranty; (vii)
any errors and omissions in connection with the administration by the Trust
Company or the Owner Trustee guaranteed hereunder; or (viii) any modification of
the Trust Agreement, in any form whatsoever, of the obligations of the Trust
Company or the Owner Trustee guaranteed under Section 2(a), including any
modification made after any attempted revocation hereof to any obligations
incurred prior to any such attempted revocation, and including, without
limitation, the renewal, extension, acceleration or other change in time for
payment or performance of such obligations, or other change in the terms of the
obligations of the Trust Company or the Owner Trustee guaranteed under Section
2(a) or any part thereof, including any increase or decrease in the amount of
payment due or which may become due, or increase or decrease of the rate of
interest thereon. Until all obligations of the Trust Company and the Owner
Trustee guaranteed under Section 2(a) shall have been finally performed and paid
in full, the Guarantor shall have no right of subrogation, and the Guarantor
waives any defense the Guarantor may have based upon any election of remedies by
the Beneficiary which impairs or destroys the Guarantor's subrogation rights or
the Guarantor's right to proceed against the Trust Company or the Owner Trustee
for reimbursement. Until all obligations of the Trust Company and the Owner
Trustee guaranteed hereunder shall have been finally performed and paid in full,
the Guarantor, for the benefit of the Beneficiary, further waives any right, and
agrees it shall not take any action, to enforce any remedy which the Beneficiary
now has or may hereafter have against the Trust Company, the Trust Estate, any
Owner Participant or the Owner Trustee, and waives, and agrees it shall refrain
from seeking, any benefit of, or any right to participate in, any security
whatsoever now or hereafter held by the Beneficiary.
(e) Other Representations and Warranties. The Guarantor hereby
further represents and covenants to the Beneficiary as follows:
(i) The Guarantor is a corporation duly organized and validly
existing pursuant to the laws of the State of Delaware and has the
corporate power and authority to carry on its business as now conducted
and to enter into and perform its obligations under this Agreement.
(ii) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action on the part of the
Guarantor, do not require any approval or other action of any stockholder
of the Guarantor or any
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<PAGE>
approval or consent of any trustee or holders of any indebtedness or
obligations of the Guarantor (or that any such approval or consent as is
required has been obtained), and neither the execution and delivery of
this Agreement by the Guarantor nor the performance by the Guarantor of
its obligations hereunder contravenes any material Applicable Law, or
contravenes or results in any breach of, or constitutes any default under,
any material term of any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan or credit agreement, or any
material term of any other agreement or instrument, corporate charter,
by-law or permit issued by any governmental authority under Applicable Law
to which the Guarantor is a party or by which the Guarantor or its
properties may be bound.
(iii) Neither the execution and delivery by the Guarantor of this
Agreement nor the performance by the Guarantor of the obligations
undertaken hereunder 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, any governmental authority under Applicable Law.
(iv) This Agreement has been duly executed and delivered by the
Guarantor and constitutes the valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights and remedies generally, and by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 5. Miscellaneous.
(a) Amendment of Trust Agreement and the Operative Documents. Each
of the Trust Company, the Owner Trustee and the Beneficiary may, in their
discretion, as permitted by and in accordance with the terms and provisions of
the Operative Documents to which it is a party, agree to amendments of the Trust
Agreement and the Operative Documents, give or withhold consents, approvals or
waivers and exercise or refrain from exercising their respective rights under
the Trust Agreement and the Operative Documents.
(b) Binding Effect. This Agreement and every part hereof shall be
binding upon the Guarantor and its successors and assigns, and shall inure to
the benefit of and shall be directly enforceable by, the Beneficiary and its
successors and assigns.
(c) Waivers; Cumulative Effect. A waiver by the Beneficiary of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Beneficiary would otherwise have had on any future
occasion with regard to any subsequent breach. Neither a failure to exercise,
nor any delay in exercising, on the part of
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<PAGE>
the Beneficiary, any right, power or privilege it may have hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder nor any course of dealing preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by Applicable Law.
(d) Amendments; Waivers. None of the terms or provisions of this
Agreement may be amended, waived, altered, modified or terminated except as
contemplated hereby and except by an instrument in writing signed by a written
consent of the Beneficiary and the Guarantor. The invalidity, illegality or
unenforceability of any provision of this Agreement shall not affect the
validity, legality or enforceability of any other provisions of this Agreement.
(e) Section Headings; Table of Contents. The section headings in and
the table of contents to this Agreement are for convenience of reference only
and shall neither be deemed to be part of this Agreement nor modify, define,
expand or limit any of the terms or provisions hereof.
(f) 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 or any provisions in the Trust
Agreement or any Operative Document, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(g) Notices. All communications, notices, consents and waivers
provided for herein or given in connection herewith shall be in writing and
shall become effective when received by telecopy, international courier or
registered United States mails, addressed, (i) if to Beneficiary:
FINNAIR OY
Dagmarinkatu 4
00100 Helsinki
Finland
Attention: Group Treasurer
Telex: 124946 Answerback: fnair sf
Telecopier: 358-0-818-7457
Telephone: 358-0-818-81
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<PAGE>
or to such other address as the Beneficiary shall from time to time designate in
writing to the Guarantor, or (ii) if to the Guarantor to:
United States Leasing International, Inc.
615 Battery Street
San Francisco, California 94111
Attention: Executive Vice President, Transportation Financing
Telex: 278031
Telecopy: 415-627-9240
or to such other address as the Guarantor shall from time to time designate in
writing to the Beneficiary.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on 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.
(i) Indemnity; Further Assurance. The Guarantor agrees to indemnify
the Beneficiary from and against any and all liabilities and losses incurred by
the Beneficiary in any way relating to or arising out of the breach by the
Guarantor of any of its agreements contained herein, including all reasonable
expenses, including attorney's fees and expenses, that may be incurred in
enforcing such agreements against the Guarantor, provided, however, that the
foregoing indemnity and agreement to hold harmless shall be coextensive in scope
with, and shall in no way expand, waive or limit, such covenants or agreements
or any rights, remedies or defenses which are or would be available in
connection therewith.
(j) Jurisdiction; Governing Law.
(i) The Guarantor hereby irrevocably agrees that, to the extent that
it or any of its assets has or hereafter may acquire any right of
immunity, as against the other party hereto or its respective successors
and assigns, whether characterized as sovereign immunity or otherwise,
from any legal proceedings, whether in the United States of America or the
Republic of Finland or any other jurisdiction, but only to the extent
required to enforce or collect upon this Agreement or any other liability
or obligation of it related to or arising solely from the transactions
contemplated by this Agreement, including, without limitation, immunity
from service of process, immunity from jurisdiction or judgment of any
court or tribunal, immunity from execution of a judgment, and immunity of
any of its property from attachment prior
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<PAGE>
to any entry of judgment or from attachment in aid of execution upon a
judgment, it hereby expressly and irrevocably waives any such immunity.
(ii) The Guarantor irrevocably agrees that any legal suit, action or
proceeding arising out of or relating solely to this Agreement, the Trust
Agreement or any Operative Document, or any of the transactions
contemplated hereby or thereby or any document referred to herein or
therein, may be instituted in the State or Federal courts in the County of
New York, State of New York, or the Superior Court, City and County of San
Francisco, San Francisco, California, and it hereby irrevocably waives, to
the fullest extent permitted by law, any objection which it may have now
or hereafter to the laying of the venue or the jurisdiction or the
convenience of the forum of any such legal suit, action or proceeding and
irrevocably submits generally and unconditionally to the non-exclusive
jurisdiction of any such court but only in any such suit, action or
proceeding. The Guarantor further agrees that such service of process may
be made personally or by mailing or delivering a copy of the summons and
complaint or other legal process in any such legal suit, action or
proceeding, registered mail, return receipt requested, at its address
specified in Section 5 hereof (as the same may be changed from time to
time pursuant to said Section 5). The Guarantor further irrevocably agrees
to the service of process of any of the aforementioned courts but only in
any suit, action or proceeding of the nature referred to above by the
mailing of the copies thereof by certified air mail, postage prepaid,
return receipt requested, to it at its address specified in Section 5
hereof (as the same may be changed from time to time pursuant to Section 5
hereof), such service to be effective upon the date of receipt indicated
on the postal receipt returned from it.
(iii) Final judgment against the Guarantor in any suit shall be
conclusive, and may be enforced in other jurisdictions by suit on the
judgment, a certified or true copy of which shall be conclusive evidence
of the fact and of the amount of any indebtedness or liability of the
Guarantor as therein described.
(iv) THIS AGREEMENT HAS BEEN NEGOTIATED AND DELIVERED IN THE STATE
OF NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO ANY CONFLICT OF LAWS RULE WHICH MIGHT RESULT IN THE APPLICATION
OF THE LAWS OF ANY OTHER JURISDICTION), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.
(k) WAIVER OF JURY TRIAL. BY ITS SIGNATURE BELOW WRITTEN THE
GUARANTOR HEREBY IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL BY JURY OF ANY CLAIM,
COUNTERCLAIM, ACTION OR PROCEEDING BASED UPON OR ARISING OUT OF THIS AGREEMENT,
THE TRUST AGREEMENT, THE OPERATIVE DOCUMENTS, OR RELATING TO THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. THIS WAIVER SHALL APPLY TO ANY
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<PAGE>
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE TRUST AGREEMENT, ANY OPERATIVE DOCUMENT, OR ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THIS TRANSACTION. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be
duly executed as of the date first set forth above.
UNITED STATES LEASING
INTERNATIONAL, INC.,
as Guarantor
By
----------------------------
Name:
Title:
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<PAGE>
Document No. 3
- --------------------------------------------------------------------------------
SALE AND LEASE AGREEMENT
dated as of September 1, 1990
between
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION
as Owner Trustee,
Lessor
and
SOUTHWEST AIRLINES CO.,
Lessee
------------------------
One Boeing Model 737-2H4 Aircraft
(N56SW)
SOUTHWEST AIRLINES 1990 TRUST III
- --------------------------------------------------------------------------------
The rights of Lessor under this Sale and Lease Agreement have been
assigned to, and are subject to a security interest in favor of, Progress Credit
Corporation as Lender under a Security Agreement and Assignment of Leases 56SW
dated as of September 1, 1990. This Sale and Lease Agreement has been executed
in counterparts. To the extent that this Sale and Lease Agreement constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Sale and
Lease Agreement may be created through the transfer or possession of any
counterpart other than the counterpart that states on its cover that it is the
original counterpart. This is not the original counterpart.
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
Section 1. Definitions ..................................................... 1
Section 2. Sale, Lease and Acceptance ...................................... 9
Section 3. Term and Rent ................................................... 9
3.1 General ................................................... 9
3.2 Lease Term ................................................ 9
3.3 Basic Rent ................................................ 9
3.4 Supplemental Rent ......................................... 10
3.5 Payments .................................................. 10
Section 4. Lessor's Representations and Warranties; DISCLAIMER;
Certain Agreements of Lessee ................................. 11
4.1 Lessor's Representations and Warranties; DISCLAIMER ....... 11
4.2 Certain Agreements of Lessee .............................. 11
Section 5. Return of Aircraft ............................................... 12
5.1 General Condition upon Return ............................. 12
5.1.1 Airworthiness ...................................... 12
5.1.2 Free of Liens ...................................... 12
5.1.3 Operating Configuration and Condition .............. 12
5.1.4 Cleanliness and Operability ........................ 12
5.1.5 Parts and Equipment ................................ 12
5.1.6 Corrosion Treatment ................................ 12
5.1.7 Hush Kits ........................................ 13
5.1.8 Other Conditions ................................... 13
5.2 Return of Other Engines ................................... 13
5.3 Return at End of Base Lease Term or Renewal Lease Term .... 13
5.3.1 Airframe ........................................... 14
5.3.2 Engines ............................................ 14
SALE AND LEASE AGREEMENT
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Section Page
- ------- ----
5.3.3 Boroscope .......................................... 15
5.3.4 Landing Gears ...................................... 15
5.3.5 APU ................................................ 15
5.3.6 Other Components ................................... 15
5.4 Financial Adjustments ..................................... 15
5.4.1 Airframe ........................................... 15
5.4.2 [Intentionally omitted.] ........................... 15
5.4.3 Landing Gears ...................................... 16
5.5 Manuals; Service Bulletins, Etc. .......................... 16
5.6 Storage upon Return ....................................... 16
5.7 Failure to Return Aircraft or Engines ..................... 16
5.8 Aid in Disposition ........................................ 17
Section 6. Liens ............................................................ 17
Section 7. Registration, Operation, Possession, Subleasing and Records ...... 17
7.1 Registration and Operation ................................ 17
7.1.1 Registration ....................................... 17
7.1.2 Nameplate .......................................... 18
7.1.3 Compliance with Laws ............................... 18
7.1.4 Insurance Requirements; Government
Requisition; Indemnity ........................... 18
7.2 Possession ................................................ 19
7.2.1 Interchange and Pooling ............................ 19
7.2.2 Testing and Service ................................ 19
7.2.3 Civil Reserve Air Fleet Program .................... 19
7.2.4 Installation of Engines ............................ 20
7.2.5 Installation of Engines on Other Airframes ......... 20
7.2.6 Pooling of Parts ................................... 20
7.2.7 Wet Lease .......................................... 20
7.2.8 Sublease to Permitted Air Carriers ................. 20
SALE AND LEASE AGREEMENT
ii
<PAGE>
Section Page
- ------- ----
7.3 Records and Reports ....................................... 22
7.3.1 Records ............................................ 22
7.3.2 Information and Reports ............................ 22
7.3.3 Financial Information .............................. 23
Section 8. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions ................................. 23
8.1 Maintenance ............................................... 23
8.1.1 Maintenance Program ................................ 23
8.1.2 Compliance with Government Requirements ............ 24
8.2 Replacement of Parts ...................................... 24
8.3 Pooling of Parts .......................................... 24
8.4 Alterations, Modifications and Additions .................. 25
Section 9. [Intentionally Omitted] ......................................... 26
Section 10. Loss, Destruction, Requisition, Etc. ............................ 26
10.1 Event of Loss with Respect to Aircraft ................... 26
10.2 Event of Loss with Respect to an Engine .................. 26
10.2.1 Event of Loss .................................... 26
10.2.2 Conditions; Lessee's Obligations ................. 27
10.2.3 Recordation and Opinions ......................... 28
10.2.4 Conveyance; Replacement Engine ................... 28
10.2.5 No Reduction of Rent ............................. 28
10.3 Application of Certain Payments .......................... 28
10.3.1 Replacement of Engine ............................ 28
10.3.2 Nonreplacement ................................... 28
10.4 Requisition of Aircraft for Use by
Governmental Authorities ............................... 29
10.5 Requisition of an Engine for Use by
Governmental Authorities ............................... 29
SALE AND LEASE AGREEMENT
iii
<PAGE>
Section Page
- ------- ----
10.6 Application of Payments During Existence of Default ...... 29
Section 11. Insurance ....................................................... 29
11.1 Public Liability and Property Damage Insurance ........... 29
11.1.1 Type, Form and Amount ............................ 30
11.1.2 Coverage ......................................... 30
11.1.3 Additional Insureds .............................. 30
11.2 Insurance Against Loss of or Damage to Aircraft
and Engines ............................................ 30
11.2.1 Type, Form and Amount ............................ 30
11.2.2 War-Risk Insurance ............................... 30
11.2.3 Certain Requirements ............................. 31
11.2.3.1 Additional Insureds .................... 31
11.2.3.2 Payment of Proceeds .................... 31
11.2.3.3 Waiver of Subrogation .................. 31
11.2.4 Deductibles ...................................... 31
11.2.5 Government Indemnity ............................. 32
11.3 General Policy Provisions ................................ 32
11.3.1 Primary Insurance ................................ 32
11.3.2 Coverage for Each Insured ........................ 32
11.3.3 Waiver of Certain Rights ......................... 32
11.3.4 Breach of Warranty ............................... 32
11.3.5 Notice of Termination or Changes ................. 32
11.3.6 Nonliability for Premiums ........................ 33
11.3.7 Identity of Insurers ............................. 33
11.4 Application of Insurance Proceeds ........................ 33
11.5 Certificates; Reports, Etc ............................... 33
11.6 Lessor's Right to Maintain Insurance ..................... 34
11.7 Insurance for Own Account ................................ 34
11.8 Self-Insurance ........................................... 34
SALE AND LEASE AGREEMENT
iv
<PAGE>
Section Page
- ------- ----
Section 12. Inspection ...................................................... 35
Section 13. Assignment ...................................................... 35
13.1 General .................................................. 35
13.2 Security for Lessor's Obligations ........................ 35
Section 14. Events of Default ............................................... 36
14.1 Failure To Pay Rent ...................................... 36
14.2 Specific Defaults ........................................ 36
14.3 General Default .......................................... 36
14.4 Misrepresentation and Breach of Warranty ................. 36
14.5 Bankruptcy, Etc. ......................................... 36
14.6 Cross Default ............................................ 37
Section 15. Remedies ........................................................ 37
15.1 Default; Remedies ........................................ 37
15.1.1 Return; Repossession ............................. 37
15.1.2 Sale, Use, Etc. .................................. 38
15.1.3 Certain Liquidated Damages ....................... 38
15.1.3.1 Liquidated Damages--
Fair Market Rental Value ........... 38
15.1.3.2 Liquidated Damages--
Fair Market Sales Value ............ 38
15.1.4 Liquidated Damages upon Sale ..................... 39
15.1.5 Rescission and Other Remedies .................... 39
15.2 Determination of Fair Market Rental Value and
Fair Market Sales Value ................................ 40
15.3 No Waiver, Etc. .......................................... 40
Section 16. Notices ......................................................... 40
Section 17. Net Lease; Lessee's Obligations; No Setoff,
Counterclaim, Etc. ............................................ 41
SALE AND LEASE AGREEMENT
v
<PAGE>
Section Page
- ------- ----
Section 18. Renewal Options; Early Termination .............................. 42
18.1 Renewal Options .......................................... 42
18.2 Early Termination ........................................ 43
18.3 Default Purchase Option .................................. 43
Section 19. Successor Owner Trustee ......................................... 43
Section 20. Right to Perform for Lessee ..................................... 44
Section 21. Quiet Enjoyment ................................................. 44
Section 22. Investment of Security Funds; Miscellaneous; Amendment .......... 44
22.1 Investment of Security Funds ............................. 44
22.2 Miscellaneous; Amendment ................................. 45
Section 23. Permitted Foreign Air Carriers .................................. 46
Signatures
EXHIBIT A FORM OF LEASE SUPPLEMENT
EXHIBIT B PERMITTED FOREIGN AIR CARRIERS
EXHIBIT C OTHER RETURN CONDITIONS
EXHIBIT D TERMINATION VALUE SCHEDULE
SCHEDULE 1 LESSOR'S COST
SALE AND LEASE AGREEMENT
vi
<PAGE>
THIS SALE AND LEASE AGREEMENT is dated as of September 1, 1990, between
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement hereinafter
referred to ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas corporation
("Lessee").
Recitals
1. Lessee owns the Aircraft.
2. The parties hereto desire that Lessor purchase the Aircraft from and
lease it back to Lessee as hereinbelow provided.
In consideration of the premises and the mutual agreements herein
contained, Lessor and Lessee agree as follows:
Section 1. Definitions. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this Lease
and shall be equally applicable to both the singular and the plural forms of the
terms herein defined. Any agreement referred to below shall mean such agreement
as amended, supplemented and modified from time to time, to the extent permitted
by, and in accordance with, the terms thereof. For all purposes of this Lease
the capitalized terms used but not defined herein are used as defined in the
Participation Agreement.
"Act" means the Federal Aviation Act of 1958, as amended from time
to time.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person.
"Aircraft" means the Airframe, together with the two Engines (or any
Replacement Engine substituted for either of such Engines hereunder), whether or
not any of such initial or Replacement Engines may on the Delivery Date or from
time to time thereafter be installed on the Airframe or may be installed on any
other airframe or on any other aircraft.
"Airframe" means (i) the Boeing Model 737-2H4 aircraft (excluding
Engines or engines from time to time installed thereon) specified in the initial
Lease Supplement sold hereunder by Lessee to Lessor, and leased back by Lessor
to Lessee, all hereunder and under the initial Lease Supplement, and (ii) any
and all Parts so long as the same shall be incorporated in such aircraft and any
and all Parts removed from such aircraft so long as title thereto shall remain
vested in Lessor in accordance with the terms of Section 8.
SALE AND LEASE AGREEMENT
1
<PAGE>
"Base Lease Term" means the period commencing on the Base Lease Term
Commencement Date and expiring on December 31, 1995.
"Base Lease Term Commencement Date" means October 1, 1990.
"Basic Rent" means the rent identified as Basic Rent in and payable
pursuant to Section 3.3.
"Bills of Sale" means the FAA Bill of Sale and the Warranty Bill of
Sale.
"Business Day" means a day on which banks are not required or
authorized to close in any of New York City, Dallas, Texas, the State of Florida
or Salt Lake City, Utah, or such other city as shall be the situs of the
principal office of Owner Participant, Lender, Lessee or Lessor at the time in
question.
"Cards" is defined in Section 5.3.1.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"Delivery Date" means the date of the initial Lease Supplement,
which date shall be the date on which the Aircraft is delivered by Lessee to,
and accepted by, Lessor hereunder and in turn leased back by Lessor to Lessee
hereunder, which date shall be a Business Day.
"DOT" means the United States Department of Transportation or any
governmental person, agency or authority succeeding to the functions of such
Department of Transportation.
"Engine" means (i) each of the Pratt & Whitney JT8D-9A engines
identified by manufacturer's serial number in the initial Lease Supplement
subjecting the Aircraft to this Lease, whether or not on the Delivery Date or
from time to time thereafter installed on such Airframe or installed on any
other airframe or on any other aircraft, and (ii) any Replacement Engine,
whether or not from time to time thereafter installed on the Airframe or any
other airframe or on any other aircraft, together in each case with any and all
Parts incorporated in such Engine and any and all Parts removed from such Engine
so long as title thereto shall remain vested in Lessor in accordance with the
terms of Section 8. Except as otherwise set forth herein, at such time as a
Replacement Engine shall be substituted hereunder such replaced Engine shall
cease to be an Engine hereunder. The term "Engines" means, as of any date of
determination, all Engines then leased hereunder.
SALE AND LEASE AGREEMENT
2
<PAGE>
"Event of Loss" means, with respect to the Aircraft, Airframe or any
Engine, any of the following events with respect to such property: (i)
disappearance or theft of such property or the loss of the use thereof for any
reason not covered by any other clause of this definition, including hijacking,
for a period of 180 consecutive days or more (unless the location of the
property is known and Lessee is diligently pursuing recovery of the property,
but in no event beyond the expiration of the Term) or destruction, damage beyond
economic repair or rendition of such property permanently unfit for normal use
for any reason whatsoever; (ii) any damage to such property which results in an
insurance settlement with respect to such property, on the basis of a total
loss, or a constructive or compromised total loss; (iii) the confiscation or
requisition of use of such property by the Government or any foreign government
or any instrumentality or agency thereof for a period in excess of twelve
consecutive months or for a period continuing beyond the Term, whichever first
occurs; (iv) as a result of any rule, regulation, order or other action by the
FAA or other governmental body (including any court) having jurisdiction, the
use of such property in the normal course of interstate air transportation of
persons or cargo shall have been prohibited for a period of more than six
consecutive months, unless Lessee, prior to the expiration of such six-month
period, shall have undertaken and shall be diligently carrying forward all steps
which are necessary or desirable to permit normal use by Lessee, and, (A) in the
case in which such prohibition shall apply generally to all similar Boeing Model
737-200 series aircraft, if such prohibition is continuing on the last day of
the Term, or (B) in all other cases, if such prohibition is continuing on the
earlier of the first anniversary of such prohibition and the last day of the
Term; (v) the condemnation or requisition of title to such property by the
Government or any foreign government or any instrumentality or agency thereof;
or (vi) respecting any Engine, any divestiture of title to an Engine treated as
an Event of Loss pursuant to Section 7.2.1 or any other provision hereof. An
Event of Loss with respect to the Aircraft shall be deemed to have occurred if
an Event of Loss occurs with respect to the Airframe. The date of an Event of
Loss shall be deemed to be the date of such insurance settlement, loss of use,
theft, disappearance, condemnation, confiscation, divestiture, taking or
requisition of title or use or prohibition, except that, for the purposes of
clauses (i), (iii) and (iv) above, no Event of Loss shall be deemed to have
occurred until the expiration of the applicable period referred to therein.
"FAA" means the Federal Aviation Administration or any governmental
person, agency or other authority succeeding to the functions of the Federal
Aviation Administration.
"FAA Regulations" means the Federal Aviation Regulations issued
pursuant to the Act from time to time, or any successor regulations thereto.
SALE AND LEASE AGREEMENT
3
<PAGE>
"Government" means the federal government of the United States of
America or any instrumentality or agency thereof.
"Guarantor" means Cauff, Lippman & Co., Inc., a Florida corporation.
The term "incorporated in" means incorporated or installed in or
attached to or otherwise made a part of.
"Indemnified Parties" means (i) First Security Bank of Utah,
National Association, in its individual capacity and as Owner Trustee, (ii)
Owner Participant, (iii) Lender, (iv) the Trust Estate, (v) the respective
successors and assigns of the foregoing and (vi) the respective officers and
directors of the foregoing.
"Interim Lease Term" means the period from the Delivery Date to and
including September 30, 1990.
"Lease", "this Lease", "this Agreement", "hereby", "herein",
"hereof", "hereunder" or other like words mean this Sale and Lease Agreement,
including without limitation supplementation hereof by one or more Lease
Supplements.
"Lease Default" means any event or condition which, with notice or
lapse of time or both, would constitute a Lease Event of Default.
"Lease Event of Default" is defined in Section 14.
"Lease Period" means each three-month period commencing on October
1, January 1, April 1 and July 1, as the case may be, during the Term.
"Lease Supplement" means a supplement to this Lease, in the case of
the initial such supplement substantially in the form attached as Exhibit A
hereto, subjecting the Aircraft or other property to this Lease.
"Lender" means Progress Credit Corporation, a Florida corporation,
and its successors and assigns.
"Lessee" means Southwest Airlines Co., a Texas corporation, and its
permitted successors or assigns.
"Lessor" means Owner Trustee.
"Lessor's Cost" for the Aircraft means the amount identified as such
in Schedule I hereto.
SALE AND LEASE AGREEMENT
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<PAGE>
"Lessor Liens" means Liens of any Person claiming by, through or
under Lessor, First Security Bank of Utah, National Association, in its
individual capacity, or Owner Participant which arise as a result of (i) claims
against any such Person not related to the transactions contemplated by the
Operative Agreements (it being understood that, for purposes of this clause (i),
incurrence of any Successor Indebtedness to refund or refinance debt represented
by the Note is deemed to be a transaction contemplated by the Operative
Agreements), (ii) any act or omission of any such Person which is not related to
the transactions contemplated by the Operative Agreements, or is in violation of
any of the express terms of any of the Operative Agreements, (iii) Taxes or
Losses imposed against or incurred by any such Person for which Lessee is not
obligated to indemnify pursuant to the Participation Agreement, or (iv) claims
against any such Person arising out of any transfer by such Person in violation
of the express terms of the Operative Agreements.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease
or security interest, or any claim or exercise of rights, affecting the title to
or any interest in property.
"Maintenance Program" is defined in Section 8.1.1.
"Manufacturer" means The Boeing Company, a Delaware corporation, or
any Affiliate thereof whose obligations are guaranteed by The Boeing Company,
and their respective successors and assigns.
"Officer's Certificate" means a certificate signed by the Chairman,
the President, any Vice President, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Assistant Secretary of the Person providing
such certificate.
"Operative Agreements" means this Agreement, the Guaranty, each
Lease Supplement, the Participation Agreement, the Mortgage, the Loan Agreement,
the Note, the Trust Agreement, the Bills of Sale, and the Tax Indemnification
Agreement, including any consents included in or attached to any thereof.
"Overdue Rate" means 3% in excess of the interest rate publicly
announced in New York City from time to time by Citibank, N.A. as its prime or
base lending rate, but in no event to exceed the maximum rate permitted by
applicable law. Any interest payable hereunder at the Overdue Rate shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed.
"Owner Participant" means CL Aircraft XXXII, Inc., a Florida
corporation, and its successors and permitted assigns.
SALE AND LEASE AGREEMENT
5
<PAGE>
"Owner Trustee" means First Security Bank of Utah, National
Association, not in its individual capacity but solely as trustee under the
Trust Agreement, and any successor, separate or additional Owner Trustee
thereunder.
"Participants" means Owner Participant and Lender and their
respective successors and permitted assigns.
"Participation Agreement" means the Participation Agreement, dated
as of September 1, 1990, among Lessee, Lender, Guarantor, Owner Participant, and
Lessor.
"Parts" means all appliances, parts, components, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(other than (a) complete Engines or engines and (b) any severable items leased
by Lessee from a third party (other than Lessor)) which may from time to time be
incorporated in the Airframe or any Engine (and "Part" means any of the
foregoing) or, so long as title thereto shall remain vested in Lessor in
accordance with Section 8.2, after removal therefrom.
"Permitted Foreign Air Carrier" means any "foreign air carrier" (as
defined in the Act) listed on Exhibit B hereto (as the same may be modified from
time to time in accordance with Section 23) or any successor of any such air
carrier, which carrier or successor is not in any case, at the time a Permitted
Sublease is (or is proposed to be) entered into, the subject of bankruptcy,
reorganization or similar proceedings.
"Permitted Lien" means any Lien referred to in clauses (a) through
(g) of Section 6.
"Permitted Sublease" means a sublease permitted under Section 7.2.8.
"Permitted Sublessee" means the sublessee under a Permitted
Sublease.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Renewal Rent" means the rent payable in respect of a Renewal Term
determined pursuant to Section 18.1.
SALE AND LEASE AGREEMENT
6
<PAGE>
"Renewal Term" means any of the successive periods of integral
multiples of two years each but not more than six years in the aggregate which
follow the end of the Base Lease Term with respect to which Lessee shall have
exercised its option pursuant to Section 18.
"Rent" means Basic Rent, Renewal Rent and Supplemental Rent.
"Rent Payment Date" means each December 31, March 31, June 30 and
September 30 during the Term, commencing September 30, 1990.
"Replacement Engine" means a Pratt & Whitney JT8D-9A engine (or an
improved model engine suitable for installation and use on the Airframe and
fully compatible with the other Engine or engine installed thereon) which shall
have been substituted for an Engine leased hereunder pursuant to Section 5.2 or
10.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Stipulated Loss Value" means (i) $12,100,000.00 during the Base
Lease Term and (ii), during any Renewal Lease Term, such amount as shall be
calculated in accordance with Section 18.1, in each case as adjusted pursuant to
Section 13 of the Participation Agreement.
"Supplemental Rent" means, without duplication, all amounts,
liabilities and obligations (other than Basic Rent or Renewal Rent) which Lessee
assumes or agrees to pay to Lessor or any other Person hereunder, under the
Participation Agreement or any of the other Operative Agreements, including,
without limitation (i) Stipulated Loss Value and Termination Value payments,
(ii) all amounts required to be paid by Lessee under the agreements, covenants
and indemnities contained in the Participation Agreement and (iii) all amounts
required to be paid pursuant to Section 3.4.
"Tax Indemnification Agreement" means the Tax Indemnification
Agreement, dated as of September 1, 1990, between Owner Participant and Lessee.
"Term" means the term for which the Aircraft is leased pursuant to
Section 3 hereof and shall include the Interim Lease Term, Base Lease Term and
any Renewal Term.
"Termination Value" means the greater of (i) the sum of (A) the
amount set forth in Exhibit D hereto opposite the Rent Payment Date as of which
Termination Value is being determined and paid plus (B) such amount of Lessee's
Actual Cost and the Purchase Price as Owner Participant shall have paid pursuant
to Section 13 of the Participation Agreement, or (ii) the amount of indebtedness
represented by the Note or
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any Successor Indebtedness (including interest accrued thereon) on such Rent
Payment Date plus any other amount due and payable to Lender under any Operative
Agreement.
"Transfer" means, with respect to any Person, to transfer, by bill
of sale or otherwise, all such Person's right, title and interest in and to the
Aircraft, Airframe or any Engine, as the case may be, to another Person on an
"as is, where is" basis, free and clear of any Lessor Lien but otherwise without
recourse, representation or warranty, express or implied, and including an
express disclaimer of warranties, representations and guarantees in a manner
comparable to that set forth in Section 4.1.
"Trust Agreement" means the Trust Agreement, dated as of September
1, 1990, between Owner Participant and First Security Bank of Utah, National
Association, in its individual capacity.
"Trust Estate" means the Trust Estate as that term is defined in the
Trust Agreement.
"UCC" means the Uniform Commercial Code as in effect in any
applicable jurisdiction.
"U.S. Air Carrier" means any United States air carrier (i) as to
which there is in force a certificate issued pursuant to Section 401 of the Act,
(ii) as to which there is in force an air carrier operating certificate issued
pursuant to Part 121 of the FAA Regulations, or which may operate as a United
States air carrier by certification or otherwise under any successor or
substitute provisions therefor or in the absence thereof and (iii) which, in any
case, at the time a Permitted Sublease is (or proposed to be) entered into, is
not the subject of proceedings under the Federal Bankruptcy Code of 1978, as
amended.
"Wet Lease" means any arrangement whereby Lessee agrees to furnish
the Airframe and Engines or engines installed thereon to a third party pursuant
to which the Airframe and Engines or engines (i) shall be operated solely by
regular employees of Lessee possessing all current certificates and licenses
that would be required under the Act for the performance by such employees of
similar functions within the United States of America (it being understood that
cabin attendants need not be regular employees of Lessee), (ii) shall be
maintained by Lessee in accordance with its Maintenance Program and (iii) shall
be and remain, in the hands of such third party, subject to all other terms and
conditions of this Lease.
SALE AND LEASE AGREEMENT
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Section 2. Sale, Lease and Acceptance.
(a) Lessor, subject to satisfaction or waiver of the conditions set
forth in Section 5 of the Participation Agreement and the concurrent acceptance
hereunder by Lessee of the Aircraft, hereby agrees, to the extent that the funds
received by it pursuant to Section 2 of the Participation Agreement are
adequate for the purpose, to purchase at a purchase price equal to Lessor's Cost
and to accept delivery on the Delivery Date from Lessee hereunder and to lease
back to Lessee hereunder, and Lessee hereby agrees, expressly for the direct
benefit of Lessor and Owner Participant to sell to Lessor and to lease back from
Lessor hereunder on the Delivery Date, the Aircraft, which shall have been
accepted by Lessor and Lessee hereunder as evidenced by the execution by Lessor
and Lessee of the Lease Supplement conveying to Lessor and leasing to Lessee the
Aircraft hereunder; provided, however, that Lessor and Lessee shall have no
further obligation hereunder with respect to the Aircraft if the Delivery Date
shall not have occurred on or before September 28, 1990. The purchase price of
the Aircraft shall be paid by Lessor to Lessee on the Delivery Date in the
manner specified in Section 3 of the Participation Agreement.
(b) Lessor hereby authorizes each of Gary C. Kelly, John D. Owen and
Laura Wright, all of whom are employees of Lessee, as the authorized
representative or representatives of Lessor to accept delivery of the Aircraft
from Lessee pursuant hereto. Lessee hereby agrees that in the event delivery of
the Aircraft shall be accepted by an employee or employees of Lessee pursuant to
such authorization by Lessor, such acceptance of delivery by such employee or
employees on behalf of Lessor shall, without further act, also irrevocably
constitute acceptance by Lessee of the Aircraft for all purposes of this
Agreement.
Section 3. Term and Rent.
3.1 General. Except as otherwise provided herein, the Term for the
Aircraft shall commence on the Delivery Date specified in the initial Lease
Supplement and shall terminate as herein provided.
3.2 Lease Term. Except as provided herein, the Aircraft shall be
leased hereunder for the Interim Lease Term, the Base Lease Term and the Renewal
Terms, if any.
3.3 Basic Rent. Lessee hereby agrees to pay to Lessor Basic Rent
with respect to the Aircraft, in arrears, on each Rent Payment Date, in the
amount of $432,000; provided that (i) on the first Rent Payment Date (September
30, 1990), only Basic Rent in the amount of $4,800 per each day elapsed during
the Interim Lease Term shall be due and (ii), if Lessee shall exercise its
option under Section 18.2 or 18.3, then the installment
SALE AND LEASE AGREEMENT
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of Basic Rent (or Rent, as the case may be) due on such early termination date
shall be reduced by $4,800 per day (or in the case of Renewal Rent, by the
quotient of the quarterly installment thereof divided by 90) for each day the
final Lease Period has been foreshortened.
3.4 Supplemental Rent. Lessee also agrees to pay (or cause to be
paid) to Lessor, or to whomsoever shall be entitled thereto, all Supplemental
Rent with respect to Stipulated Loss Value when and as the same shall become due
and owing and all other amounts of Supplemental Rent within five days after
demand or such other relevant period as may be provided in any Operative
Agreement. Lessee will also pay to Lessor, or to whomsoever shall be entitled
thereto, as Supplemental Rent, to the extent permitted by applicable law,
interest at the Overdue Rate on any part of any installment of Basic Rent or
Renewal Rent not paid when due for any period from and including the date on
which the same was due to but excluding the date of payment in full and (to the
extent permitted by applicable law) on any payment of Supplemental Rent not paid
when due to Lessor, or to whomsoever shall be entitled thereto, as the case may
be, for the period from the date on which the same was due to but excluding the
date of payment in full. The expiration or other termination of Lessee's
obligation to pay Basic Rent or Renewal Rent hereunder shall not limit or modify
the obligations of Lessee with respect to Supplemental Rent.
3.5 Payments. Payments of Rent and any and all other payments
payable to Lessor hereunder shall be paid in funds of the United States of
America which shall be immediately available not later than noon, New York City
time, on the date due, to Owner Participant's account set forth in Schedule I to
the Participation Agreement, or as otherwise directed by Owner Participant in
writing at least five Business Days prior to the date such payment is due;
provided, however, that so long as Lessee shall not have received such five
Business Days' prior written notice of the fact that the Mortgage shall have
been terminated, Lessor hereby directs and Lessee agrees, that, unless Lender
shall otherwise direct in writing, all Rent payable to Lessor and assigned to
Lender pursuant to the Mortgage shall be paid prior to noon, New York City time,
on the due date thereof directly to Lender by wire transfer to First Union
National Bank of Florida, Jacksonville, Florida (ABA No. 063-000-021), for the
account of Progress Credit Corporation (account no. 175-003-956-35), with
reference to Southwest N56SW Interest. Except as otherwise expressly provided
herein, whenever any payment of Rent or other payment to be made hereunder shall
be due on a day which is not a Business Day, such payment shall be made on the
next succeeding day which is a Business Day 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.
SALE AND LEASE AGREEMENT
10
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Section 4. Lessor's Representations and Warranties; DISCLAIMER; Certain
Agreements of Lessee.
4.1 Lessor's Representations and Warranties; DISCLAIMER. LESSEE
EXPRESSLY AGREES TO TAKE THE AIRCRAFT "AS IS". NEITHER LESSOR (INDIVIDUALLY OR
AS OWNER TRUSTEE) NOR OWNER PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO
HAVE MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, CONDITION, DESIGN,
OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR ANY PART
THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that First Security Bank of
Utah, National Association, in its individual capacity (i) represents and
warrants that on the Delivery Date Lessor shall have received whatever title
thereto as was conveyed to it by Lessee, (ii) represents and warrants that on
the Delivery Date the Aircraft shall be free of Lessor Liens attributable to it,
(iii) agrees that it will not directly or indirectly create, incur, assume or
suffer to exist any Lessor Lien attributable to it on or with respect to the
Airframe or any Engine or any other portion of the Trust Estate, and (iv)
represents and warrants that it is a "citizen of the United States" as defined
in Section 101(16) of the Act and agrees that if at any time a responsible
officer in its Corporate Trust Department shall obtain actual knowledge that it
has ceased to be a "citizen of the United States" within the meaning of Section
101(16) of the Act it will promptly resign as Owner Trustee, effective upon the
appointment of a successor Owner Trustee in accordance with Section 9.01 of the
Trust Agreement. Lessor covenants that during the Term (so long as no Lease
Event of Default shall have occurred and be continuing) it will not, through its
own actions or breaches of any of its obligations under the Operative
Agreements, interfere or cause any interference in the quiet enjoyment of the
Aircraft by Lessee or any Permitted Sublessee and agrees that it will not
directly or indirectly create, incur, assume or suffer to exist any Lessor Lien
attributable to it on or with respect to the Airframe or any Engine.
4.2 Certain Agreements of Lessee. All obligations of Lessee in this
Lease shall be done, performed or complied with at Lessee's cost and expense,
whether or not so expressed, unless otherwise expressly stated. Lessee hereby
agrees with Lessor for the benefit of Owner Participant that it shall perform
the agreements, covenants and indemnities set forth in the Participation
Agreement (including, without limitation, Sections 8.1 and 8.2 of the
Participation Agreement) which are incorporated herein, and hereby restates
Lessee's representations and warranties set forth in the Participation
Agreement,
SALE AND LEASE AGREEMENT
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as fully and to the same extent and with the same force and effect as if set
forth in full in this Section 4.2.
Section 5. Return of Aircraft.
5.1 General Condition upon Return. Subject to Section 10, upon the
expiration or termination of this Lease, Lessee will cause the Aircraft, if then
not registered in the name of Lessor with the FAA for any reason, to be
reregistered in the name of Lessor with the FAA and will return the Aircraft to
Lessor by delivering the same at any location in the continental United States
selected by Lessee at which Lessee has maintenance facilities (and Section 5.6
shall apply). All costs associated with the return flight shall be for the
account of Lessee. At the time of such return, the Airframe and Engines or
engines installed thereon:
5.1.1 Airworthiness. Subject to the exception described in
clause (iii) of Section 8.1.1, shall be duly certificated as an airworthy
aircraft by the FAA under Part 121 of the Federal Aviation Regulations or any
successor provision;
5.1.2 Free of Liens. Shall be free and clear of all Liens
except Lessor Liens and Liens arising by, through or under Lender;
5.1.3 Operating Configuration and Condition. Shall be in a
configuration suitable for operation in regularly scheduled commercial airline
passenger service in the United States and in the same configuration as a
majority of the remainder of all 737-200 series aircraft operated by Lessee,
shall be in compliance with the Maintenance Program and shall be in as good
operating condition as on the Delivery Date, ordinary wear and tear and changes
and alterations made by Lessee as permitted under Section 8.4 hereof or Section
13 of the Participation Agreement excepted. All Lessee or Permitted Sublessee
exterior or interior insignia, logos or markings, as the case may be, shall have
been painted over in matching colors in a workmanlike manner;
5.1.4 Cleanliness and Operability. Shall be clean by United
States commercial airline operating standards with all systems and components
operable;
5.1.5 Parts and Equipment. Shall have installed thereon the
Engines identified in the initial Lease Supplement, as well as all Parts
installed thereon at the commencement of the Term, or replacements therefor made
in accordance with the terms of this Lease;
5.1.6 Corrosion Treatment. Shall comply with the corrosion
prevention procedures to the extent set forth in the Maintenance Program;
SALE AND LEASE AGREEMENT
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<PAGE>
5.1.7 Hush Kits. Shall be fitted with a hush kit, if a Stage
III Upgrade shall have occurred and the Owner Participant shall have financed
such upgrade pursuant to the provisions of Section 13.4 of the Participation
Agreement; and
5.1.8 Other Conditions. Shall otherwise be in the condition
set forth in Exhibit C hereto.
5.2 Return of Other Engines. In the event that any engine not owned
by Lessor shall be installed on the Airframe returned in accordance with Section
5.1, such engine shall be a Pratt & Whitney JT8D-9A engine (or an improved model
engine fully compatible with the other Engine or engine installed on the
Airframe). At the time of such replacement, such engine shall have performance
and durability characteristics and a value, condition and utility at least equal
to the Engine it replaced hereunder, assuming such Engine was maintained in
accordance with the requirements of this Lease, and at the time the Airframe is
returned shall fully comply with all the requirements of this Lease, including
this Section 5, which are applicable to Engines. Upon return of the Aircraft,
Lessee shall duly convey to Lessor good title to any such replacement engine,
free and clear of all Liens except Lessor Liens and Liens arising by, through or
under Lender; and, upon such conveyance and as a condition thereto, Lessee will
(a) furnish Lessor with a full warranty (as to title) bill of sale, in form and
substance reasonably satisfactory to Lessor, with respect to each such
replacement engine, together with an opinion of counsel to the effect that such
bill of sale has been duly authorized and delivered and is enforceable in
accordance with its terms and that each such replacement engine is free and
clear of all Liens except Lessor Liens and Liens arising by, through or under
Lender, and (b) take such other action as Lessor may reasonably request in order
that title to such replacement engine may be duly and properly vested in Lessor
to the same extent as the Engine replaced thereby. Upon compliance by Lessee
with the foregoing, Lessor will, so long as no Lease Event of Default has
occurred and is continuing, Transfer to Lessee any Engine not installed on the
Airframe at the time of return, free and clear of all Liens, including Lessor
Liens.
5.3 Return at End of Base Lease Term or Renewal Lease Term. Upon
return of the Aircraft at the expiration or termination of this Lease, Lessee
shall have caused all FAA Airworthiness Directives applicable to the Aircraft
and all mandatory service bulletins from Manufacturer and the manufacturer of
the Engines or any engine then installed on the Airframe (in compliance with
Section 5.2) applicable to the Aircraft to have been complied with (except for
any such FAA Airworthiness Directives and bulletins that permit compliance after
the return date and would not, in the normal course of the Maintenance Program,
be complied with on or prior to the return date). Lessee shall have treated the
Aircraft, including without limitation, with respect to maintenance, additions
and modifications, during the Term, similarly to all other Boeing 737-200
aircraft in its fleet.
SALE AND LEASE AGREEMENT
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At the request of Lessor delivered to Lessee not more than 30 days prior
to the end of the Term, the Aircraft shall be check flown by Lessee (or any
Permitted Sublessee) at Lessee's expense using qualified flight personnel, for
not more than two hours, on a non-commercial flight, for the purpose of
demonstrating to Lessor the satisfactory operation of the Aircraft and its
equipment and systems; provided, however, that such check flight shall not
interfere with the normal operation or maintenance of the Aircraft by, or the
business of, Lessee (or any Permitted Sublessee). Up to five of Owner
Participant's designees or representatives may participate in such flight as
observers. The form of test flight procedure to be followed shall be in
accordance with Lessee's normal test flight procedure, and the test flight may
be a return delivery flight. The Aircraft shall be check flown only once
pursuant to the provisions of this Section 5.3, unless further check flights are
required in order to verify the correction of any discrepancy or malfunction
detected in such first check flight, in which case a second check flight shall
be performed in accordance with the procedures set forth herein solely in order
to verify such correction.
At redelivery of the Aircraft to Lessor hereunder, the following specific
requirements shall be met by Lessee or, in lieu thereof, Lessee shall compensate
Lessor therefor, as specifically provided for in this Section:
5.3.1 Airframe. (I) At least 40% of the time (or cycles, if
applicable) shall remain before the next required performance of each structural
work task card (the "Cards") (or the then equivalent under Lessee's Maintenance
Program) (it being understood that, as used herein, "Cards" refers to the
heaviest airframe check currently used under Lessee's Maintenance Program), and
all Cards currently performed on a sampling basis under the Maintenance Program
shall have been fully accomplished without regard to any sampling then permitted
under the Maintenance Program, (II) Lessee shall have performed a complete "C"
check or its equivalent (all phases) on the Airframe no more than 200 flight
hours prior to its return to Lessor (and Lessee shall have corrected to the
Lessor's reasonable satisfaction any deficiencies discovered during such check,
and will not have deferred any maintenance discrepancies), and (III) Lessee
shall have completed a complete "B" ("B1" and "B2") check immediately prior to
redelivery;
5.3.2 Engines. Every ESV-1 Engine shall have no more than
4,000 hours or cycles since its last ESV-1. Each ESV-2 Engine shall have no more
than 6,000 hours or cycles since its last ESV-2. No life limited component of an
Engine shall have less than 3,000 hours or cycles remaining until its next
required replacement. For the purposes of this Section, an ESV-1 Engine shall be
an Engine or engine installed on the Airframe (in compliance with Section 5.2)
whose last engine service visit (or the equivalent under the Maintenance
Program) was an ESV-1, and an ESV-2 Engine shall be an Engine
SALE AND LEASE AGREEMENT
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or engine installed on the Airframe (in compliance with Section 5.2) whose last
engine service visit (or the equivalent under the Maintenance Program) was an
ESV-2;
5.3.3 Boroscope. The hot section of each Engine or engine
installed on the Airframe (in compliance with Section 5.2) shall be inspected by
boroscope at Lessee's expense and any defects which are outside the
manufacturer's recommended limitations shall be corrected such that they are
brought within such limitations;
5.3.4 Landing Gears. The landing gears shall have a minimum of
40% of the time remaining on each of the main and nose gears until the next
scheduled shop visit or retirement, as the case may be;
5.3.5 APU. The auxiliary power unit shall not have more than
2,500 hours since the last "hot section" inspection; and
5.3.6 Other Components. All time-controlled components and
life-limited components, other than engines, landing gear and auxiliary power
units, shall have a minimum of 3,000 hours or twelve months (unless one-half of
the allowable hours or months, as the case may be, permitted between shop visits
or replacements is actually less than 3,000 hours or twelve months, in which
case one-half of such allowable hours or months) remaining to the next scheduled
shop visit or replacement.
5.4 Financial Adjustments. In the event that the conditions
described in Sections 5.3.1 and 5.3.4 are not met, Lessee may elect, as to any
or all of such conditions (a) to perform the work necessary to conform the
Aircraft to the required condition or (b) to make a financial adjustment between
Lessee and Lessor pursuant to this provision, provided that in no event shall
the Aircraft or any landing gear be returned with less than 25% of the allowable
hours or cycles, as appropriate, remaining between Cards (with respect to the
Aircraft) or until the next scheduled shop visit (with respect to the landing
gears):
5.4.1 Airframe. In the event that the Airframe is returned to
Lessor with less than 40% but more than 25% of the allowable hours (or cycles,
if applicable) between Cards as provided in Section 5.3.1, then Lessee shall pay
to Lessor on the date the Term ends an amount determined by multiplying the
difference between the actual number of hours (or cycles, if applicable)
remaining to the next Cards and 40% of the allowable hours (or cycles, if
applicable) between Cards times the cost to Lessee of having another Person
perform such Cards.
5.4.2 [Intentionally omitted.]
SALE AND LEASE AGREEMENT
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5.4.3 Landing Gears. In the event that any of the landing
gears is returned to Lessor with less than 40% but more than 25% of the cycles
remaining until the next scheduled shop visit as provided in Section 5.3.4
above, then Lessee shall pay to Lessor on the date the term ends an amount
computed by multiplying the difference between the actual number of cycles
remaining to the next scheduled shop visit for such gear and 40% of the
allowable cycles between shop visits times the cycle rate for the nose gear or
the main gear, as the case may be. For purposes of this Section 5.4.3, the term
"cycle rate" shall be deemed to be the cost that Lessee is paying to third
parties at the time the Aircraft is returned under Section 5.3 for overhauling a
nose gear or a main gear, as the case may be, divided by the number of cycles
permissible between such overhauls under the Maintenance Program.
At the end of the Term the Lessee shall furnish Lessor with an Officer's
Certificate setting forth the hours and cycles remaining on the Engines or
engines installed on the Airframe (in compliance with Section 5.2), the landing
gear and the Airframe.
5.5 Manuals; Service Bulletins, Etc. Upon return of the Aircraft at
the expiration or termination of this Lease, Lessee shall deliver or cause to be
delivered to Lessor (in English) all logs, manuals, drawings and data and
inspection, modification and overhaul records in respect of the Aircraft
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 from Manufacturer, engine manufacturer or
vendors for the Aircraft and Engines or 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.
5.6 Storage upon Return. Upon written request of Lessor received by
Lessee at least 10 days prior to its return of the Aircraft at the expiration or
termination of this Lease, Lessee will provide free parking facilities for the
Aircraft for a period not exceeding 30 days following return thereof by Lessee
at the location of return pursuant to Section 5.1; provided that such storage
shall be at Lessor's risk and any expenses in connection with such storage
(other than parking charges) shall be paid by Lessor, including the cost of any
insurance therefor.
5.7 Failure to Return Aircraft or Engines. If Lessee shall, for any
reason whatsoever, fail to return the Aircraft or any Engine at the time
specified herein, the obligations of Lessee as provided in this Lease (including
the obligation to pay Rent on the same basis as that applicable immediately
prior to such failure) shall continue in effect with respect to the Aircraft or
such Engine until the Aircraft or such Engine is returned
SALE AND LEASE AGREEMENT
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to Lessor; but this Section 5.7 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 Default or
Lease Event of Default.
5.8 Aid in Disposition. Lessee agrees that, during the Term (and
during any storage period) it will cooperate in all reasonable respects with any
efforts of Lessor to lease or sell the Aircraft, including without limitation
(subject to the provisions of Section 12) permitting potential lessees or
purchasers to inspect the Aircraft and the records relating thereto.
Section 6. Liens. Lessee will not directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to the Aircraft, the
Airframe or any Engine, title thereto or any interest therein or in this Lease
except: (a) the respective rights of the parties to the Operative Agreements;
(b) the rights of others under agreements or arrangements to the extent
expressly permitted by the terms of Sections 7.2 and 8.3; (c) Lessor Liens; (d)
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 in accordance with generally accepted accounting principles)
by appropriate proceedings so long as such proceedings do not involve any
material danger of the sale, forfeiture, loss or loss of use of the Aircraft,
the Airframe or any Engine or any interest therein; (e) materialmen's,
mechanics', workers', repairers', employees' or other like Liens arising in the
ordinary course of business for amounts the payment of which is either not yet
due or not overdue for a period of more than 30 days or is being contested in
good faith (and for the payment of which adequate reserves have been provided in
accordance with generally accepted accounting principles) by appropriate
proceedings so long as such Liens do not involve any material danger of the
sale, forfeiture, loss or loss of use of the Aircraft, the Airframe or any
Engine or any interest therein; (f) 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 or vacated or execution thereof stayed
pending appeal or shall not have been discharged, vacated or reversed within 45
days after the execution of such stay; and (g) any other Lien with respect to
which Lessee shall have provided a bond or other security adequate in the
reasonable judgment of Lessor. Lessee will promptly take (or cause to be taken)
such action at its own expense as may be necessary duly to discharge any such
Lien not excepted above if the same shall arise at any time.
Section 7. Registration, Operation, Possession, Subleasing and Records.
7.1 Registration and Operation.
7.1.1 Registration. Lessee shall forthwith upon the delivery
of the Aircraft hereunder cause the Aircraft to be duly registered and at all
times thereafter to
SALE AND LEASE AGREEMENT
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remain duly registered in the name of Lessor with the FAA pursuant to and as
permitted by the Act (it being understood that Lessee shall not be required to
comply with this covenant to the extent that First Security Bank of Utah,
National Association's or Owner Participant's failure to comply with its
covenant set forth in Section 6.3.1.5 or Section 6.2.5, respectively, of the
Participation Agreement with regard to its citizenship makes such compliance by
Lessee impossible).
7.1.2 Nameplate. As soon as practicable after the Delivery
Date, Lessee agrees to affix and thereafter to maintain in the cockpit of the
Airframe adjacent to the airworthiness certificate and on each Engine a
nameplate bearing the inscription "OWNED BY AND LEASED FROM FIRST SECURITY BANK
OF UTAH, NATIONAL ASSOCIATION, AS OWNER TRUSTEE, OWNER AND LESSOR" and, so long
as the Mortgage shall remain in effect, "SUBJECT TO A SECURITY INTEREST IN FAVOR
OF PROGRESS CREDIT CORPORATION, MORTGAGEE" (such nameplate to be replaced, if
necessary, with a nameplate reflecting the name of any successor Lessor or
Lender, upon receipt of written notice from Lessor to such effect). Except as
above provided, Lessee will not allow the name of any person, association or
corporation to be placed on the Airframe or on any Engine as a designation that
might be interpreted as a claim of ownership or Lien; provided that nothing
herein contained shall prohibit Lessee (or any Permitted Sublessee) from placing
its customary colors and insignia on the Airframe or any Engine or displaying
information concerning the registration or manufacture of the Aircraft, the
Airframe, any Engine or Part.
7.1.3 Compliance with Laws. Lessee agrees that it will not use
or operate the Aircraft, the Airframe or any Engine in violation of any law or
any rule, regulation or order of any government or governmental authority having
jurisdiction (domestic or foreign) or in violation of any airworthiness
certificate, license or registration relating to the Aircraft, the Airframe or
any Engine issued by any such authority, except to the extent Lessee is
contesting in good faith the validity or application of any such law, rule,
regulation or order in any reasonable manner which does not materially adversely
affect Lessor's interest in the Aircraft.
7.1.4 Insurance Requirements; Government Requisition;
Indemnity. Lessee agrees not to operate, use or locate the Aircraft, the
Airframe or any Engine, or permit any Permitted Sublessee to operate, use or
locate the Aircraft, the Airframe or any Engine, (i) in any area excluded from
coverage by any insurance required by the terms of Section 11, except in the
case of a requisition by the Government where Lessee obtains indemnity (backed
by the full faith and credit of the United States of America) in lieu of such
insurance from the Government against the risks and in the amounts required by
Section 11 covering such area, or (ii) in any area where maintenance of war-risk
insurance is required by Section 11 unless fully covered by war-risk insurance
satisfying the terms of Section 11, or unless the Aircraft, the Airframe or such
Engine is operated or used under
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contract with the Government under which contract the Government assumes
liability (backed by the full faith and credit of the United States of America)
in an amount not less than the amount of insurance otherwise required by Section
11 for any damage, loss, destruction or failure to return possession of the
Aircraft, the Airframe or such Engine at the end of the term of such contract or
for injury to persons or damage to property of others, or (iii) with respect to
any sublease to a Permitted Foreign Air Carrier, in any area referred to in
subclause (3)(iv) of Section 7.2.
7.2 Possession. Lessee will not, without the prior written consent
of Lessor, sublease or otherwise in any manner deliver, transfer or relinquish
possession of the Aircraft, the Airframe or any Engine 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 Lease Event of Default shall have
occurred and be continuing, and so long as Lessee shall comply with the
provisions of Section 11, and all FAA approvals required for such purposes have
been obtained, Lessee may, without such prior written consent:
7.2.1 Interchange and Pooling. Subject or permit any Permitted
Sublessee to subject (i) the Aircraft, Airframe or any Engine to normal
interchange agreements customary in the United States domestic airline industry
and entered into by Lessee or such Permitted Sublessee in the ordinary course of
its business, and (ii) any Engine to pooling agreements or arrangements
customary in the airline industry and entered into by Lessee or such Permitted
Sublessee in the ordinary course of its business; but in either case (A) no
transfer of the registration of the Airframe or any Engine shall be effected in
connection therewith and the terms of this Lease and the Participation Agreement
shall be observed, and (B) no such agreement or arrangement shall contemplate or
require the transfer of title to the Aircraft, Airframe or any Engine and if
Lessor's title to any Engine shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of Loss with
respect thereto and Lessee shall comply with Section 10.2 hereof;
7.2.2 Testing and Service. Deliver or permit any Permitted
Sublessee to deliver possession of the Aircraft, 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 Aircraft,
Airframe or any Engine or Part, or for alterations or modifications in or
additions to the Aircraft, Airframe or any Engine to the extent required or
permitted by the terms of Section 8.4;
7.2.3 Civil Reserve Air Fleet Program. 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
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the end of the Term and so long as Lessee shall (A) promptly notify Lessor upon
subjecting 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 16 hereof, and (B) promptly notify Lessor upon transferring
possession of the Airframe or any Engine to the Government pursuant to such
program;
7.2.4 Installation of Engines. Install or permit any Permitted
Sublessee to install an Engine on an airframe owned by Lessee or such Permitted
Sublessee, as the case may be, free and clear of all Liens, except (A) Permitted
Liens 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), (B) the rights of air carriers under normal
interchange agreements which are customary in the airline industry and do not
contemplate, permit or require the transfer of title to the airframe or engines
installed thereon and (C) mortgage liens or other security interests, provided
that (as regards this clause (C)) such mortgage liens or other security
interests effectively provide that such Engine shall not become subject to the
lien of such mortgage or security interest, notwithstanding the installation
thereof on such airframe, unless and until Lessee shall become the owner of such
Engine;
7.2.5 Installation of Engines on Other Airframes. Install or
permit any Permitted Sublessee to install an Engine on an airframe leased to, or
purchased by, Lessee or any Permitted Sublessee subject to a lease, conditional
sale, or other security agreement, but only if (A) such airframe is free and
clear of all Liens, except the rights of the parties to the lease, conditional
sale, or other security agreement covering such airframe, or their successors or
assigns, and except Liens of the type permitted by clauses (A) and (B) of
Section 7.2.4, and (B) the lease, conditional sale, or other security agreement
covering such airframe effectively provides that such Engine shall not become
subject to the Lien thereof at any time while such Engine is subject to this
Lease, notwithstanding the installation thereof on such airframe;
7.2.6 Pooling of Parts. To the extent permitted by Section
8.3, subject any Parts owned by Lessor and removed from the Airframe or any
Engine to any pooling arrangement referred to in Section 8.3;
7.2.7 Wet Lease. Enter into a Wet Lease for the Airframe and
Engines or engines then installed thereon with any third party for a term not to
continue beyond the Term;
7.2.8 Sublease to Permitted Air Carriers. Enter into a
sublease of the Aircraft or the Airframe and Engines or engines then installed
on the Airframe or any Engine, for use on the sublessee's regularly scheduled or
charter routes, with (a) any
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U.S. Air Carrier or (b) any Permitted Foreign Air Carrier, in any such case for
a term not to continue beyond the remaining Term.
Provided, further, with respect to this Section 7.2. that:
(1) the rights of any transferee who receives possession by
reason of a transfer permitted by this Section 7.2 (other than the transfer of
an Engine which is deemed an Event of Loss) shall be effectively subject and
subordinate to, and any sublease permitted by this Section 7.2 shall be made
expressly subject and subordinate to, all the terms of this Lease, and to
Lessor's rights, powers and remedies under this Lease, including the rights to
repossession pursuant to Section 15 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, provided that performance of any such
terms by any Permitted Sublessee shall be as effective, for purposes of this
Lease, as performance thereof directly by Lessee;
(3) any such sublease shall (i) be consistent with the
requirements of this Lease and the applicable requirements of the Participation
Agreement, (ii) include appropriate provisions for the continued registration,
maintenance in accordance with applicable maintenance standards in the
appropriate jurisdiction, operation, insurance (appropriate certificates as to
which shall be furnished to Lessor and Lender prior to Lessee's entry into any
such sublease with any Permitted Foreign Air Carrier or within 10 days
thereafter) and return of the subleased property as required hereunder, (iii)
provide that the sublessee may not assign or further sublease the Aircraft, and
(iv) provide that the Aircraft may not be operated in a country with which the
United States does not maintain diplomatic relations or in which there is open
warfare, whether or not declared;
(4) no interchange agreement, transfer, sublease or other
relinquishment of possession permitted hereunder shall affect the registration
of the Aircraft or shall permit any action not permitted to Lessee in this
Lease; and
(5) no such 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 any other Operative Agreement or constitute a waiver of Lessor's rights or
remedies hereunder or under any other Operative Agreement.
SALE AND LEASE AGREEMENT
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Lessee shall notify Lessor within 10 days after the commencement of any
sublease permitted hereunder and shall deliver to Lessor within such period a
duly executed copy of any sublease or interchange or pooling agreement permitted
hereunder together with any certification required by Section 7.2.8. Upon
request of Lessor, Lessee shall promptly and duly execute and deliver to Lessor
an assignment of any such sublease having a term in excess of 12 months in favor
of Lessor in form and substance reasonably satisfactory to Lessor. Lessor hereby
agrees, for the benefit of Lessee (and any Permitted Sublessee) and for the
benefit of each lessor, conditional seller, or secured party of any airframe or
engine leased to or purchased by Lessee (or any Permitted Sublessee) subject to
a lease, conditional sale, or other security agreement, that Lessor will not
acquire or claim, as against such lessor, conditional seller, or secured party,
or any successor or assign thereof, any right, title or interest in any engine
as the result of such engine being installed on the Airframe at any time while
such engine is subject to such lease, conditional sale, or other security
agreement and owned by such lessor or conditional seller or subject to a
security interest in favor of such secured party; provided, however, that such
agreement of Lessor shall not be for the benefit of any lessor or secured party
of any airframe (other than the Airframe) leased to Lessee (or any Permitted
Sublessee) or purchased by Lessee (or any Permitted Sublessee) subject to a
conditional sale or other security agreement or for the benefit of any mortgagee
of or any other holder of a security interest in an airframe owned by Lessee (or
any Permitted Sublessee), unless such lessor, conditional vendor, other secured
party or mortgagee has expressly agreed (which agreement may be contained in
such lease, conditional sale or other security agreement or mortgage) that
neither it nor its successors or assigns will acquire, as against Lessor, any
right, title or interest in an Engine as a result of such Engine being installed
on such airframe.
A consolidation, merger, conveyance, transfer, or lease permitted by
Section 7.4 of the Participation Agreement shall not be deemed to be a
transaction to which this Section 7.2 shall apply.
7.3 Records and Reports. Lessee shall:
7.3.1 Records. Maintain or cause to be maintained all records,
logs and other materials required by the FAA or any other governmental authority
having jurisdiction to be maintained in respect of the Aircraft, the Airframe
and each Engine;
7.3.2 Information and Reports. Upon request, promptly furnish
or cause to be furnished to Lessor (in sufficient number) such information as
may be required to enable Lessor or any Participant to file any reports,
including tax returns, required to be filed by Lessor or such Participant with
any governmental authority because of Lessor's ownership of, or Lender's
security interest in, the Aircraft, Airframe or any Engine or because of receipt
of Rent or because of the interest of any Participant in the Trust Estate;
provided, however, that with respect to any such information which Lessee
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deems commercially sensitive or confidential, if reasonably feasible, Lessor
shall afford Lessee a reasonable opportunity to seek from any such governmental
authority a waiver of Lessor's or such Participant's obligation to file any such
information or consent to the filing of such information directly by Lessee in
lieu of filing by Lessor or such Participant and if any such waiver or consent
is evidenced to the reasonable satisfaction of Lessor, then Lessee shall not be
required to furnish such information to Lessor; and
7.3.3 Financial Information. Promptly provide Lessor and each
Participant with (i) such financial information concerning Lessee as is provided
from time to time to the public shareholders of Lessee, (ii) within 60 days
after the end of each of the first three quarterly periods of each fiscal year
of Lessee, a consolidated balance sheet of Lessee and its subsidiaries prepared
by it as of the close of such period, together with the related consolidated
statements of income for such period, (iii) within 120 days after the close of
each fiscal year of Lessee, a consolidated balance sheet of Lessee and its
subsidiaries as of the close of such fiscal year, together with the related
consolidated statements of income for such fiscal year, as certified by
independent public accountants, and (iv) from time to time such other
information as to its financial condition as Lessor or any Participant may
reasonably request.
Section 8. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions.
8.1 Maintenance.
8.1.1 Maintenance Program. Lessee shall maintain, service,
repair, overhaul, alter, modify, add to and test (or cause to be maintained,
serviced, repaired, overhauled, altered, modified, added to and tested) the
Aircraft, the Airframe and each Engine, and each other engine installed from
time to time on the Airframe, in accordance with Lessee's FAA-approved
maintenance program for the Aircraft, Airframe and Engines (the "Maintenance
Program"), (i) so as to keep the Aircraft, the Airframe and each Engine in as
good operating condition as on the Delivery Date, ordinary wear and tear
excepted, (ii) in the same manner and with the same care as used by Lessee with
similar aircraft owned or operated by Lessee, and (iii) so as to keep the
Aircraft, the Airframe and each Engine in such condition as required to enable
the FAA certificate of airworthiness for the Aircraft to be maintained in good
standing at all times under the Act, except when all comparable Boeing Model
737-200 series aircraft registered in the United States of America have been
grounded by the FAA other than as a result of actions taken or omitted to be
taken by Lessee (or, if a sublease is then in effect, any Permitted Sublessee).
SALE AND LEASE AGREEMENT
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8.1.2 Compliance with Government Requirements. Lessee will
comply with all service, inspection, maintenance, repair and overhaul
regulations, directives and instructions which are made mandatory by the FAA or
other Government authority upon United States operators of Boeing Model 737-200
series aircraft and Pratt & Whitney JT8D-9A engines and which require compliance
during the Term and prior to return of the Aircraft under this Lease.
8.2 Replacement of Parts. Lessee, at its own cost and expense, will
promptly replace (or cause to be replaced) all Parts which may from time to time
be incorporated in the Aircraft, Airframe or any Engine and which may from time
to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in Section 8.4. In addition, Lessee may, at its own
cost and expense, remove in the ordinary course of maintenance, service, repair,
overhaul or testing any Parts, whether or not worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for
use; provided, however, Lessee, except as otherwise provided in Section 8.4, at
its own cost and expense, will replace such Parts as promptly as possible. All
replacement Parts shall be free and clear of all Liens (except for Permitted
Liens and except in the case of replacement property temporarily installed on an
emergency basis) 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. All Parts at any time removed from the Aircraft, Airframe or any Engine
shall remain the property of Lessor, no matter where located, until such time as
such Parts shall be replaced by Parts which have been incorporated in the
Aircraft, Airframe or such Engine and which meet the requirements for
replacement Parts specified above. Immediately upon any replacement Part
becoming incorporated in the Aircraft, Airframe or such Engine as above
provided, without further act, (i) title to the replaced Part shall thereupon
vest in Lessee free and clear of all rights of Lessor, and the replaced Part
shall no longer be deemed a Part hereunder, (ii) title to such replacement Part
shall thereupon vest in Lessor (subject only to Permitted Liens and except in
the case of replacement property temporarily installed on an emergency basis),
and (iii) such replacement Part shall become subject to this Lease and be deemed
part of the Aircraft, Airframe or such Engine for all purposes hereof to the
same extent as the Parts originally incorporated in such Aircraft, Airframe or
Engine.
8.3 Pooling of Parts. Any Part removed from the Aircraft, Airframe
or any Engine as provided in Section 8.2 may be subjected by Lessee (or a
Permitted Sublessee) to a normal pooling arrangement customary in the airline
industry entered into in the ordinary course of business of Lessee or such
Permitted Sublessee, so long as a Part replacing such removed Part shall be
incorporated in the Aircraft, Airframe or such Engine in accordance with Section
8.2 as promptly as practicable after the removal of such removed Part. In
addition, any replacement Part when incorporated in the Aircraft,
SALE AND LEASE AGREEMENT
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Airframe or any Engine in accordance with Section 8.2 may be owned by any third
party subject to such a normal pooling arrangement, so long as Lessee (or any
Permitted Sublessee), at its own cost and expense, as promptly thereafter as
practicable either (i) causes title to such replacement Part to vest in Lessor
in accordance with Section 8.2 by Lessee (or any Permitted Sublessee) acquiring
title thereto for the benefit of, and transferring such title to, Lessor free
and clear of all Liens (except Permitted Liens), or (ii) replaces such
replacement Part by incorporating in the Aircraft, Airframe or such Engine a
further replacement Part owned by Lessee (or any Permitted Sublessee) free and
clear of all Liens (except Permitted Liens) and by causing title to such further
replacement Part to vest in Lessor in accordance with Section 8.2.
8.4 Alterations; Modifications and Additions. Lessee, at its own
cost and expense, shall make (or cause to be made) such alterations and
modifications in and additions to the Aircraft, Airframe and each Engine 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 FAA certificate
of airworthiness for the Aircraft; provided, however, that Lessee may contest in
good faith the validity or application of any such law, rule, regulation or
order in any reasonable manner which does not materially adversely affect
Lessor's interest in the Aircraft; and provided, further, that Lessee's failure
to make (or cause to be made) any such alterations or modifications shall not
constitute noncompliance with the requirements of this Section 8.4 or a breach
of Lessee's undertaking hereunder for so long a period as may be necessary to
remedy such failure, if such failure can be remedied, so long as during such
period Lessee is using due diligence and reasonable efforts to remedy such
failure. In addition, Lessee, at its own cost and expense, may, from time to
time make (or cause to be made) such alterations and modifications in and
additions to the Aircraft, 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 Aircraft, Airframe or such Engine; provided, however, that no such
alteration, modification or addition shall, in Lessee's reasonable judgment,
materially diminish the value or utility of the Aircraft, Airframe or such
Engine, or materially impair the condition or airworthiness thereof, below the
value, utility, condition and airworthiness thereof immediately prior to such
alteration, modification or addition assuming the Aircraft, Airframe or such
Engine was then of the value and utility and in the condition and airworthiness
required to be maintained by the terms of this Lease. Title to all Parts
incorporated in the Aircraft, Airframe or such Engine as the result of such
alteration, modification or addition shall, without further act, vest in Lessor.
Notwithstanding the foregoing sentence of this Section 8.4, so long as no Lease
Event of Default or Lease Default shall have occurred and be continuing, Lessee
may, at any time during the Term, remove any Part if (i) such Part is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated (or required by the provisions of this Lease to be incorporated) in
the Aircraft, Airframe or such Engine at the time of delivery thereof hereunder
or any Part in replacement of or substitution for
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any such Part, (ii) such Part is not required to be incorporated in the
Aircraft, Airframe or such Engine pursuant to the terms of this Section 8, and
(iii) such Part can be removed from the Aircraft, Airframe or such Engine
without diminishing or impairing the value, utility, condition or airworthiness
required to be maintained by the terms of this Lease which the Aircraft,
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
above provided, title thereto shall, without further act, vest in Lessee and
such Part shall no longer be deemed part of the Aircraft, Airframe or such
Engine from which it was removed. Any Part not removed by Lessee as above
provided prior to the return of the Aircraft, Airframe or such Engine to Lessor
hereunder shall remain the property of Lessor.
Section 9. [Intentionally Omitted]
Section 10. Loss, Destruction, Requisition, Etc.
10.1 Event of Loss with Respect to Aircraft. Upon the occurrence of
an Event of Loss with respect to the Aircraft, Lessee shall forthwith (and in
any event within 15 days after such occurrence) give Lessor and each Participant
written notice of such Event of Loss. On or before the Business Day next
preceding the earlier of (i) the 180th day following the date of the occurrence
of such Event of Loss, or (ii) 15 days following the receipt of insurance
proceeds with respect to such occurrence, Lessee shall pay to Lessor, in the
manner and in funds of the type specified in Section 3.5, (A) the Stipulated
Loss Value for the Aircraft, (B) all unpaid Basic Rent or Renewal Rent accrued
through and including the date of payment of Stipulated Loss Value and (C)
(without duplication) any other Rent which is due and payable through and
including the date of such payment. Upon payment in full of Stipulated Loss
Value and all such accrued Basic or Renewal Rent pursuant hereto, (A) the
obligation of Lessee to pay Basic or Renewal Rent due after the date of such
payment shall terminate (but Lessee shall remain liable for all payments of
Supplemental Rent due through and including the date of such payment of
Stipulated Loss Value), (B) the Term for the Aircraft shall end, and (C) Lessor
will Transfer to Lessee the Aircraft. Upon compliance by Lessee with all of the
terms of this Section 10.1, Lessee will be subrogated to all claims of Lessor,
if any, against third parties for damage to or loss of such Airframe and Engines
to the extent of the then insured value thereof.
10.2 Event of Loss with Respect to an Engine.
10.2.1 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 and each
Participant prompt written notice (and in any event within 15 days after such
occurrence) thereof and shall,
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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, 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 Permitted Liens, and
having 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.
10.2.2 Conditions; Lessee's Obligations. Prior to or at the
time of any such conveyance, Lessee will promptly:
(a) furnish Lessor with a full warranty (as to title) bill of
sale duly conveying to Lessor such Replacement Engine;
(b) cooperate with any reasonable request of Lender to subject
such Replacement Engine to the Lien of the Mortgage; and cause a Lease
Supplement subjecting such Replacement Engine to this Lease, duly executed by
Lessee, to be delivered to Lessor for execution and, upon execution, to be filed
for recordation with the FAA pursuant to the Act;
(c) furnish Lessor and Lender with such evidence of compliance
with the insurance provisions of Section 11 hereof with respect to such
Replacement Engine and the payment of all premiums then due with respect to such
insurance, as Lessor or Lender may reasonably request;
(d) furnish Lessor and Lender with an opinion or opinions of
Lessee's counsel, in form, substance and scope reasonably satisfactory to Lessor
and Lender, to the effect that, upon such conveyance, Lessor will acquire good
title to such Replacement Engine free and clear of all Liens other than
Permitted Liens (including Lender's interests), and that such Replacement Engine
will be leased hereunder and will be subject to the Lien of the Mortgage to the
same extent as the Engine replaced thereby and to such further effect as Lessor
or Lender may reasonably request;
(e) furnish Lessor and Lender with an Officer's Certificate
certifying that, upon consummation of such replacement, no Lease Event of
Default or Lease Default will exist hereunder; and
(f) furnish such other certificates or documents (including
appropriate UCC-3 amendments to the financing statements filed on or before the
Delivery Date) as Lessor or any Participant may reasonably request to effect
such replacement.
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10.2.3 Recordation and Opinions. In the case of any
Replacement Engine conveyed to Lessor under this Section 10.2, promptly upon the
recordation of the Lease Supplement and any supplement or amendment to the
Mortgage covering such Replacement Engine pursuant to the Act, Lessee will cause
to be delivered to Lessor and Lender an opinion of William C. Boston &
Associates or other FAA counsel satisfactory to Lessor as to the due recordation
of such Lease Supplement and any such supplement or amendment to the Mortgage.
10.2.4 Conveyance; Replacement Engine. Upon compliance by
Lessee with the terms of this Section 10.2, Lessor will Transfer to Lessee the
Engine with respect to which such Event of Loss occurred, and Lessee will be
subrogated to all claims of Lessor, if any, against third parties for damage to
or loss of such Engine to the extent of the insured value thereof.
10.2.5 No Reduction of Rent. No Event of Loss with respect to
an Engine under the circumstances contemplated by the terms of this Section 10.2
shall result in any changes of Basic Rent or Renewal Rent.
10.3 Application of Certain Payments. Any payments (other than
insurance proceeds, the application of which is provided for in Section 11)
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, will
be applied as follows:
10.3.1 Replacement of Engine. If such payments are received
with respect to an Engine that has been or is being replaced by Lessee pursuant
to Section 10.2, so much of such payments remaining after reimbursement of
Lessor and Owner Participant for costs and expenses shall be paid over to, or
retained by, Lessee, provided Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of Section 10.2 with respect to the
Event of Loss for which such payments are made.
10.3.2 Nonreplacement. If such payments are received with
respect to the Airframe and/or Engines that have not been and will not be
replaced pursuant to Section 10.2, so much of such payments remaining after
reimbursement of Lessor and Owner Participant for costs and expenses as shall
not exceed the Stipulated Loss Value and other amounts required to be paid by
Lessee hereunder shall be applied in reduction of Lessee's obligation to pay
such Stipulated Loss Value and other amounts if not already paid by Lessee, or,
if already paid by Lessee, shall be applied to reimburse Lessee for its payment
of such Stipulated Loss Value and other amounts. The balance, if any, of such
payment remaining thereafter shall be divided between Lessor and Lessee in
proportion to their interests in the Aircraft.
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10.4 Requisition of Aircraft for Use by Governmental Authorities. In
the event of the requisition, unless and until such requisition becomes an Event
of Loss, for use of the Airframe and the Engines or engines installed on such
Airframe during the Term by any governmental authority, Lessee shall notify
Lessor of such requisition, and, unless and until such requisition becomes an
Event of Loss, all of Lessee's obligations under this Lease with respect to the
Aircraft shall continue to the same extent as if such requisition had not
occurred. All payments received by Lessor or Lessee from such governmental
authority for the use of such Airframe and Engines or engines prior to the time
such requisition becomes an Event of Loss shall be paid over to, or retained by,
Lessee (or, if directed by Lessee, any Permitted Sublessee); and all payments
received by Lessor or Lessee from such governmental authority for the use of
such Airframe and Engines or engines after such time shall be paid over to, or
retained by, Lessor unless Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of Section 10.1 with respect to such
Event of Loss.
10.5 Requisition of an Engine for Use by Governmental Authorities.
In the event of the requisition for use by any governmental authority (other
than in circumstances contemplated by Section 10.4) of any Engine but not the
Airframe, Lessee will replace such Engine hereunder by complying with the terms
of Section 10.2 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 such
governmental authority with respect to such requisition shall be paid over to,
or retained by, Lessee (subject to performance by Lessee of the terms of Section
10.2 to the same extent as if an Event of Loss had occurred with respect to such
requisitioned Engine).
10.6 Application of Payments During Existence of Default. Any amount
referred to in this Section 10 which is payable or creditable to or retainable
by Lessee shall not be paid or credited to or retained by Lessee if, at the time
of such payment, credit or retention, (A) a Lease Event of Default or (B) a
Lease Default under Section 14.1 or 14.5 shall have occurred and be continuing
hereunder, but shall be paid to and held by Lessor as security for the
obligations of Lessee under this Lease and applied against Lessee's obligations
hereunder as and when due; at such time as there shall not be continuing any
such Lease Event of Default or Lease Default, or at such earlier time as Lessee
shall have paid in full all Rent and other amounts due and payable hereunder and
under the other Operative Agreements by Lessee, any remaining balance of such
amount shall be paid to Lessee to the extent not previously applied in
accordance with the preceding clause of this sentence.
Section 11. Insurance.
11.1 Public Liability and Property Damage Insurance. Lessee shall at
all times maintain, or cause to be maintained, at its or any Permitted
Sublessee's expense,
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public liability (including without limitation contractual liability, passenger
legal liability and property damage but excluding manufacturer's product
liability coverage) insurance which shall:
11.1.1 Type, Form and Amount. Be of a type and form carried by
similarly situated United States commercial air carriers generally, and carried
in amounts not less than $350,000,000 (per occurrence) combined single limit (or
such greater amount as Lessee may carry from time to time on other 737-200
series aircraft in its fleet);
11.1.2 Coverage. Include, but not be limited to, public
liability insurance, contractual liability insurance, passenger liability
insurance and property damage liability insurance (including cargo and baggage
liability insurance); and
11.1.3 Additional Insureds. Name as additional insureds Lessor
(in its individual and trust capacities), Lender and Owner Participant, as their
interests may appear.
11.2 Insurance Against Loss of or Damage to Aircraft and Engines.
Lessee shall at all times maintain, or cause to be maintained, at its or any
Permitted Sublessee's expense insurance against loss of or damage to the
Aircraft, Airframe and Engines as follows:
11.2.1 Type, Form and Amount. "All-risk" insurance on the
Aircraft and "all-risk" coverage on each Engine and on Parts while removed from
the Aircraft or Engines, which is of the type, form and in an amount in
compliance with the last sentence of this Section 11.2.1, not less than that
carried by Lessee on similar equipment owned or leased by Lessee and not less
than that usually carried by similarly situated United States commercial air
carriers; and, to the extent so usually carried, at all times that the Aircraft
or any Engine is not covered by the insurance described in Section 11.2.2,
coverage against the perils of (i) strikes, riots, civil commotions or labor
disturbances, (ii) any 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 (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 other
than hijacking committed by persons engaged in a program of irregular warfare
for terrorist purposes. Such insurance shall at all times be for an amount not
less than Stipulated Loss Value for the Aircraft.
11.2.2 War-Risk Insurance. If at any time (a) war-risk
insurance is maintained by Lessee or any Permitted Sublessee subleasing the
Aircraft or any Engine with respect to other aircraft operated by Lessee or such
Permitted Sublessee on the same or similar routes, or (b) the Aircraft is
operated on routes where the custom in the
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commercial airline industry is to carry war-risk insurance, then war-risk
insurance of the type carried by similarly situated United States commercial air
carriers operating the same or comparable models of aircraft on the same or
similar routes shall be maintained on the Aircraft in an amount not less than
that specified in Section 11.2.1.
11.2.3 Certain Requirements. The insurance policies required
by this Section 11.2 shall:
11.2.3.1 Additional Insureds. Be endorsed to name Lessor
(in its individual and trust capacities), Lender and Owner Participant as
additional insureds, as their interests may appear.
11.2.3.2 Payment of Proceeds. Provide that proceeds
thereunder shall be paid directly to Lender, so long as the Aircraft is subject
to the Lien of the Mortgage and thereafter to Lessor, in either case as
exclusive loss payee; provided, however, that any proceeds payable as a result
of any property damage to the Airframe or any Engine, which property damage does
not exceed $1,500,000 and does not constitute an Event of Loss with respect to
the Aircraft or such Engine, shall be paid to Lessee, unless Lessor or Lender,
prior to such payment, shall have notified the insurer making such payment that
a Lease Event of Default or a Lease Default specified in Section 14.1 or 14.5
has occurred and is continuing.
11.2.3.3 Waiver of Subrogation. Provide that the
insurers shall waive any rights of subrogation against Lessor, Lender and Owner
Participant except for claims arising out of gross negligence or willful
misconduct of such Persons; provided that the exercise by insurers of rights of
subrogation, if any, permitted by this Section 11.2 shall not, in any way, delay
payment of any claim that would otherwise be payable by such insurers but for
the existence of such rights of subrogation or entitle such insurers to exercise
or to assert any setoff, recoupment, counterclaim or any other deduction in
respect of any amounts payable under such policies.
11.2.4 Deductibles. The insurance required by this Section
11.2 may, subject to Section 11.8, provide for standard deductibles which are
from time to time in effect in the aviation insurance industry generally and
which are customarily maintained by similarly situated United States commercial
air carriers; provided, however, such deductibles shall not be more than the
deductibles generally maintained by Lessee (and which Lessee is under no
compulsion to maintain pursuant to any mortgage, lease or other agreement) with
respect to its fleet of Boeing Model 737-200 series aircraft and Pratt & Whitney
JT8D-9A engines generally.
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11.2.5 Government Indemnity. In the case of a contract with
the Government in respect of the Aircraft or Engines, a valid agreement by the
Government to indemnify Lessee, Lessor, Lender and Owner Participant against the
same risks which are required hereunder to be insured against in amounts at
least equal to the amounts required hereunder from time to time (such indemnity
to be backed by the full faith and credit of the United States of America),
shall be considered adequate insurance with respect to the Aircraft, Airframe
and any Engine subject to such contract to the extent of the risks and in the
amounts that are the subject of any such agreement to indemnify.
11.3 General Policy Provisions. Each insurance policy to be procured
and maintained hereunder shall:
11.3.1 Primary Insurance. Be primary and without right of
contribution from other insurance which may provide coverage to Lessor, Lender
or Owner Participant with respect to its interest in the Aircraft, Airframe or
any Engine or its liabilities with respect to or arising out of the transactions
contemplated by the Operative Agreements;
11.3.2 Coverage for Each Insured. Expressly provide that all
the provisions thereof, except the agreed values and the limits of the liability
of the insurer under such policy, shall operate in the same manner as if there
were a separate policy covering each insured;
11.3.3 Waiver of Certain Rights. Waive any right of the
insurers to any setoff, recoupment, counterclaim or any other deduction, whether
by attachment or otherwise, in respect of any liability of Lessee, Lender,
Lessor or Owner Participant;
11.3.4 Breach of Warranty. Provide that, in respect of Lessor,
Lender and Owner Participant, such insurance shall not be invalidated by any
action or inaction by Lessee or any additional insured (other than such
additional insured, as to such additional insured) and shall insure the
interests of Lessor, Lender and Owner Participant regardless of any breach or
violation by Lessee or any additional insured (other than such additional
insured, as to such additional insured) of any representation, warranty,
declaration or condition contained in such policy;
11.3.5 Notice of Termination or Changes. Provide for not less
than 30 days' prior written notice to be received by Lessor, Lender and Owner
Participant before any lapse, alteration, termination or cancellation of the
insurance evidenced thereby shall be effective as to Lessor, Lender and Owner
Participant, except that war-risk and allied perils policies may provide for not
less than seven days' prior written notice or such lesser or greater notice as
shall at the time be customary in the aviation insurance
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industry generally, and which are customarily in effect with respect to major
United States commercial air carriers generally from time to time;
11.3.6 Nonliability for Premiums. Provide that neither Lessor,
Lender nor Owner Participant shall be liable for any insurance premium; and
11.3.7 Identity of Insurers. Be with insurance companies,
underwriters or funds of recognized responsibility.
11.4 Application of Insurance Proceeds. As between Lessor and
Lessee, all insurance proceeds received under policies required to be maintained
(or to be caused to be maintained) by Lessee pursuant to Section 11.2 as a
result of the occurrence of an Event of Loss with respect to the Aircraft,
Airframe or any Engine will be applied in accordance with Section 10.3.1 or
10.3.2, as the case may be (except that the balance referred to in Section
10.3.2 shall be paid over to, or retained by, Lessee). All insurance proceeds in
respect of any property damage loss not constituting an Event of Loss with
respect to the Airframe or an Engine will be applied in payment for repairs or
for replacement property in accordance with the terms of Section 8, if not
already paid for by Lessee, and any balance remaining after compliance with such
Section with respect to such loss shall be paid to Lessee. In the case of a loss
with respect to an engine (other than an Engine) installed on the Airframe,
Lessor shall hold any payment to it of any insurance proceeds in respect of such
loss for the account of Lessee or any other third party that is entitled to
receive such proceeds. The provisions of Section 10.6 shall apply to amounts
referred to in this Section 11.4.
11.5 Certificates; Reports, Etc. With respect to any policy required
hereunder, Lessee shall cause to be furnished to Lessor and each Participant on
or prior to the Delivery Date of the Aircraft and on or prior to expiration of
such policy, certificates of the insurer or insurers (or their authorized
representatives) providing insurance pursuant to the requirements of this
Section 11, as to hull and liability insurance. On or before the Delivery Date
of the Aircraft, and annually thereafter on or before such expiration date,
Lessee shall cause to be furnished to Lessor and each Participant a report
signed by Frank B. Hall & Co. (or any other firm of independent aircraft
insurance brokers, appointed by Lessee, reasonably satisfactory to the
Participants) describing in reasonable detail the insurance then carried and
maintained with respect to the Aircraft and stating the opinion of such firm
that the insurance then carried and maintained on the Aircraft complies with the
terms hereof as to hull and liability insurance. Lessee agrees that it will
cause such firm to advise Lessor and each Participant in writing promptly of any
default in the payment of any premium or any other act or omission on the part
of Lessee or any Permitted Sublessee of which they have knowledge and which
might invalidate or render unenforceable, in whole or in part, the insurance on
the Aircraft. To the extent such agreement is reasonably obtainable, Lessee
further agrees to cause such
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firm to advise Lessor and each Participant in writing at least 30 days (seven
days in the case of war-risk and allied perils coverage) prior to the expiration
or termination date of any insurance carried and maintained on the Aircraft
pursuant to this Section 11.
11.6 Lessor's Right to Maintain Insurance. In the event that Lessee
shall fail to maintain or cause to be maintained insurance as herein provided,
Lessor or any Participant may at its option (but shall not be obligated to)
provide such insurance and in such event, Lessee shall, upon demand, reimburse
such Person, as Supplemental Rent, for the cost thereof. No such payment,
performance or compliance shall be deemed to cure any Lease Event of Default or
Lease Default or otherwise relieve Lessee of its obligations with respect
thereto. At Lessor's or Lender's request and expense, and subject to the
permission of Lessee's insurance carriers, Lessee will increase the amount of
coverage under any insurance policy that Lessee maintains pursuant to Section
11.2.1 or 11.2.2, and notwithstanding the provisions of Section 11.4, the
proceeds of any such additional insurance shall be payable to Lessor or Lender,
as the case may be; provided, however, that no such insurance may be obtained
which would limit or otherwise adversely affect the availability or coverage or
cost of any insurance required to be obtained or maintained pursuant to this
Section 11.
11.7 Insurance for Own Account. Nothing in this Section 11 shall
limit or prohibit Owner Participant (directly or through Lessor) from obtaining
insurance for its own account, and any proceeds payable thereunder shall be
payable as provided in the insurance policy relating thereto; provided, however,
that no such insurance may be obtained which would limit or otherwise adversely
affect the availability or coverage or cost of any insurance required to be
obtained or maintained pursuant to this Section 1. Nothing in this Section 11
shall limit or prohibit Lessor or Lender from obtaining insurance for its own
account, and any proceeds payable thereunder shall be payable as provided in the
insurance policy relating thereto; provided, however, that no such insurance may
be obtained which would limit or otherwise adversely affect the availability or
coverage or cost of any insurance required to be obtained or maintained pursuant
to this Section 11 or obtained by Owner Participant pursuant to the preceding
sentence.
11.8 Self-Insurance. Notwithstanding the foregoing provisions of
this Section 11, Lessee may, from time to time, self-insure with respect to the
Aircraft to the same extent as it does with respect to, or maintain policies
with deductibles or premium adjustment provisions consistent with similar
provisions applicable to, other comparable aircraft operated by Lessee;
provided, however, that if at any time Lessee's unsecured senior long-term debt
securities are not rated "Investment Grade", in the case of hull insurance such
self-insurance shall in no case be in an amount greater than 4% of Lessee's
tangible net worth (as defined in accordance with accepted financial practice);
and provided, further that, in the case of public liability insurance, such
self-insurance shall in no event exceed $50,000,000. As used in this Section
11.8, the term "Investment Grade"
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means a rating of "Baa3" or higher from Moody's Investors Service, Inc. or a
rating from any other nationally recognized bond rating service equivalent to or
better than such a rating.
Section 12. Inspection. At all reasonable times, and upon reasonable
notices, Lessor or any Participant or its authorized representatives or
designees may inspect the Aircraft and inspect and copy (subject to any
confidentiality agreements, copyright restrictions and the like) the books and
records of Lessee relative thereto. Any such inspection of the Aircraft shall be
without out-of-pocket expense or risk to Lessee; provided that no exercise of
such inspection right shall interfere with the normal operation or maintenance
of the Aircraft by, or the business of, Lessee (or any Permitted Sublessee).
Subject to the proviso to the preceding sentence of this Section 12, Owner
Participant may observe the "C" check (or its equivalent) referred to in clause
(I) of Section 5.3.1 and any Card inspection during the Term. Neither Lessor nor
any Participant shall have any duty to make any such inspection and shall not
incur any liability or obligation by reason of not making any such inspection.
Section 13. Assignment.
13.1 General. Except as otherwise expressly permitted in Section 7.2
hereof or Section 12.5.1 of the Participation Agreement, or as required in the
case of any requisition by the Government referred to in Section 7.1.4, Lessee
will not, without the prior written consent of Lessor, assign or transfer any of
its rights or obligations under this Lease. Lessor may assign or convey any of
its right, title and interest in and to this Lease or the Aircraft in accordance
with the Participation Agreement, the Trust Agreement or the express provisions
of this Lease. The terms and provisions of the Lease shall be binding upon and
inure to the benefit of Lessor and Lessee and their respective permitted
successors and assigns.
13.2 Security for Lessor's Obligations. In order to secure the
indebtedness evidenced by the Note, the Mortgage provides, among other things,
for the assignment by Lessor to Lender of its right, title and interest in, to
and under this Lease and any Permitted Sublease, to the extent set forth in the
Mortgage, and for the creation of a first mortgage lien on and perfected
security interest in the Aircraft in favor of Lender. Lessee hereby consents to
such assignment and to the creation of such mortgage and security interest.
Except as may otherwise be provided in the Mortgage, all rights of Lessor and
Owner Participant with respect to the Lease, the Aircraft, the Airframe or any
Engine (or any part thereof) shall be exercisable by Lender.
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Section 14. Events of Default. The following events shall constitute Lease
Events of Default (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body), and each such Lease Event of
Default shall continue so long as, but only so long as, it shall not have been
remedied or waived:
14.1 Failure To Pay Rent. Lessee shall fail to make any payment of
Basic Rent or Renewal Rent within 5 Business Days from the due date thereof; or
any other payments required under the Operative Agreements within 10 Business
Days after the receipt of written notice of such default to Lessee from Lessor.
14.2 Specific Defaults. Lessee shall fail to carry and maintain (or
cause to be carried and maintained) insurance on or with respect to the Aircraft
in accordance with the provisions of Section 11, provided that any such failure
shall not constitute a Lease Event of Default so long as such failure is for a
period of not more than 30 days, Lessee shall not operate the Aircraft at a time
when such insurance is not in effect and the Aircraft continues to be covered by
such insurance as is required when the Aircraft is on the ground; or
14.3 General Default. Lessee shall fail to perform or observe any
other material covenant, condition or agreement to be performed or observed by
it hereunder or under any other Operative Agreement (except the Tax
Indemnification Agreement), and such failure shall continue unremedied for a
period of 30 days after Lessee's receipt of written notice thereof from Lessor
or Lender, unless Lessee shall be diligently proceeding to correct such failure
and such failure is cured within 180 days after receipt of such notice or the
end of the Term, whichever shall first occur; or
14.4 Misrepresentation and Breach of Warranty. Any representation or
warranty made by Lessee herein or in the Participation Agreement or in any other
Operative Agreement (other than the Tax Indemnification Agreement) or in any
document or certificate furnished by Lessee in connection with any thereof,
shall prove to have been incorrect in any material respect at the time made and
shall remain incorrect in any material respect 30 days after Lessee's receipt of
written notice thereof from Lessor or Lender; or
14.5 Bankruptcy, Etc. Lessee shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official or agency in an
involuntary case
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or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due unless the subject of a bona fide dispute, within the meaning of
Title 11 of the United States Code, or shall take any corporate action to
authorize any of the foregoing; or an involuntary case or other proceeding shall
be commenced against Lessee seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official or agency of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or
14.6 Cross Default. A Lease Event of Default shall have occurred and
be continuing under either of the other two Sale and Lease Agreements of even
date herewith, each relating to a Boeing 737-200 series aircraft having FAA
registration number N55SW or N57SW; provided, that Lender (or lender of any
Successor Indebtedness) shall then be Lender (or lender of any Successor
Indebtedness) (as such terms are defined therein) under such other Sale and
Lease Agreement.
Section 15. Remedies.
15.1 Default; Remedies. Upon the occurrence of a Lease Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare by written notice to Lessee this Lease to be
in default (provided, however, that any Lease Event of Default specified in
Section 14.5 shall be automatic and shall not require any such declaration or
notice) and at any time thereafter, so long as any such Lease Event of Default
shall be continuing, Lessor may exercise one or more of the following remedies
as Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect which have not been effectively waived by Lessee:
15.1.1 Return; Repossession. Lessor may cause Lessee, upon
written demand by Lessor and at Lessee's expense, to return promptly, and Lessee
shall return promptly, all or any part of the Aircraft, Airframe or Engines as
Lessor may so demand to Lessor or its order in the manner and condition required
by, and otherwise in accordance with all the provisions of, Section 5 as if the
Aircraft, Airframe or Engines were being returned at the end of the Term; or
Lessor, at its option, may enter upon the premises where the Aircraft, Airframe
or any Engine, or part thereof is located and take immediate possession of and
remove the same by summary proceedings or otherwise, all without liability
accruing to Lessor for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or
otherwise, and Lessee expressly waives any right it may have under applicable
law to a hearing prior to repossession of the Aircraft, Airframe or any Engine
or part thereof; or
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15.1.2 Sale, Use, Etc. Lessor may sell all or any part of the
Aircraft, Airframe or any Engine, at public or private sale, at such times and
places, to such Persons (including Lessor or any Participant) as Lessor may
determine, or otherwise dispose of, hold, use, operate, lease to others or keep
idle the Aircraft, Airframe or any Engine or part thereof, as Lessor, in its
sole discretion, may determine, all free and clear of any rights of Lessee
except as hereinafter set forth in this Section 15 and without any duty to
account to Lessee with respect to such action or inaction or for any proceeds
with respect thereto; or
15.1.3 Certain Liquidated Damages.
15.1.3.1 Liquidated Damages--Fair Market Rental Value.
Whether or not Lessor shall have exercised, or shall thereafter at any time
exercise, any of its rights under Section 15.1.1 or 15.1.2 with respect to the
Aircraft, Airframe or any Engine or part thereof, Lessor, by written notice to
Lessee specifying a payment date not earlier than ten days from the date of such
notice, may cause Lessee to pay to Lessor, and Lessee shall pay to 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 or Renewal Rent, as the
case may be, due on or after the date specified for payment in such notice), any
unpaid Basic Rent or Renewal Rent, as the case may be, due prior to such date
plus an amount equal to the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such date over the fair market rental value (determined
as hereafter provided in this Section 15) of the Aircraft for the remainder of
the Term, after discounting such fair market rental value semiannually
(effective on each Rent Payment Date) by a rate equal to the Overdue Rate to
present worth as of the date specified for payment in such notice, together with
interest, if any, on such amount and unpaid Basic Rent or Renewal Rent, as the
case may be, at the Overdue Rate from the date specified for payment in such
notice to the date of payment in full; or
15.1.3.2 Liquidated Damages--Fair Market Sales Value. If
Lessor shall not have sold the Aircraft, Lessor, by written notice to Lessee
specifying a payment date not earlier than ten days from the date of such
notice, may cause Lessee to pay to Lessor, and Lessee shall pay to 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 or Renewal Rent, as the
case may be, due on or after the date specified for payment in such notice), any
unpaid Basic Rent or Renewal Rent, as the case may be, due prior to such date
plus an amount equal to the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such date over the fair market sales value of the
Aircraft (determined as hereafter provided in this Section 15 as of the date
specified for payment in such notice), together with interest, if any, on such
amount and unpaid Basic Rent or
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Renewal Rent, as the case may be, at the Overdue Rate from the date specified
for payment in such notice to the date of payment in full; or
15.1.4 Liquidated Damages upon Sale. If Lessor, pursuant to
Section 15.1.2 or applicable law, shall have sold the Aircraft, Lessor, in lieu
of exercising its rights under Section 15.1.3 with respect to the Aircraft, may,
if Lessor shall so elect, upon giving written notice to Lessee, cause Lessee to
pay Lessor, and Lessee shall pay to Lessor, on the date of such sale, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of the
Basic Rent or Renewal Rent, as the case may be, due on or after the date of such
sale), any unpaid Basic Rent or Renewal Rent, as the case may be, due prior to
such date of sale plus the amount of any deficiency between the net proceeds of
such sale or (if such sale is a private sale and is made to Lessor, a
Participant or any Affiliate thereof) between the fair market sales value of the
Aircraft, determined as of the date of such sale as hereinafter provided in this
Section 15, and the Stipulated Loss Value of the Aircraft, computed as of the
date of such sale, together with interest, if any, on such amount and such
unpaid Basic Rent or Renewal Rent at the Overdue Rate from the date of such sale
to the date of payment in full; or
15.1.5 Rescission and Other Remedies. Lessor may terminate or
rescind this Lease as to the Aircraft, or may exercise any other right or remedy
which may be available to it under applicable law or proceed by appropriate
court action to enforce the terms hereof or to recover damages for the breach
hereof, including without limitation Lessee's agreement to lease the Aircraft
for the Term and to pay Rent.
In addition to the foregoing remedies, Lessee shall be liable (except as
otherwise provided above and without duplication of amounts otherwise payable
hereunder) for any and all unpaid Rent due hereunder before, during or after the
exercise of any of the foregoing remedies and for all reasonable and actual
legal fees and other costs and expenses (including the fees and expenses of all
appraisers required by this Section 15) of Lessor and Participants, incurred by
reason of the occurrence of any Lease Event of Default or the exercise of
Lessor's remedies with respect thereto, including all insurance and storage
costs and all costs and expenses incurred in connection with the return of the
Aircraft, Airframe or any Engine or part thereof, in accordance with the terms
of Section 5 or in placing the Aircraft, Airframe or any Engine or part thereof,
in the condition and airworthiness required by Section 5.
Lessor agrees to give Lessee at least 15 days' prior written notice of the
date fixed for any public sale of the Aircraft, the Airframe or any Engine or
part thereof, and of the date on or after which will occur the execution of any
contract providing for any private sale, and any such public sale shall be
conducted in general so as to afford Lessee a reasonable opportunity to bid.
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15.2 Determination of Fair Market Rental Value and Fair Market Sales
Value. For the purpose of this Section 15, the "fair market rental value" or the
"fair market sales value" of the Aircraft shall be the rental value or sales
value, as the case may be, which would be obtained in an arm's-length
transaction between an informed and willing lessee or purchaser, as the case may
be, under no compulsion to lease or purchase, as the case may be, and an
informed and willing lessor or seller in possession, as the case may be, and in
each case shall be determined on an "as is, where is" basis pursuant to an
appraisal by a recognized independent aircraft appraiser chosen by Lessor and
approved by Lessee, which approval shall not be unreasonably withheld or delayed
and shall be deemed granted if such choice is not rejected within 10 days after
Lessee's receipt of notice of Lessor's choice.
15.3 No Waiver, Etc. No remedy referred to in this Section 15 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 of 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 Lease Event of Default shall in any way be, or be construed to be, a waiver
of any earlier or subsequent Lease Event of Default. To the extent permitted by
applicable law, Lessee hereby waives any rights now or hereafter conferred by
statute or otherwise which may require Lessor to sell, lease or otherwise use
the Aircraft, Airframe or any Engine, or part thereof, in mitigation of Lessor's
damages as set forth in this Section 15 or which may otherwise limit or modify
any of Lessor's rights or remedies under this Section 15.
Section 16. Notices. All notices required under the terms and provisions
hereof shall be in writing and shall be given by certified mail, telecopy or any
other customary means of written communication, addressed:
If to Lessee, at 2702 Love Field Dr., P.O. Box 36611, Dallas, Texas
75235-1611 (telecopy no. 214/904-4022), Attention: Treasurer, or at such other
address as Lessee shall from time to time designate in writing;
If to Lessor, at 79 Main Street, P. 0. Box 30007, Salt Lake City, Utah
84130-0007 (telecopy no. 801/350-5053), Attention: Corporate Trust Department,
or at such other address as Lessor shall from time to time designate in writing;
If to any Participant, at its address set forth in the signature pages of
the Participation Agreement, or at such other address as such Participant shall
from time to time designate in writing.
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The effective date of any such notice shall be the date on which it is
received by the addressee. Lessee shall furnish to Lessor for transmission to
Owner Participant and Lender a sufficient number of copies of all reports,
notices, requests, demands, certificates, financial statements and other
instruments furnished hereunder, except in any case where Lessee shall have
transmitted the same directly to any such person.
Section 17. Net Lease; Lessee's Obligations; No Setoff, Counterclaim, Etc.
This is a net lease and it is hereby recognized that Lessor is the owner of the
Aircraft (except that Owner Participant will be the owner for income tax
purposes) and Lessee is the lessee thereof. It is the intent of the parties
hereto that this Lease be a "true lease". Lessee's obligation to pay all Rent
payable 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 which Lessee may have against Lessor (in its
individual or trust capacity), any Participant, any Indemnified Party or any
other Person for any reason whatsoever (except as expressly provided in Section
13.5.2 of the Participation Agreement or in Sections 6 and 7 of the Tax
Indemnification Agreement); (b) any defect in the title, airworthiness,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, the Aircraft, Airframe or any Engine, or any interruption or
cessation in the use or possession thereof by Lessee for any reason whatsoever;
(c) any insolvency, bankruptcy, reorganization or similar proceedings by or
against Lessee; (d) any restriction, prevention or curtailment of or
interference with any use of the Aircraft or part thereof; (e) any invalidity or
unenforceability or disaffirmance of this Lease or any provision hereof or any
of the other Operative Agreements or any provision thereof, in each case whether
against or by Lessee or otherwise; or (f) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
If for any reason whatsoever this Lease shall be terminated in whole or in
part by operation of law or otherwise except as specifically provided herein,
Lessee nonetheless agrees to pay an amount equal to each Basic Rent, Renewal
Rent and Supplemental Rent payment at the time such payment would have become
due and payable in accordance with the terms hereof had this Lease not been
terminated in whole or in part. All Rent payable by Lessee shall be paid without
notice or demand (except as otherwise expressly provided) and without abatement,
suspension, deferment, deduction, diminution or proration by reason of any
circumstance or occurrence whatsoever (except as expressly provided in Section
13.5.2 of the Participation Agreement or in Sections 6 and 7 of the Tax
Indemnification Agreement). Lessee hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which at any time
hereafter may be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender this Lease or any part hereof, or to any abatement,
suppression, deferment, diminution, reduction or proration of Rent except in
accordance with the express terms hereof. Each
SALE AND LEASE AGREEMENT
41
<PAGE>
payment of Rent made by Lessee shall be final as to Lessor and Lessee. Lessee
will not seek to recover all or any part of any such payment of Rent for any
reason whatsoever.
Section 18. Renewal Options; Early Termination.
18.1 Renewal Options. At the end of the Base Lease Term or any
Renewal Term, so long as no Lease Event of Default or Lease Default has occurred
and is continuing and the aggregate of all Renewal Terms shall not exceed six
years, Lessee shall have the option to renew this Lease for a Renewal Term;
provided, that if, at the time of exercise by Lessee of any of its renewal
rights set forth in this Section 18.1, Owner Participant and its Affiliates
shall be the owner of all of the beneficial interest in one or more other Boeing
Model 737-200 series aircraft then subject to a lease under which the lessee is
Lessee (all of such aircraft, together with the Aircraft, referred to as the
"Owner Group Aircraft"), then Lessee shall be obligated to exercise such renewal
rights (or to have exercised such renewal rights for a Renewal Term which shall
be then continuing) with respect to at least three of such Owner Group Aircraft
(or such lesser number of Owner Group Aircraft as shall exist at such time). In
order to exercise the option to renew, except as otherwise provided in Section
13.4.1 of the Participation Agreement, Lessee shall notify Lessor thereof in
writing not more than 360 days nor less than 180 days prior to the commencement
of the applicable Renewal Term (which notice shall be irrevocable). The Renewal
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;
provided, that if a Stage III Upgrade shall have occurred and (i) Owner
Participant shall have performed its obligations set forth in Section 13.4 of
the Participation Agreement, upon proper request by Lessee, then such fair
market value shall be determined taking into account the value of the hush kit
installed pursuant to such upgrade, and (ii) if Owner Participant shall not have
so performed or shall not have been requested to do so by Lessee, then such fair
market value shall be determined without taking into account the value of the
hush kit installed pursuant to such upgrade, i.e., as if no Stage III Upgrade
had occurred. Such fair market rental value shall be determined not later than
three months prior to the commencement of such Renewal Term by mutual consent of
Owner Participant and Lessee or, if they shall be unable so to agree, by three
recognized independent aircraft appraisers, one chosen and paid for by Owner
Participant, one chosen and paid for by Lessee and the third appraiser chosen by
the mutual consent of the first two appraisers and paid for equally by Owner
Participant and Lessee, the appraisals of which three appraisers shall be
averaged and such average shall be deemed to be the fair market rental value of
the Aircraft for all purposes hereof; provided, however, that if the appraisal
of one appraiser is more disparate from the average of all three appraisals than
each of the other two appraisals, then the appraisal of such appraiser shall be
excluded, the remaining appraisals shall be averaged and such average shall be
deemed to be the fair market rental value of the Aircraft for all purposes
hereof. If either Owner Participant or Lessee shall fail to appoint an appraiser
by the date which is two months
SALE AND LEASE AGREEMENT
42
<PAGE>
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 one month before the commencement of such Renewal Term, then
either Owner Participant 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 an informed and willing lessor (under no
compulsion to lease) and shall be determined on the assumptions that the
Aircraft is in the United States of America, available for use by the lessee and
in the return condition required by Section 5 of this Lease and otherwise in
compliance with the requirements of this Lease. Stipulated Loss Value amounts
that are payable during each such Renewal Term shall be calculated as of the
date of commencement of such Renewal Term and shall be determined by multiplying
1.1 times the appraised value of the Aircraft at such time; provided, however,
that no such amount shall be less than the principal amount of any indebtedness
then secured by a Lien on the Aircraft.
18.2 Early Termination. Provided that this Lease has not been
terminated and provided that no Lease Default or Lease Event of Default shall
have occurred and be continuing hereunder, Lessee shall have the option to
terminate this Lease with respect to the Aircraft not more than 42 days prior to
the expiration of the Base Lease Term or the applicable Renewal Term. Lessee may
exercise such option of termination by delivering irrevocable written notice of
such exercise to Lessor not less than six months' prior written notice of such
advanced date of termination. Such notice shall provide the date elected by
Lessee for such early termination and a calculation of the final payment of
Rent, which shall be due on such early termination date and shall be calculated
as provided in clause (ii) of Section 3.3.
18.3 Default Purchase Option. In the event of Owner Participant's
failure to satisfy its obligations specified in Section 13.4 of the
Participation Agreement, Lessee shall have the option to purchase the Aircraft.
In order to exercise such option, Lessee shall notify Lessor (and, if the
Mortgage is then in effect, Lender) thereof in writing, specifying a Rent
Payment Date on which such purchase is to occur. In such case, Lessee shall
purchase the Aircraft on such Rent Purchase Date at a purchase price equal to
Termination Value. Upon receipt of such purchase price from Lessee and all Rent
and other amounts due hereunder and under any other Operative Agreement, Lessor
shall Transfer to Lessee the Aircraft.
Section 19. Successor Owner Trustee. Lessee agrees that in the case of the
appointment of any successor Owner Trustee pursuant to the terms of the Trust
Agreement, such successor Owner Trustee shall, upon written notice by such
successor Owner Trustee to Lessee, succeed to all the rights, powers and title
of Lessor hereunder and shall be deemed to be Lessor and the owner of the
Aircraft for all purposes hereof
SALE AND LEASE AGREEMENT
43
<PAGE>
without the necessity of any consent or approval by Lessee (but such successor
Owner Trustee shall qualify under the terms of Section 10.2 of the Participation
Agreement) and without in any way altering the terms of this Lease or Lessee's
obligations hereunder. One such appointment and designation of a successor Owner
Trustee shall not exhaust the right to appoint and designate further successor
or additional Owner Trustees pursuant to the Trust Agreement, and such right may
be exercised repeatedly as long as this Lease shall be in effect.
Section 20. Right to Perform for Lessee. If Lessee fails to make any
payment of Rent required to be made by it hereunder or fails to perform or
comply with any of its agreements contained herein, Lessor may (but shall not be
obligated to) make such payment or perform or comply with such agreement, and
the amount of such payment and the amount of the expenses of Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Overdue
Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand.
Section 21. Quiet Enjoyment. So long as this Lease shall not have been
declared to be in default pursuant to Section 15, during the Term Lessor will
not, through its own actions or inactions, interfere in the quiet enjoyment of
the Aircraft by Lessee or any Permitted Sublessee.
Section 22. Investment of Security Funds; Miscellaneous; Amendment.
22.1 Investment of Security Funds. Any moneys required to be paid to
or retained by Lessor which are not required to be paid to Lessee pursuant to
Section 10.6 or 11.4 solely because a Lease Event of Default or Lease Default
under Section 14.1 or 14.5 shall have occurred and be continuing, or which are
held by Lessor pending payment to Lessee pursuant to Section 11.4 or which are
required to be paid to Lessee pursuant to Section 10.3 or 11.4 after completion
of a replacement to be made pursuant to Section 10.2, shall, until paid to
Lessee as provided in Section 10 or 11 or applied as provided herein or in the
Trust Agreement, be invested by Lessor from time to time as directed in writing
by Lessee and at the expense and risk of Lessee in the following securities
(which, except in the case of the shares described in clause (e) below, shall
mature within 91 days of the date of purchase thereof): (a) direct obligations
of the Government; (b) obligations fully guaranteed by the Government; (c) open
market commercial paper of any corporation incorporated under the laws of the
United States of America or any State thereof rated P-1 or its equivalent by
Moody's Investors Service, Inc. and A-1 or its equivalent by Standard & Poor's
Corporation; or (d) certificates of deposit issued by, or bankers' acceptances
of, or time deposits or a deposit account with any bank, trust company or
national banking association incorporated or doing business under the laws of
the United States of America or any state thereof having a combined capital and
SALE AND LEASE AGREEMENT
44
<PAGE>
surplus of at least $50,000,000; or (e) shares of a money market fund registered
under the Investment Company Act of 1940, as amended, the sole assets of which
are direct obligations of the Government. There shall be promptly remitted to
Lessee or its order any gain (including interest received) realized as the
result of any such investment (net of any fees, commissions and other expenses,
if any, incurred in connection with such investment) unless a Lease Event of
Default of a Lease Default under Section 14.1 or 14.5 shall have occurred and be
continuing. Lessee will promptly pay to Lessor, on demand, the amount of any
loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment), such amount to be disposed of in accordance with the terms of the
Trust Agreement.
22.2 Miscellaneous; Amendment. Lessee shall do, execute, acknowledge
and deliver, or shall cause to be done, executed, acknowledged and delivered,
all such further acts, conveyances and assurances as Lessor or any Participant
shall reasonably require for accomplishing the purposes of this Agreement and
the other Operative Agreements. 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
provision hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against which the
enforcement of the change, waiver, discharge or termination is sought. This
Lease shall constitute an agreement of lease, and nothing herein shall be
construed as conveying to Lessee any right, title or interest in or to the
Aircraft, Airframe or Engines except as a lessee only. The section and paragraph
headings in this Lease and the table of contents are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof and all references herein to numbered sections, unless
otherwise indicated, are to sections of this Lease. THIS LEASE HAS BEEN, AND
EACH LEASE SUPPLEMENT AND AMENDMENT HERETO IS INTENDED TO BE, DELIVERED IN THE
STATE OF TEXAS AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE
IN SUCH STATE BY RESIDENTS THEREOF AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. This
Lease and each Lease Supplement and amendment hereto 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.
SALE AND LEASE AGREEMENT
45
<PAGE>
Section 23. Permitted Foreign Air Carriers. Lessor may, in the exercise of
its reasonable business judgment, by written notice to Lessee, remove any
foreign air carrier from Exhibit B and Lessee may, by written notice to Lessor,
request that any foreign air carrier be added to Exhibit B, subject to Lessor's
prior written consent, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, no deletion of an airline from the list of
Permitted Foreign Air Carriers pursuant hereto shall (i) reduce the number of
Permitted Foreign Air Carriers below 35, (ii) affect any existing sublease or
other agreement providing for transfer of possession of the Aircraft, Airframe,
any Engine or Part which was permitted hereunder at the time entered into, or
(iii) preclude any subsequent renewal or extension of such sublease or other
agreement to which the Permitted Foreign Air Carrier under a sublease is
entitled by the terms thereof as originally in effect.
SALE AND LEASE AGREEMENT
46
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed and delivered as of the day and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity except as
expressly stated herein, but solely as Owner
Trustee under the Trust Agreement
By: /s/ Dorian Light Shaw
---------------------------
Title: ASSISTANT VICE PRESIDENT
------------------------
Lessee:
SOUTHWEST AIRLINES CO.
By: /s/ John D. Owen
---------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
<PAGE>
EXHIBIT A TO
LEASE AGREEMENT
SALE AND LEASE AGREEMENT SUPPLEMENT NO._______
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO._________ dated ___________,
____ is between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its
individual capacity but solely as Owner Trustee under that certain Trust
Agreement, dated as of September 1, 1990 (the "Trust Agreement"), between the
Owner Participant named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES
CO., a Texas corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, as supplemented and amended from
time to time (herein called the "Lease Agreement" and the defined terms therein
being herein used with the same meaning), which Lease Agreement provides in
Section 2 for the execution of a Lease Supplement substantially in the form
hereof for the purpose of Lessee's selling to Lessor, and Lessor's leasing back
to Lessee, the Aircraft under the Lease Agreement as and when delivered by
Lessor to Lessee in accordance with the terms thereof; and
B. The Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached hereto and made a
part hereof and this Lease Supplement, together with such attachment, is being
filed for recordation with the FAA on the date hereof as one document.
In consideration of the premises and other good and sufficient
consideration, and pursuant to Section 2 of the Lease Agreement, Lessor and
Lessee hereby agree as follows:
1. Lessee hereby delivers and sells to Lessor and Lessor hereby accepts
and purchases from Lessee and in turn delivers and leases back to Lessee, and
Lessee hereby accepts and leases back from Lessor, under the Lease Agreement, as
herein supplemented, the following-described Boeing Model 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
SALE AND LEASE AGREEMENT
A-1
<PAGE>
Airframe: U.S. Registration Number N ________SW; Manufacturer's Serial No.
___; and
Engines: Two Pratt & Whitney JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: __________ and ________________.
Each of the Engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. Lessee hereby confirms to Lessor that the Delivered Aircraft has been
or will be duly marked in accordance with the terms of Section 7.1.2 of the
Lease and that Lessee has accepted the Delivered Aircraft for all purposes
hereof and of the Lease Agreement, including its being airworthy, in accordance
with specifications, in good working order and repair and without defect or
inherent vice in title, condition, design, operation or fitness for use, whether
or not discoverable by Lessee as of the date hereof, and free and clear of all
Liens except Permitted Liens.
4. All the provisions of the Lease Agreement are hereby incorporated by
reference in this Lease Supplement, on and as of the date of this Lease
Supplement, to the same extent as if fully set forth herein.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
SALE AND LEASE AGREEMENT
A-2
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to
be duly executed and delivered as of the date and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Owner Trustee under the Trust
Agreement
By:
---------------------------
Title:
Lessee:
SOUTHWEST AIRLINES CO.
By:
---------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
A-3
<PAGE>
EXHIBIT B TO
LEASE AGREEMENT
PERMITTED FOREIGN AIR CARRIERS
Aer Lingus Interflug
Aerolineas Argentinas Japan Air Lines
Aeromexico Japan Air System
Air Canada KLM
Air Europa Korean Air
Air Europe Lan Chile
Air France Lauda Air
Air Inter Linjeflyg
Air Jamaica Lufthansa
Air New Zealand Luxair
Alitalia Maersk
All Nippon Airways Malaysian Airline System
ALM Martinair
Ansett Airlines of Australia Mexicana
Asiana Airlines Monarch Airlines
Australian Airlines Olympic Airlines
Austrian Airlines Qantas Airways
AVENSA Ryanair
Bahamasair Sabena
Bavaria SAS
Braathens S.A.F.E. Saudi Arabia Airlines
Britannia Singapore Airlines
British Airways SouthWest Airlines
British Midland Swissair
CAAC TAP
Canadian Airlines International Thai Airways
Cathay Pacific Airways Transavia Holland
Cayman Airways Transbrasil
China Airlines TransEuropean
Condor Flugdienst UTA
Dan-Air Varig
Finnair Viasa
Garuda Viva Air
Hapag Lloyd
Iberia
Icelandair
SALE AND LEASE AGREEMENT
B-1
<PAGE>
EXHIBIT C TO
LEASE AGREEMENT
OTHER RETURN CONDITIONS
At the time of the return of the Aircraft upon the expiration or earlier
termination of the Term, the Aircraft shall be in the following condition:
1. General Condition
(a) The Aircraft shall be clean and free of leaks, in each case in
accordance with United States commercial airline operating
standards.
(b) All decals shall be clean, secure and legible.
2. Fuselage. Windows and Doors
(a) The fuselage shall be free of loose or pulled or missing
rivets.
(b) The doors shall be free moving, correctly rigged and be fitted
with serviceable seals.
3. Wings and Empennage
(a) The wings shall be free of fuel leaks.
4. Interior
(a) The ceilings, sidewalls and bulkhead panels shall be clean and
free of cracks and stains.
(b) All carpet and seat covers shall be in good condition, clean
and stain free and meet FAR fire resistance regulations.
(c) All seats shall meet FAA fire retardant regulations and be
serviceable, in good condition and repainted as necessary.
(d) All signs and decals shall be in English and be clean and
legible.
SALE AND LEASE AGREEMENT
C-1
<PAGE>
(e) All emergency equipment having a calendar life shall have a
minimum of one year or one hundred per cent of its total
approved life, whichever is less, remaining.
5. Cockpit
(a) All decals shall be in English and be clean, secure and
legible.
(b) All seat covers shall be in good condition, clean and shall
conform to FAR fire resistance regulation.
(c) All seats shall be fully serviceable and shall be repainted as
necessary.
6. Cargo Compartment
(a) All panels shall be in good condition.
(b) All nets shall be in good condition.
7. Fuel Tanks
(a) The fuel tanks shall be substantially free of bacteria growth
and water.
SALE AND LEASE AGREEMENT
C-2
<PAGE>
EXHIBIT D TO LEASE
AGREEMENT
TERMINATION VALUE SCHEDULE
Rent Payment Date Termination Date
- ----------------- ----------------
December 31, 1990 ....................................... $ 11,150,500
March 31, 1991 .......................................... 10,997,263
June 30, 1991 ........................................... 10,840,194
September 30, 1991 ...................................... 10,679,199
December 31, 1991 ....................................... 10,514,179
March 31, 1992 .......................................... 10,345,033
June 30, 1992 ........................................... 10,171,659
September 30, 1992 ...................................... 9,993,951
December 31, 1992 ....................................... 9,811,799
March 31, 1993 .......................................... 9,625,094
June 30, 1993 ........................................... 9,433,722
September 30, 1993 ...................................... 9,237,565
December 31, 1993 ....................................... 9,036,504
March 31, 1994 .......................................... 8,830,417
June 30, 1994 ........................................... 8,619,177
September 30, 1994 ...................................... 8,402,656
December 31, 1994 ....................................... 8,180,723
March 31, 1995 .......................................... 7,953,241
June 30, 1995 ........................................... 7,720,072
September 30, 1995 ...................................... 7,481,074
December 31, 1995 ....................................... 7,236,101
March 31, 1996 .......................................... 6,985,003
June 30, 1996 ........................................... 6,727,628
September 30, 1996 ...................................... 6,463,819
December 31, 1996 ....................................... 6,193,414
March 31, 1997 .......................................... 5,916,250
June 30, 1997 ........................................... 5,632,156
September 30, 1997 ...................................... 5,340,960
December 31, 1997 ....................................... 5,042,484
March 31, 1998 .......................................... 4,736,546
June 30, 1998 ........................................... 4,422,960
September 30, 1998 ...................................... 4,101,533
December 31, 1998 ....................................... 3,772,072
SALE AND LEASE AGREEMENT
D-1
<PAGE>
SCHEDULE I TO
LEASE AGREEMENT
The Lessor's Cost for the Aircraft is $11,000,000.
SALE AND LEASE AGREEMENT
<PAGE>
SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1 dated September 27, 1990 is
between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under that certain Trust Agreement, dated
as of September 1, 1990 (the "Trust Agreement"), between the Owner Participant
named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas
corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, as supplemented and amended from
time to time (herein called the "Lease Agreement" and the defined terms therein
being herein used with the same meaning), which Lease Agreement provides in
Section 2 for the execution of a Lease Supplement substantially in the form
hereof for the purpose of Lessee's selling to Lessor, and Lessor's leasing back
to Lessee, the Aircraft under the Lease Agreement as and when delivered by
Lessor to Lessee in accordance with the terms thereof; and
B. The Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached hereto and made a
part hereof and this Lease Supplement, together with such attachment, is being
filed for recordation with the FAA on the date hereof as one document.
In consideration of the premises and other good and sufficient
consideration, and pursuant to Section 2 of the Lease Agreement, Lessor and
Lessee hereby agree as follows:
1. Lessee hereby delivers and sells to Lessor and Lessor hereby accepts
and purchases from Lessee and in turn delivers and leases back to Lessee, and
Lessee hereby accepts and leases back from Lessor, under the Lease Agreement, as
herein supplemented, the following-described Boeing Model 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
Airframe: U.S. Registration Number N56SW; Manufacturer's Serial No. 21721;
and
Engines: Two Pratt & Whitney JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: P674648B and P707371B.
<PAGE>
Each of the Engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. Lessee hereby confirms to Lessor that the Delivered Aircraft has been
or will be duly marked in accordance with the terms of Section 7.1.2 of the
Lease and that Lessee has accepted the Delivered Aircraft for all purposes
hereof and of the Lease Agreement, including its being airworthy, in accordance
with specifications, in good working order and repair and without defect or
inherent vice in title, condition, design, operation or fitness for use, whether
or not discoverable by Lessee as of the date hereof, and free and clear of all
Liens except Permitted Liens.
4. All the provisions of the Lease Agreement are hereby incorporated by
reference in this Lease Supplement, on and as of the date of this Lease
Supplement, to the same extent as if fully set forth herein.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
-2-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to
be duly executed and delivered as of the date and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By: /s/ Dorian Light Shaw
---------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By: /s/ John D. Owen
---------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
3
<PAGE>
Document No. 3
- --------------------------------------------------------------------------------
SALE AND LEASE AGREEMENT
dated as of September 1, 1990
between
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION
as Owner Trustee,
Lessor
and
SOUTHWEST AIRLINES CO.,
Lessee
--------------------------------
One Boeing Model 737-2H4 Aircraft
(N55SW)
SOUTHWEST AIRLINES 1990 TRUST II
- --------------------------------------------------------------------------------
The rights of Lessor under this Sale and Lease Agreement have been
assigned to, and are subject to a security interest in favor of, Progress Credit
Corporation as Lender under a Security Agreement and Assignment of Leases 55SW
dated as of September 1, 1990. This Sale and Lease Agreement has been executed
in counterparts. To the extent that this Sale and Lease Agreement constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Sale and
Lease Agreement may be created through the transfer or possession of any
counterpart other than the counterpart that states on its cover that it is the
original counterpart. This is not the original counterpart.
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TABLE OF CONTENTS
Section Page
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Section 1. Definitions ..................................................... 1
Section 2. Sale, Lease and Acceptance ...................................... 9
Section 3. Term and Rent ................................................... 9
3.1 General ................................................... 9
3.2 Lease Term ................................................ 9
3.3 Basic Rent ................................................ 9
3.4 Supplemental Rent ......................................... 10
3.5 Payments .................................................. 10
Section 4. Lessor's Representations and Warranties; DISCLAIMER;
Certain Agreements of Lessee ................................. 11
4.1 Lessor's Representations and Warranties; DISCLAIMER ....... 11
4.2 Certain Agreements of Lessee .............................. 11
Section 5. Return of Aircraft .............................................. 12
5.1 General Condition upon Return ............................. 12
5.1.1 Airworthiness ...................................... 12
5.1.2 Free of Liens ...................................... 12
5.1.3 Operating Configuration and Condition .............. 12
5.1.4 Cleanliness and Operability ........................ 12
5.1.5 Parts and Equipment ................................ 12
5.1.6 Corrosion Treatment ................................ 12
5.1.7 Hush Kits ......................................... 13
5.1.8 Other Conditions ................................... 13
5.2 Return of Other Engines ................................... 13
5.3 Return at End of Base Lease Term or Renewal Lease Term .... 13
5.3.1 Airframe ........................................... 14
5.3.2 Engines ............................................ 14
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Section Page
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5.3.3 Boroscope .......................................... 15
5.3.4 Landing Gears ...................................... 15
5.3.5 APU ................................................ 15
5.3.6 Other Components ................................... 15
5.4 Financial Adjustments .................................... 15
5.4.1 Airframe ........................................... 15
5.4.2 [Intentionally omitted.] ........................... 15
5.4.3 Landing Gears ...................................... 16
5.5 Manuals; Service Bulletins, Etc ........................... 16
5.6 Storage upon Return ....................................... 16
5.7 Failure to Return Aircraft or Engines ..................... 16
5.8 Aid in Disposition ........................................ 17
Section 6. Liens ........................................................... 17
Section 7. Registration, Operation, Possession, Subleasing and Records ..... 17
7.1 Registration and Operation ................................ 17
7.1.1 Registration ....................................... 17
7.1.2 Nameplate .......................................... 18
7.1.3 Compliance with Laws ............................... 18
7.1.4 Insurance Requirements; Government
Requisition; Indemnity ........................... 18
7.2 Possession ................................................ 19
7.2.1 Interchange and Pooling ............................ 19
7.2.2 Testing and Service ................................ 19
7.2.3 Civil Reserve Air Fleet Program .................... 19
7.2.4 Installation of Engines ............................ 20
7.2.5 Installation of Engines on Other Airframes ......... 20
7.2.6 Pooling of Parts ................................... 20
7.2.7 Wet Lease .......................................... 20
7.2.8 Sublease to Permitted Air Carriers ................. 20
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Section Page
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7.3 Records and Reports ....................................... 22
7.3.1 Records ............................................ 22
7.3.2 Information and Reports ............................ 22
7.3.3 Financial Information .............................. 23
Section 8. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions .................................. 23
8.1 Maintenance ............................................... 23
8.1.1 Maintenance Program ............................... 23
8.1.2 Compliance with Government Requirements ........... 24
8.2 Replacement of Parts ...................................... 24
8.3 Pooling of Parts .......................................... 24
8.4 Alterations, Modifications and Additions .................. 25
Section 9. [Intentionally Omitted] ......................................... 26
Section 10. Loss, Destruction, Requisition, Etc ............................ 26
10.1 Event of Loss with Respect to Aircraft .................... 26
10.2 Event of Loss with Respect to an Engine ................... 26
10.2.1 Event of Loss ..................................... 26
10.2.2 Conditions; Lessee's Obligations .................. 27
10.2.3 Recordation and Opinions .......................... 28
10.2.4 Conveyance; Replacement Engine .................... 28
10.2.5 No Reduction of Rent .............................. 28
10.3 Application of Certain Payments ........................... 28
10.3.1 Replacement of Engine ............................. 28
10.3.2 Nonreplacement .................................... 28
10.4 Requisition of Aircraft for Use by
Governmental Authorities ................................ 29
10.5 Requisition of an Engine for Use by
Governmental Authorities ................................ 29
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Section Page
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10.6 Application of Payments During Existence of Default ...... 29
Section 11. Insurance ...................................................... 29
11.1 Public Liability and Property Damage Insurance ........... 29
11.1.1 Type, Form and Amount ............................. 30
11.1.2 Coverage .......................................... 30
11.1.3 Additional Insureds ............................... 30
11.2 Insurance Against Loss of or Damage to Aircraft
and Engines ............................................. 30
11.2.1 Type, Form and Amount ............................. 30
11.2.2 War-Risk Insurance ................................ 30
11.2.3 Certain Requirements .............................. 31
11.2.3.1 Additional Insureds ....................... 31
11.2.3.2 Payment of Proceeds ....................... 31
11.2.3.3 Waiver of Subrogation ..................... 31
11.2.4 Deductibles ....................................... 31
11.2.5 Government Indemnity .............................. 32
11.3 General Policy Provisions ................................. 32
11.3.1 Primary Insurance ................................. 32
11.3.2 Coverage for Each Insured ......................... 32
11.3.3 Waiver of Certain Rights .......................... 32
11.3.4 Breach of Warranty ................................ 32
11.3.5 Notice of Termination or Changes .................. 32
11.3.6 Nonliability for Premiums ......................... 33
11.3.7 Identity of Insurers .............................. 33
11.4 Application of Insurance Proceeds ......................... 33
11.5 Certificates; Reports, Etc. ............................... 33
11.6 Lessor's Right to Maintain Insurance ...................... 34
11.7 Insurance for Own Account ................................. 34
11.8 Self-Insurance ............................................ 34
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Section Page
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Section 12. Inspection ..................................................... 35
Section 13. Assignment ..................................................... 35
13.1 General .................................................. 35
13.2 Security for Lessor's Obligations ........................ 35
Section 14. Events of Default .............................................. 36
14.1 Failure To Pay Rent ...................................... 36
14.2 Specific Defaults ........................................ 36
14.3 General Default .......................................... 36
14.4 Misrepresentation and Breach of Warranty ................. 36
14.5 Bankruptcy, Etc. ......................................... 36
14.6 Cross Default ............................................ 37
Section 15. Remedies ....................................................... 37
15.1 Default; Remedies ......................................... 37
15.1.1 Return; Repossession .............................. 37
15.1.2 Sale, Use, Etc. ................................... 38
15.1.3 Certain Liquidated Damages ........................ 38
15.1.3.1 Liquidated Damages--
Fair Market Rental Value .............. 38
15.1.3.2 Liquidated Damages--
Fair Market Sales Value ............... 38
15.1.4 Liquidated Damages upon Sale ...................... 39
15.1.5 Rescission and Other Remedies ..................... 39
15.2 Determination of Fair Market Rental Value and
Fair Market Sales Value ................................ 40
15.3 No Waiver, Etc. .......................................... 40
Section 16. Notices ........................................................ 40
Section 17. Net Lease; Lessee's Obligations; No Setoff, Counterclaim, Etc. . 41
SALE AND LEASE AGREEMENT
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Section Page
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Section 18. Renewal Options; Early Termination ............................. 42
18.1 Renewal Options .......................................... 42
18.2 Early Termination ........................................ 43
18.3 Default Purchase Option .................................. 43
Section 19. Successor Owner Trustee ........................................ 43
Section 20. Right to Perform for Lessee .................................... 44
Section 21. Quiet Enjoyment ................................................ 44
Section 22. Investment of Security Funds; Miscellaneous; Amendment ......... 44
22.1 Investment of Security Funds ............................. 44
22.2 Miscellaneous; Amendment ................................. 45
Section 23. Permitted Foreign Air Carriers ................................. 46
Signatures
EXHIBIT A FORM OF LEASE SUPPLEMENT
EXHIBIT B PERMITTED FOREIGN AIR CARRIERS
EXHIBIT C OTHER RETURN CONDITIONS
EXHIBIT D TERMINATION VALUE SCHEDULE
SCHEDULE I LESSOR'S COST
SALE AND LEASE AGREEMENT
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THIS SALE AND LEASE AGREEMENT is dated as of September 1, 1990, between
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement hereinafter
referred to ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas corporation
("Lessee").
Recitals
1. Lessee owns the Aircraft.
2. The parties hereto desire that Lessor purchase the Aircraft from and
lease it back to Lessee as hereinbelow provided.
In consideration of the premises and the mutual agreements herein
contained, Lessor and Lessee agree as follows:
Section 1. Definitions. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this Lease
and shall be equally applicable to both the singular and the plural forms of the
terms herein defined. Any agreement referred to below shall mean such agreement
as amended, supplemented and modified from time to time, to the extent permitted
by, and in accordance with, the terms thereof. For all purposes of this Lease
the capitalized terms used but not defined herein are used as defined in the
Participation Agreement.
"Act" means the Federal Aviation Act of 1958, as amended from time
to time.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person.
"Aircraft" means the Airframe, together with the two Engines (or any
Replacement Engine substituted for either of such Engines hereunder), whether or
not any of such initial or Replacement Engines may on the Delivery Date or from
time to time thereafter be installed on the Airframe or may be installed on any
other airframe or on any other aircraft.
"Airframe" means (i) the Boeing Model 737-2H4 aircraft (excluding
Engines or engines from time to time installed thereon) specified in the initial
Lease Supplement sold hereunder by Lessee to Lessor, and leased back by Lessor
to Lessee, all hereunder and under the initial Lease Supplement, and (ii) any
and all Parts so long as the same shall be incorporated in such aircraft and any
and all Parts removed from such aircraft so long as title thereto shall remain
vested in Lessor in accordance with the terms of Section 8.
SALE AND LEASE AGREEMENT
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"Base Lease Term" means the period commencing on the Base Lease Term
Commencement Date and expiring on December 31, 1995.
"Base Lease Term Commencement Date" means October 1, 1990.
"Basic Rent" means the rent identified as Basic Rent in and payable
pursuant to Section 3.3.
"Bills of Sale" means the FAA Bill of Sale and the Warranty Bill of
Sale.
"Business Day" means a day on which banks are not required or
authorized to close in any of New York City, Dallas, Texas, the State of Florida
or Salt Lake City, Utah, or such other city as shall be the situs of the
principal office of Owner Participant, Lender, Lessee or Lessor at the time in
question.
"Cards" is defined in Section 5.3.1.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"Delivery Date" means the date of the initial Lease Supplement,
which date shall be the date on which the Aircraft is delivered by Lessee to,
and accepted by, Lessor hereunder and in turn leased back by Lessor to Lessee
hereunder, which date shall be a Business Day.
"DOT" means the United States Department of Transportation or any
governmental person, agency or authority succeeding to the functions of such
Department of Transportation.
"Engine" means (i) each of the Pratt & Whitney JT8D-9A engines
identified by manufacturer's serial number in the initial Lease Supplement
subjecting the Aircraft to this Lease, whether or not on the Delivery Date or
from time to time thereafter installed on such Airframe or installed on any
other airframe or on any other aircraft, and (ii) any Replacement Engine,
whether or not from time to time thereafter installed on the Airframe or any
other airframe or on any other aircraft, together in each case with any and all
Parts incorporated in such Engine and any and all Parts removed from such Engine
so long as title thereto shall remain vested in Lessor in accordance with the
terms of Section 8. Except as otherwise set forth herein, at such time as a
Replacement Engine shall be substituted hereunder such replaced Engine shall
cease to be an Engine hereunder. The term "Engines" means, as of any date of
determination, all Engines then leased hereunder.
SALE AND LEASE AGREEMENT
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"Event of Loss" means, with respect to the Aircraft, Airframe or any
Engine, any of the following events with respect to such property: (i)
disappearance or theft of such property or the loss of the use thereof for any
reason not covered by any other clause of this definition, including hijacking,
for a period of 180 consecutive days or more (unless the location of the
property is known and Lessee is diligently pursuing recovery of the property,
but in no event beyond the expiration of the Term) or destruction, damage beyond
economic repair or rendition of such property permanently unfit for normal use
for any reason whatsoever; (ii) any damage to such property which results in an
insurance settlement with respect to such property, on the basis of a total
loss, or a constructive or compromised total loss; (iii) the confiscation or
requisition of use of such property by the Government or any foreign government
or any instrumentality or agency thereof for a period in excess of twelve
consecutive months or for a period continuing beyond the Term, whichever first
occurs; (iv) as a result of any rule, regulation, order or other action by the
FAA or other governmental body (including any court) having jurisdiction, the
use of such property in the normal course of interstate air transportation of
persons or cargo shall have been prohibited for a period of more than six
consecutive months, unless Lessee, prior to the expiration of such six-month
period, shall have undertaken and shall be diligently carrying forward all steps
which are necessary or desirable to permit normal use by Lessee, and, (A) in the
case in which such prohibition shall apply generally to all similar Boeing Model
737-200 series aircraft, if such prohibition is continuing on the last day of
the Term, or (B) in all other cases, if such prohibition is continuing on the
earlier of the first anniversary of such prohibition and the last day of the
Term; (v) the condemnation or requisition of title to such property by the
Government or any foreign government or any instrumentality or agency thereof;
or (vi) respecting any Engine, any divestiture of title to an Engine treated as
an Event of Loss pursuant to Section 7.2.1 or any other provision hereof. An
Event of Loss with respect to the Aircraft shall be deemed to have occurred if
an Event of Loss occurs with respect to the Airframe. The date of an Event of
Loss shall be deemed to be the date of such insurance settlement, loss of use,
theft, disappearance, condemnation, confiscation, divestiture, taking or
requisition of title or use or prohibition, except that, for the purposes of
clauses (i), (iii) and (iv) above, no Event of Loss shall be deemed to have
occurred until the expiration of the applicable period referred to therein.
"FAA" means the Federal Aviation Administration or any governmental
person, agency or other authority succeeding to the functions of the Federal
Aviation Administration.
"FAA Regulations" means the Federal Aviation Regulations issued
pursuant to the Act from time to time, or any successor regulations thereto.
SALE AND LEASE AGREEMENT
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"Government" means the federal government of the United States of
America or any instrumentality or agency thereof.
"Guarantor" means Cauff, Lippman & Co., Inc., a Florida corporation.
The term "incorporated in" means incorporated or installed in or
attached to or otherwise made a part of.
"Indemnified Parties" means (i) First Security Bank of Utah,
National Association, in its individual capacity and as Owner Trustee, (ii)
Owner Participant, (iii) Lender, (iv) the Trust Estate, (v) the respective
successors and assigns of the foregoing and (vi) the respective officers and
directors of the foregoing.
"Interim Lease Term" means the period from the Delivery Date to and
including September 30, 1990.
"Lease", "this Lease", "this Agreement", "hereby", "herein",
"hereof", "hereunder" or other like words mean this Sale and Lease Agreement,
including without limitation supplementation hereof by one or more Lease
Supplements.
"Lease Default" means any event or condition which, with notice or
lapse of time or both, would constitute a Lease Event of Default.
"Lease Event of Default" is defined in Section 14.
"Lease Period" means each three-month period commencing on October
1, January 1, April 1 and July 1, as the case may be, during the Term.
"Lease Supplement" means a supplement to this Lease, in the case of
the initial such supplement substantially in the form attached as Exhibit A
hereto, subjecting the Aircraft or other property to this Lease.
"Lender" means Progress Credit Corporation, a Florida corporation,
and its successors and assigns.
"Lessee" means Southwest Airlines Co., a Texas corporation, and its
permitted successors or assigns.
"Lessor" means Owner Trustee.
"Lessor's Cost" for the Aircraft means the amount identified as such
in Schedule I hereto.
SALE AND LEASE AGREEMENT
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"Lessor Liens" means Liens of any Person claiming by, through or
under Lessor, First Security Bank of Utah, National Association, in its
individual capacity, or Owner Participant which arise as a result of (i) claims
against any such Person not related to the transactions contemplated by the
Operative Agreements (it being understood that, for purposes of this clause (i),
incurrence of any Successor Indebtedness to refund or refinance debt represented
by the Note is deemed to be a transaction contemplated by the Operative
Agreements), (ii) any act or omission of any such Person which is not related to
the transactions contemplated by the Operative Agreements, or is in violation of
any of the express terms of any of the Operative Agreements, (iii) Taxes or
Losses imposed against or incurred by any such Person for which Lessee is not
obligated to indemnify pursuant to the Participation Agreement, or (iv) claims
against any such Person arising out of any transfer by such Person in violation
of the express terms of the Operative Agreements.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease
or security interest, or any claim or exercise of rights, affecting the title to
or any interest in property.
"Maintenance Program" is defined in Section 8.1.1.
"Manufacturer" means The Boeing Company, a Delaware corporation, or
any Affiliate thereof whose obligations are guaranteed by The Boeing Company,
and their respective successors and assigns.
"Officer's Certificate" means a certificate signed by the Chairman,
the President, any Vice President, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Assistant Secretary of the Person providing
such certificate.
"Operative Agreements" means this Agreement, the Guaranty, each
Lease Supplement, the Participation Agreement, the Mortgage, the Loan Agreement,
the Note, the Trust Agreement, the Bills of Sale, and the Tax Indemnification
Agreement, including any consents included in or attached to any thereof.
"Overdue Rate" means 3% in excess of the interest rate publicly
announced in New York City from time to time by Citibank, N.A. as its prime or
base lending rate, but in no event to exceed the maximum rate permitted by
applicable law. Any interest payable hereunder at the Overdue Rate shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed.
"Owner Participant" means CL Aircraft XXXI, Inc., a Florida
corporation, and its successors and permitted assigns.
SALE AND LEASE AGREEMENT
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"Owner Trustee" means First Security Bank of Utah, National
Association, not in its individual capacity but solely as trustee under the
Trust Agreement, and any successor, separate or additional Owner Trustee
thereunder.
"Participants" means Owner Participant and Lender and their
respective successors and permitted assigns.
"Participation Agreement" means the Participation Agreement, dated
as of September 1, 1990, among Lessee, Lender, Guarantor, Owner Participant, and
Lessor.
"Parts" means all appliances, parts, components, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(other than (a) complete Engines or engines and (b) any severable items leased
by Lessee from a third party (other than Lessor)) which may from time to time be
incorporated in the Airframe or any Engine (and "Part" means any of the
foregoing) or, so long as title thereto shall remain vested in Lessor in
accordance with Section 8.2, after removal therefrom.
"Permitted Foreign Air Carrier" means any "foreign air carrier" (as
defined in the Act) listed on Exhibit B hereto (as the same may be modified from
time to time in accordance with Section 23) or any successor of any such air
carrier, which carrier or successor is not in any case, at the time a Permitted
Sublease is (or is proposed to be) entered into, the subject of bankruptcy,
reorganization or similar proceedings.
"Permitted Lien" means any Lien referred to in clauses (a) through
(g) of Section 6.
"Permitted Sublease" means a sublease permitted under Section 7.2.8.
"Permitted Sublessee" means the sublessee under a Permitted
Sublease.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Renewal Rent" means the rent payable in respect of a Renewal Term
determined pursuant to Section 18.1.
SALE AND LEASE AGREEMENT
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"Renewal Term" means any of the successive periods of integral
multiples of two years each but not more than six years in the aggregate which
follow the end of the Base Lease Term with respect to which Lessee shall have
exercised its option pursuant to Section 18.
"Rent" means Basic Rent, Renewal Rent and Supplemental Rent.
"Rent Payment Date" means each December 31, March 31, June 30 and
September 30 during the Term commencing September 30, 1990.
"Replacement Engine" means a Pratt & Whitney JT8D-9A engine (or an
improved model engine suitable for installation and use on the Airframe and
fully compatible with the other Engine or engine installed thereon) which shall
have been substituted for an Engine leased hereunder pursuant to Section 5.2 or
10.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Stipulated Loss Value" means (i) $12,100,000.00 during the Base
Lease Term and (ii), during any Renewal Lease Term, such amount as shall be
calculated in accordance with Section 18.1, in each case as adjusted pursuant to
Section 13 of the Participation Agreement.
"Supplemental Rent" means, without duplication, all amounts,
liabilities and obligations (other than Basic Rent or Renewal Rent) which Lessee
assumes or agrees to pay to Lessor or any other Person hereunder, under the
Participation Agreement or any of the other Operative Agreements, including,
without limitation (i) Stipulated Loss Value and Termination Value payments,
(ii) all amounts required to be paid by Lessee under the agreements, covenants
and indemnities contained in the Participation Agreement and (iii) all amounts
required to be paid pursuant to Section 3.4.
"Tax Indemnification Agreement" means the Tax Indemnification
Agreement, dated as of September 1, 1990, between Owner Participant and Lessee.
"Term" means the term for which the Aircraft is leased pursuant to
Section 3 hereof and shall include the Interim Lease Term, Base Lease Term and
any Renewal Term.
"Termination Value" means the greater of (i) the sum of (A) the
amount set forth in Exhibit D hereto opposite the Rent Payment Date as of which
Termination Value is being determined and paid plus (B) such amount of Lessee's
Actual Cost and the Purchase Price as Owner Participant shall have paid pursuant
to Section 13 of the Participation Agreement, or (ii) the amount of indebtedness
represented by the Note or
SALE AND LEASE AGREEMENT
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any Successor Indebtedness (including interest accrued thereon) on such Rent
Payment Date plus any other amount due and payable to Lender under any Operative
Agreement.
"Transfer" means, with respect to any Person, to transfer, by bill
of sale or otherwise, all such Person's right, title and interest in and to the
Aircraft, Airframe or any Engine, as the case may be, to another Person on an
"as is, where is" basis, free and clear of any Lessor Lien but otherwise without
recourse, representation or warranty, express or implied, and including an
express disclaimer of warranties, representations and guarantees in a manner
comparable to that set forth in Section 4.1.
"Trust Agreement" means the Trust Agreement, dated as of September
1, 1990, between Owner Participant and First Security Bank of Utah, National
Association, in its individual capacity.
"Trust Estate" means the Trust Estate as that term is defined in the
Trust Agreement.
"UCC" means the Uniform Commercial Code as in effect in any
applicable jurisdiction.
"U.S. Air Carrier" means any United States air carrier (i) as to
which there is in force a certificate issued pursuant to Section 401 of the Act,
(ii) as to which there is in force an air carrier operating certificate issued
pursuant to Part 121 of the FAA Regulations, or which may operate as a United
States air carrier by certification or otherwise under any successor or
substitute provisions therefor or in the absence thereof and (iii) which, in any
case, at the time a Permitted Sublease is (or proposed to be) entered into, is
not the subject of proceedings under the Federal Bankruptcy Code of 1978, as
amended.
"Wet Lease" means any arrangement whereby Lessee agrees to furnish
the Airframe and Engines or engines installed thereon to a third party pursuant
to which the Airframe and Engines or engines (i) shall be operated solely by
regular employees of Lessee possessing all current certificates and licenses
that would be required under the Act for the performance by such employees of
similar functions within the United States of America (it being understood that
cabin attendants need not be regular employees of Lessee), (ii) shall be
maintained by Lessee in accordance with its Maintenance Program and (iii) shall
be and remain, in the hands of such third party, subject to all other terms and
conditions of this Lease.
SALE AND LEASE AGREEMENT
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Section 2. Sale, Lease and Acceptance.
(a) Lessor, subject to satisfaction or waiver of the conditions set
forth in Section 5 of the Participation Agreement and the concurrent acceptance
hereunder by Lessee of the Aircraft, hereby agrees, to the extent that the funds
received by it pursuant to Section 2 of the Participation Agreement are adequate
for the purpose, to purchase at a purchase price equal to Lessor's Cost and to
accept delivery on the Delivery Date from Lessee hereunder and to lease back to
Lessee hereunder, and Lessee hereby agrees, expressly for the direct benefit of
Lessor and Owner Participant to sell to Lessor and to lease back from Lessor
hereunder on the Delivery Date, the Aircraft, which shall have been accepted by
Lessor and Lessee hereunder as evidenced by the execution by Lessor and Lessee
of the Lease Supplement conveying to Lessor and leasing to Lessee the Aircraft
hereunder; provided, however, that Lessor and Lessee shall have no further
obligation hereunder with respect to the Aircraft if the Delivery Date shall not
have occurred on or before September 28, 1990. The purchase price of the
Aircraft shall be paid by Lessor to Lessee on the Delivery Date in the manner
specified in Section 3 of the Participation Agreement.
(b) Lessor hereby authorizes each of Gary C. Kelly, John D. Owen and
Laura Wright, all of whom are employees of Lessee, as the authorized
representative or representatives of Lessor to accept delivery of the Aircraft
from Lessee pursuant hereto. Lessee hereby agrees that in the event delivery of
the Aircraft shall be accepted by an employee or employees of Lessee pursuant to
such authorization by Lessor, such acceptance of delivery by such employee or
employees on behalf of Lessor shall, without further act, also irrevocably
constitute acceptance by Lessee of the Aircraft for all purposes of this
Agreement.
Section 3. Term and Rent.
3.1 General. Except as otherwise provided herein, the Term for the
Aircraft shall commence on the Delivery Date specified in the initial Lease
Supplement and shall terminate as herein provided.
3.2 Lease Term. Except as provided herein, the Aircraft shall be
leased hereunder for the Interim Lease Term, the Base Lease Term and the Renewal
Terms, if any.
3.3 Basic Rent. Lessee hereby agrees to pay to Lessor Basic Rent
with respect to the Aircraft, in arrears, on each Rent Payment Date, in the
amount of $432,000; provided that (i) on the first Rent Payment Date (September
30, 1990), only Basic Rent in the amount of $4,800 per each day elapsed during
the Interim Lease Term shall be due and (ii), if Lessee shall exercise its
option under Section 18.2 or 18.3, then the installment
SALE AND LEASE AGREEMENT
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of Basic Rent (or Rent, as the case may be) due on such early termination date
shall be reduced by $4,800 per day (or in the case of Renewal Rent, by the
quotient of the quarterly installment thereof divided by 90) for each day the
final Lease Period has been foreshortened.
3.4 Supplemental Rent. Lessee also agrees to pay (or cause to be
paid) to Lessor, or to whomsoever shall be entitled thereto, all Supplemental
Rent with respect to Stipulated Loss Value when and as the same shall become due
and owing and all other amounts of Supplemental Rent within five days after
demand or such other relevant period as may be provided in any Operative
Agreement. Lessee will also pay to Lessor, or to whomsoever shall be entitled
thereto, as Supplemental Rent, to the extent permitted by applicable law,
interest at the Overdue Rate on any part of any installment of Basic Rent or
Renewal Rent not paid when due for any period from and including the date on
which the same was due to but excluding the date of payment in full and (to the
extent permitted by applicable law) on any payment of Supplemental Rent not paid
when due to Lessor, or to whomsoever shall be entitled thereto, as the case may
be, for the period from the date on which the same was due to but excluding the
date of payment in full. The expiration or other termination of Lessee's
obligation to pay Basic Rent or Renewal Rent hereunder shall not limit or modify
the obligations of Lessee with respect to Supplemental Rent.
3.5 Payments. Payments of Rent and any and all other payments
payable to Lessor hereunder shall be paid in funds of the United States of
America which shall be immediately available not later than noon, New York City
time, on the date due, to Owner Participant's account set forth in Schedule I to
the Participation Agreement, or as otherwise directed by Owner Participant in
writing at least five Business Days prior to the date such payment is due;
provided, however, that so long as Lessee shall not have received such five
Business Days' prior written notice of the fact that the Mortgage shall have
been terminated, Lessor hereby directs and Lessee agrees, that, unless Lender
shall otherwise direct in writing, all Rent payable to Lessor and assigned to
Lender pursuant to the Mortgage shall be paid prior to noon, New York City time,
on the due date thereof directly to Lender by wire transfer to *
(ABA No. 063-000-021),for the account of Progress Credit
Corporation (account no. 175-003-956-35), with reference to Southwest N55SW
Interest. Except as otherwise expressly provided herein, whenever any payment of
Rent or other payment to be made hereunder shall be due on a day which is not a
Business Day, such payment shall be made on the next succeeding day which is a
Business Day 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.
* First Union National Bank of Florida, Jacksonville, Florida
SALE AND LEASE AGREEMENT
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Section 4. Lessor's Representations and Warranties; DISCLAIMER; Certain
Agreements of Lessee.
4.1 Lessor's Representations and Warranties; DISCLAIMER. LESSEE
EXPRESSLY AGREES TO TAKE THE AIRCRAFT "AS IS". NEITHER LESSOR (INDIVIDUALLY OR
AS OWNER TRUSTEE) NOR OWNER PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO
HAVE MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, CONDITION, DESIGN,
OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR ANY PART
THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that First Security Bank of
Utah, National Association, in its individual capacity (i) represents and
warrants that on the Delivery Date Lessor shall have received whatever title
thereto as was conveyed to it by Lessee, (ii) represents and warrants that on
the Delivery Date the Aircraft shall be free of Lessor Liens attributable to it,
(iii) agrees that it will not directly or indirectly create, incur, assume or
suffer to exist any Lessor Lien attributable to it on or with respect to the
Airframe or any Engine or any other portion of the Trust Estate, and (iv)
represents and warrants that it is a "citizen of the United States" as defined
in Section 101(16) of the Act and agrees that if at any time a responsible
officer in its Corporate Trust Department shall obtain actual knowledge that it
has ceased to be a "citizen of the United States" within the meaning of Section
101(16) of the Act it will promptly resign as Owner Trustee, effective upon the
appointment of a successor Owner Trustee in accordance with Section 9.01 of the
Trust Agreement. Lessor covenants that during the Term (so long as no Lease
Event of Default shall have occurred and be continuing) it will not, through its
own actions or breaches of any of its obligations under the Operative
Agreements, interfere or cause any interference in the quiet enjoyment of the
Aircraft by Lessee or any Permitted Sublessee and agrees that it will not
directly or indirectly create, incur, assume or suffer to exist any Lessor Lien
attributable to it on or with respect to the Airframe or any Engine.
4.2 Certain Agreements of Lessee. All obligations of Lessee in this
Lease shall be done, performed or complied with at Lessee's cost and expense,
whether or not so expressed, unless otherwise expressly stated. Lessee hereby
agrees with Lessor for the benefit of Owner Participant that it shall perform
the agreements, covenants and indemnities set forth in the Participation
Agreement (including, without limitation, Sections 8.1 and 8.2 of the
Participation Agreement) which are incorporated herein, and hereby restates
Lessee's representations and warranties set forth in the Participation
Agreement,
SALE AND LEASE AGREEMENT
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as fully and to the same extent and with the same force and effect as if set
forth in full in this Section 4.2.
Section 5. Return of Aircraft.
5.1 General Condition upon Return. Subject to Section 10, upon the
expiration or termination of this Lease, Lessee will cause the Aircraft, if then
not registered in the name of Lessor with the FAA for any reason, to be
reregistered in the name of Lessor with the FAA and will return the Aircraft to
Lessor by delivering the same at any location in the continental United States
selected by Lessee at which Lessee has maintenance facilities (and Section 5.6
shall apply). All costs associated with the return flight shall be for the
account of Lessee. At the time of such return, the Airframe and Engines or
engines installed thereon:
5.1.1 Airworthiness. Subject to the exception described in
clause (iii) of Section 8.1.1, shall be duly certificated as an airworthy
aircraft by the FAA under Part 121 of the Federal Aviation Regulations or any
successor provision;
5.1.2 Free of Liens. Shall be free and clear of all Liens
except Lessor Liens and Liens arising by, through or under Lender;
5.1.3 Operating Configuration and Condition. Shall be in a
configuration suitable for operation in regularly scheduled commercial airline
passenger service in the United States and in the same configuration as a
majority of the remainder of all 737-200 series aircraft operated by Lessee,
shall be in compliance with the Maintenance Program and shall be in as good
operating condition as on the Delivery Date, ordinary wear and tear and changes
and alterations made by Lessee as permitted under Section 8.4 hereof or Section
13 of the Participation Agreement excepted. All Lessee or Permitted Sublessee
exterior or interior insignia, logos or markings, as the case may be, shall have
been painted over in matching colors in a workmanlike manner;
5.1.4 Cleanliness and Operability. Shall be clean by United
States commercial airline operating standards with all systems and components
operable;
5.1.5 Parts and Equipment. Shall have installed thereon the
Engines identified in the initial Lease Supplement, as well as all Parts
installed thereon at the commencement of the Term, or replacements therefor made
in accordance with the terms of this Lease;
5.1.6 Corrosion Treatment. Shall comply with the corrosion
prevention procedures to the extent set forth in the Maintenance Program;
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5.1.7 Hush Kits. Shall be fitted with a hush kit, if a Stage
III Upgrade shall have occurred and the Owner Participant shall have financed
such upgrade pursuant to the provisions of Section 13.4 of the Participation
Agreement; and
5.1.8 Other Conditions. Shall otherwise be in the condition
set forth in Exhibit C hereto.
5.2 Return of Other Engines. In the event that any engine not owned
by Lessor shall be installed on the Airframe returned in accordance with Section
5.1, such engine shall be a Pratt & Whitney JT8D-9A engine (or an improved model
engine fully compatible with the other Engine or engine installed on the
Airframe). At the time of such replacement, such engine shall have performance
and durability characteristics and a value, condition and utility at least equal
to the Engine it replaced hereunder, assuming such Engine was maintained in
accordance with the requirements of this Lease, and at the time the Airframe is
returned shall fully comply with all the requirements of this Lease, including
this Section 5, which are applicable to Engines. Upon return of the Aircraft,
Lessee shall duly convey to Lessor good title to any such replacement engine,
free and clear of all Liens except Lessor Liens and Liens arising by, through or
under Lender; and, upon such conveyance and as a condition thereto, Lessee will
(a) furnish Lessor with a full warranty (as to title) bill of sale, in form and
substance reasonably satisfactory to Lessor, with respect to each such
replacement engine, together with an opinion of counsel to the effect that such
bill of sale has been duly authorized and delivered and is enforceable in
accordance with its terms and that each such replacement engine is free and
clear of all Liens except Lessor Liens and Liens arising by, through or under
Lender, and (b) take such other action as Lessor may reasonably request in order
that title to such replacement engine may be duly and properly vested in Lessor
to the same extent as the Engine replaced thereby. Upon compliance by Lessee
with the foregoing, Lessor will, so long as no Lease Event of Default has
occurred and is continuing, Transfer to Lessee any Engine not installed on the
Airframe at the time of return, free and clear of all Liens, including Lessor
Liens.
5.3. Return at End of Base Lease Term or Renewal Lease Term. Upon
return of the Aircraft at the expiration or termination of this Lease, Lessee
shall have caused all FAA Airworthiness Directives applicable to the Aircraft
and all mandatory service bulletins from Manufacturer and the manufacturer of
the Engines or any engine then installed on the Airframe (in compliance with
Section 5.2) applicable to the Aircraft to have been complied with (except for
any such FAA Airworthiness Directives and bulletins that permit compliance after
the return date and would not, in the normal course of the Maintenance Program,
be complied with on or prior to the return date). Lessee shall have treated the
Aircraft, including without limitation, with respect to maintenance, additions
and modifications, during the Term, similarly to all other Boeing 737-200
aircraft in its fleet.
SALE AND LEASE AGREEMENT
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At the request of Lessor delivered to Lessee not more than 30 days prior
to the end of the Term, the Aircraft shall be check flown by Lessee (or any
Permitted Sublessee) at Lessee's expense using qualified flight personnel, for
not more than two hours, on a non-commercial flight, for the purpose of
demonstrating to Lessor the satisfactory operation of the Aircraft and its
equipment and systems; provided, however, that such check flight shall not
interfere with the normal operation or maintenance of the Aircraft by, or the
business of, Lessee (or any Permitted Sublessee). Up to five of Owner
Participant's designees or representatives may participate in such flight as
observers. The form of test flight procedure to be followed shall be in
accordance with Lessee's normal test flight procedure, and the test flight may
be a return delivery flight. The Aircraft shall be check flown only once
pursuant to the provisions of this Section 5.3, unless further check flights are
required in order to verify the correction of any discrepancy or malfunction
detected in such first check flight, in which case a second check flight shall
be performed in accordance with the procedures set forth herein solely in order
to verify such correction.
At redelivery of the Aircraft to Lessor hereunder, the following specific
requirements shall be met by Lessee or, in lieu thereof, Lessee shall compensate
Lessor therefor, as specifically provided for in this Section:
5.3.1 Airframe. (I) At least 40% of the time (or cycles, if
applicable) shall remain before the next required performance of each structural
work task card (the "Cards") (or the then equivalent under Lessee's Maintenance
Program) (it being understood that, as used herein, "Cards" refers to the
heaviest airframe check currently used under Lessee's Maintenance Program), and
all Cards currently performed on a sampling basis under the Maintenance Program
shall have been fully accomplished without regard to any sampling then permitted
under the Maintenance Program, (II) Lessee shall have performed a complete "C"
check or its equivalent (all phases) on the Airframe no more than 200 flight
hours prior to its return to Lessor (and Lessee shall have corrected to the
Lessor's reasonable satisfaction any deficiencies discovered during such check,
and will not have deferred any maintenance discrepancies), and (III) Lessee
shall have completed a complete "B" ("B1" and "B2") check immediately prior to
redelivery;
5.3.2 Engines. Every ESV-1 Engine shall have no more than
4,000 hours or cycles since its last ESV-1. Each ESV-2 Engine shall have no more
than 6,000 hours or cycles since its last ESV-2. No life limited component of an
Engine shall have less than 3,000 hours or cycles remaining until its next
required replacement. For the purposes of this Section, an ESV-1 Engine shall be
an Engine or engine installed on the Airframe (in compliance with Section 5.2)
whose last engine service visit (or the equivalent under the Maintenance
Program) was an ESV-1, and an ESV-2 Engine shall be an Engine
SALE AND LEASE AGREEMENT
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or engine installed on the Airframe (in compliance with Section 5.2) whose last
engine service visit (or the equivalent under the Maintenance Program) was an
ESV-2;
5.3.3 Boroscope. The hot section of each Engine or engine
installed on the Airframe (in compliance with Section 5.2) shall be inspected by
boroscope at Lessee's expense and any defects which are outside the
manufacturer's recommended limitations shall be corrected such that they are
brought within such limitations;
5.3.4 Landing Gears. The landing gears shall have a minimum of
40% of the time remaining on each of the main and nose gears until the next
scheduled shop visit or retirement, as the case may be;
5.3.5 APU. The auxiliary power unit shall not have more than
2,500 hours since the last "hot section" inspection; and
5.3.6 Other Components. All time-controlled components and
life-limited components, other than engines, landing gear and auxiliary power
units, shall have a minimum of 3,000 hours or twelve months (unless one-half of
the allowable hours or months, as the case may be, permitted between shop visits
or replacements is actually less than 3,000 hours or twelve months, in which
case one-half of such allowable hours or months) remaining to the next scheduled
shop visit or replacement.
5.4 Financial Adjustments. In the event that the conditions
described in Sections 5.3.1 and 5.3.4 are not met, Lessee may elect, as to any
or all of such conditions (a) to perform the work necessary to conform the
Aircraft to the required condition or (b) to make a financial adjustment between
Lessee and Lessor pursuant to this provision, provided that in no event shall
the Aircraft or any landing gear be returned with less than 25% of the allowable
hours or cycles, as appropriate, remaining between Cards (with respect to the
Aircraft) or until the next scheduled shop visit (with respect to the landing
gears):
5.4.1 Airframe. In the event that the Airframe is returned to
Lessor with less than 40% but more than 25% of the allowable hours (or cycles,
if applicable) between Cards as provided in Section 5.3.1, then Lessee shall pay
to Lessor on the date the Term ends an amount determined by multiplying the
difference between the actual number of hours (or cycles, if applicable)
remaining to the next Cards and 40% of the allowable hours (or cycles, if
applicable) between Cards times the cost to Lessee of having another Person
perform such Cards.
5.4.2 [Intentionally omitted.]
SALE AND LEASE AGREEMENT
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5.4.3 Landing Gears. In the event that any of the landing
gears is returned to Lessor with less than 40% but more than 25% of the cycles
remaining until the next scheduled shop visit as provided in Section 5.3.4
above, then Lessee shall pay to Lessor on the date the term ends an amount
computed by multiplying the difference between the actual number of cycles
remaining to the next scheduled shop visit for such gear and 40% of the
allowable cycles between shop visits times the cycle rate for the nose gear or
the main gear, as the case may be. For purposes of this Section 5.4.3, the term
cycle rate" shall be deemed to be the cost that Lessee is paying to third
parties at the time the Aircraft is returned under Section 5.3 for overhauling a
nose gear or a main gear. as the case may be, divided by the number of cycles
permissible between such overhauls under the Maintenance Program.
At the end of the Term the Lessee shall furnish Lessor with an Officer's
Certificate setting forth the hours and cycles remaining on the Engines or
engines installed on the Airframe (in compliance with Section 5.2), the landing
gear and the Airframe.
5.5 Manuals; Service Bulletins, Etc. Upon return of the Aircraft at
the expiration or termination of this Lease, Lessee shall deliver or cause to be
delivered to Lessor (in English) all logs, manuals, drawings and data and
inspection, modification and overhaul records in respect of the Aircraft
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 from Manufacturer, engine manufacturer or
vendors for the Aircraft and Engines or 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.
5.6 Storage upon Return. Upon written request of Lessor received by
Lessee at least 10 days prior to its return of the Aircraft at the expiration or
termination of this Lease, Lessee will provide free parking facilities for the
Aircraft for a period not exceeding 30 days following return thereof by Lessee
at the location of return pursuant to Section 5.1; provided that such storage
shall be at Lessor's risk and any expenses in connection with such storage
(other than parking charges) shall be paid by Lessor, including the cost of any
insurance therefor.
5.7 Failure to Return Aircraft or Engines. If Lessee shall, for any
reason whatsoever, fail to return the Aircraft or any Engine at the time
specified herein, the obligations of Lessee as provided in this Lease (including
the obligation to pay Rent on the same basis as that applicable immediately
prior to such failure) shall continue in effect with respect to the Aircraft or
such Engine until the Aircraft or such Engine is returned
SALE AND LEASE AGREEMENT
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<PAGE>
to Lessor; but this Section 5.7 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 Default or
Lease Event of Default.
5.8 Aid in Disposition. Lessee agrees that, during the Term (and
during any storage period) it will cooperate in all reasonable respects with any
efforts of Lessor to lease or sell the Aircraft, including without limitation
(subject to the provisions of Section 12) permitting potential lessees or
purchasers to inspect the Aircraft and the records relating thereto.
Section 6. Liens. Lessee will not directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to the Aircraft, the
Airframe or any Engine, title thereto or any interest therein or in this Lease
except: (a) the respective rights of the parties to the Operative Agreements;
(b) the rights of others under agreements or arrangements to the extent
expressly permitted by the terms of Sections 7.2 and 8.3; (c) Lessor Liens; (d)
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 in accordance with generally accepted accounting principles)
by appropriate proceedings so long as such proceedings do not involve any
material danger of the sale, forfeiture, loss or loss of use of the Aircraft,
the Airframe or any Engine or any interest therein; (e) materialmen's,
mechanics', workers', repairers', employees' or other like Liens arising in the
ordinary course of business for amounts the payment of which is either not yet
due or not overdue for a period of more than 30 days or is being contested in
good faith (and for the payment of which adequate reserves have been provided in
accordance with generally accepted accounting principles) by appropriate
proceedings so long as such Liens do not involve any material danger of the
sale, forfeiture, loss or loss of use of the Aircraft, the Airframe or any
Engine or any interest therein; (f) 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 or vacated or execution thereof stayed
pending appeal or shall not have been discharged, vacated or reversed within 45
days after the execution of such stay; and (g) any other Lien with respect to
which Lessee shall have provided a bond or other security adequate in the
reasonable judgment of Lessor. Lessee will promptly take (or cause to be taken)
such action at its own expense as may be necessary duly to discharge any such
Lien not excepted above if the same shall arise at any time.
Section 7. Registration. Operation. Possession. Subleasing and Records.
7.1 Registration and Operation.
7.1.1 Registration. Lessee shall forthwith upon the delivery
of the Aircraft hereunder cause the Aircraft to be duly registered and at all
times thereafter to
SALE AND LEASE AGREEMENT
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remain duly registered in the name of Lessor with the FAA pursuant to and as
permitted by the Act (it being understood that Lessee shall not be required to
comply with this covenant to the extent that First Security Bank of Utah,
National Association's or Owner Participant's failure to comply with its
covenant set forth in Section 6.3.1.5 or Section 6.2.5, respectively, of the
Participation Agreement with regard to its citizenship makes such compliance by
Lessee impossible).
7.1.2 Nameplate. As soon as practicable after the Delivery
Date, Lessee agrees to affix and thereafter to maintain in the cockpit of the
Airframe adjacent to the airworthiness certificate and on each Engine a
nameplate bearing the inscription "OWNED BY AND LEASED FROM FIRST SECURITY BANK
OF UTAH, NATIONAL ASSOCIATION, AS OWNER TRUSTEE, OWNER AND LESSOR" and, so long
as the Mortgage shall remain in effect, "SUBJECT TO A SECURITY INTEREST IN FAVOR
OF PROGRESS CREDIT CORPORATION, MORTGAGEE" (such nameplate to be replaced, if
necessary, with a nameplate reflecting the name of any successor Lessor or
Lender, upon receipt of written notice from Lessor to such effect). Except as
above provided, Lessee will not allow the name of any person, association or
corporation to be placed on the Airframe or on any Engine as a designation that
might be interpreted as a claim of ownership or Lien; provided that nothing
herein contained shall prohibit Lessee (or any Permitted Sublessee) from placing
its customary colors and insignia on the Airframe or any Engine or displaying
information concerning the registration or manufacture of the Aircraft, the
Airframe, any Engine or Part.
7.1.3 Compliance with Laws. Lessee agrees that it will not use
or operate the Aircraft, the Airframe or any Engine in violation of any law or
any rule, regulation or order of any government or governmental authority having
jurisdiction (domestic or foreign) or in violation of any airworthiness
certificate, license or registration relating to the Aircraft, the Airframe or
any Engine issued by any such authority, except to the extent Lessee is
contesting in good faith the validity or application of any such law, rule,
regulation or order in any reasonable manner which does not materially adversely
affect Lessor's interest in the Aircraft.
7.1.4 Insurance Requirements; Government Requisition;
Indemnity. Lessee agrees not to operate, use or locate the Aircraft, the
Airframe or any Engine, or permit any Permitted Sublessee to operate, use or
locate the Aircraft, the Airframe or any Engine, (i) in any area excluded from
coverage by any insurance required by the terms of Section 11, except in the
case of a requisition by the Government where Lessee obtains indemnity (backed
by the full faith and credit of the United States of America) in lieu of such
insurance from the Government against the risks and in the amounts required by
Section 11 covering such area, or (ii) in any area where maintenance of war-risk
insurance is required by Section 11 unless fully covered by war-risk insurance
satisfying the terms of Section 11, or unless the Aircraft, the Airframe or such
Engine is operated or used under
SALE AND LEASE AGREEMENT
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contract with the Government under which contract the Government assumes
liability (backed by the full faith and credit of the United States of America)
in an amount not less than the amount of insurance otherwise required by Section
11 for any damage, loss, destruction or failure to return possession of the
Aircraft, the Airframe or such Engine at the end of the term of such contract or
for injury to persons or damage to property of others, or (iii) with respect to
any sublease to a Permitted Foreign Air Carrier, in any area referred to in
subclause (3)(iv) of Section 7.2.
7.2 Possession. Lessee will not, without the prior written consent
of Lessor, sublease or otherwise in any manner deliver, transfer or relinquish
possession of the Aircraft, the Airframe or any Engine 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 Lease Event of Default shall have
occurred and be continuing, and so long as Lessee shall comply with the
provisions of Section 11, and all FAA approvals required for such purposes have
been obtained, Lessee may, without such prior written consent:
7.2.1 Interchange and Pooling. Subject or permit any Permitted
Sublessee to subject (i) the Aircraft, Airframe or any Engine to normal
interchange agreements customary in the United States domestic airline industry
and entered into by Lessee or such Permitted Sublessee in the ordinary course of
its business, and (ii) any Engine to pooling agreements or arrangements
customary in the airline industry and entered into by Lessee or such Permitted
Sublessee in the ordinary course of its business; but in either case (A) no
transfer of the registration of the Airframe or any Engine shall be effected in
connection therewith and the terms of this Lease and the Participation Agreement
shall be observed, and (B) no such agreement or arrangement shall contemplate or
require the transfer of title to the Aircraft, Airframe or any Engine and if
Lessor's title to any Engine shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of Loss with
respect thereto and Lessee shall comply with Section 10.2 hereof;
7.2.2 Testing and Service. Deliver or permit any Permitted
Sublessee to deliver possession of the Aircraft, 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 Aircraft,
Airframe or any Engine or Part, or for alterations or modifications in or
additions to the Aircraft, Airframe or any Engine to the extent required or
permitted by the terms of Section 8.4;
7.2.3 Civil Reserve Air Fleet Program. 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
SALE AND LEASE AGREEMENT
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the end of the Term and so long as Lessee shall (A) promptly notify Lessor upon
subjecting 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 16 hereof, and (B) promptly notify Lessor upon transferring
possession of the Airframe or any Engine to the Government pursuant to such
program;
7.2.4 Installation of Engines. Install or permit any Permitted
Sublessee to install an Engine on an airframe owned by Lessee or such Permitted
Sublessee, as the case may be, free and clear of all Liens, except (A) Permitted
Liens 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), (B) the rights of air carriers under normal
interchange agreements which are customary in the airline industry and do not
contemplate, permit or require the transfer of title to the airframe or engines
installed thereon and (C) mortgage liens or other security interests, provided
that (as regards this clause (C)) such mortgage liens or other security
interests effectively provide that such Engine shall not become subject to the
lien of such mortgage or security interest, notwithstanding the installation
thereof on such airframe, unless and until Lessee shall become the owner of such
Engine;
7.2.5 Installation of Engines on Other Airframes. Install or
permit any Permitted Sublessee to install an Engine on an airframe leased to, or
purchased by, Lessee or any Permitted Sublessee subject to a lease, conditional
sale, or other security agreement, but only if (A) such airframe is free and
clear of all Liens, except the rights of the parties to the lease, conditional
sale, or other security agreement covering such airframe, or their successors or
assigns, and except Liens of the type permitted by clauses (A) and (B) of
Section 7.2.4, and (B) the lease, conditional sale, or other security agreement
covering such airframe effectively provides that such Engine shall not become
subject to the Lien thereof at any time while such Engine is subject to this
Lease, notwithstanding the installation thereof on such airframe;
7.2.6 Pooling of Parts. To the extent permitted by Section
8.3, subject any Pans owned by Lessor and removed from the Airframe or any
Engine to any pooling arrangement referred to in Section 8.3;
7.2.7 Wet Lease. Enter into a Wet Lease for the Airframe and
Engines or engines then installed thereon with any third party for a term not to
continue beyond the Term;
7.2.8 Sublease to Permitted Air Carriers. Enter into a
sublease of the Aircraft or the Airframe and Engines or engines then installed
on the Airframe or any Engine, for use on the sublessee's regularly scheduled or
charter routes, with (a) any
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U.S. Air Carrier or (b) any Permitted Foreign Air Carrier, in any such case for
a term not to continue beyond the remaining Term.
Provided, further, with respect to this Section 7.2, that:
(1) the rights of any transferee who receives possession by
reason of a transfer permitted by this Section 7.2 (other than the transfer of
an Engine which is deemed an Event of Loss) shall be effectively subject and
subordinate to, and any sublease permitted by this Section 7.2 shall be made
expressly subject and subordinate to, all the terms of this Lease, and to
Lessor's rights, powers and remedies under this Lease, including the rights to
repossession pursuant to Section 15 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, provided that performance of any such
terms by any Permitted Sublessee shall be as effective, for purposes of this
Lease, as performance thereof directly by Lessee;
(3) any such sublease shall (i) be consistent with the
requirements of this Lease and the applicable requirements of the Participation
Agreement, (ii) include appropriate provisions for the continued registration,
maintenance in accordance with applicable maintenance standards in the
appropriate jurisdiction, operation, insurance (appropriate certificates as to
which shall be furnished to Lessor and Lender prior to Lessee's entry into any
such sublease with any Permitted Foreign Air Carrier or within 10 days
thereafter) and return of the subleased property as required hereunder, (iii)
provide that the sublessee may not assign or further sublease the Aircraft, and
(iv) provide that the Aircraft may not be operated in a country with which the
United States does not maintain diplomatic relations or in which there is open
warfare, whether or not declared;
(4) no interchange agreement, transfer, sublease or other
relinquishment of possession permitted hereunder shall affect the registration
of the Aircraft or shall permit any action not permitted to Lessee in this
Lease; and
(5) no such 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 any other Operative Agreement or constitute a waiver of Lessor's rights or
remedies hereunder or under any other Operative Agreement.
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Lessee shall notify Lessor within 10 days after the commencement of any
sublease permitted hereunder and shall deliver to Lessor within such period a
duly executed copy of any sublease or interchange or pooling agreement permitted
hereunder together with any certification required by Section 7.2.8. Upon
request of Lessor, Lessee shall promptly and duly execute and deliver to Lessor
an assignment of any such sublease having a term in excess of 12 months in favor
of Lessor in form and substance reasonably satisfactory to Lessor. Lessor hereby
agrees, for the benefit of Lessee (and any Permitted Sublessee) and for the
benefit of each lessor, conditional seller, or secured party of any airframe or
engine leased to or purchased by Lessee (or any Permitted Sublessee) subject to
a lease, conditional sale, or other security agreement, that Lessor will not
acquire or claim, as against such lessor, conditional seller, or secured party,
or any successor or assign thereof, any right, title or interest in any engine
as the result of such engine being installed on the Airframe at any time while
such engine is subject to such lease, conditional sale, or other security
agreement and owned by such lessor or conditional seller or subject to a
security interest in favor of such secured party; provided, however, that such
agreement of Lessor shall not be for the benefit of any lessor or secured party
of any airframe (other than the Airframe) leased to Lessee (or any Permitted
Sublessee) or purchased by Lessee (or any Permitted Sublessee) subject to a
conditional sale or other security agreement or for the benefit of any mortgagee
of or any other holder of a security interest in an airframe owned by Lessee (or
any Permitted Sublessee), unless such lessor, conditional vendor, other secured
party or mortgagee has expressly agreed (which agreement may be contained in
such lease, conditional sale or other security agreement or mortgage) that
neither it nor its successors or assigns will acquire, as against Lessor, any
right, title or interest in an Engine as a result of such Engine being installed
on such airframe.
A consolidation, merger, conveyance, transfer, or lease permitted by
Section 7.4 of the Participation Agreement shall not be deemed to be a
transaction to which this Section 7.2 shall apply.
7.3 Records and Reports. Lessee shall:
7.3.1 Records. Maintain or cause to be maintained all records,
logs and other materials required by the FAA or any other governmental authority
having jurisdiction to be maintained in respect of the Aircraft, the Airframe
and each Engine;
7.3.2 Information and Reports. Upon request, promptly furnish
or cause to be furnished to Lessor (in sufficient number) such information as
may be required to enable Lessor or any Participant to file any reports,
including tax returns, required to be filed by Lessor or such Participant with
any governmental authority because of Lessor's ownership of, or Lender's
security interest in, the Aircraft, Airframe or any Engine or because of receipt
of Rent or because of the interest of any Participant in the Trust Estate;
provided, however, that with respect to any such information which Lessee
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deems commercially sensitive or confidential, if reasonably feasible, Lessor
shall afford Lessee a reasonable opportunity to seek from any such governmental
authority a waiver of Lessor's or such Participant's obligation to file any such
information or consent to the filing of such information directly by Lessee in
lieu of filing by Lessor or such Participant and if any such waiver or consent
is evidenced to the reasonable satisfaction of Lessor, then Lessee shall not be
required to furnish such information to Lessor; and
7.3.3 Financial Information. Promptly provide Lessor and each
Participant with (i) such financial information concerning Lessee as is provided
from time to time to the public shareholders of Lessee, (ii) within 60 days
after the end of each of the first three quarterly periods of each fiscal year
of Lessee, a consolidated balance sheet of Lessee and its subsidiaries prepared
by it as of the close of such period, together with the related consolidated
statements of income for such period, (iii) within 120 days after the close of
each fiscal year of Lessee, a consolidated balance sheet of Lessee and its
subsidiaries as of the close of such fiscal year, together with the related
consolidated statements of income for such fiscal year, as certified by
independent public accountants, and (iv) from time to time such other
information as to its financial condition as Lessor or any Participant may
reasonably request.
Section 8. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions.
8.1 Maintenance.
8.1.1 Maintenance Program. Lessee shall maintain, service,
repair, overhaul, alter, modify, add to and test (or cause to be maintained,
serviced, repaired, overhauled, altered, modified, added to and tested) the
Aircraft, the Airframe and each Engine, and each other engine installed from
time to time on the Airframe, in accordance with Lessee's FAA-approved
maintenance program for the Aircraft, Airframe and Engines (the "Maintenance
Program"), (i) so as to keep the Aircraft, the Airframe and each Engine in as
good operating condition as on the Delivery Date, ordinary wear and tear
excepted, (ii) in the same manner and with the same care as used by Lessee with
similar aircraft owned or operated by Lessee, and (iii) so as to keep the
Aircraft, the Airframe and each Engine in such condition as required to enable
the FAA certificate of airworthiness for the Aircraft to be maintained in good
standing at all times under the Act, except when all comparable Boeing Model
737-200 series aircraft registered in the United States of America have been
grounded by the FAA other than as a result of actions taken or omitted to be
taken by Lessee (or, if a sublease is then in effect, any Permitted Sublessee).
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8.1.2 Compliance with Government Requirements. Lessee will
comply with all service, inspection, maintenance, repair and overhaul
regulations, directives and instructions which are made mandatory by the FAA or
other Government authority upon United States operators of Boeing Model 737-200
series aircraft and Pratt & Whitney JT8D-9A engines and which require compliance
during the Term and prior to return of the Aircraft under this Lease.
8.2 Replacement of Parts. Lessee, at its own cost and expense, will
promptly replace (or cause to be replaced) all Parts which may from time to time
be incorporated in the Aircraft, Airframe or any Engine and which may from time
to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in Section 8.4. In addition, Lessee may, at its own
cost and expense, remove in the ordinary course of maintenance, service, repair,
overhaul or testing any Parts, whether or not worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for
use; provided, however, Lessee, except as otherwise provided in Section 8.4, at
its own cost and expense, will replace such Parts as promptly as possible. All
replacement Parts shall be free and clear of all Liens (except for Permitted
Liens and except in the case of replacement property temporarily installed on an
emergency basis) 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. All Parts at any time removed from the Aircraft, Airframe or any Engine
shall remain the property of Lessor, no matter where located, until such time as
such Parts shall be replaced by Parts which have been incorporated in the
Aircraft, Airframe or such Engine and which meet the requirements for
replacement Parts specified above. Immediately upon any replacement Part
becoming incorporated in the Aircraft, Airframe or such Engine as above
provided, without further act, (i) title to the replaced Part shall thereupon
vest in Lessee free and clear of all rights of Lessor, and the replaced Part
shall no longer be deemed a Part hereunder, (ii) title to such replacement Part
shall thereupon vest in Lessor (subject only to Permitted Liens and except in
the case of replacement property temporarily installed on an emergency basis),
and (iii) such replacement Part shall become subject to this Lease and be deemed
part of the Aircraft, Airframe or such Engine for all purposes hereof to the
same extent as the Parts originally incorporated in such Aircraft, Airframe or
Engine.
8.3 Pooling of Parts. Any Part removed from the Aircraft, Airframe
or any Engine as provided in Section 8.2 may be subjected by Lessee (or a
Permitted Sublessee) to a normal pooling arrangement customary in the airline
industry entered into in the ordinary course of business of Lessee or such
Permitted Sublessee, so long as a Part replacing such removed Part shall be
incorporated in the Aircraft, Airframe or such Engine in accordance with Section
8.2 as promptly as practicable after the removal of such removed Part. In
addition, any replacement Part when incorporated in the Aircraft,
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Airframe or any Engine in accordance with Section 8.2 may be owned by any third
party subject to such a normal pooling arrangement, so long as Lessee (or any
Permitted Sublessee), at its own cost and expense, as promptly thereafter as
practicable either (i) causes title to such replacement Part to vest in Lessor
in accordance with Section 8.2 by Lessee (or any Permitted Sublessee) acquiring
title thereto for the benefit of, and transferring such title to, Lessor free
and clear of all Liens (except Permitted Liens), or (ii) replaces such
replacement Part by incorporating in the Aircraft, Airframe or such Engine a
further replacement Part owned by Lessee (or any Permitted Sublessee) free and
clear of all Liens (except Permitted Liens) and by causing title to such further
replacement Part to vest in Lessor in accordance with Section 8.2.
8.4 Alterations, Modifications and Additions. Lessee, at its own
cost and expense, shall make (or cause to be made) such alterations and
modifications in and additions to the Aircraft, Airframe and each Engine 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 FAA certificate
of airworthiness for the Aircraft; provided, however, that Lessee may contest in
good faith the validity or application of any such law, rule, regulation or
order in any reasonable manner which does not materially adversely affect
Lessor's interest in the Aircraft; and provided, further, that Lessee's failure
to make (or cause to be made) any such alterations or modifications shall not
constitute noncompliance with the requirements of this Section 8.4 or a breach
of Lessee's undertaking hereunder for so long a period as may be necessary to
remedy such failure, if such failure can be remedied, so long as during such
period Lessee is using due diligence and reasonable efforts to remedy such
failure. In addition, Lessee, at its own cost and expense, may, from time to
time make (or cause to be made) such alterations and modifications in and
additions to the Aircraft, 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 Aircraft, Airframe or such Engine; provided, however, that no such
alteration, modification or addition shall, in Lessee's reasonable judgment,
materially diminish the value or utility of the Aircraft, Airframe or such
Engine, or materially impair the condition or airworthiness thereof, below the
value, utility, condition and airworthiness thereof immediately prior to such
alteration, modification or addition assuming the Aircraft, Airframe or such
Engine was then of the value and utility and in the condition and airworthiness
required to be maintained by the terms of this Lease. Title to all Parts
incorporated in the Aircraft, Airframe or such Engine as the result of such
alteration, modification or addition shall, without further act, vest in Lessor.
Notwithstanding the foregoing sentence of this Section 8.4, so long as no Lease
Event of Default or Lease Default shall have occurred and be continuing, Lessee
may, at any time during the Term, remove any Part if (i) such Part is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated (or required by the provisions of this Lease to be incorporated) in
the Aircraft, Airframe or such Engine at the time of delivery thereof hereunder
or any Part in replacement of or substitution for
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any such Part, (ii) such Part is not required to be incorporated in the
Aircraft, Airframe or such Engine pursuant to the terms of this Section 8, and
(iii) such Part can be removed from the Aircraft, Airframe or such Engine
without diminishing or impairing the value, utility, condition or airworthiness
required to be maintained by the terms of this Lease which the Aircraft,
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
above provided, title thereto shall, without further act, vest in Lessee and
such Part shall no longer be deemed part of the Aircraft, Airframe or such
Engine from which it was removed. Any Part not removed by Lessee as above
provided prior to the return of the Aircraft, Airframe or such Engine to Lessor
hereunder shall remain the property of Lessor.
Section 9. [Intentionally Omitted]
Section 10. Loss, Destruction, Requisition, Etc.
10.1 Event of Loss with Respect to Aircraft. Upon the occurrence of
an Event of Loss with respect to the Aircraft, Lessee shall forthwith (and in
any event within 15 days after such occurrence) give Lessor and each Participant
written notice of such Event of Loss. On or before the Business Day next
preceding the earlier of (i) the 180th day following the date of the occurrence
of such Event of Loss, or (ii) 15 days following the receipt of insurance
proceeds with respect to such occurrence, Lessee shall pay to Lessor, in the
manner and in funds of the type specified in Section 3.5, (A) the Stipulated
Loss Value for the Aircraft, (B) all unpaid Basic Rent or Renewal Rent accrued
through and including the date of payment of Stipulated Loss Value and (C)
(without duplication) any other Rent which is due and payable through and
including the date of such payment. Upon payment in full of Stipulated Loss
Value and all such accrued Basic or Renewal Rent pursuant hereto, (A) the
obligation of Lessee to pay Basic or Renewal Rent due after the date of such
payment shall terminate (but Lessee shall remain liable for all payments of
Supplemental Rent due through and including the date of such payment of
Stipulated Loss Value), (B) the Term for the Aircraft shall end, and (C) Lessor
will Transfer to Lessee the Aircraft. Upon compliance by Lessee with all of the
terms of this Section 10.1, Lessee will be subrogated to all claims of Lessor,
if any, against third parties for damage to or loss of such Airframe and Engines
to the extent of the then insured value thereof.
10.2 Event of Loss with Respect to an Engine.
10.2.1 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 and each
Participant prompt written notice (and in any event within 15 days after such
occurrence) thereof and shall,
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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, 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 Permitted Liens, and
having 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.
10.2.2 Conditions; Lessee's Obligations. Prior to or at the
time of any such conveyance, Lessee will promptly:
(a) furnish Lessor with a full warranty (as to title) bill of
sale duly conveying to Lessor such Replacement Engine;
(b) cooperate with any reasonable request of Lender to subject
such Replacement Engine to the Lien of the Mortgage; and cause a Lease
Supplement subjecting such Replacement Engine to this Lease, duly executed by
Lessee, to be delivered to Lessor for execution and, upon execution, to be filed
for recordation with the FAA pursuant to the Act;
(c) furnish Lessor and Lender with such evidence of compliance
with the insurance provisions of Section 11 hereof with respect to such
Replacement Engine and the payment of all premiums then due with respect to such
insurance, as Lessor or Lender may reasonably request;
(d) furnish Lessor and Lender with an opinion or opinions of
Lessee's counsel, in form, substance and scope reasonably satisfactory to Lessor
and Lender, to the effect that, upon such conveyance, Lessor will acquire good
title to such Replacement Engine free and clear of all Liens other than
Permitted Liens (including Lender's interests), and that such Replacement Engine
will be leased hereunder and will be subject to the Lien of the Mortgage to the
same extent as the Engine replaced thereby and to such further effect as Lessor
or Lender may reasonably request;
(e) furnish Lessor and Lender with an Officer's Certificate
certifying that, upon consummation of such replacement, no Lease Event of
Default or Lease Default will exist hereunder; and
(f) furnish such other certificates or documents (including
appropriate UCC-3 amendments to the financing statements filed on or before the
Delivery Date) as Lessor or any Participant may reasonably request to effect
such replacement.
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10.2.3 Recordation and Opinions. In the case of any
Replacement Engine conveyed to Lessor under this Section 10.2, promptly upon the
recordation of the Lease Supplement and any supplement or amendment to the
Mortgage covering such Replacement Engine pursuant to the Act, Lessee will cause
to be delivered to Lessor and Lender an opinion of William C. Boston &
Associates or other FAA counsel satisfactory to Lessor as to the due recordation
of such Lease Supplement and any such supplement or amendment to the Mortgage.
10.2.4 Conveyance; Replacement Engine. Upon compliance by
Lessee with the terms of this Section 10.2, Lessor will Transfer to Lessee the
Engine with respect to which such Event of Loss occurred, and Lessee will be
subrogated to all claims of Lessor, if any, against third parties for damage to
or loss of such Engine to the extent of the insured value thereof.
10.2.5 No Reduction of Rent. No Event of Loss with respect to
an Engine under the circumstances contemplated by the terms of this Section 10.2
shall result in any changes of Basic Rent or Renewal Rent.
10.3 Application of Certain Payments. Any payments (other than
insurance proceeds, the application of which is provided for in Section 11)
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, will
be applied as follows:
10.3.1 Replacement of Engine. If such payments are received
with respect to an Engine that has been or is being replaced by Lessee pursuant
to Section 10.2, so much of such payments remaining after reimbursement of
Lessor and Owner Participant for costs and expenses shall be paid over to, or
retained by, Lessee, provided Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of Section 10.2 with respect to the
Event of Loss for which such payments are made.
10.3.2 Nonreplacement. If such payments are received with
respect to the Airframe and/or Engines that have not been and will not be
replaced pursuant to Section 10.2, so much of such payments remaining after
reimbursement of Lessor and Owner Participant for costs and expenses as shall
not exceed the Stipulated Loss Value and other amounts required to be paid by
Lessee hereunder shall be applied in reduction of Lessee's obligation to pay
such Stipulated Loss Value and other amounts if not already paid by Lessee, or,
if already paid by Lessee, shall be applied to reimburse Lessee for its payment
of such Stipulated Loss Value and other amounts. The balance, if any, of such
payment remaining thereafter shall be divided between Lessor and Lessee in
proportion to their interests in the Aircraft.
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10.4 Requisition of Aircraft for Use by Governmental Authorities. In
the event of the requisition, unless and until such requisition becomes an Event
of Loss, for use of the Airframe and the Engines or engines installed on such
Airframe during the Term by any governmental authority, Lessee shall notify
Lessor of such requisition, and, unless and until such requisition becomes an
Event of Loss, all of Lessee's obligations under this Lease with respect to the
Aircraft shall continue to the same extent as if such requisition had not
occurred. All payments received by Lessor or Lessee from such governmental
authority for the use of such Airframe and Engines or engines prior to the time
such requisition becomes an Event of Loss shall be paid over to, or retained by,
Lessee (or, if directed by Lessee, any Permitted Sublessee); and all payments
received by Lessor or Lessee from such governmental authority for the use of
such Airframe and Engines or engines after such time shall be paid over to, or
retained by, Lessor unless Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of Section 10.1 with respect to such
Event of Loss.
10.5 Requisition of an Engine for Use by Governmental Authorities.
In the event of the requisition for use by any governmental authority (other
than in circumstances contemplated by Section 10.4) of any Engine but not the
Airframe, Lessee will replace such Engine hereunder by complying with the terms
of Section 10.2 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 such
governmental authority with respect to such requisition shall be paid over to,
or retained by, Lessee (subject to performance by Lessee of the terms of Section
10.2 to the same extent as if an Event of Loss had occurred with respect to such
requisitioned Engine).
10.6 Application of Payments During Existence of Default. Any amount
referred to in this Section 10 which is payable or creditable to or retainable
by Lessee shall not be paid or credited to or retained by Lessee if, at the time
of such payment, credit or retention, (A) a Lease Event of Default or (B) a
Lease Default under Section 14.1 or 14.5 shall have occurred and be continuing
hereunder, but shall be paid to and held by Lessor as security for the
obligations of Lessee under this Lease and applied against Lessee's obligations
hereunder as and when due; at such time as there shall not be continuing any
such Lease Event of Default or Lease Default, or at such earlier time as Lessee
shall have paid in full all Rent and other amounts due and payable hereunder and
under the other Operative Agreements by Lessee, any remaining balance of such
amount shall be paid to Lessee to the extent not previously applied in
accordance with the preceding clause of this sentence.
Section 11. Insurance.
11.1 Public Liability and Property Damage Insurance. Lessee shall at
all times maintain, or cause to be maintained, at its or any Permitted
Sublessee's expense,
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public liability (including without limitation contractual liability, passenger
legal liability and property damage but excluding manufacturer's product
liability coverage) insurance which shall:
11.1.1 Type, Form and Amount. Be of a type and form carried by
similarly situated United States commercial air carriers generally, and carried
in amounts not less than $350,000,000 (per occurrence) combined single limit (or
such greater amount as Lessee may carry from time to time on other 737-200
series aircraft in its fleet);
11.1.2 Coverage. Include, but not be limited to, public
liability insurance, contractual liability insurance, passenger liability
insurance and property damage liability insurance (including cargo and baggage
liability insurance); and
11.1.3 Additional Insureds. Name as additional insureds Lessor
(in its individual and trust capacities), Lender and Owner Participant, as their
interests may appear.
11.2 Insurance Against Loss of or Damage to Aircraft and Engines.
Lessee shall at all times maintain, or cause to be maintained, at its or any
Permitted Sublessee's expense insurance against loss of or damage to the
Aircraft, Airframe and Engines as follows:
11.2.1 Type, Form and Amount. "All-risk" insurance on the
Aircraft and "all-risk" coverage on each Engine and on Parts while removed from
the Aircraft or Engines, which is of the type, form and in an amount in
compliance with the last sentence of this Section 11.2.1, not less than that
carried by Lessee on similar equipment owned or leased by Lessee and not less
than that usually carried by similarly situated United States commercial air
carriers; and, to the extent so usually carried, at all times that the Aircraft
or any Engine is not covered by the insurance described in Section 11.2.2,
coverage against the perils of (i) strikes, riots, civil commotions or labor
disturbances, (ii) any 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 (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 other
than hijacking committed by persons engaged in a program of irregular warfare
for terrorist purposes. Such insurance shall at all times be for an amount not
less than Stipulated Loss Value for the Aircraft.
11.2.2 War-Risk Insurance. If at any time (a) war-risk
insurance is maintained by Lessee or any Permitted Sublessee subleasing the
Aircraft or any Engine with respect to other aircraft operated by Lessee or such
Permitted Sublessee on the same or similar routes, or (b) the Aircraft is
operated on routes where the custom in the
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commercial airline industry is to carry war-risk insurance, then war-risk
insurance of the type carried by similarly situated United States commercial air
carriers operating the same or comparable models of aircraft on the same or
similar routes shall be maintained on the Aircraft in an amount not less than
that specified in Section 11.2.1.
11.2.3 Certain Requirements. The insurance policies required
by this Section 11.2 shall:
11.2.3.1 Additional Insureds. Be endorsed to name Lessor
(in its individual and trust capacities), Lender and Owner Participant as
additional insureds, as their interests may appear.
11.2.3.2 Payment of Proceeds. Provide that proceeds
thereunder shall be paid directly to Lender, so long as the Aircraft is subject
to the Lien of the Mortgage and thereafter to Lessor, in either case as
exclusive loss payee; provided, however, that any proceeds payable as a result
of any property damage to the Airframe or any Engine, which property damage does
not exceed $1,500,000 and does not constitute an Event of Loss with respect to
the Aircraft or such Engine, shall be paid to Lessee, unless Lessor or Lender,
prior to such payment, shall have notified the insurer making such payment that
a Lease Event of Default or a Lease Default specified in Section 14.1 or 14.5
has occurred and is continuing.
11.2.3.3 Waiver of Subrogation. Provide that the
insurers shall waive any rights of subrogation against Lessor, Lender and Owner
Participant except for claims arising out of gross negligence or willful
misconduct of such Persons; provided that the exercise by insurers of rights of
subrogation, if any, permitted by this Section 11.2 shall not, in any way, delay
payment of any claim that would otherwise be payable by such insurers but for
the existence of such rights of subrogation or entitle such insurers to exercise
or to assert any setoff, recoupment, counterclaim or any other deduction in
respect of any amounts payable under such policies.
11.2.4 Deductibles. The insurance required by this Section
11.2 may, subject to Section 11.8, provide for standard deductibles which are
from time to time in effect in the aviation insurance industry generally and
which are customarily maintained by similarly situated United States commercial
air carriers; provided, however, such deductibles shall not be more than the
deductibles generally maintained by Lessee (and which Lessee is under no
compulsion to maintain pursuant to any mortgage, lease or other agreement) with
respect to its fleet of Boeing Model 737-200 series aircraft and Pratt & Whitney
JT8D-9A engines generally.
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11.2.5 Government Indemnity. In the case of a contract with
the Government in respect of the Aircraft or Engines, a valid agreement by the
Government to indemnify Lessee, Lessor, Lender and Owner Participant against the
same risks which are required hereunder to be insured against in amounts at
least equal to the amounts required hereunder from time to time (such indemnity
to be backed by the full faith and credit of the United States of America),
shall be considered adequate insurance with respect to the Aircraft, Airframe
and any Engine subject to such contract to the extent of the risks and in the
amounts that are the subject of any such agreement to indemnify.
11.3 General Policy Provisions. Each insurance policy to be procured
and maintained hereunder shall:
11.3.1 Primary Insurance. Be primary and without right of
contribution from other insurance which may provide coverage to Lessor, Lender
or Owner Participant with respect to its interest in the Aircraft, Airframe or
any Engine or its liabilities with respect to or arising out of the transactions
contemplated by the Operative Agreements;
11.3.2 Coverage for Each Insured. Expressly provide that all
the provisions thereof, except the agreed values and the limits of the liability
of the insurer under such policy, shall operate in the same manner as if there
were a separate policy covering each insured;
11.3.3 Waiver of Certain Rights. Waive any right of the
insurers to any setoff, recoupment, counterclaim or any other deduction, whether
by attachment or otherwise, in respect of any liability of Lessee, Lender,
Lessor or Owner Participant;
11.3.4 Breach of Warranty. Provide that, in respect of Lessor,
Lender and Owner Participant, such insurance shall not be invalidated by any
action or inaction by Lessee or any additional insured (other than such
additional insured, as to such additional insured) and shall insure the
interests of Lessor, Lender and Owner Participant regardless of any breach or
violation by Lessee or any additional insured (other than such additional
insured, as to such additional insured) of any representation, warranty,
declaration or condition contained in such policy;
11.3.5 Notice of Termination or Changes. Provide for not less
than 30 days' prior written notice to be received by Lessor, Lender and Owner
Participant before any lapse, alteration, termination or cancellation of the
insurance evidenced thereby shall be effective as to Lessor, Lender and Owner
Participant, except that war-risk and allied perils policies may provide for not
less than seven days' prior written notice or such lesser or greater notice as
shall at the time be customary in the aviation insurance
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industry generally, and which are customarily in effect with respect to major
United States commercial air carriers generally from time to time;
11.3.6 Nonliability for Premiums. Provide that neither Lessor,
Lender nor Owner Participant shall be liable for any insurance premium; and
11.3.7 Identity of Insurers. Be with insurance companies.
underwriters or funds of recognized responsibility.
11.4 Application of Insurance Proceeds. As between Lessor and
Lessee, all insurance proceeds received under policies required to be maintained
(or to be caused to be maintained) by Lessee pursuant to Section 11.2 as a
result of the occurrence of an Event of Loss with respect to the Aircraft,
Airframe or any Engine will be applied in accordance with Section 10.3.1 or
10.3.2, as the case may be (except that the balance referred to in Section
10.3.2 shall be paid over to, or retained by, Lessee). All insurance proceeds in
respect of any property damage loss not constituting an Event of Loss with
respect to the Airframe or an Engine will be applied in payment for repairs or
for replacement property in accordance with the terms of Section 8, if not
already paid for by Lessee, and any balance remaining after compliance with such
Section with respect to such loss shall be paid to Lessee. In the case of a loss
with respect to an engine (other than an Engine) installed on the Airframe,
Lessor shall hold any payment to it of any insurance proceeds in respect of such
loss for the account of Lessee or any other third party that is entitled to
receive such proceeds. The provisions of Section 10.6 shall apply to amounts
referred to in this Section 11.4.
11.5 Certificates; Reports, Etc. With respect to any policy required
hereunder, Lessee shall cause to be furnished to Lessor and each Participant on
or prior to the Delivery Date of the Aircraft and on or prior to expiration of
such policy, certificates of the insurer or insurers (or their authorized
representatives) providing insurance pursuant to the requirements of this
Section 11, as to hull and liability insurance. On or before the Delivery Date
of the Aircraft, and annually thereafter on or before such expiration date,
Lessee shall cause to be furnished to Lessor and each Participant a report
signed by Frank B. Hall & Co. (or any other firm of independent aircraft
insurance brokers, appointed by Lessee, reasonably satisfactory to the
Participants) describing in reasonable detail the insurance then carried and
maintained with respect to the Aircraft and stating the opinion of such firm
that the insurance then carried and maintained on the Aircraft complies with the
terms hereof as to hull and liability insurance. Lessee agrees that it will
cause such firm to advise Lessor and each Participant in writing promptly of any
default in the payment of any premium or any other act or omission on the part
of Lessee or any Permitted Sublessee of which they have knowledge and which
might invalidate or render unenforceable, in whole or in part, the insurance on
the Aircraft. To the extent such agreement is reasonably obtainable, Lessee
further agrees to cause such
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firm to advise Lessor and each Participant in writing at least 30 days (seven
days in the case of war-risk and allied perils coverage) prior to the expiration
or termination date of any insurance carried and maintained on the Aircraft
pursuant to this Section 11.
11.6 Lessor's Right to Maintain Insurance. In the event that Lessee
shall fail to maintain or cause to be maintained insurance as herein provided,
Lessor or any Participant may at its option (but shall not be obligated to)
provide such insurance and in such event, Lessee shall, upon demand, reimburse
such Person, as Supplemental Rent, for the cost thereof. No such payment,
performance or compliance shall be deemed to cure any Lease Event of Default or
Lease Default or otherwise relieve Lessee of its obligations with respect
thereto. At Lessor's or Lender's request and expense, and subject to the
permission of Lessee's insurance carriers, Lessee will increase the amount of
coverage under any insurance policy that Lessee maintains pursuant to Section
11.2.1 or 11.2.2, and notwithstanding the provisions of Section 11.4, the
proceeds of any such additional insurance shall be payable to Lessor or Lender,
as the case may be; provided, however, that no such insurance may be obtained
which would limit or otherwise adversely affect the availability or coverage or
cost of any insurance required to be obtained or maintained pursuant to this
Section 11.
11.7 Insurance for Own Account. Nothing in this Section 11 shall
limit or prohibit Owner Participant (directly or through Lessor) from obtaining
insurance for its own account, and any proceeds payable thereunder shall be
payable as provided in the insurance policy relating thereto; provided, however,
that no such insurance may be obtained which would limit or otherwise adversely
affect the availability or coverage or cost of any insurance required to be
obtained or maintained pursuant to this Section 11. Nothing in this Section 11
shall limit or prohibit Lessor or Lender from obtaining insurance for its own
account, and any proceeds payable thereunder shall be payable as provided in the
insurance policy relating thereto; provided, however, that no such insurance may
be obtained which would limit or otherwise adversely affect the availability or
coverage or cost of any insurance required to be obtained or maintained pursuant
to this Section 11 or obtained by Owner Participant pursuant to the preceding
sentence.
11.8 Self-Insurance. Notwithstanding the foregoing provisions of
this Section 11, Lessee may, from time to time, self-insure with respect to the
Aircraft to the same extent as it does with respect to, or maintain policies
with deductibles or premium adjustment provisions consistent with similar
provisions applicable to, other comparable aircraft operated by Lessee;
provided, however, that if at any time Lessee's unsecured senior long-term debt
securities are not rated "Investment Grade", in the case of hull insurance such
self-insurance shall in no case be in an amount greater than 4% of Lessee's
tangible net worth (as defined in accordance with accepted financial practice);
and provided, further that, in the case of public liability insurance, such
self-insurance shall in no event exceed $50,000,000. As used in this Section
11.8, the term "Investment Grade"
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means a rating of "Baa3" or higher from Moody's Investors Service, Inc. or a
rating from any other nationally recognized bond rating service equivalent to or
better than such a rating.
Section 12. Inspection. At all reasonable times, and upon reasonable
notice, Lessor or any Participant or its authorized representatives or designees
may inspect the Aircraft and inspect and copy (subject to any confidentiality
agreements, copyright restrictions and the like) the books and records of Lessee
relative thereto. Any such inspection of the Aircraft shall be without
out-of-pocket expense or risk to Lessee; provided that no exercise of such
inspection right shall interfere with the normal operation or maintenance of the
Aircraft by, or the business of, Lessee (or any Permitted Sublessee). Subject to
the proviso to the preceding sentence of this Section 12, Owner Participant may
observe the "C" check (or its equivalent) referred to in clause (I) of Section
5.3.1 and any Card inspection during the Term. Neither Lessor nor any
Participant shall have any duty to make any such inspection and shall not incur
any liability or obligation by reason of not making any such inspection.
Section 13. Assignment.
13.1 General. Except as otherwise expressly permitted in Section 7.2
hereof or Section 12.5.1 of the Participation Agreement, or as required in the
case of any requisition by the Government referred to in Section 7.1.4, Lessee
will not, without the prior written consent of Lessor, assign or transfer any of
its rights or obligations under this Lease. Lessor may assign or convey any of
its right, title and interest in and to this Lease or the Aircraft in accordance
with the Participation Agreement, the Trust Agreement or the express provisions
of this Lease. The terms and provisions of the Lease shall be binding upon and
inure to the benefit of Lessor and Lessee and their respective permitted
successors and assigns.
13.2 Security for Lessor's Obligations. In order to secure the
indebtedness evidenced by the Note, the Mortgage provides, among other things,
for the assignment by Lessor to Lender of its right, title and interest in, to
and under this Lease and any Permitted Sublease, to the extent set forth in the
Mortgage, and for the creation of a first mortgage lien on and perfected
security interest in the Aircraft in favor of Lender. Lessee hereby consents to
such assignment and to the creation of such mortgage and security interest.
Except as may otherwise be provided in the Mortgage, all rights of Lessor and
Owner Participant with respect to the Lease, the Aircraft, the Airframe or any
Engine (or any part thereof) shall be exercisable by Lender.
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Section 14. Events of Default. The following events shall constitute Lease
Events of Default (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body), and each such Lease Event of
Default shall continue so long as, but only so long as, it shall not have been
remedied or waived:
14.1 Failure To Pay Rent. Lessee shall fail to make any payment of
Basic Rent or Renewal Rent within 5 Business Days from the due date thereof; or
any other payments required under the Operative Agreements within 10 Business
Days after the receipt of written notice of such default to Lessee from Lessor.
14.2 Specific Defaults. Lessee shall fail to carry and maintain (or
cause to be carried and maintained) insurance on or with respect to the Aircraft
in accordance with the provisions of Section 11, provided that any such failure
shall not constitute a Lease Event of Default so long as such failure is for a
period of not more than 30 days, Lessee shall not operate the Aircraft at a time
when such insurance is not in effect and the Aircraft continues to be covered by
such insurance as is required when the Aircraft is on the ground; or
14.3 General Default. Lessee shall fail to perform or observe any
other material covenant, condition or agreement to be performed or observed by
it hereunder or under any other Operative Agreement (except the Tax
Indemnification Agreement), and such failure shall continue unremedied for a
period of 30 days after Lessee's receipt of written notice thereof from Lessor
or Lender, unless Lessee shall be diligently proceeding to correct such failure
and such failure is cured within 180 days after receipt of such notice or the
end of the Term, whichever shall first occur; or
14.4 Misrepresentation and Breach of Warranty. Any representation or
warranty made by Lessee herein or in the Participation Agreement or in any other
Operative Agreement (other than the Tax Indemnification Agreement) or in any
document or certificate furnished by Lessee in connection with any thereof,
shall prove to have been incorrect in any material respect at the time made and
shall remain incorrect in any material respect 30 days after Lessee's receipt of
written notice thereof from Lessor or Lender; or
14.5 Bankruptcy, Etc. Lessee shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official or agency in an
involuntary case
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or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due unless the subject of a bona fide dispute, within the meaning of
Title 11 of the United States Code, or shall take any corporate action to
authorize any of the foregoing; or an involuntary case or other proceeding shall
be commenced against Lessee seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official or agency of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or
14.6 Cross Default. A Lease Event of Default shall have occurred and
be continuing under either of the other two Sale and Lease Agreements of even
date herewith, each relating to a Boeing 737-200 series aircraft having FAA
registration number N56SW or N57SW; provided, that Lender (or lender of any
Successor Indebtedness) shall then be Lender (or lender of any Successor
Indebtedness) (as such terms are defined therein) under such other Sale and
Lease Agreement.
Section 15. Remedies.
15.1 Default; Remedies. Upon the occurrence of a Lease Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare by written notice to Lessee this Lease to be
in default (provided, however, that any Lease Event of Default specified in
Section 14.5 shall be automatic and shall not require any such declaration or
notice) and at any time thereafter, so long as any such Lease Event of Default
shall be continuing, Lessor may exercise one or more of the following remedies
as Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect which have not been effectively waived by Lessee:
15.1.1 Return; Repossession. Lessor may cause Lessee, upon
written demand by Lessor and at Lessee's expense, to return promptly, and Lessee
shall return promptly, all or any part of the Aircraft, Airframe or Engines as
Lessor may so demand to Lessor or its order in the manner and condition required
by, and otherwise in accordance with all the provisions of, Section 5 as if the
Aircraft, Airframe or Engines were being returned at the end of the Term; or
Lessor, at its option, may enter upon the premises where the Aircraft, Airframe
or any Engine, or part thereof is located and take immediate possession of and
remove the same by summary proceedings or otherwise, all without liability
accruing to Lessor for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or
otherwise, and Lessee expressly waives any right it may have under applicable
law to a hearing prior to repossession of the Aircraft, Airframe or any Engine
or part thereof; or
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15.1.2 Sale, Use, Etc. Lessor may sell all or any part of the
Aircraft, Airframe or any Engine, at public or private sale, at such times and
places, to such Persons (including Lessor or any Participant) as Lessor may
determine, or otherwise dispose of, hold, use, operate, lease to others or keep
idle the Aircraft, Airframe or any Engine or part thereof, as Lessor, in its
sole discretion, may determine, all free and clear of any rights of Lessee
except as hereinafter set forth in this Section 15 and without any duty to
account to Lessee with respect to such action or inaction or for any proceeds
with respect thereto; or
15.1.3 Certain Liquidated Damages.
15.1.3.1 Liquidated Damages-Fair Market Rental Value.
Whether or not Lessor shall have exercised, or shall thereafter at any time
exercise, any of its rights under Section 15.1.1 or 15.1.2 with respect to the
Aircraft, Airframe or any Engine or part thereof, Lessor, by written notice to
Lessee specifying a payment date not earlier than ten days from the date of such
notice, may cause Lessee to pay to Lessor, and Lessee shall pay to 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 or Renewal Rent, as the
case may be, due on or after the date specified for payment in such notice), any
unpaid Basic Rent or Renewal Rent, as the case may be, due prior to such date
plus an amount equal to the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such date over the fair market rental value (determined
as hereafter provided in this Section 15) of the Aircraft for the remainder of
the Term, after discounting such fair market rental value semiannually
(effective on each Rent Payment Date) by a rate equal to the Overdue Rate to
present worth as of the date specified for payment in such notice, together with
interest, if any, on such amount and unpaid Basic Rent or Renewal Rent, as the
case may be, at the Overdue Rate from the date specified for payment in such
notice to the date of payment in full; or
15.1.3.2 Liquidated Damages-Fair Market Sales Value. If
Lessor shall not have sold the Aircraft, Lessor, by written notice to Lessee
specifying a payment date not earlier than ten days from the date of such
notice, may cause Lessee to pay to Lessor, and Lessee shall pay to 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 or Renewal Rent, as the
case may be, due on or after the date specified for payment in such notice), any
unpaid Basic Rent or Renewal Rent, as the case may be, due prior to such date
plus an amount equal to the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such date over the fair market sales value of the
Aircraft (determined as hereafter provided in this Section 15 as of the date
specified for payment in such notice), together with interest, if any, on such
amount and unpaid Basic Rent or
SALE AND LEASE AGREEMENT
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Renewal Rent, as the case may be, at the Overdue Rate from the date specified
for payment in such notice to the date of payment in full; or
15.1.4 Liquidated Damages upon Sale. If Lessor, pursuant to
Section 15.1.2 or applicable law, shall have sold the Aircraft, Lessor, in lieu
of exercising its rights under Section 15.1.3 with respect to the Aircraft, may,
if Lessor shall so elect, upon giving written notice to Lessee, cause Lessee to
pay Lessor, and Lessee shall pay to Lessor, on the date of such sale, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of the
Basic Rent or Renewal Rent, as the case may be, due on or after the date of such
sale), any unpaid Basic Rent or Renewal Rent, as the case may be, due prior to
such date of sale plus the amount of any deficiency between the net proceeds of
such sale or (if such sale is a private sale and is made to Lessor, a
Participant or any Affiliate thereof) between the fair market sales value of the
Aircraft, determined as of the date of such sale as hereinafter provided in this
Section 15, and the Stipulated Loss Value of the Aircraft, computed as of the
date of such sale, together with interest, if any, on such amount and such
unpaid Basic Rent or Renewal Rent at the Overdue Rate from the date of such sale
to the date of payment in full; or
15.1.5 Rescission and Other Remedies. Lessor may terminate or
rescind this Lease as to the Aircraft, or may exercise any other right or remedy
which may be available to it under applicable law or proceed by appropriate
court action to enforce the terms hereof or to recover damages for the breach
hereof, including without limitation Lessee's agreement to lease the Aircraft
for the Term and to pay Rent.
In addition to the foregoing remedies, Lessee shall be liable (except as
otherwise provided above and without duplication of amounts otherwise payable
hereunder) for any and all unpaid Rent due hereunder before, during or after the
exercise of any of the foregoing remedies and for all reasonable and actual
legal fees and other costs and expenses (including the fees and expenses of all
appraisers required by this Section 15) of Lessor and Participants, incurred by
reason of the occurrence of any Lease Event of Default or the exercise of
Lessor's remedies with respect thereto, including all insurance and storage
costs and all costs and expenses incurred in connection with the return of the
Aircraft, Airframe or any Engine or part thereof, in accordance with the terms
of Section 5 or in placing the Aircraft, Airframe or any Engine or part thereof,
in the condition and airworthiness required by Section 5.
Lessor agrees to give Lessee at least 15 days' prior written notice of the
date fixed for any public sale of the Aircraft, the Airframe or any Engine or
part thereof, and of the date on or after which will occur the execution of any
contract providing for any private sale, and any such public sale shall be
conducted in general so as to afford Lessee a reasonable opportunity to bid.
SALE AND LEASE AGREEMENT
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15.2 Determination of Fair Market Rental Value and Fair Market Sales
Value. For the purpose of this Section 15, the "fair market rental value" or the
"fair market sales value" of the Aircraft shall be the rental value or sales
value, as the case may be, which would be obtained in an arm's-length
transaction between an informed and willing lessee or purchaser, as the case may
be, under no compulsion to lease or purchase, as the case may be, and an
informed and willing lessor or seller in possession, as the case may be, and in
each case shall be determined on an "as is, where is" basis pursuant to an
appraisal by a recognized independent aircraft appraiser chosen by Lessor and
approved by Lessee, which approval shall not be unreasonably withheld or delayed
and shall be deemed granted if such choice is not rejected within 10 days after
Lessee's receipt of notice of Lessor's choice.
15.3 No Waiver, Etc. No remedy referred to in this Section 15 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 of 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 Lease Event of Default shall in any way be, or be construed to be, a waiver
of any earlier or subsequent Lease Event of Default. To the extent permitted by
applicable law, Lessee hereby waives any rights now or hereafter conferred by
statute or otherwise which may require Lessor to sell, lease or otherwise use
the Aircraft, Airframe or any Engine, or part thereof, in mitigation of Lessor's
damages as set forth in this Section 15 or which may otherwise limit or modify
any of Lessor's rights or remedies under this Section 15.
Section 16. Notices. All notices required under the terms and provisions
hereof shall be in writing and shall be given by certified mail, telecopy or any
other customary means of written communication, addressed:
If to Lessee, at 2702 Love Field Dr., P.O. Box 36611, Dallas, Texas
75235-1611 (telecopy no. 214/904-4022), Attention: Treasurer, or at such other
address as Lessee shall from time to time designate in writing;
If to Lessor, at 79 Main Street, P.O. Box 30007, Salt Lake City, Utah
84130-0007 (telecopy no. 801/350-5053), Attention: Corporate Trust Department,
or at such other address as Lessor shall from time to time designate in writing;
If to any Participant, at its address set forth in the signature pages of
the Participation Agreement, or at such other address as such Participant shall
from time to time designate in writing.
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The effective date of any such notice shall be the date on which it is
received by the addressee. Lessee shall furnish to Lessor for transmission to
Owner Participant and Lender a sufficient number of copies of all reports,
notices, requests, demands, certificates, financial statements and other
instruments furnished hereunder, except in any case where Lessee shall have
transmitted the same directly to any such person.
Section 17. Net Lease; Lessee's Obligations; No Setoff, Counterclaim, Etc.
This is a net lease and it is hereby recognized that Lessor is the owner of the
Aircraft (except that Owner Participant will be the owner for income tax
purposes) and Lessee is the lessee thereof. It is the intent of the parties
hereto that this Lease be a "true lease". Lessee's obligation to pay all Rent
payable 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 which Lessee may have against Lessor (in its
individual or trust capacity), any Participant, any Indemnified Party or any
other Person for any reason whatsoever (except as expressly provided in Section
13.5.2 of the Participation Agreement or in Sections 6 and 7 of the Tax
Indemnification Agreement); (b) any defect in the title, airworthiness,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, the Aircraft, Airframe or any Engine, or any interruption or
cessation in the use or possession thereof by Lessee for any reason whatsoever;
(c) any insolvency, bankruptcy, reorganization or similar proceedings by or
against Lessee; (d) any restriction, prevention or curtailment of or
interference with any use of the Aircraft or part thereof; (e) any invalidity or
unenforceability or disaffirmance of this Lease or any provision hereof or any
of the other Operative Agreements or any provision thereof, in each case whether
against or by Lessee or otherwise; or (f) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
If for any reason whatsoever this Lease shall be terminated in whole or in
part by operation of law or otherwise except as specifically provided herein,
Lessee nonetheless agrees to pay an amount equal to each Basic Rent, Renewal
Rent and Supplemental Rent payment at the time such payment would have become
due and payable in accordance with the terms hereof had this Lease not been
terminated in whole or in part. All Rent payable by Lessee shall be paid without
notice or demand (except as otherwise expressly provided) and without abatement,
suspension, deferment, deduction, diminution or proration by reason of any
circumstance or occurrence whatsoever (except as expressly provided in Section
13.5.2 of the Participation Agreement or in Sections 6 and 7 of the Tax
Indemnification Agreement). Lessee hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which at any time
hereafter may be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender this Lease or any part hereof, or to any abatement,
suppression, deferment, diminution, reduction or proration of Rent except in
accordance with the express terms hereof. Each
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payment of Rent made by Lessee shall be final as to Lessor and Lessee. Lessee
will not seek to recover all or any part of any such payment of Rent for any
reason whatsoever.
Section 18. Renewal Options; Early Termination.
18.1 Renewal Options. At the end of the Base Lease Term or any
Renewal Term, so long as no Lease Event of Default or Lease Default has occurred
and is continuing and the aggregate of all Renewal Terms shall not exceed six
years, Lessee shall have the option to renew this Lease for a Renewal Term;
provided, that if, at the time of exercise by Lessee of any of its renewal
rights set forth in this Section 18.1, Owner Participant and its Affiliates
shall be the owner of all of the beneficial interest in one or more other Boeing
Model 737-200 series aircraft then subject to a lease under which the lessee is
Lessee (all of such aircraft, together with the Aircraft, referred to as the
"Owner Group Aircraft"), then Lessee shall be obligated to exercise such renewal
rights (or to have exercised such renewal rights for a Renewal Term which shall
be then continuing) with respect to at least three of such Owner Group Aircraft
(or such lesser number of Owner Group Aircraft as shall exist at such time). In
order to exercise the option to renew, except as otherwise provided in Section
13.4.1 of the Participation Agreement, Lessee shall notify Lessor thereof in
writing not more than 360 days nor less than 180 days prior to the commencement
of the applicable Renewal Term (which notice shall be irrevocable). The Renewal
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;
provided, that if a Stage III Upgrade shall have occurred and (i) Owner
Participant shall have performed its obligations set forth in Section 13.4 of
the Participation Agreement, upon proper request by Lessee, then such fair
market value shall be determined taking into account the value of the hush kit
installed pursuant to such upgrade, and (ii) if Owner Participant shall not have
so performed or shall not have been requested to do so by Lessee, then such fair
market value shall be determined without taking into account the value of the
hush kit installed pursuant to such upgrade, i.e., as if no Stage III Upgrade
had occurred. Such fair market rental value shall be determined not later than
three months prior to the commencement of such Renewal Term by mutual consent of
Owner Participant and Lessee or, if they shall be unable so to agree, by three
recognized independent aircraft appraisers, one chosen and paid for by Owner
Participant, one chosen and paid for by Lessee and the third appraiser chosen by
the mutual consent of the first two appraisers and paid for equally by Owner
Participant and Lessee, the appraisals of which three appraisers shall be
averaged and such average shall be deemed to be the fair market rental value of
the Aircraft for all purposes hereof; provided, however, that if the appraisal
of one appraiser is more disparate from the average of all three appraisals than
each of the other two appraisals, then the appraisal of such appraiser shall be
excluded, the remaining appraisals shall be averaged and such average shall be
deemed to be the fair market rental value of the Aircraft for all purposes
hereof. If either Owner Participant or Lessee shall fail to appoint an appraiser
by the date which is two months
SALE AND LEASE AGREEMENT
42
<PAGE>
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 one month before the commencement of such Renewal Term, then
either Owner Participant 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 an informed and willing lessor (under no
compulsion to lease) and shall be determined on the assumptions that the
Aircraft is in the United States of America, available for use by the lessee and
in the return condition required by Section 5 of this Lease and otherwise in
compliance with the requirements of this Lease. Stipulated Loss Value amounts
that are payable during each such Renewal Term shall be calculated as of the
date of commencement of such Renewal Term and shall be determined by multiplying
1.1 times the appraised value of the Aircraft at such time; provided, however,
that no such amount shall be less than the principal amount of any indebtedness
then secured by a Lien on the Aircraft.
18.2 Early Termination. Provided that this Lease has not been
terminated and provided that no Lease Default or Lease Event of Default shall
have occurred and be continuing hereunder, Lessee shall have the option to
terminate this Lease with respect to the Aircraft not more than 42 days prior to
the expiration of the Base Lease Term or the applicable Renewal Term. Lessee may
exercise such option of termination by delivering irrevocable written notice of
such exercise to Lessor not less than six months' prior written notice of such
advanced date of termination. Such notice shall provide the date elected by
Lessee for such early termination and a calculation of the final payment of
Rent, which shall be due on such early termination date and shall be calculated
as provided in clause (ii) of Section 3.3.
18.3 Default Purchase Option. In the event of Owner Participant's
failure to satisfy its obligations specified in Section 13.4 of the
Participation Agreement, Lessee shall have the option to purchase the Aircraft.
In order to exercise such option, Lessee shall notify Lessor (and, if the
Mortgage is then in effect, Lender) thereof in writing, specifying a Rent
Payment Date on which such purchase is to occur. In such case, Lessee shall
purchase the Aircraft on such Rent Purchase Date at a purchase price equal to
Termination Value. Upon receipt of such purchase price from Lessee and all Rent
and other amounts due hereunder and under any other Operative Agreement, Lessor
shall Transfer to Lessee the Aircraft.
Section 19. Successor Owner Trustee. Lessee agrees that in the case of the
appointment of any successor Owner Trustee pursuant to the terms of the Trust
Agreement, such successor Owner Trustee shall, upon written notice by such
successor Owner Trustee to Lessee, succeed to all the rights, powers and title
of Lessor hereunder and shall be deemed to be Lessor and the owner of the
Aircraft for all purposes hereof
SALE AND LEASE AGREEMENT
43
<PAGE>
without the necessity of any consent or approval by Lessee (but such successor
Owner Trustee shall qualify under the terms of Section 10.2 of the Participation
Agreement) and without in any way altering the terms of this Lease or Lessee's
obligations hereunder. One such appointment and designation of a successor Owner
Trustee shall not exhaust the right to appoint and designate further successor
or additional Owner Trustees pursuant to the Trust Agreement, and such right may
be exercised repeatedly as long as this Lease shall be in effect.
Section 20. Right to Perform for Lessee. If Lessee fails to make any
payment of Rent required to be made by it hereunder or fails to perform or
comply with any of its agreements contained herein, Lessor may (but shall not be
obligated to) make such payment or perform or comply with such agreement, and
the amount of such payment and the amount of the expenses of Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Overdue
Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand.
Section 21. Quiet Enjoyment. So long as this Lease shall not have been
declared to be in default pursuant to Section 15, during the Term Lessor will
not, through its own actions or inactions, interfere in the quiet enjoyment of
the Aircraft by Lessee or any Permitted Sublessee.
Section 22. Investment of Security Funds; Miscellaneous; Amendment.
22.1 Investment of Security Funds. Any moneys required to be paid to
or retained by Lessor which are not required to be paid to Lessee pursuant to
Section 10.6 or 11.4 solely because a Lease Event of Default or Lease Default
under Section 14.1 or 14.5 shall have occurred and be continuing, or which are
held by Lessor pending payment to Lessee pursuant to Section 11.4 or which are
required to be paid to Lessee pursuant to Section 10.3 or 11.4 after completion
of a replacement to be made pursuant to Section 10.2, shall, until paid to
Lessee as provided in Section 10 or 11 or applied as provided herein or in the
Trust Agreement, be invested by Lessor from time to time as directed in writing
by Lessee and at the expense and risk of Lessee in the following securities
(which, except in the case of the shares described in clause (e) below, shall
mature within 91 days of the date of purchase thereof): (a) direct obligations
of the Government; (b) obligations fully guaranteed by the Government; (c) open
market commercial paper of any corporation incorporated under the laws of the
United States of America or any State thereof rated P-1 or its equivalent by
Moody's Investors Service, Inc. and A-1 or its equivalent by Standard & Poor's
Corporation; or (d) certificates of deposit issued by, or bankers' acceptances
of, or time deposits or a deposit account with any bank, trust company or
national banking association incorporated or doing business under the laws of
the United States of America or any state thereof having a combined capital and
SALE AND LEASE AGREEMENT
44
<PAGE>
surplus of at least $50,000,000; or (e) shares of a money market fund registered
under the Investment Company Act of 1940, as amended, the sole assets of which
are direct obligations of the Government. There shall be promptly remitted to
Lessee or its order any gain (including interest received) realized as the
result of any such investment (net of any fees, commissions and other expenses,
if any, incurred in connection with such investment) unless a Lease Event of
Default of a Lease Default under Section 14.1 or 14.5 shall have occurred and be
continuing. Lessee will promptly pay to Lessor, on demand, the amount of any
loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment), such amount to be disposed of in accordance with the terms of the
Trust Agreement.
22.2 Miscellaneous; Amendment. Lessee shall do, execute, acknowledge
and deliver, or shall cause to be done, executed, acknowledged and delivered,
all such further acts, conveyances and assurances as Lessor or any Participant
shall reasonably require for accomplishing the purposes of this Agreement and
the other Operative Agreements. 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
provision hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against which the
enforcement of the change, waiver, discharge or termination is sought. This
Lease shall constitute an agreement of lease, and nothing herein shall be
construed as conveying to Lessee any right, title or interest in or to the
Aircraft, Airframe or Engines except as a lessee only. The section and paragraph
headings in this Lease and the table of contents are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof and all references herein to numbered sections, unless
otherwise indicated, are to sections of this Lease. THIS LEASE HAS BEEN, AND
EACH LEASE SUPPLEMENT AND AMENDMENT HERETO IS INTENDED TO BE, DELIVERED IN THE
STATE OF TEXAS AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE IN
SUCH STATE BY RESIDENTS THEREOF AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. This Lease and
each Lease Supplement and amendment hereto 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.
SALE AND LEASE AGREEMENT
45
<PAGE>
Section 23. Permitted Foreign Air Carriers. Lessor may, in the exercise of
its reasonable business judgment, by written notice to Lessee, remove any
foreign air carrier from Exhibit B and Lessee may, by written notice to Lessor,
request that any foreign air carrier be added to Exhibit B, subject to Lessor's
prior written consent, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, no deletion of an airline from the list of
Permitted Foreign Air Carriers pursuant hereto shall (i) reduce the number of
Permitted Foreign Air Carriers below 35, (ii) affect any existing sublease or
other agreement providing for transfer of possession of the Aircraft, Airframe,
any Engine or Part which was permitted hereunder at the time entered into, or
(iii) preclude any subsequent renewal or extension of such sublease or other
agreement to which the Permitted Foreign Air Carrier under a sublease is
entitled by the terms thereof as originally in effect.
SALE AND LEASE AGREEMENT
46
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed and delivered as of the day and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity except
as expressly stated herein, but solely as Owner
Trustee under the Trust Agreement
By /s/ [Illegible]
-----------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By /s/ John D. Owen
-----------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
<PAGE>
EXHIBIT A TO
LEASE AGREEMENT
SALE AND LEASE AGREEMENT SUPPLEMENT NO. ______
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. _________ dated ___________,
____ is between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its
individual capacity but solely as Owner Trustee under that certain Trust
Agreement, dated as of September 1, 1990 (the "Trust Agreement"), between the
Owner Participant named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES
CO., a Texas corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, as supplemented and amended from
time to time (herein called the "Lease Agreement" and the defined terms therein
being herein used with the same meaning), which Lease Agreement provides in
Section 2 for the execution of a Lease Supplement substantially in the form
hereof for the purpose of Lessee's selling to Lessor, and Lessor's leasing back
to Lessee, the Aircraft under the Lease Agreement as and when delivered by
Lessor to Lessee in accordance with the terms thereof; and
B. The Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached hereto and made a
part hereof and this Lease Supplement, together with such attachment, is being
filed for recordation with the FAA on the date hereof as one document.
In consideration of the premises and other good and sufficient
consideration, and pursuant to Section 2 of the Lease Agreement, Lessor and
Lessee hereby agree as follows:
1. Lessee hereby delivers and sells to Lessor and Lessor hereby accepts
and purchases from Lessee and in turn delivers and leases back to Lessee, and
Lessee hereby accepts and leases back from Lessor, under the Lease Agreement, as
herein supplemented, the following-described Boeing Model 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
SALE AND LEASE AGREEMENT
A-1
<PAGE>
Airframe: U.S Registration Number N _________ SW; Manufacturer's Serial
No._____; and
Engines: Two Pratt & Whitney JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: __________ and _______________.
Each of the Engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. Lessee hereby confirms to Lessor that the Delivered Aircraft has been
or will be duly marked in accordance with the terms of Section 7.1.2 of the
Lease and that Lessee has accepted the Delivered Aircraft for all purposes
hereof and of the Lease Agreement, including its being airworthy, in accordance
with specifications, in good working order and repair and without defect or
inherent vice in title, condition, design, operation or fitness for use, whether
or not discoverable by Lessee as of the date hereof, and free and clear of all
Liens except Permitted Liens.
4. All the provisions of the Lease Agreement are hereby incorporated by
reference in this Lease Supplement, on and as of the date of this Lease
Supplement, to the same extent as if fully set forth herein.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
SALE AND LEASE AGREEMENT
A-2
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
to be duly executed and delivered as of the date and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Owner Trustee under the Trust
Agreement
By
-----------------------------
Title:
Lessee:
SOUTHWEST AIRLINES CO.
By
-----------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
A-3
<PAGE>
EXHIBIT B TO
LEASE AGREEMENT
PERMITTED FOREIGN AIR CARRIERS
Aer Lingus Interflug
Aerolineas Argentinas Japan Air Lines
Aeromexico Japan Air System
Air Canada KLM
Air Europa Korean Air
Air Europe Lan Chile
Air France Lauda Air
Air Inter Linjeflyg
Air Jamaica Lufthansa
Air New Zealand Luxair
Alitalia Maersk
All Nippon Airways Malaysian Airline System
ALM Martinair
Ansett Airlines of Australia Mexicana
Asiana Airlines Monarch Airlines
Australian Airlines Olympic Airlines
Austrian Airlines Qantas Airways
AVENSA Ryanair
Bahamasair Sabena
Bavaria SAS
Braathens S.A.F.E. Saudi Arabia Airlines
Britannia Singapore Airlines
British Airways SouthWest Airlines
British Midland Swissair
CAAC TAP
Canadian Airlines International Thai Airways
Cathay Pacific Airways Transavia Holland
Cayman Airways Transbrasil
China Airlines TransEuropean
Condor Flugdienst UTA
Dan-Air Varig
Finnair Viasa
Garuda Viva Air
Hapag Lloyd
Iberia
Icelandair
SALE AND LEASE AGREEMENT
B-1
<PAGE>
EXHIBIT C TO
LEASE AGREEMENT
OTHER RETURN CONDITIONS
At the time of the return of the Aircraft upon the expiration or earlier
termination of the Term, the Aircraft shall be in the following condition:
1. General Condition
(a) The Aircraft shall be clean and free of leaks, in each case in
accordance with United States commercial airline operating
standards.
(b) All decals shall be clean, secure and legible.
2. Fuselage, Windows and Doors
(a) The fuselage shall be free of loose or pulled or missing
rivets.
(b) The doors shall be free moving, correctly rigged and be fitted
with serviceable seals.
3. Wings and Empennage
(a) The wings shall be free of fuel leaks.
4. Interior
(a) The ceilings, sidewalls and bulkhead panels shall be clean and
free of cracks and stains.
(b) All carpet and seat covers shall be in good condition, clean
and stain free and meet FAR fire resistance regulations.
(c) All seats shall meet FAA fire retardant regulations and be
serviceable, in good condition and repainted as necessary.
(d) All signs and decals shall be in English and be clean and
legible.
SALE AND LEASE AGREEMENT
C-1
<PAGE>
(e) All emergency equipment having a calendar life shall have a
minimum of one year or one hundred per cent of its total
approved life, whichever is less, remaining.
5. Cockpit
(a) All decals shall be in English and be clean, secure and
legible.
(b) All seat covers shall be in good condition, clean and shall
conform to FAR fire resistance regulation.
(c) All seats shall be fully serviceable and shall be repainted as
necessary.
6. Cargo Compartment
(a) All panels shall be in good condition.
(b) All nets shall be in good condition.
7. Fuel Tanks
(a) The fuel tanks shall be substantially free of bacteria growth
and water.
SALE AND LEASE AGREEMENT
C-2
<PAGE>
EXHIBIT D TO
LEASE AGREEMENT
TERMINATION VALUE SCHEDULE
Rent Payment Date Termination Date
- ----------------- ----------------
December 31, 1990 ..................................... $ 11,150,500
March 31, 1991 ........................................ 10,997,263
June 30, 1991 ......................................... 10,840,194
September 30, 1991 .................................... 10,679,199
December 31, 1991 ..................................... 10,514,179
March 31, 1992 ........................................ 10,345,033
June 30, 1992 ......................................... 10,171,659
September 30, 1992 .................................... 9,993,951
December 31, 1992 ..................................... 9,811,799
March 31, 1993 ........................................ 9,625,094
June 30, 1993 ......................................... 9,433,722
September 30, 1993 .................................... 9,237,565
December 31, 1993 ..................................... 9,036,504
March 31, 1994 ........................................ 8,830,417
June 30, 1994 ......................................... 8,619,177
September 30, 1994 .................................... 8,402,656
December 31, 1994 ..................................... 8,180,723
March 31, 1995 ........................................ 7,953,241
June 30, 1995 ......................................... 7,720,072
September 30, 1995 .................................... 7,481,074
December 31, 1995 ..................................... 7,236,101
March 31, 1996 ........................................ 6,985,003
June 30, 1996 ......................................... 6,727,628
September 30, 1996 .................................... 6,463,819
December 31, 1996 ..................................... 6,193,414
March 31, 1997 ........................................ 5,916,250
June 30, 1997 ......................................... 5,632,156
September 30, 1997 .................................... 5,340,960
December 31, 1997 ..................................... 5,042,484
March 31, 1998 ........................................ 4,736,546
June 30, 1998 ......................................... 4,422,960
September 30, 1998 .................................... 4,101,533
December 31, 1998 ..................................... 3,772,072
SALE AND LEASE AGREEMENT
D-1
<PAGE>
SCHEDULE I TO
LEASE AGREEMENT
The Lessor's Cost for the Aircraft is $11,000,000.
SALE AND LEASE AGREEMENT
<PAGE>
SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1 dated September 27, 1990 is
between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under that certain Trust Agreement, dated
as of September 1, 1990 (the "Trust Agreement"), between the Owner Participant
named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas
corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, as supplemented and amended from
time to time (herein called the "Lease Agreement" and the defined terms therein
being herein used with the same meaning), which Lease Agreement provides in
Section 2 for the execution of a Lease Supplement substantially in the form
hereof for the purpose of Lessee's selling to Lessor, and Lessor's leasing back
to Lessee, the Aircraft under the Lease Agreement as and when delivered by
Lessor to Lessee in accordance with the terms thereof; and
B. The Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached hereto and made a
part hereof and this Lease Supplement, together with such attachment, is being
filed for recordation with the FAA on the date hereof as one document.
In consideration of the premises and other good and sufficient
consideration, and pursuant to Section 2 of the Lease Agreement, Lessor and
Lessee hereby agree as follows:
1. Lessee hereby delivers and sells to Lessor and Lessor hereby accepts
and purchases from Lessee and in turn delivers and leases back to Lessee, and
Lessee hereby accepts and leases back from Lessor, under the Lease Agreement, as
herein supplemented, the following-described Boeing Model 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
Airframe: U.S Registration Number N55SW; Manufacturer's Serial No. 21593;
and
Engines: Two Pratt & Whitney JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: P707374B and P707334B.
<PAGE>
Each of the Engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. Lessee hereby confirms to Lessor that the Delivered Aircraft has been
or will be duly marked in accordance with the terms of Section 7.1.2 of the
Lease and that Lessee has accepted the Delivered Aircraft for all purposes
hereof and of the Lease Agreement, including its being airworthy, in accordance
with specifications, in good working order and repair and without defect or
inherent vice in title, condition, design, operation or fitness for use, whether
or not discoverable by Lessee as of the date hereof, and free and clear of all
Liens except Permitted Liens.
4. All the provisions of the Lease Agreement are hereby incorporated by
reference in this Lease Supplement, on and as of the date of this Lease
Supplement, to the same extent as if fully set forth herein.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
-2-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to
be duly executed and delivered as of the date and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By /s/ [Illegible]
--------------------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By /s/ John D. Owen
--------------------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
3
<PAGE>
SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1 dated September 27, 1990 is
between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under that certain Trust Agreement, dated
as of September 1, 1990 (the "Trust Agreement"), between the Owner Participant
named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas
corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, as supplemented and amended from
time to time (herein called the "Lease Agreement" and the defined terms therein
being herein used with the same meaning), which Lease Agreement provides in
Section 2 for the execution of a Lease Supplement substantially in the form
hereof for the purpose of Lessee's selling to Lessor, and Lessor's leasing back
to Lessee, the Aircraft under the Lease Agreement as and when delivered by
Lessor to Lessee in accordance with the terms thereof; and
B. The Lease Agreement relates to the airframe and engines described below
and a counterpart of the Lease Agreement is attached hereto and made a part
hereof and this Lease Supplement, together with such attachment, is being filed
for recordation with the FAA on the date hereof as one document.
In consideration of the premises and other good and sufficient
consideration, and pursuant to Section 2 of the Lease Agreement, Lessor and
Lessee hereby agree as follows:
1. Lessee hereby delivers and sells to Lessor and Lessor hereby accepts
and purchases from Lessee and in turn delivers and leases back to Lessee, and
Lessee hereby accepts and leases back from Lessor, under the Lease Agreement, as
herein supplemented, the following-described Boeing Model 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
Airframe: U.S Registration Number N55SW; Manufacturer's Serial No. 21593;
and
Engines: Two Pratt & Whitney JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: P707374B and P707334B.
<PAGE>
Each of the Engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. Lessee hereby confirms to Lessor that the Delivered Aircraft has been
or will be duly marked in accordance with the terms of Section 7.1.2 of the
Lease and that Lessee has accepted the Delivered Aircraft for all purposes
hereof and of the Lease Agreement, including its being airworthy, in accordance
with specifications, in good working order and repair and without defect or
inherent vice in title, condition, design, operation or fitness for use, whether
or not discoverable by Lessee as of the date hereof, and free and clear of all
Liens except Permitted Liens.
4. All the provisions of the Lease Agreement are hereby incorporated by
reference in this Lease Supplement, on and as of the date of this Lease
Supplement, to the same extent as if fully set forth herein.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
-2-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to
be duly executed and delivered as of the date and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By /s/ [Illegible]
------------------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By /s/ John D. Owen
------------------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
3
<PAGE>
Document No. 3
- --------------------------------------------------------------------------------
SALE AND LEASE AGREEMENT
dated as of September 1, 1990
between
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION
as Owner Trustee,
Lessor
and
SOUTHWEST AIRLINES CO.,
Lessee
-------------------------------
One Boeing Model 737-2H4 Aircraft
(N57SW)
SOUTHWEST AIRLINES 1990 TRUST IV
- --------------------------------------------------------------------------------
The rights of Lessor under this Sale and Lease Agreement have been
assigned to, and are subject to a security interest in favor of, Progress Credit
Corporation as Lender under an Aircraft Security Agreement and Assignment of
Leases 57SW dated as of September 1, 1990. This Sale and Lease Agreement has
been executed in counterparts. To the extent that this Sale and Lease Agreement
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Sale and Lease Agreement may be created through the transfer or possession of
any counterpart other than the counterpart that states on its cover that it is
the original counterpart. This is not the original counterpart.
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
Section 1. Definitions ..................................................... 1
Section 2. Sale, Lease and Acceptance ...................................... 9
Section 3. Term and Rent ................................................... 9
3.1 General .................................................... 9
3.2 Lease Term ................................................. 9
3.3 Basic Rent ................................................. 9
3.4 Supplemental Rent .......................................... 10
3.5 Payments ................................................... 10
Section 4. Lessor's Representations and Warranties; DISCLAIMER;
Certain Agreements of Lessee ................................ 11
4.1 Lessor's Representations and Warranties; DISCLAIMER ........ 11
4.2 Certain Agreements of Lessee ............................... 11
Section 5. Return of Aircraft .............................................. 12
5.1 General Condition upon Return .............................. 12
5.1.1 Airworthiness ...................................... 12
5.1.2 Free of Liens ...................................... 12
5.1.3 Operating Configuration and Condition .............. 12
5.1.4 Cleanliness and Operability ........................ 12
5.1.5 Parts and Equipment ................................ 12
5.1.6 Corrosion Treatment ................................ 12
5.1.7 Hush Kits ......................................... 13
5.1.8 Other Conditions ................................... 13
5.2 Return of Other Engines .................................... 13
5.3 Return at End of Base Lease Term or Renewal Lease Term ..... 13
5.3.1 Airframe ........................................... 14
5.3.2 Engines ............................................ 14
SALE AND LEASE AGREEMENT
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Section Page
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5.3.3 Boroscope .......................................... 15
5.3.4 Landing Gears ...................................... 15
5.3.5 APU ................................................ 15
5.3.6 Other Components ................................... 15
5.4 Financial Adjustments ...................................... 15
5.4.1 Airframe .......................................... 15
5.4.2 [Intentionally omitted.] .......................... 15
5.4.3 Landing Gears ..................................... 16
5.5 Manuals; Service Bulletins, Etc ............................ 16
5.6 Storage upon Return ........................................ 16
5.7 Failure to Return Aircraft or Engines ...................... 16
5.8 Aid in Disposition ......................................... 17
Section 6. Liens ........................................................... 17
Section 7. Registration, Operation, Possession, Subleasing and Records ..... 17
7.1 Registration and Operation ................................. 17
7.1.1 Registration ....................................... 17
7.1.2 Nameplate .......................................... 18
7.1.3 Compliance with Laws ............................... 18
7.1.4 Insurance Requirements; Government
Requisition; Indemnity ........................... 18
7.2 Possession ................................................. 19
7.2.1 Interchange and Pooling ............................ 19
7.2.2 Testing and Service ................................ 19
7.2.3 Civil Reserve Air Fleet Program .................... 19
7.2.4 Installation of Engines ............................ 20
7.2.5 Installation of Engines on Other Airframes ......... 20
7.2.6 Pooling of Parts ................................... 20
7.2.7 Wet Lease .......................................... 20
7.2.8 Sublease to Permitted Air Carriers ................. 20
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Section Page
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7.3 Records and Reports ........................................ 22
7.3.1 Records ............................................ 22
7.3.2 Information and Reports ............................ 22
7.3.3 Financial Information .............................. 23
Section 8. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions ................................. 23
8.1 Maintenance ................................................ 23
8.1.1 Maintenance Program ................................ 23
8.1.2 Compliance with Government Requirements ............ 24
8.2 Replacement of Parts ....................................... 24
8.3 Pooling of Parts ........................................... 24
8.4 Alterations, Modifications and Additions ................... 25
Section 9. [Intentionally Omitted] ......................................... 26
Section 10. Loss, Destruction, Requisition, Etc ............................ 26
10.1 Event of Loss with Respect to Aircraft .................... 26
10.2 Event of Loss with Respect to an Engine ................... 26
10.2.1 Event of Loss ..................................... 26
10.2.2 Conditions; Lessee's Obligations .................. 27
10.2.3 Recordation and Opinions .......................... 28
10.2.4 Conveyance; Replacement Engine .................... 28
10.2.5 No Reduction of Rent .............................. 28
10.3 Application of Certain Payments ........................... 28
10.3.1 Replacement of Engine ............................. 28
10.3.2 Nonreplacement .................................... 28
10.4 Requisition of Aircraft for Use by
Governmental Authorities ............................... 29
10.5 Requisition of an Engine for Use by
Governmental Authorities ............................... 29
SALE AND LEASE AGREEMENT
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Section Page
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10.6 Application of Payments During Existence of Default ....... 29
Section 11. Insurance ...................................................... 29
11.1 Public Liability and Property Damage Insurance ............ 29
11.1.1 Type, Form and Amount ............................. 30
11.1.2 Coverage .......................................... 30
11.1.3 Additional Insureds ............................... 30
11.2 Insurance Against Loss of or Damage to Aircraft
and Engines ............................................. 30
11.2.1 Type, Form and Amount ............................. 30
11.2.2 War-Risk Insurance ................................ 30
11.2.3 Certain Requirements .............................. 31
11.2.3.1 Additional Insureds ........................ 31
11.2.3.2 Payment of Proceeds ........................ 31
11.2.3.3 Waiver of Subrogation ...................... 31
11.2.4 Deductibles ....................................... 31
11.2.5 Government Indemnity .............................. 32
11.3 General Policy Provisions ................................. 32
11.3.1 Primary Insurance ................................. 32
11.3.2 Coverage for Each Insured ......................... 32
11.3.3 Waiver of Certain Rights .......................... 32
11.3.4 Breach of Warranty ................................ 32
11.3.5 Notice of Termination or Changes .................. 32
11.3.6 Nonliability for Premiums ......................... 33
11.3.7 Identity of Insurers .............................. 33
11.4 Application of Insurance Proceeds ......................... 33
11.5 Certificates; Reports, Etc. ............................... 33
11.6 Lessor's Right to Maintain Insurance ...................... 34
11.7 Insurance for Own Account ................................. 34
11.8 Self-Insurance ............................................ 34
SALE AND LEASE AGREEMENT
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Section Page
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Section 12. Inspection ..................................................... 35
Section 13. Assignment ..................................................... 35
13.1 General ................................................... 35
13.2 Security for Lessor's Obligations ......................... 35
Section 14. Events of Default .............................................. 36
14.1 Failure To Pay Rent ....................................... 36
14.2 Specific Defaults ......................................... 36
14.3 General Default ........................................... 36
14.4 Misrepresentation and Breach of Warranty .................. 36
14.5 Bankruptcy, Etc ........................................... 36
14.6 Cross Default ............................................. 37
Section 15. Remedies ....................................................... 37
15.1 Default; Remedies ......................................... 37
15.1.1 Return; Repossession .............................. 37
15.1.2 Sale, Use, Etc. ................................... 38
15.1.3 Certain Liquidated Damages ........................ 38
15.1.3.1 Liquidated Damages--
Fair Market Rental Value ................. 38
15.1.3.2 Liquidated Damages--
Fair Market Sales Value .................. 38
15.1.4 Liquidated Damages upon Sale ...................... 39
15.1.5 Rescission and Other Remedies ..................... 39
15.2 Determination of Fair Market Rental Value and
Fair Market Sales Value ............................... 40
15.3 No Waiver, Etc ............................................ 40
Section 16. Notices ........................................................ 40
Section 17. Net Lease; Lessee's Obligations; No Setoff, Counterclaim, Etc. . 41
SALE AND LEASE AGREEMENT
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Section Page
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Section 18. Renewal Options; Early Termination ............................. 42
18.1 Renewal Options ........................................... 42
18.2 Early Termination ......................................... 43
18.3 Default Purchase Option ................................... 43
Section 19. Successor Owner Trustee ........................................ 43
Section 20. Right to Perform for Lessee .................................... 44
Section 21. Quiet Enjoyment ................................................ 44
Section 22. Investment of Security Funds; Miscellaneous; Amendment ......... 44
22.1 Investment of Security Funds .............................. 44
22.2 Miscellaneous; Amendment .................................. 45
Section 23. Permitted Foreign Air Carriers ................................. 46
Signatures
EXHIBIT A FORM OF LEASE SUPPLEMENT
EXHIBIT B PERMITTED FOREIGN AIR CARRIERS
EXHIBIT C OTHER RETURN CONDITIONS
EXHIBIT D TERMINATION VALUE SCHEDULE
SCHEDULE I LESSOR'S COST
SALE AND LEASE AGREEMENT
vi
<PAGE>
THIS SALE AND LEASE AGREEMENT is dated as of September 1, 1990, between
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement hereinafter
referred to ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas corporation
("Lessee").
Recitals
1. Lessee owns the Aircraft.
2. The parties hereto desire that Lessor purchase the Aircraft from and
lease it back to Lessee as hereinbelow provided.
In consideration of the premises and the mutual agreements herein
contained, Lessor and Lessee agree as follows:
Section 1. Definitions. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this Lease
and shall be equally applicable to both the singular and the plural forms of the
terms herein defined. Any agreement referred to below shall mean such agreement
as amended, supplemented and modified from time to time, to the extent permitted
by, and in accordance with, the terms thereof. For all purposes of this Lease
the capitalized terms used but not defined herein are used as defined in the
Participation Agreement.
"Act" means the Federal Aviation Act of 1958, as amended from time
to time.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person.
"Aircraft" means the Airframe, together with the two Engines (or any
Replacement Engine substituted for either of such Engines hereunder), whether or
not any of such initial or Replacement Engines may on the Delivery Date or from
time to time thereafter be installed on the Airframe or may be installed on any
other airframe or on any other aircraft.
"Airframe" means (i) the Boeing Model 737-2H4 aircraft (excluding
Engines or engines from time to time installed thereon) specified in the initial
Lease Supplement sold hereunder by Lessee to Lessor, and leased back by Lessor
to Lessee, all hereunder and under the initial Lease Supplement, and (ii) any
and all Parts so long as the same shall be incorporated in such aircraft and any
and all Parts removed from such aircraft so long as title thereto shall remain
vested in Lessor in accordance with the terms of Section 8.
SALE AND LEASE AGREEMENT
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<PAGE>
"Base Lease Term" means the period commencing on the Base Lease Term
Commencement Date and expiring on December 31, 1995.
"Base Lease Term Commencement Date" means October 1, 1990.
"Basic Rent" means the rent identified as Basic Rent in and payable
pursuant to Section 3.3.
"Bills of Sale" means the FAA Bill of Sale and the Warranty Bill of
Sale.
"Business Day" means a day on which banks are not required or
authorized to close in any of New York City, Dallas, Texas, the State of Florida
or Salt Lake City, Utah, or such other city as shall be the situs of the
principal office of Owner Participant, Lender, Lessee or Lessor at the time in
question.
"Cards" is defined in Section 5.3.1.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"Delivery Date" means the date of the initial Lease Supplement,
which date shall be the date on which the Aircraft is delivered by Lessee to,
and accepted by, Lessor hereunder and in turn leased back by Lessor to Lessee
hereunder, which date shall be a Business Day.
"DOT" means the United States Department of Transportation or any
governmental person, agency or authority succeeding to the functions of such
Department of Transportation.
"Engine" means (i) each of the Pratt & Whitney JT8D-9A engines
identified by manufacturer's serial number in the initial Lease Supplement
subjecting the Aircraft to this Lease, whether or not on the Delivery Date or
from time to time thereafter installed on such Airframe or installed on any
other airframe or on any other aircraft, and (ii) any Replacement Engine,
whether or not from time to time thereafter installed on the Airframe or any
other airframe or on any other aircraft, together in each case with any and all
Parts incorporated in such Engine and any and all Parts removed from such Engine
so long as title thereto shall remain vested in Lessor in accordance with the
terms of Section 8. Except as otherwise set forth herein, at such time as a
Replacement Engine shall be substituted hereunder such replaced Engine shall
cease to be an Engine hereunder. The term "Engines" means, as of any date of
determination, all Engines then leased hereunder.
SALE AND LEASE AGREEMENT
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<PAGE>
"Event of Loss" means, with respect to the Aircraft, Airframe or any
Engine, any of the following events with respect to such property: (i)
disappearance or theft of such property or the loss of the use thereof for any
reason not covered by any other clause of this definition, including hijacking,
for a period of 180 consecutive days or more (unless the location of the
property is known and Lessee is diligently pursuing recovery of the property,
but in no event beyond the expiration of the Term) or destruction, damage beyond
economic repair or rendition of such property permanently unfit for normal use
for any reason whatsoever; (ii) any damage to such property which results in an
insurance settlement with respect to such property, on the basis of a total
loss, or a constructive or compromised total loss; (iii) the confiscation or
requisition of use of such property by the Government or any foreign government
or any instrumentality or agency thereof for a period in excess of twelve
consecutive months or for a period continuing beyond the Term, whichever first
occurs; (iv) as a result of any rule, regulation, order or other action by the
FAA or other governmental body (including any court) having jurisdiction, the
use of such property in the normal course of interstate air transportation of
persons or cargo shall have been prohibited for a period of more than six
consecutive months, unless Lessee, prior to the expiration of such six-month
period, shall have undertaken and shall be diligently carrying forward all steps
which are necessary or desirable to permit normal use by Lessee, and, (A) in the
case in which such prohibition shall apply generally to all similar Boeing Model
737-200 series aircraft, if such prohibition is continuing on the last day of
the Term, or (B) in all other cases, if such prohibition is continuing on the
earlier of the first anniversary of such prohibition and the last day of the
Term; (v) the condemnation or requisition of title to such property by the
Government or any foreign government or any instrumentality or agency thereof;
or (vi) respecting any Engine, any divestiture of title to an Engine treated as
an Event of Loss pursuant to Section 7.2.1 or any other provision hereof. An
Event of Loss with respect to the Aircraft shall be deemed to have occurred if
an Event of Loss occurs with respect to the Airframe. The date of an Event of
Loss shall be deemed to be the date of such insurance settlement, loss of use,
theft, disappearance, condemnation, confiscation, divestiture, taking or
requisition of title or use or prohibition, except that, for the purposes of
clauses (i), (iii) and (iv) above, no Event of Loss shall be deemed to have
occurred until the expiration of the applicable period referred to therein.
"FAA" means the Federal Aviation Administration or any governmental
person, agency or other authority succeeding to the functions of the Federal
Aviation Administration.
"FAA Regulations" means the Federal Aviation Regulations issued
pursuant to the Act from time to time, or any successor regulations thereto.
SALE AND LEASE AGREEMENT
3
<PAGE>
"Government" means the federal government of the United States of
America or any instrumentality or agency thereof.
"Guarantor" means Cauff, Lippman & Co., Inc., a Florida corporation.
The term "incorporated in" means incorporated or installed in or
attached to or otherwise made a part of.
"Indemnified Parties" means (i) First Security Bank of Utah,
National Association, in its individual capacity and as Owner Trustee, (ii)
Owner Participant, (iii) Lender, (iv) the Trust Estate, (v) the respective
successors and assigns of the foregoing and (vi) the respective officers and
directors of the foregoing.
"Interim Lease Term" means the period from the Delivery Date to and
including September 30, 1990.
"Lease", "this Lease", "this Agreement", "hereby", "herein",
"hereof", "hereunder" or other like words mean this Sale and Lease Agreement,
including without limitation supplementation hereof by one or more Lease
Supplements.
"Lease Default" means any event or condition which, with notice or
lapse of time or both, would constitute a Lease Event of Default.
"Lease Event of Default" is defined in Section 14.
"Lease Period" means each three-month period commencing on October
1, January 1, April 1 and July 1, as the case may be, during the Term.
"Lease Supplement" means a supplement to this Lease, in the case of
the initial such supplement substantially in the form attached as Exhibit A
hereto, subjecting the Aircraft or other property to this Lease.
"Lender" means Progress Credit Corporation, a Florida corporation,
and its successors and assigns.
"Lessee" means Southwest Airlines Co., a Texas corporation, and its
permitted successors or assigns.
"Lessor" means Owner Trustee.
"Lessor's Cost" for the Aircraft means the amount identified as such
in Schedule I hereto.
SALE AND LEASE AGREEMENT
4
<PAGE>
"Lessor Liens" means Liens of any Person claiming by, through or
under Lessor, First Security Bank of Utah, National Association, in its
individual capacity, or Owner Participant which arise as a result of (i) claims
against any such Person not related to the transactions contemplated by the
Operative Agreements (it being understood that, for purposes of this clause (i),
incurrence of any Successor Indebtedness to refund or refinance debt represented
by the Note is deemed to be a transaction contemplated by the Operative
Agreements), (ii) any act or omission of any such Person which is not related to
the transactions contemplated by the Operative Agreements, or is in violation of
any of the express terms of any of the Operative Agreements, (iii) Taxes or
Losses imposed against or incurred by any such Person for which Lessee is not
obligated to indemnify pursuant to the Participation Agreement, or (iv) claims
against any such Person arising out of any transfer by such Person in violation
of the express terms of the Operative Agreements.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease
or security interest, or any claim or exercise of rights, affecting the title to
or any interest in property.
"Maintenance Program" is defined in Section 8.1.1.
"Manufacturer" means The Boeing Company, a Delaware corporation, or
any Affiliate thereof whose obligations are guaranteed by The Boeing Company,
and their respective successors and assigns.
"Officer's Certificate" means a certificate signed by the Chairman,
the President, any Vice President, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Assistant Secretary of the Person providing
such certificate.
"Operative Agreements" means this Agreement, the Guaranty, each
Lease Supplement, the Participation Agreement, the Mortgage, the Loan Agreement,
the Note, the Trust Agreement, the Bills of Sale, and the Tax Indemnification
Agreement, including any consents included in or attached to any thereof.
"Overdue Rate" means 3% in excess of the interest rate publicly
announced in New York City from time to time by Citibank, N.A. as its prime or
base lending rate, but in no event to exceed the maximum rate permitted by
applicable law. Any interest payable hereunder at the Overdue Rate shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed.
"Owner Participant" means CL Aircraft XXXIII, Inc., a Florida
corporation, and its successors and permitted assigns.
SALE AND LEASE AGREEMENT
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<PAGE>
"Owner Trustee" means First Security Bank of Utah, National
Association, not in its individual capacity but solely as trustee under the
Trust Agreement, and any successor, separate or additional Owner Trustee
thereunder.
"Participants" means Owner Participant and Lender and their
respective successors and permitted assigns.
"Participation Agreement" means the Participation Agreement, dated
as of September 1, 1990, among Lessee, Lender, Guarantor, Owner Participant, and
Lessor.
"Parts" means all appliances, parts, components, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
(other than (a) complete Engines or engines and (b) any severable items leased
by Lessee from a third party (other than Lessor)) which may from time to time be
incorporated in the Airframe or any Engine (and "Part" means any of the
foregoing) or, so long as title thereto shall remain vested in Lessor in
accordance with Section 8.2, after removal therefrom.
"Permitted Foreign Air Carrier" means any "foreign air carrier" (as
defined in the Act) listed on Exhibit B hereto (as the same may be modified from
time to time in accordance with Section 23) or any successor of any such air
carrier, which carrier or successor is not in any case, at the time a Permitted
Sublease is (or is proposed to be) entered into, the subject of bankruptcy,
reorganization or similar proceedings.
"Permitted Lien" means any Lien referred to in clauses (a) through
(g) of Section 6.
"Permitted Sublease" means a sublease permitted under Section 7.2.8.
"Permitted Sublessee" means the sublessee under a Permitted
Sublease.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Renewal Rent" means the rent payable in respect of a Renewal Term
determined pursuant to Section 18.1.
SALE AND LEASE AGREEMENT
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<PAGE>
"Renewal Term" means any of the successive periods of integral
multiples of two years each but not more than six years in the aggregate which
follow the end of the Base Lease Term with respect to which Lessee shall have
exercised its option pursuant to Section 18.
"Rent" means Basic Rent, Renewal Rent and Supplemental Rent.
"Rent Payment Date" means each December 31, March 31, June 30 and
September 30 during the Term, commencing September 30, 1990.
"Replacement Engine" means a Pratt & Whitney JT8D-9A engine (or an
improved model engine suitable for installation and use on the Airframe and
fully compatible with the other Engine or engine installed thereon) which shall
have been substituted for an Engine leased hereunder pursuant to Section 5.2 or
10.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Stipulated Loss Value" means (i) $12,100,000.00 during the Base
Lease Term and (ii), during any Renewal Lease Term, such amount as shall be
calculated in accordance with Section 18.1, in each case as adjusted pursuant to
Section 13 of the Participation Agreement.
"Supplemental Rent" means, without duplication, all amounts,
liabilities and obligations (other than Basic Rent or Renewal Rent) which Lessee
assumes or agrees to pay to Lessor or any other Person hereunder, under the
Participation Agreement or any of the other Operative Agreements, including,
without limitation (i) Stipulated Loss Value and Termination Value payments,
(ii) all amounts required to be paid by Lessee under the agreements, covenants
and indemnities contained in the Participation Agreement and (iii) all amounts
required to be paid pursuant to Section 3.4.
"Tax Indemnification Agreement" means the Tax Indemnification
Agreement, dated as of September 1, 1990, between Owner Participant and Lessee.
"Term" means the term for which the Aircraft is leased pursuant to
Section 3 hereof and shall include the Interim Lease Term, Base Lease Term and
any Renewal Term.
"Termination Value" means the greater of (i) the sum of (A) the
amount set forth in Exhibit D hereto opposite the Rent Payment Date as of which
Termination Value is being determined and paid plus (B) such amount of Lessee's
Actual Cost and the Purchase Price as Owner Participant shall have paid pursuant
to Section 13 of the Participation Agreement, or (ii) the amount of indebtedness
represented by the Note or
SALE AND LEASE AGREEMENT
7
<PAGE>
any Successor Indebtedness (including interest accrued thereon) on such Rent
Payment Date plus any other amount due and payable to Lender under any Operative
Agreement.
"Transfer" means, with respect to any Person, to transfer, by bill
of sale or otherwise, all such Person's right, title and interest in and to the
Aircraft, Airframe or any Engine, as the case may be, to another Person on an
"as is, where is" basis, free and clear of any Lessor Lien but otherwise without
recourse, representation or warranty, express or implied, and including an
express disclaimer of warranties, representations and guarantees in a manner
comparable to that set forth in Section 4.1.
"Trust Agreement" means the Trust Agreement, dated as of September
1, 1990, between Owner Participant and First Security Bank of Utah, National
Association, in its individual capacity.
"Trust Estate" means the Trust Estate as that term is defined in the
Trust Agreement.
"UCC" means the Uniform Commercial Code as in effect in any
applicable jurisdiction.
"U.S. Air Carrier" means any United States air carrier (i) as to
which there is in force a certificate issued pursuant to Section 401 of the Act,
(ii) as to which there is in force an air carrier operating certificate issued
pursuant to Part 121 of the FAA Regulations, or which may operate as a United
States air carrier by certification or otherwise under any successor or
substitute provisions therefor or in the absence thereof and (iii) which, in any
case, at the time a Permitted Sublease is (or proposed to be) entered into, is
not the subject of proceedings under the Federal Bankruptcy Code of 1978, as
amended.
"Wet Lease" means any arrangement whereby Lessee agrees to furnish
the Airframe and Engines or engines installed thereon to a third party pursuant
to which the Airframe and Engines or engines (i) shall be operated solely by
regular employees of Lessee possessing all current certificates and licenses
that would be required under the Act for the performance by such employees of
similar functions within the United States of America (it being understood that
cabin attendants need not be regular employees of Lessee), (ii) shall be
maintained by Lessee in accordance with its Maintenance Program and (iii) shall
be and remain, in the hands of such third party, subject to all other terms and
conditions of this Lease.
SALE AND LEASE AGREEMENT
8
<PAGE>
Section 2. Sale, Lease and Acceptance.
(a) Lessor, subject to satisfaction or waiver of the conditions set
forth in Section 5 of the Participation Agreement and the concurrent acceptance
hereunder by Lessee of the Aircraft, hereby agrees, to the extent that the funds
received by it pursuant to Section 2 of the Participation Agreement are adequate
for the purpose, to purchase at a purchase price equal to Lessor's Cost and to
accept delivery on the Delivery Date from Lessee hereunder and to lease back to
Lessee hereunder, and Lessee hereby agrees, expressly for the direct benefit of
Lessor and Owner Participant to sell to Lessor and to lease back from Lessor
hereunder on the Delivery Date, the Aircraft, which shall have been accepted by
Lessor and Lessee hereunder as evidenced by the execution by Lessor and Lessee
of the Lease Supplement conveying to Lessor and leasing to Lessee the Aircraft
hereunder; provided, however, that Lessor and Lessee shall have no further
obligation hereunder with respect to the Aircraft if the Delivery Date shall not
have occurred on or before September 28, 1990. The purchase price of the
Aircraft shall be paid by Lessor to Lessee on the Delivery Date in the manner
specified in Section 3 of the Participation Agreement.
(b) Lessor hereby authorizes each of Gary C. Kelly, John D. Owen and
Laura Wright, all of whom are employees of Lessee, as the authorized
representative or representatives of Lessor to accept delivery of the Aircraft
from Lessee pursuant hereto. Lessee hereby agrees that in the event delivery of
the Aircraft shall be accepted by an employee or employees of Lessee pursuant to
such authorization by Lessor, such acceptance of delivery by such employee or
employees on behalf of Lessor shall, without further act, also irrevocably
constitute acceptance by Lessee of the Aircraft for all purposes of this
Agreement.
Section 3. Term and Rent.
3.1 General. Except as otherwise provided herein, the Term for the
Aircraft shall commence on the Delivery Date specified in the initial Lease
Supplement and shall terminate as herein provided.
3.2 Lease Term. Except as provided herein, the Aircraft shall be
leased hereunder for the Interim Lease Term, the Base Lease Term and the Renewal
Terms, if any.
3.3 Basic Rent. Lessee hereby agrees to pay to Lessor Basic Rent
with respect to the Aircraft, in arrears, on each Rent Payment Date, in the
amount of $432,000; provided that (i) on the first Rent Payment Date (September
30, 1990), only Basic Rent in the amount of $4,800 per each day elapsed during
the Interim Lease Term shall be due and (ii), if Lessee shall exercise its
option under Section 18.2 or 18.3, then the installment
SALE AND LEASE AGREEMENT
9
<PAGE>
of Basic Rent (or Rent, as the case may be) due on such early termination date
shall be reduced by $4,800 per day (or in the case of Renewal Rent, by the
quotient of the quarterly installment thereof divided by 90) for each day the
final Lease Period has been foreshortened.
3.4 Supplemental Rent. Lessee also agrees to pay (or cause to be
paid) to Lessor, or to whomsoever shall be entitled thereto, all Supplemental
Rent with respect to Stipulated Loss Value when and as the same shall become due
and owing and all other amounts of Supplemental Rent within five days after
demand or such other relevant period as may be provided in any Operative
Agreement. Lessee will also pay to Lessor, or to whomsoever shall be entitled
thereto, as Supplemental Rent, to the extent permitted by applicable law,
interest at the Overdue Rate on any part of any installment of Basic Rent or
Renewal Rent not paid when due for any period from and including the date on
which the same was due to but excluding the date of payment in full and (to the
extent permitted by applicable law) on any payment of Supplemental Rent not paid
when due to Lessor, or to whomsoever shall be entitled thereto, as the case may
be, for the period from the date on which the same was due to but excluding the
date of payment in full. The expiration or other termination of Lessee's
obligation to pay Basic Rent or Renewal Rent hereunder shall not limit or modify
the obligations of Lessee with respect to Supplemental Rent.
3.5 Payments. Payments of Rent and any and all other payments
payable to Lessor hereunder shall be paid in funds of the United States of
America which shall be immediately available not later than noon, New York City
time, on the date due, to Owner Participant's account set forth in Schedule I to
the Participation Agreement, or as otherwise directed by Owner Participant in
writing at least five Business Days prior to the date such payment is due;
provided, however, that so long as Lessee shall not have received such five
Business Days' prior written notice of the fact that the Mortgage shall have
been terminated, Lessor hereby directs and Lessee agrees, that, unless Lender
shall otherwise direct in writing, all Rent payable to Lessor and assigned to
Lender pursuant to the Mortgage shall be paid prior to noon, New York City time,
on the due date thereof directly to Lender by wire transfer to First Union
National Bank of Florida, Jacksonville, Florida (ABA No. 063-000-021), for the
account of Progress Credit Corporation (account no. 175-003-956-35), with
reference to Southwest N57SW Interest. Except as otherwise expressly provided
herein, whenever any payment of Rent or other payment to be made hereunder shall
be due on a day which is not a Business Day, such payment shall be made on the
next succeeding day which is a Business Day 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.
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Section 4. Lessor's Representations and Warranties; DISCLAIMER; Certain
Agreements of Lessee.
4.1 Lessor's Representations and Warranties; DISCLAIMER. LESSEE
EXPRESSLY AGREES TO TAKE THE AIRCRAFT "AS IS". NEITHER LESSOR (INDIVIDUALLY OR
AS OWNER TRUSTEE) NOR OWNER PARTICIPANT MAKES, HAS MADE OR SHALL BE DEEMED TO
HAVE MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, CONDITION, DESIGN,
OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT OR ANY PART
THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR
COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, except that First Security Bank of
Utah, National Association, in its individual capacity (i) represents and
warrants that on the Delivery Date Lessor shall have received whatever title
thereto as was conveyed to it by Lessee, (ii) represents and warrants that on
the Delivery Date the Aircraft shall be free of Lessor Liens attributable to it,
(iii) agrees that it will not directly or indirectly create, incur, assume or
suffer to exist any Lessor Lien attributable to it on or with respect to the
Airframe or any Engine or any other portion of the Trust Estate, and (iv)
represents and warrants that it is a "citizen of the United States" as defined
in Section 101(16) of the Act and agrees that if at any time a responsible
officer in its Corporate Trust Department shall obtain actual knowledge that it
has ceased to be a "citizen of the United States" within the meaning of Section
101(16) of the Act it will promptly resign as Owner Trustee, effective upon the
appointment of a successor Owner Trustee in accordance with Section 9.01 of the
Trust Agreement. Lessor covenants that during the Term (so long as no Lease
Event of Default shall have occurred and be continuing) it will not, through its
own actions or breaches of any of its obligations under the Operative
Agreements, interfere or cause any interference in the quiet enjoyment of the
Aircraft by Lessee or any Permitted Sublessee and agrees that it will not
directly or indirectly create, incur, assume or suffer to exist any Lessor Lien
attributable to it on or with respect to the Airframe or any Engine.
4.2 Certain Agreements of Lessee. All obligations of Lessee in this
Lease shall be done, performed or complied with at Lessee's cost and expense,
whether or not so expressed, unless otherwise expressly stated. Lessee hereby
agrees with Lessor for the benefit of Owner Participant that it shall perform
the agreements, covenants and indemnities set forth in the Participation
Agreement (including, without limitation, Sections 8.1 and 8.2 of the
Participation Agreement) which are incorporated herein, and hereby restates
Lessee's representations and warranties set forth in the Participation
Agreement,
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as fully and to the same extent and with the same force and effect as if set
forth in full in this Section 4.2.
Section 5. Return of Aircraft.
5.1 General Condition upon Return. Subject to Section 10, upon the
expiration or termination of this Lease, Lessee will cause the Aircraft, if then
not registered in the name of Lessor with the FAA for any reason, to be
reregistered in the name of Lessor with the FAA and will return the Aircraft to
Lessor by delivering the same at any location in the continental United States
selected by Lessee at which Lessee has maintenance facilities (and Section 5.6
shall apply). All costs associated with the return flight shall be for the
account of Lessee. At the time of such return, the Airframe and Engines or
engines installed thereon:
5.1.1 Airworthiness. Subject to the exception described in
clause (iii) of Section 8.1.1, shall be duly certificated as an airworthy
aircraft by the FAA under Part 121 of the Federal Aviation Regulations or any
successor provision;
5.1.2 Free of Liens. Shall be free and clear of all Liens
except Lessor Liens and Liens arising by, through or under Lender;
5.1.3 Operating Configuration and Condition. Shall be in a
configuration suitable for operation in regularly scheduled commercial airline
passenger service in the United States and in the same configuration as a
majority of the remainder of all 737-200 series aircraft operated by Lessee,
shall be in compliance with the Maintenance Program and shall be in as good
operating condition as on the Delivery Date, ordinary wear and tear and changes
and alterations made by Lessee as permitted under Section 8.4 hereof or Section
13 of the Participation Agreement excepted. All Lessee or Permitted Sublessee
exterior or interior insignia, logos or markings, as the case may be, shall have
been painted over in matching colors in a workmanlike manner;
5.1.4 Cleanliness and Operability. Shall be clean by United
States commercial airline operating standards with all systems and components
operable;
5.1.5 Parts and Equipment. Shall have installed thereon the
Engines identified in the initial Lease Supplement, as well as all Parts
installed thereon at the commencement of the Term, or replacements therefor made
in accordance with the terms of this Lease;
5.1.6 Corrosion Treatment. Shall comply with the corrosion
prevention procedures to the extent set forth in the Maintenance Program;
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5.1.7 Hush Kits. Shall be fitted with a hush kit, if a Stage
III Upgrade shall have occurred and the Owner Participant shall have financed
such upgrade pursuant to the provisions of Section 13.4 of the Participation
Agreement; and
5.1.8 Other Conditions. Shall otherwise be in the condition
set forth in Exhibit C hereto.
5.2 Return of Other Engines, In the event that any engine not owned
by Lessor shall be installed on the Airframe returned in accordance with Section
5.1, such engine shall be a Pratt & Whitney JT8D-9A engine (or an improved model
engine fully compatible with the other Engine or engine installed on the
Airframe). At the time of such replacement, such engine shall have performance
and durability characteristics and a value, condition and utility at least equal
to the Engine it replaced hereunder, assuming such Engine was maintained in
accordance with the requirements of this Lease, and at the time the Airframe is
returned shall fully comply with all the requirements of this Lease, including
this Section 5, which are applicable to Engines. Upon return of the Aircraft,
Lessee shall duly convey to Lessor good title to any such replacement engine,
free and clear of all Liens except Lessor Liens and Liens arising by, through or
under Lender; and, upon such conveyance and as a condition thereto, Lessee will
(a) furnish Lessor with a full warranty (as to title) bill of sale, in form and
substance reasonably satisfactory to Lessor, with respect to each such
replacement engine, together with an opinion of counsel to the effect that such
bill of sale has been duly authorized and delivered and is enforceable in
accordance with its terms and that each such replacement engine is free and
clear of all Liens except Lessor Liens and Liens arising by, through or under
Lender, and (b) take such other action as Lessor may reasonably request in order
that title to such replacement engine may be duly and properly vested in Lessor
to the same extent as the Engine replaced thereby. Upon compliance by Lessee
with the foregoing, Lessor will, so long as no Lease Event of Default has
occurred and is continuing, Transfer to Lessee any Engine not installed on the
Airframe at the time of return, free and clear of all Liens, including Lessor
Liens.
5.3 Return at End of Base Lease Term or Renewal Lease Term. Upon
return of the Aircraft at the expiration or termination of this Lease, Lessee
shall have caused all FAA Airworthiness Directives applicable to the Aircraft
and all mandatory service bulletins from Manufacturer and the manufacturer of
the Engines or any engine then installed on the Airframe (in compliance with
Section 5.2) applicable to the Aircraft to have been complied with (except for
any such FAA Airworthiness Directives and bulletins that permit compliance after
the return date and would not, in the normal course of the Maintenance Program,
be complied with on or prior to the return date). Lessee shall have treated the
Aircraft, including without limitation, with respect to maintenance, additions
and modifications, during the Term, similarly to all other Boeing 737-200
aircraft in its fleet.
SALE AND LEASE AGREEMENT
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At the request of Lessor delivered to Lessee not more than 30 days prior
to the end of the Term, the Aircraft shall be check flown by Lessee (or any
Permitted Sublessee) at Lessee's expense using qualified flight personnel, for
not more than two hours, on a non-commercial flight, for the purpose of
demonstrating to Lessor the satisfactory operation of the Aircraft and its
equipment and systems; provided, however, that such check flight shall not
interfere with the normal operation or maintenance of the Aircraft by, or the
business of, Lessee (or any Permitted Sublessee). Up to five of Owner
Participant's designees or representatives may participate in such flight as
observers. The form of test flight procedure to be followed shall be in
accordance with Lessee's normal test flight procedure, and the test flight may
be a return delivery flight. The Aircraft shall be check flown only once
pursuant to the provisions of this Section 5.3, unless further check flights are
required in order to verify the correction of any discrepancy or malfunction
detected in such first check flight, in which case a second check flight shall
be performed in accordance with the procedures set forth herein solely in order
to verify such correction.
At redelivery of the Aircraft to Lessor hereunder, the following specific
requirements shall be met by Lessee or, in lieu thereof, Lessee shall compensate
Lessor therefor, as specifically provided for in this Section:
5.3.1 Airframe. (I) At least 40% of the time (or cycles, if
applicable) shall remain before the next required performance of each structural
work task card (the "Cards") (or the then equivalent under Lessee's Maintenance
Program) (it being understood that, as used herein, "Cards" refers to the
heaviest airframe check currently used under Lessee's Maintenance Program), and
all Cards currently performed on a sampling basis under the Maintenance Program
shall have been fully accomplished without regard to any sampling then permitted
under the Maintenance Program, (II) Lessee shall have performed a complete "C"
check or its equivalent (all phases) on the Airframe no more than 200 flight
hours prior to its return to Lessor (and Lessee shall have corrected to the
Lessor's reasonable satisfaction any deficiencies discovered during such check,
and will not have deferred any maintenance discrepancies), and (III) Lessee
shall have completed a complete "B" ("B1" and "B2") check immediately prior to
redelivery;
5.3.2 Engines. Every ESV-1 Engine shall have no more than
4,000 hours or cycles since its last ESV-1. Each ESV-2 Engine shall have no more
than 6,000 hours or cycles since its last ESV-2. No life limited component of an
Engine shall have less than 3,000 hours or cycles remaining until its next
required replacement. For the purposes of this Section, an ESV-1 Engine shall be
an Engine or engine installed on the Airframe (in compliance with Section 5.2)
whose last engine service visit (or the equivalent under the Maintenance
Program) was an ESV-1, and an ESV-2 Engine shall be an Engine
SALE AND LEASE AGREEMENT
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or engine installed on the Airframe (in compliance with Section 5.2) whose last
engine service visit (or the equivalent under the Maintenance Program) was an
ESV-2;
5.3.3 Boroscope. The hot section of each Engine or engine
installed on the Airframe (in compliance with Section 5.2) shall be inspected by
boroscope at Lessee's expense and any defects which are outside the
manufacturer's recommended limitations shall be corrected such that they are
brought within such limitations;
5.3.4 Landing Gears. The landing gears shall have a minimum of
40% of the time remaining on each of the main and nose gears until the next
scheduled shop visit or retirement, as the case may be;
5.3.5 APU. The auxiliary power unit shall not have more than
2,500 hours since the last "hot section" inspection; and
5.3.6 Other Components. All time-controlled components and
life-limited components, other than engines, landing gear and auxiliary power
units, shall have a minimum of 3,000 hours or twelve months (unless one-half of
the allowable hours or months, as the case may be, permitted between shop visits
or replacements is actually less than 3,000 hours or twelve months, in which
case one-half of such allowable hours or months) remaining to the next scheduled
shop visit or replacement.
5.4 Financial Adjustments. In the event that the conditions
described in Sections 5.3.1 and 5.3.4 are not met, Lessee may elect, as to any
or all of such conditions (a) to perform the work necessary to conform the
Aircraft to the required condition or (b) to make a financial adjustment between
Lessee and Lessor pursuant to this provision, provided that in no event shall
the Aircraft or any landing gear be returned with less than 25% of the allowable
hours or cycles, as appropriate, remaining between Cards (with respect to the
Aircraft) or until the next scheduled shop visit (with respect to the landing
gears):
5.4.1 Airframe, In the event that the Airframe is returned to
Lessor with less than 40% but more than 25% of the allowable hours (or cycles,
if applicable) between Cards as provided in Section 5.3.1, then Lessee shall pay
to Lessor on the date the Term ends an amount determined by multiplying the
difference between the actual number of hours (or cycles, if applicable)
remaining to the next Cards and 40% of the allowable hours (or cycles, if
applicable) between Cards times the cost to Lessee of having another Person
perform such Cards.
5.4.2 [Intentionally omitted.]
SALE AND LEASE AGREEMENT
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5.4.3 Landing Gears, In the event that any of the landing
gears is returned to Lessor with less than 40% but more than 25% of the cycles
remaining until the next scheduled shop visit as provided in Section 5.3.4
above, then Lessee shall pay to Lessor on the date the term ends an amount
computed by multiplying the difference between the actual number of cycles
remaining to the next scheduled shop visit for such gear and 40% of the
allowable cycles between shop visits times the cycle rate for the nose gear or
the main gear, as the case may be. For purposes of this Section 5.4.3, the term
"cycle rate" shall be deemed to be the cost that Lessee is paying to third
parties at the time the Aircraft is returned under Section 5.3 for overhauling a
nose gear or a main gear, as the case may be, divided by the number of cycles
permissible between such overhauls under the Maintenance Program.
At the end of the Term the Lessee shall furnish Lessor with an Officer's
Certificate setting forth the hours and cycles remaining on the Engines or
engines installed on the Airframe (in compliance with Section 5.2), the landing
gear and the Airframe.
5.5 Manuals; Service Bulletins. Etc. Upon return of the Aircraft at
the expiration or termination of this Lease, Lessee shall deliver or cause to be
delivered to Lessor (in English) all logs, manuals, drawings and data and
inspection, modification and overhaul records in respect of the Aircraft
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 from Manufacturer, engine manufacturer or
vendors for the Aircraft and Engines or 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.
5.6 Storage upon Return. Upon written request of Lessor received by
Lessee at least 10 days prior to its return of the Aircraft at the expiration or
termination of this Lease, Lessee will provide free parking facilities for the
Aircraft for a period not exceeding 30 days following return thereof by Lessee
at the location of return pursuant to Section 5.1; provided that such storage
shall be at Lessor's risk and any expenses in connection with such storage
(other than parking charges) shall be paid by Lessor, including the cost of any
insurance therefor.
5.7 Failure to Return Aircraft or Engines. If Lessee shall, for any
reason whatsoever, fail to return the Aircraft or any Engine at the time
specified herein, the obligations of Lessee as provided in this Lease (including
the obligation to pay Rent on the same basis as that applicable immediately
prior to such failure) shall continue in effect with respect to the Aircraft or
such Engine until the Aircraft or such Engine is returned
SALE AND LEASE AGREEMENT
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to Lessor; but this Section 5.7 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 Default or
Lease Event of Default.
5.8 Aid in Disposition. Lessee agrees that, during the Term (and
during any storage period) it will cooperate in all reasonable respects with any
efforts of Lessor to lease or sell the Aircraft, including without limitation
(subject to the provisions of Section 12) permitting potential lessees or
purchasers to inspect the Aircraft and the records relating thereto.
Section 6. Liens. Lessee will not directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to the Aircraft, the
Airframe or any Engine, title thereto or any interest therein or in this Lease
except: (a) the respective rights of the parties to the Operative Agreements;
(b) the rights of others under agreements or arrangements to the extent
expressly permitted by the terms of Sections 7.2 and 8.3; (c) Lessor Liens; (d)
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 in accordance with generally accepted accounting principles)
by appropriate proceedings so long as such proceedings do not involve any
material danger of the sale, forfeiture, loss or loss of use of the Aircraft,
the Airframe or any Engine or any interest therein; (e) materialmen's,
mechanics', workers', repairers', employees' or other like Liens arising in the
ordinary course of business for amounts the payment of which is either not yet
due or not overdue for a period of more than 30 days or is being contested in
good faith (and for the payment of which adequate reserves have been provided in
accordance with generally accepted accounting principles) by appropriate
proceedings so long as such Liens do not involve any material danger of the
sale, forfeiture, loss or loss of use of the Aircraft, the Airframe or any
Engine or any interest therein; (f) 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 or vacated or execution thereof stayed
pending appeal or shall not have been discharged, vacated or reversed within 45
days after the execution of such stay; and (g) any other Lien with respect to
which Lessee shall have provided a bond or other security adequate in the
reasonable judgment of Lessor. Lessee will promptly take (or cause to be taken)
such action at its own expense as may be necessary duly to discharge any such
Lien not excepted above if the same shall arise at any time.
Section 7. Registration, Operation, Possession, Subleasing and Records.
7.1 Registration and Operation.
7.1.1 Registration. Lessee shall forthwith upon the delivery
of the Aircraft hereunder cause the Aircraft to be duly registered and at all
times thereafter to
SALE AND LEASE AGREEMENT
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remain duly registered in the name of Lessor with the FAA pursuant to and as
permitted by the Act (it being understood that Lessee shall not be required to
comply with this covenant to the extent that First Security Bank of Utah,
National Association's or Owner Participant's failure to comply with its
covenant set forth in Section 6.3.1.5 or Section 6.2.5, respectively, of the
Participation Agreement with regard to its citizenship makes such compliance by
Lessee impossible).
7.1.2 Nameplate. As soon as practicable after the Delivery
Date, Lessee agrees to affix and thereafter to maintain in the cockpit of the
Airframe adjacent to the airworthiness certificate and on each Engine a
nameplate bearing the inscription "OWNED BY AND LEASED FROM FIRST SECURITY BANK
OF UTAH, NATIONAL ASSOCIATION, AS OWNER TRUSTEE, OWNER AND LESSOR" and, so long
as the Mortgage shall remain in effect, "SUBJECT TO A SECURITY INTEREST IN FAVOR
OF PROGRESS CREDIT CORPORATION, MORTGAGEE" (such nameplate to be replaced, if
necessary, with a nameplate reflecting the name of any successor Lessor or
Lender, upon receipt of written notice from Lessor to such effect). Except as
above provided, Lessee will not allow the name of any person, association or
corporation to be placed on the Airframe or on any Engine as a designation that
might be interpreted as a claim of ownership or Lien; provided that nothing
herein contained shall prohibit Lessee (or any Permitted Sublessee) from placing
its customary colors and insignia on the Airframe or any Engine or displaying
information concerning the registration or manufacture of the Aircraft, the
Airframe, any Engine or Part.
7.1.3 Compliance with Laws. Lessee agrees that it will not use
or operate the Aircraft, the Airframe or any Engine in violation of any law or
any rule, regulation or order of any government or governmental authority having
jurisdiction (domestic or foreign) or in violation of any airworthiness
certificate, license or registration relating to the Aircraft, the Airframe or
any Engine issued by any such authority, except to the extent Lessee is
contesting in good faith the validity or application of any such law, rule,
regulation or order in any reasonable manner which does not materially adversely
affect Lessor's interest in the Aircraft.
7.1.4 Insurance Requirements; Government Requisition;
Indemnity. Lessee agrees not to operate, use or locate the Aircraft, the
Airframe or any Engine, or permit any Permitted Sublessee to operate, use or
locate the Aircraft, the Airframe or any Engine, (i) in any area excluded from
coverage by any insurance required by the terms of Section 11, except in the
case of a requisition by the Government where Lessee obtains indemnity (backed
by the full faith and credit of the United States of America) in lieu of such
insurance from the Government against the risks and in the amounts required by
Section 11 covering such area, or (ii) in any area where maintenance of war-risk
insurance is required by Section 11 unless fully covered by war-risk insurance
satisfying the terms of Section 11, or unless the Aircraft, the Airframe or such
Engine is operated or used under
SALE AND LEASE AGREEMENT
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contract with the Government under which contract the Government assumes
liability (backed by the full faith and credit of the United States of America)
in an amount not less than the amount of insurance otherwise required by Section
11 for any damage, loss, destruction or failure to return possession of the
Aircraft, the Airframe or such Engine at the end of the term of such contract or
for injury to persons or damage to property of others, or (iii) with respect to
any sublease to a Permitted Foreign Air Carrier, in any area referred to in
subclause (3)(iv) of Section 7.2.
7.2 Possession. Lessee will not, without the prior written consent
of Lessor, sublease or otherwise in any manner deliver, transfer or relinquish
possession of the Aircraft, the Airframe or any Engine 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 Lease Event of Default shall have
occurred and be continuing, and so long as Lessee shall comply with the
provisions of Section 11, and all FAA approvals required for such purposes have
been obtained, Lessee may, without such prior written consent:
7.2.1 Interchange and Pooling. Subject or permit any Permitted
Sublessee to subject (i) the Aircraft, Airframe or any Engine to normal
interchange agreements customary in the United States domestic airline industry
and entered into by Lessee or such Permitted Sublessee in the ordinary course of
its business, and (ii) any Engine to pooling agreements or arrangements
customary in the airline industry and entered into by Lessee or such Permitted
Sublessee in the ordinary course of its business; but in either case (A) no
transfer of the registration of the Airframe or any Engine shall be effected in
connection therewith and the terms of this Lease and the Participation Agreement
shall be observed, and (B) no such agreement or arrangement shall contemplate or
require the transfer of title to the Aircraft, Airframe or any Engine and if
Lessor's title to any Engine shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be an Event of Loss with
respect thereto and Lessee shall comply with Section 10.2 hereof;
7.2.2 Testing and Service. Deliver or permit any Permitted
Sublessee to deliver possession of the Aircraft, 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 Aircraft,
Airframe or any Engine or Part, or for alterations or modifications in or
additions to the Aircraft, Airframe or any Engine to the extent required or
permitted by the terms of Section 8.4;
7.2.3 Civil Reserve Air Fleet Program. 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
SALE AND LEASE AGREEMENT
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the end of the Term and so long as Lessee shall (A) promptly notify Lessor upon
subjecting 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 16 hereof, and (B) promptly notify Lessor upon transferring
possession of the Airframe or any Engine to the Government pursuant to such
program;
7.2.4 Installation of Engines. Install or permit any Permitted
Sublessee to install an Engine on an airframe owned by Lessee or such Permitted
Sublessee, as the case may be, free and clear of all Liens, except (A) Permitted
Liens 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), (B) the rights of air carriers under normal
interchange agreements which are customary in the airline industry and do not
contemplate, permit or require the transfer of title to the airframe or engines
installed thereon and (C) mortgage liens or other security interests, provided
that (as regards this clause (C)) such mortgage liens or other security
interests effectively provide that such Engine shall not become subject to the
lien of such mortgage or security interest, notwithstanding the installation
thereof on such airframe, unless and until Lessee shall become the owner of such
Engine;
7.2.5 Installation of Engines on Other Airframes. Install or
permit any Permitted Sublessee to install an Engine on an airframe leased to, or
purchased by, Lessee or any Permitted Sublessee subject to a lease, conditional
sale, or other security agreement, but only if (A) such airframe is free and
clear of all Liens, except the rights of the parties to the lease, conditional
sale, or other security agreement covering such airframe, or their successors or
assigns, and except Liens of the type permitted by clauses (A) and (B) of
Section 7.2.4, and (B) the lease, conditional sale, or other security agreement
covering such airframe effectively provides that such Engine shall not become
subject to the Lien thereof at any time while such Engine is subject to this
Lease, notwithstanding the installation thereof on such airframe;
7.2.6 Pooling of Parts. To the extent permitted by Section
8.3, subject any Parts owned by Lessor and removed from the Airframe or any
Engine to any pooling arrangement referred to in Section 8.3;
7.2.7 Wet Lease. Enter into a Wet Lease for the Airframe and
Engines or engines then installed thereon with any third party for a term not to
continue beyond the Term;
7.2.8 Sublease to Permitted Air Carriers. Enter into a
sublease of the Aircraft or the Airframe and Engines or engines then installed
on the Airframe or any Engine, for use on the sublessee's regularly scheduled or
charter routes, with (a) any
SALE AND LEASE AGREEMENT
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U.S. Air Carrier or (b) any Permitted Foreign Air Carrier, in any such case for
a term not to continue beyond the remaining Term.
Provided, further, with respect to this Section 7.2, that:
(1) the rights of any transferee who receives possession by
reason of a transfer permitted by this Section 7.2 (other than the transfer of
an Engine which is deemed an Event of Loss) shall be effectively subject and
subordinate to, and any sublease permitted by this Section 7.2 shall be made
expressly subject and subordinate to, all the terms of this Lease, and to
Lessor's rights, powers and remedies under this Lease, including the rights to
repossession pursuant to Section 15 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, provided that performance of any such
terms by any Permitted Sublessee shall be as effective, for purposes of this
Lease, as performance thereof directly by Lessee;
(3) any such sublease shall (i) be consistent with the
requirements of this Lease and the applicable requirements of the Participation
Agreement, (ii) include appropriate provisions for the continued registration,
maintenance in accordance with applicable maintenance standards in the
appropriate jurisdiction, operation, insurance (appropriate certificates as to
which shall be furnished to Lessor and Lender prior to Lessee's entry into any
such sublease with any Permitted Foreign Air Carrier or within 10 days
thereafter) and return of the subleased property as required hereunder, (iii)
provide that the sublessee may not assign or further sublease the Aircraft, and
(iv) provide that the Aircraft may not be operated in a country with which the
United States does not maintain diplomatic relations or in which there is open
warfare, whether or not declared;
(4) no interchange agreement, transfer, sublease or other
relinquishment of possession permitted hereunder shall affect the registration
of the Aircraft or shall permit any action not permitted to Lessee in this
Lease; and
(5) no such 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 any other Operative Agreement or constitute a waiver of Lessor's rights or
remedies hereunder or under any other Operative Agreement.
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Lessee shall notify Lessor within 10 days after the commencement of any
sublease permitted hereunder and shall deliver to Lessor within such period a
duly executed copy of any sublease or interchange or pooling agreement permitted
hereunder together with any certification required by Section 7.2.8. Upon
request of Lessor, Lessee shall promptly and duly execute and deliver to Lessor
an assignment of any such sublease having a term in excess of 12 months in favor
of Lessor in form and substance reasonably satisfactory to Lessor. Lessor hereby
agrees, for the benefit of Lessee (and any Permitted Sublessee) and for the
benefit of each lessor, conditional seller, or secured party of any airframe or
engine leased to or purchased by Lessee (or any Permitted Sublessee) subject to
a lease, conditional sale, or other security agreement, that Lessor will not
acquire or claim, as against such lessor, conditional seller, or secured party,
or any successor or assign thereof, any right, title or interest in any engine
as the result of such engine being installed on the Airframe at any time while
such engine is subject to such lease, conditional sale, or other security
agreement and owned by such lessor or conditional seller or subject to a
security interest in favor of such secured party; provided, however, that such
agreement of Lessor shall not be for the benefit of any lessor or secured party
of any airframe (other than the Airframe) leased to Lessee (or any Permitted
Sublessee) or purchased by Lessee (or any Permitted Sublessee) subject to a
conditional sale or other security agreement or for the benefit of any mortgagee
of or any other holder of a security interest in an airframe owned by Lessee (or
any Permitted Sublessee), unless such lessor, conditional vendor, other secured
party or mortgagee has expressly agreed (which agreement may be contained in
such lease, conditional sale or other security agreement or mortgage) that
neither it nor its successors or assigns will acquire, as against Lessor, any
right, title or interest in an Engine as a result of such Engine being installed
on such airframe.
A consolidation, merger, conveyance, transfer, or lease permitted by
Section 7.4 of the Participation Agreement shall not be deemed to be a
transaction to which this Section 7.2 shall apply.
7.3 Records and Reports. Lessee shall:
7.3.1 Records. Maintain or cause to be maintained all records,
logs and other materials required by the FAA or any other governmental authority
having jurisdiction to be maintained in respect of the Aircraft, the Airframe
and each Engine;
7.3.2 Information and Reports. Upon request, promptly furnish
or cause to be furnished to Lessor (in sufficient number) such information as
may be required to enable Lessor or any Participant to file any reports,
including tax returns, required to be filed by Lessor or such Participant with
any governmental authority because of Lessor's ownership of, or Lender's
security interest in, the Aircraft, Airframe or any Engine or because of receipt
of Rent or because of the interest of any Participant in the Trust Estate;
provided, however, that with respect to any such information which Lessee
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deems commercially sensitive or confidential, if reasonably feasible, Lessor
shall afford Lessee a reasonable opportunity to seek from any such governmental
authority a waiver of Lessor's or such Participant's obligation to file any such
information or consent to the filing of such information directly by Lessee in
lieu of filing by Lessor or such Participant and if any such waiver or consent
is evidenced to the reasonable satisfaction of Lessor, then Lessee shall not be
required to furnish such information to Lessor; and
7.3.3 Financial Information. Promptly provide Lessor and each
Participant with (i) such financial information concerning Lessee as is provided
from time to time to the public shareholders of Lessee, (ii) within 60 days
after the end of each of the first three quarterly periods of each fiscal year
of Lessee, a consolidated balance sheet of Lessee and its subsidiaries prepared
by it as of the close of such period, together with the related consolidated
statements of income for such period, (iii) within 120 days after the close of
each fiscal year of Lessee, a consolidated balance sheet of Lessee and its
subsidiaries as of the close of such fiscal year, together with the related
consolidated statements of income for such fiscal year, as certified by
independent public accountants, and (iv) from time to time such other
information as to its financial condition as Lessor or any Participant may
reasonably request.
Section 8. Maintenance; Replacement and Pooling of Parts; Alterations,
Modifications and Additions.
8.1 Maintenance.
8.1.1 Maintenance Program. Lessee shall maintain, service,
repair, overhaul, alter, modify, add to and test (or cause to be maintained,
serviced, repaired, overhauled, altered, modified, added to and tested) the
Aircraft, the Airframe and each Engine, and each other engine installed from
time to time on the Airframe, in accordance with Lessee's FAA-approved
maintenance program for the Aircraft, Airframe and Engines (the "Maintenance
Program"), (i) so as to keep the Aircraft, the Airframe and each Engine in as
good operating condition as on the Delivery Date, ordinary wear and tear
excepted, (ii) in the same manner and with the same care as used by Lessee with
similar aircraft owned or operated by Lessee, and (iii) so as to keep the
Aircraft, the Airframe and each Engine in such condition as required to enable
the FAA certificate of airworthiness for the Aircraft to be maintained in good
standing at all times under the Act, except when all comparable Boeing Model
737-200 series aircraft registered in the United States of America have been
grounded by the FAA other than as a result of actions taken or omitted to be
taken by Lessee (or, if a sublease is then in effect, any Permitted Sublessee).
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8.1.2 Compliance with Government Requirements. Lessee will
comply with all service, inspection, maintenance, repair and overhaul
regulations, directives and instructions which are made mandatory by the FAA or
other Government authority upon United States operators of Boeing Model 737-200
series aircraft and Pratt & Whitney JT8D-9A engines and which require compliance
during the Term and prior to return of the Aircraft under this Lease.
8.2 Replacement of Parts. Lessee, at its own cost and expense, will
promptly replace (or cause to be replaced) all Parts which may from time to time
be incorporated in the Aircraft, Airframe or any Engine and which may from time
to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in Section 8.4. In addition, Lessee may, at its own
cost and expense, remove in the ordinary course of maintenance, service, repair,
overhaul or testing any Parts, whether or not worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for
use; provided, however, Lessee, except as otherwise provided in Section 8.4, at
its own cost and expense, will replace such Parts as promptly as possible. All
replacement Parts shall be free and clear of all Liens (except for Permitted
Liens and except in the case of replacement property temporarily installed on an
emergency basis) 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. All Parts at any time removed from the Aircraft, Airframe or any Engine
shall remain the property of Lessor, no matter where located, until such time as
such Parts shall be replaced by Parts which have been incorporated in the
Aircraft, Airframe or such Engine and which meet the requirements for
replacement Parts specified above. Immediately upon any replacement Part
becoming incorporated in the Aircraft, Airframe or such Engine as above
provided, without further act, (i) title to the replaced Part shall thereupon
vest in Lessee free and clear of all rights of Lessor, and the replaced Part
shall no longer be deemed a Part hereunder, (ii) title to such replacement Part
shall thereupon vest in Lessor (subject only to Permitted Liens and except in
the case of replacement property temporarily installed on an emergency basis),
and (iii) such replacement Part shall become subject to this Lease and be deemed
part of the Aircraft, Airframe or such Engine for all purposes hereof to the
same extent as the Parts originally incorporated in such Aircraft, Airframe or
Engine.
8.3 Pooling of Parts. Any Part removed from the Aircraft, Airframe
or any Engine as provided in Section 8.2 may be subjected by Lessee (or a
Permitted Sublessee) to a normal pooling arrangement customary in the airline
industry entered into in the ordinary course of business of Lessee or such
Permitted Sublessee, so long as a Part replacing such removed Part shall be
incorporated in the Aircraft, Airframe or such Engine in accordance with Section
8.2 as promptly as practicable after the removal of such removed Part. In
addition, any replacement Part when incorporated in the Aircraft,
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Airframe or any Engine in accordance with Section 8.2 may be owned by any third
party subject to such a normal pooling arrangement, so long as Lessee (or any
Permitted Sublessee), at its own cost and expense, as promptly thereafter as
practicable either (i) causes title to such replacement Part to vest in Lessor
in accordance with Section 8.2 by Lessee (or any Permitted Sublessee) acquiring
title thereto for the benefit of, and transferring such title to, Lessor free
and clear of all Liens (except Permitted Liens), or (ii) replaces such
replacement Part by incorporating in the Aircraft, Airframe or such Engine a
further replacement Part owned by Lessee (or any Permitted Sublessee) free and
clear of all Liens (except Permitted Liens) and by causing title to such further
replacement Part to vest in Lessor in accordance with Section 8.2.
8.4 Alterations, Modifications and Additions. Lessee, at its own
cost and expense, shall make (or cause to be made) such alterations and
modifications in and additions to the Aircraft, Airframe and each Engine 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 FAA certificate
of airworthiness for the Aircraft; provided, however, that Lessee may contest in
good faith the validity or application of any such law, rule, regulation or
order in any reasonable manner which does not materially adversely affect
Lessor's interest in the Aircraft; and provided, further, that Lessee's failure
to make (or cause to be made) any such alterations or modifications shall not
constitute noncompliance with the requirements of this Section 8.4 or a breach
of Lessee's undertaking hereunder for so long a period as may be necessary to
remedy such failure, if such failure can be remedied, so long as during such
period Lessee is using due diligence and reasonable efforts to remedy such
failure. In addition, Lessee, at its own cost and expense, may, from time to
time make (or cause to be made) such alterations and modifications in and
additions to the Aircraft, 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 Aircraft, Airframe or such Engine; provided, however, that no such
alteration, modification or addition shall, in Lessee's reasonable judgment,
materially diminish the value or utility of the Aircraft, Airframe or such
Engine, or materially impair the condition or airworthiness thereof, below the
value, utility, condition and airworthiness thereof immediately prior to such
alteration, modification or addition assuming the Aircraft, Airframe or such
Engine was then of the value and utility and in the condition and airworthiness
required to be maintained by the terms of this Lease. Title to all Parts
incorporated in the Aircraft, Airframe or such Engine as the result of such
alteration, modification or addition shall, without further act, vest in Lessor.
Notwithstanding the foregoing sentence of this Section 8.4, so long as no Lease
Event of Default or Lease Default shall have occurred and be continuing, Lessee
may, at any time during the Term, remove any Part if (i) such Part is in
addition to, and not in replacement of or substitution for, any Part originally
incorporated (or required by the provisions of this Lease to be incorporated) in
the Aircraft, Airframe or such Engine at the time of delivery thereof hereunder
or any Part in replacement of or substitution for
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any such Part, (ii) such Part is not required to be incorporated in the
Aircraft, Airframe or such Engine pursuant to the terms of this Section 8, and
(iii) such Part can be removed from the Aircraft, Airframe or such Engine
without diminishing or impairing the value, utility, condition or airworthiness
required to be maintained by the terms of this Lease which the Aircraft,
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
above provided, title thereto shall, without further act, vest in Lessee and
such Part shall no longer be deemed part of the Aircraft, Airframe or such
Engine from which it was removed. Any Part not removed by Lessee as above
provided prior to the return of the Aircraft, Airframe or such Engine to Lessor
hereunder shall remain the property of Lessor.
Section 9. [Intentionally Omitted]
Section 10. Loss, Destruction, Requisition, Etc.
10.1 Event of Loss with Respect to Aircraft. Upon the occurrence of
an Event of Loss with respect to the Aircraft, Lessee shall forthwith (and in
any event within 15 days after such occurrence) give Lessor and each Participant
written notice of such Event of Loss. On or before the Business Day next
preceding the earlier of (i) the 180th day following the date of the occurrence
of such Event of Loss, or (ii) 15 days following the receipt of insurance
proceeds with respect to such occurrence, Lessee shall pay to Lessor, in the
manner and in funds of the type specified in Section 3.5, (A) the Stipulated
Loss Value for the Aircraft, (B) all unpaid Basic Rent or Renewal Rent accrued
through and including the date of payment of Stipulated Loss Value and (C)
(without duplication) any other Rent which is due and payable through and
including the date of such payment. Upon payment in full of Stipulated Loss
Value and all such accrued Basic or Renewal Rent pursuant hereto, (A) the
obligation of Lessee to pay Basic or Renewal Rent due after the date of such
payment shall terminate (but Lessee shall remain liable for all payments of
Supplemental Rent due through and including the date of such payment of
Stipulated Loss Value), (B) the Term for the Aircraft shall end, and (C) Lessor
will Transfer to Lessee the Aircraft. Upon compliance by Lessee with all of the
terms of this Section 10.1, Lessee will be subrogated to all claims of Lessor,
if any, against third parties for damage to or loss of such Airframe and Engines
to the extent of the then insured value thereof.
10.2 Event of Loss with Respect to an Engine.
10.2.1 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 and each
Participant prompt written notice (and in any event within 15 days after such
occurrence) thereof and shall,
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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, 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 Permitted Liens, and
having 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.
10.2.2 Conditions; Lessee's Obligations. Prior to or at the
time of any such conveyance, Lessee will promptly:
(a) furnish Lessor with a full warranty (as to title) bill of
sale duly conveying to Lessor such Replacement Engine;
(b) cooperate with any reasonable request of Lender to subject
such Replacement Engine to the Lien of the Mortgage; and cause a Lease
Supplement subjecting such Replacement Engine to this Lease, duly executed by
Lessee, to be delivered to Lessor for execution and, upon execution, to be filed
for recordation with the FAA pursuant to the Act;
(c) furnish Lessor and Lender with such evidence of compliance
with the insurance provisions of Section 11 hereof with respect to such
Replacement Engine and the payment of all premiums then due with respect to such
insurance, as Lessor or Lender may reasonably request;
(d) furnish Lessor and Lender with an opinion or opinions of
Lessee's counsel, in form, substance and scope reasonably satisfactory to Lessor
and Lender, to the effect that, upon such conveyance, Lessor will acquire good
title to such Replacement Engine free and clear of all Liens other than
Permitted Liens (including Lender's interests), and that such Replacement Engine
will be leased hereunder and will be subject to the Lien of the Mortgage to the
same extent as the Engine replaced thereby and to such further effect as Lessor
or Lender may reasonably request;
(e) furnish Lessor and Lender with an Officer's Certificate
certifying that, upon consummation of such replacement, no Lease Event of
Default or Lease Default will exist hereunder; and
(f) furnish such other certificates or documents (including
appropriate UCC-3 amendments to the financing statements filed on or before the
Delivery Date) as Lessor or any Participant may reasonably request to effect
such replacement.
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10.2.3 Recordation and Opinions. In the case of any
Replacement Engine conveyed to Lessor under this Section 10.2, promptly upon the
recordation of the Lease Supplement and any supplement or amendment to the
Mortgage covering such Replacement Engine pursuant to the Act, Lessee will cause
to be delivered to Lessor and Lender an opinion of William C. Boston &
Associates or other FAA counsel satisfactory to Lessor as to the due recordation
of such Lease Supplement and any such supplement or amendment to the Mortgage.
10.2.4 Conveyance; Replacement Engine. Upon compliance by
Lessee with the terms of this Section 10.2, Lessor will Transfer to Lessee the
Engine with respect to which such Event of Loss occurred, and Lessee will be
subrogated to all claims of Lessor, if any, against third parties for damage to
or loss of such Engine to the extent of the insured value thereof.
10.2.5 No Reduction of Rent. No Event of Loss with respect to
an Engine under the circumstances contemplated by the terms of this Section 10.2
shall result in any changes of Basic Rent or Renewal Rent.
10.3 Application of Certain Payments. Any payments (other than
insurance proceeds, the application of which is provided for in Section 11)
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, will
be applied as follows:
10.3.1 Replacement of Engine. If such payments are received
with respect to an Engine that has been or is being replaced by Lessee pursuant
to Section 10.2, so much of such payments remaining after reimbursement of
Lessor and Owner Participant for costs and expenses shall be paid over to, or
retained by, Lessee, provided Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of Section 10.2 with respect to the
Event of Loss for which such payments are made.
10.3.2 Nonreplacement. If such payments are received with
respect to the Airframe and/or Engines that have not been and will not be
replaced pursuant to Section 10.2, so much of such payments remaining after
reimbursement of Lessor and Owner Participant for costs and expenses as shall
not exceed the Stipulated Loss Value and other amounts required to be paid by
Lessee hereunder shall be applied in reduction of Lessee's obligation to pay
such Stipulated Loss Value and other amounts if not already paid by Lessee, or,
if already paid by Lessee, shall be applied to reimburse Lessee for its payment
of such Stipulated Loss Value and other amounts. The balance, if any, of such
payment remaining thereafter shall be divided between Lessor and Lessee in
proportion to their interests in the Aircraft.
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10.4 Requisition of Aircraft for Use by Governmental Authorities. In
the event of the requisition, unless and until such requisition becomes an Event
of Loss, for use of the Airframe and the Engines or engines installed on such
Airframe during the Term by any governmental authority, Lessee shall notify
Lessor of such requisition, and, unless and until such requisition becomes an
Event of Loss, all of Lessee's obligations under this Lease with respect to the
Aircraft shall continue to the same extent as if such requisition had not
occurred. All payments received by Lessor or Lessee from such governmental
authority for the use of such Airframe and Engines or engines prior to the time
such requisition becomes an Event of Loss shall be paid over to, or retained by,
Lessee (or, if directed by Lessee, any Permitted Sublessee); and all payments
received by Lessor or Lessee from such governmental authority for the use of
such Airframe and Engines or engines after such time shall be paid over to, or
retained by, Lessor unless Lessee shall have fully performed or, concurrently
therewith, will fully perform the terms of Section 10.1 with respect to such
Event of Loss.
10.5 Requisition of an Engine for Use by Governmental Authorities.
In the event of the requisition for use by any governmental authority (other
than in circumstances contemplated by Section 10.4) of any Engine but not the
Airframe, Lessee will replace such Engine hereunder by complying with the terms
of Section 10.2 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 such
governmental authority with respect to such requisition shall be paid over to,
or retained by, Lessee (subject to performance by Lessee of the terms of Section
10.2 to the same extent as if an Event of Loss had occurred with respect to such
requisitioned Engine).
10.6 Application of Payments During Existence of Default. Any amount
referred to in this Section 10 which is payable or creditable to or retainable
by Lessee shall not be paid or credited to or retained by Lessee if, at the time
of such payment, credit or retention, (A) a Lease Event of Default or (B) a
Lease Default under Section 14.1 or 14.5 shall have occurred and be continuing
hereunder, but shall be paid to and held by Lessor as security for the
obligations of Lessee under this Lease and applied against Lessee's obligations
hereunder as and when due; at such time as there shall not be continuing any
such Lease Event of Default or Lease Default, or at such earlier time as Lessee
shall have paid in full all Rent and other amounts due and payable hereunder and
under the other Operative Agreements by Lessee, any remaining balance of such
amount shall be paid to Lessee to the extent not previously applied in
accordance with the preceding clause of this sentence.
Section 11. Insurance.
11.1 Public Liability and Property Damage Insurance. Lessee shall at
all times maintain, or cause to be maintained, at its or any Permitted
Sublessee's expense,
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public liability (including without limitation contractual liability, passenger
legal liability and property damage but excluding manufacturer's product
liability coverage) insurance which shall:
11.1.1 Type, Form and Amount. Be of a type and form carried by
similarly situated United States commercial air carriers generally, and carried
in amounts not less than $350,000,000 (per occurrence) combined single limit (or
such greater amount as Lessee may carry from time to time on other 737-200
series aircraft in its fleet);
11.1.2 Coverage. Include, but not be limited to, public
liability insurance, contractual liability insurance, passenger liability
insurance and property damage liability insurance (including cargo and baggage
liability insurance); and
11.1.3 Additional Insureds. Name as additional insureds Lessor
(in its individual and trust capacities), Lender and Owner Participant, as their
interests may appear.
11.2 Insurance Against Loss of or Damage to Aircraft and Engines.
Lessee shall at all times maintain, or cause to be maintained, at its or any
Permitted Sublessee's expense insurance against loss of or damage to the
Aircraft, Airframe and Engines as follows:
11.2.1 Type, Form and Amount. "All-risk" insurance on the
Aircraft and "all-risk" coverage on each Engine and on Parts while removed from
the Aircraft or Engines, which is of the type, form and in an amount in
compliance with the last sentence of this Section 11.2.1, not less than that
carried by Lessee on similar equipment owned or leased by Lessee and not less
than that usually carried by similarly situated United States commercial air
carriers; and, to the extent so usually carried, at all times that the Aircraft
or any Engine is not covered by the insurance described in Section 11.2.2,
coverage against the perils of (i) strikes, riots, civil commotions or labor
disturbances, (ii) any 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 (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 other
than hijacking committed by persons engaged in a program of irregular warfare
for terrorist purposes. Such insurance shall at all times be for an amount not
less than Stipulated Loss Value for the Aircraft.
11.2.2 War-Risk Insurance. If at any time (a) war-risk
insurance is maintained by Lessee or any Permitted Sublessee subleasing the
Aircraft or any Engine with respect to other aircraft operated by Lessee or such
Permitted Sublessee on the same or similar routes, or (b) the Aircraft is
operated on routes where the custom in the
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commercial airline industry is to carry war-risk insurance, then war-risk
insurance of the type carried by similarly situated United States commercial air
carriers operating the same or comparable models of aircraft on the same or
similar routes shall be maintained on the Aircraft in an amount not less than
that specified in Section 11.2.1.
11.2.3 Certain Requirements. The insurance policies required
by this Section 11.2 shall:
11.2.3.1 Additional Insureds. Be endorsed to name Lessor
(in its individual and trust capacities), Lender and Owner Participant as
additional insureds, as their interests may appear.
11.2.3.2 Payment of Proceeds. Provide that proceeds
thereunder shall be paid directly to Lender, so long as the Aircraft is subject
to the Lien of the Mortgage and thereafter to Lessor, in either case as
exclusive loss payee; provided, however, that any proceeds payable as a result
of any property damage to the Airframe or any Engine, which property damage does
not exceed $1,500,000 and does not constitute an Event of Loss with respect to
the Aircraft or such Engine, shall be paid to Lessee, unless Lessor or Lender,
prior to such payment, shall have notified the insurer making such payment that
a Lease Event of Default or a Lease Default specified in Section 14.1 or 14.5
has occurred and is continuing.
11.2.3.3 Waiver of Subrogation. Provide that the
insurers shall waive any rights of subrogation against Lessor, Lender and Owner
Participant except for claims arising out of gross negligence or willful
misconduct of such Persons; provided that the exercise by insurers of rights of
subrogation, if any, permitted by this Section 11.2 shall not, in any way, delay
payment of any claim that would otherwise be payable by such insurers but for
the existence of such rights of subrogation or entitle such insurers to exercise
or to assert any setoff, recoupment, counterclaim or any other deduction in
respect of any amounts payable under such policies.
11.2.4 Deductibles. The insurance required by this Section
11.2 may, subject to Section 11.8, provide for standard deductibles which are
from time to time in effect in the aviation insurance industry generally and
which are customarily maintained by similarly situated United States commercial
air carriers; provided, however, such deductibles shall not be more than the
deductibles generally maintained by Lessee (and which Lessee is under no
compulsion to maintain pursuant to any mortgage, lease or other agreement) with
respect to its fleet of Boeing Model 737-200 series aircraft and Pratt & Whitney
JT8D-9A engines generally.
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11.2.5 Government Indemnity. In the case of a contract with
the Government in respect of the Aircraft or Engines, a valid agreement by the
Government to indemnify Lessee, Lessor, Lender and Owner Participant against the
same risks which are required hereunder to be insured against in amounts at
least equal to the amounts required hereunder from time to time (such indemnity
to be backed by the full faith and credit of the United States of America),
shall be considered adequate insurance with respect to the Aircraft, Airframe
and any Engine subject to such contract to the extent of the risks and in the
amounts that are the subject of any such agreement to indemnify.
11.3 General Policy Provisions. Each insurance policy to be procured
and maintained hereunder shall:
11.3.1 Primary Insurance. Be primary and without right of
contribution from other insurance which may provide coverage to Lessor, Lender
or Owner Participant with respect to its interest in the Aircraft, Airframe or
any Engine or its liabilities with respect to or arising out of the transactions
contemplated by the Operative Agreements;
11.3.2 Coverage for Each Insured. Expressly provide that all
the provisions thereof, except the agreed values and the limits of the liability
of the insurer under such policy, shall operate in the same manner as if there
were a separate policy covering each insured;
11.3.3 Waiver of Certain Rights. Waive any right of the
insurers to any setoff, recoupment, counterclaim or any other deduction, whether
by attachment or otherwise, in respect of any liability of Lessee, Lender,
Lessor or Owner Participant;
11.3.4 Breach of Warranty. Provide that, in respect of Lessor,
Lender and Owner Participant, such insurance shall not be invalidated by any
action or inaction by Lessee or any additional insured (other than such
additional insured, as to such additional insured) and shall insure the
interests of Lessor, Lender and Owner Participant regardless of any breach or
violation by Lessee or any additional insured (other than such additional
insured, as to such additional insured) of any representation, warranty,
declaration or condition contained in such policy;
11.3.5 Notice of Termination or Changes. Provide for not less
than 30 days' prior written notice to be received by Lessor, Lender and Owner
Participant before any lapse, alteration, termination or cancellation of the
insurance evidenced thereby shall be effective as to Lessor, Lender and Owner
Participant, except that war-risk and allied perils policies may provide for not
less than seven days' prior written notice or such lesser or greater notice as
shall at the time be customary in the aviation insurance
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industry generally, and which are customarily in effect with respect to major
United States commercial air carriers generally from time to time;
11.3.6 Nonliability for Premiums. Provide that neither Lessor,
Lender nor Owner Participant shall be liable for any insurance premium; and
11.3.7 Identity of Insurers. Be with insurance companies,
underwriters or funds of recognized responsibility.
11.4 Application of Insurance Proceeds. As between Lessor and
Lessee, all insurance proceeds received under policies required to be maintained
(or to be caused to be maintained) by Lessee pursuant to Section 11.2 as a
result of the occurrence of an Event of Loss with respect to the Aircraft,
Airframe or any Engine will be applied in accordance with Section 10.3.1 or
10.3.2, as the case may be (except that the balance referred to in Section
10.3.2 shall be paid over to, or retained by, Lessee). All insurance proceeds in
respect of any property damage loss not constituting an Event of Loss with
respect to the Airframe or an Engine will be applied in payment for repairs or
for replacement property in accordance with the terms of Section 8, if not
already paid for by Lessee, and any balance remaining after compliance with such
Section with respect to such loss shall be paid to Lessee. In the case of a loss
with respect to an engine (other than an Engine) installed on the Airframe,
Lessor shall hold any payment to it of any insurance proceeds in respect of such
loss for the account of Lessee or any other third party that is entitled to
receive such proceeds. The provisions of Section 10.6 shall apply to amounts
referred to in this Section 11.4.
11.5 Certificates; Reports. Etc. With respect to any policy required
hereunder, Lessee shall cause to be furnished to Lessor and each Participant on
or prior to the Delivery Date of the Aircraft and on or prior to expiration of
such policy, certificates of the insurer or insurers (or their authorized
representatives) providing insurance pursuant to the requirements of this
Section 11, as to hull and liability insurance. On or before the Delivery Date
of the Aircraft, and annually thereafter on or before such expiration date,
Lessee shall cause to be furnished to Lessor and each Participant a report
signed by Frank B. Hall & Co. (or any other firm of independent aircraft
insurance brokers, appointed by Lessee, reasonably satisfactory to the
Participants) describing in reasonable detail the insurance then carried and
maintained with respect to the Aircraft and stating the opinion of such firm
that the insurance then carried and maintained on the Aircraft complies with the
terms hereof as to hull and liability insurance. Lessee agrees that it will
cause such firm to advise Lessor and each Participant in writing promptly of any
default in the payment of any premium or any other act or omission on the part
of Lessee or any Permitted Sublessee of which they have knowledge and which
might invalidate or render unenforceable, in whole or in part, the insurance on
the Aircraft. To the extent such agreement is reasonably obtainable, Lessee
further agrees to cause such
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firm to advise Lessor and each Participant in writing at least 30 days (seven
days in the case of war-risk and allied perils coverage) prior to the expiration
or termination date of any insurance carried and maintained on the Aircraft
pursuant to this Section 11.
11.6. Lessor's Right to Maintain Insurance. In the event that Lessee
shall fail to maintain or cause to be maintained insurance as herein provided,
Lessor or any Participant may at its option (but shall not be obligated to)
provide such insurance and in such event, Lessee shall, upon demand, reimburse
such Person, as Supplemental Rent, for the cost thereof. No such payment,
performance or compliance shall be deemed to cure any Lease Event of Default or
Lease Default or otherwise relieve Lessee of its obligations with respect
thereto. At Lessor's or Lender's request and expense, and subject to the
permission of Lessee's insurance carriers, Lessee will increase the amount of
coverage under any insurance policy that Lessee maintains pursuant to Section
11.2.1 or 11.2.2, and notwithstanding the provisions of Section 11.4, the
proceeds of any such additional insurance shall be payable to Lessor or Lender,
as the case may be; provided, however, that no such insurance may be obtained
which would limit or otherwise adversely affect the availability or coverage or
cost of any insurance required to be obtained or maintained pursuant to this
Section 11.
11.7 Insurance for Own Account. Nothing in this Section 11 shall
limit or prohibit Owner Participant (directly or through Lessor) from obtaining
insurance for its own account, and any proceeds payable thereunder shall be
payable as provided in the insurance policy relating thereto; provided, however,
that no such insurance may be obtained which would limit or otherwise adversely
affect the availability or coverage or cost of any insurance required to be
obtained or maintained pursuant to this Section 11. Nothing in this Section 11
shall limit or prohibit Lessor or Lender from obtaining insurance for its own
account, and any proceeds payable thereunder shall be payable as provided in the
insurance policy relating thereto; provided, however, that no such insurance may
be obtained which would limit or otherwise adversely affect the availability or
coverage or cost of any insurance required to be obtained or maintained pursuant
to this Section 11 or obtained by Owner Participant pursuant to the preceding
sentence.
11.8 Self-Insurance. Notwithstanding the foregoing provisions of
this Section 11, Lessee may, from time to time, self-insure with respect to the
Aircraft to the same extent as it does with respect to, or maintain policies
with deductibles or premium adjustment provisions consistent with similar
provisions applicable to, other comparable aircraft operated by Lessee;
provided, however, that if at any time Lessee's unsecured senior long-term debt
securities are not rated "Investment Grade", in the case of hull insurance such
self-insurance shall in no case be in an amount greater than 4% of Lessee's
tangible net worth (as defined in accordance with accepted financial practice);
and provided, further that, in the case of public liability insurance, such
self-insurance shall in no event exceed $50,000,000. As used in this Section
11.8, the term "Investment Grade"
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means a rating of "Baa3" or higher from Moody's Investors Service, Inc. or a
rating from any other nationally recognized bond rating service equivalent to or
better than such a rating.
Section 12. Inspection. At all reasonable times, and upon reasonable
notice, Lessor or any Participant or its authorized representatives or designees
may inspect the Aircraft and inspect and copy (subject to any confidentiality
agreements, copyright restrictions and the like) the books and records of Lessee
relative thereto. Any such inspection of the Aircraft shall be without
out-of-pocket expense or risk to Lessee; provided that no exercise of such
inspection right shall interfere with the normal operation or maintenance of the
Aircraft by, or the business of, Lessee (or any Permitted Sublessee). Subject to
the proviso to the preceding sentence of this Section 12, Owner Participant may
observe the "C" check (or its equivalent) referred to in clause (I) of Section
5.3.1 and any Card inspection during the Term. Neither Lessor nor any
Participant shall have any duty to make any such inspection and shall not incur
any liability or obligation by reason of not making any such inspection.
Section 13. Assignment.
13.1 General. Except as otherwise expressly permitted in Section 7.2
hereof or Section 12.5.1 of the Participation Agreement, or as required in the
case of any requisition by the Government referred to in Section 7.1.4, Lessee
will not, without the prior written consent of Lessor, assign or transfer any of
its rights or obligations under this Lease. Lessor may assign or convey any of
its right, title and interest in and to this Lease or the Aircraft in accordance
with the Participation Agreement, the Trust Agreement or the express provisions
of this Lease. The terms and provisions of the Lease shall be binding upon and
inure to the benefit of Lessor and Lessee and their respective permitted
successors and assigns.
13.2 Security for Lessor's Obligations. In order to secure the
indebtedness evidenced by the Note, the Mortgage provides, among other things,
for the assignment by Lessor to Lender of its right, title and interest in, to
and under this Lease and any Permitted Sublease, to the extent set forth in the
Mortgage, and for the creation of a first mortgage lien on and perfected
security interest in the Aircraft in favor of Lender. Lessee hereby consents to
such assignment and to the creation of such mortgage and security interest.
Except as may otherwise be provided in the Mortgage, all rights of Lessor and
Owner Participant with respect to the Lease, the Aircraft, the Airframe or any
Engine (or any part thereof) shall be exercisable by Lender.
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Section 14. Events of Default. The following events shall constitute Lease
Events of Default (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body), and each such Lease Event of
Default shall continue so long as, but only so long as, it shall not have been
remedied or waived:
14.1 Failure To Pay Rent. Lessee shall fail to make any payment of
Basic Rent or Renewal Rent within 5 Business Days from the due date thereof; or
any other payments required under the Operative Agreements within 10 Business
Days after the receipt of written notice of such default to Lessee from Lessor.
14.2 Specific Defaults. Lessee shall fail to carry and maintain (or
cause to be carried and maintained) insurance on or with respect to the Aircraft
in accordance with the provisions of Section 11, provided that any such failure
shall not constitute a Lease Event of Default so long as such failure is for a
period of not more than 30 days, Lessee shall not operate the Aircraft at a time
when such insurance is not in effect and the Aircraft continues to be covered by
such insurance as is required when the Aircraft is on the ground; or
14.3 General Default. Lessee shall fail to perform or observe any
other material covenant, condition or agreement to be performed or observed by
it hereunder or under any other Operative Agreement (except the Tax
Indemnification Agreement), and such failure shall continue unremedied for a
period of 30 days after Lessee's receipt of written notice thereof from Lessor
or Lender, unless Lessee shall be diligently proceeding to correct such failure
and such failure is cured within 180 days after receipt of such notice or the
end of the Term, whichever shall first occur; or
14.4 Misrepresentation and Breach of Warranty. Any representation or
warranty made by Lessee herein or in the Participation Agreement or in any other
Operative Agreement (other than the Tax Indemnification Agreement) or in any
document or certificate furnished by Lessee in connection with any thereof,
shall prove to have been incorrect in any material respect at the time made and
shall remain incorrect in any material respect 30 days after Lessee's receipt of
written notice thereof from Lessor or Lender; or
14.5 Bankruptcy, Etc. Lessee shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official or agency in an
involuntary case
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or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due unless the subject of a bona fide dispute, within the meaning of
Title 11 of the United States Code, or shall take any corporate action to
authorize any of the foregoing; or an involuntary case or other proceeding shall
be commenced against Lessee seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official or agency of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or
14.6 Cross Default. A Lease Event of Default shall have occurred and
be continuing under either of the other two Sale and Lease Agreements of even
date herewith, each relating to a Boeing 737-200 series aircraft having FAA
registration number N55SW or N56SW; provided, that Lender (or lender of any
Successor Indebtedness) shall then be Lender (or lender of any Successor
Indebtedness) (as such terms are defined therein) under such other Sale and
Lease Agreement.
Section 15. Remedies.
15.1 Default; Remedies. Upon the occurrence of a Lease Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare by written notice to Lessee this Lease to be
in default (provided, however, that any Lease Event of Default specified in
Section 14.5 shall be automatic and shall not require any such declaration or
notice) and at any time thereafter, so long as any such Lease Event of Default
shall be continuing, Lessor may exercise one or more of the following remedies
as Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect which have not been effectively waived by Lessee:
15.1.1 Return; Repossession. Lessor may cause Lessee, upon
written demand by Lessor and at Lessee's expense, to return promptly, and Lessee
shall return promptly, all or any part of the Aircraft, Airframe or Engines as
Lessor may so demand to Lessor or its order in the manner and condition required
by, and otherwise in accordance with all the provisions of, Section 5 as if the
Aircraft, Airframe or Engines were being returned at the end of the Term; or
Lessor, at its option, may enter upon the premises where the Aircraft, Airframe
or any Engine, or part thereof is located and take immediate possession of and
remove the same by summary proceedings or otherwise, all without liability
accruing to Lessor for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or
otherwise, and Lessee expressly waives any right it may have under applicable
law to a hearing prior to repossession of the Aircraft, Airframe or any Engine
or part thereof; or
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15.1.2 Sale, Use, Etc. Lessor may sell all or any part of the
Aircraft, Airframe or any Engine, at public or private sale, at such times and
places, to such Persons (including Lessor or any Participant) as Lessor may
determine, or otherwise dispose of, hold, use, operate, lease to others or keep
idle the Aircraft, Airframe or any Engine or part thereof, as Lessor, in its
sole discretion, may determine, all free and clear of any rights of Lessee
except as hereinafter set forth in this Section 15 and without any duty to
account to Lessee with respect to such action or inaction or for any proceeds
with respect thereto; or
15.1.3 Certain Liquidated Damages.
15.1.3.1 Liquidated Damages--Fair Market Rental Value.
Whether or not Lessor shall have exercised, or shall thereafter at any time
exercise, any of its rights under Section 15.1.1 or 15.1.2 with respect to the
Aircraft, Airframe or any Engine or part thereof, Lessor, by written notice to
Lessee specifying a payment date not earlier than ten days from the date of such
notice, may cause Lessee to pay to Lessor, and Lessee shall pay to 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 or Renewal Rent, as the
case may be, due on or after the date specified for payment in such notice), any
unpaid Basic Rent or Renewal Rent, as the case may be, due prior to such date
plus an amount equal to the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such date over the fair market rental value (determined
as hereafter provided in this Section 15) of the Aircraft for the remainder of
the Term, after discounting such fair market rental value semiannually
(effective on each Rent Payment Date) by a rate equal to the Overdue Rate to
present worth as of the date specified for payment in such notice, together with
interest, if any, on such amount and unpaid Basic Rent or Renewal Rent, as the
case may be, at the Overdue Rate from the date specified for payment in such
notice to the date of payment in full; or
15.1.3.2 Liquidated Damages--Fair Market Sales Value. If
Lessor shall not have sold the Aircraft, Lessor, by written notice to Lessee
specifying a payment date not earlier than ten days from the date of such
notice, may cause Lessee to pay to Lessor, and Lessee shall pay to 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 or Renewal Rent, as the
case may be, due on or after the date specified for payment in such notice), any
unpaid Basic Rent or Renewal Rent, as the case may be, due prior to such date
plus an amount equal to the excess, if any, of the Stipulated Loss Value for the
Aircraft, computed as of such date over the fair market sales value of the
Aircraft (determined as hereafter provided in this Section 15 as of the date
specified for payment in such notice), together with interest, if any, on such
amount and unpaid Basic Rent or
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Renewal Rent, as the case may be, at the Overdue Rate from the date specified
for payment in such notice to the date of payment in full; or
15.1.4 Liquidated Damages upon Sale. If Lessor, pursuant to
Section 15.1.2 or applicable law, shall have sold the Aircraft, Lessor, in lieu
of exercising its rights under Section 15.1.3 with respect to the Aircraft, may,
if Lessor shall so elect, upon giving written notice to Lessee, cause Lessee to
pay Lessor, and Lessee shall pay to Lessor, on the date of such sale, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of the
Basic Rent or Renewal Rent, as the case may be, due on or after the date of such
sale), any unpaid Basic Rent or Renewal Rent, as the case may be, due prior to
such date of sale plus the amount of any deficiency between the net proceeds of
such sale or (if such sale is a private sale and is made to Lessor, a
Participant or any Affiliate thereof) between the fair market sales value of the
Aircraft, determined as of the date of such sale as hereinafter provided in this
Section 15, and the Stipulated Loss Value of the Aircraft, computed as of the
date of such sale, together with interest, if any, on such amount and such
unpaid Basic Rent or Renewal Rent at the Overdue Rate from the date of such sale
to the date of payment in full; or
15.1.5 Rescission and Other Remedies. Lessor may terminate or
rescind this Lease as to the Aircraft, or may exercise any other right or remedy
which may be available to it under applicable law or proceed by appropriate
court action to enforce the terms hereof or to recover damages for the breach
hereof, including without limitation Lessee's agreement to lease the Aircraft
for the Term and to pay Rent.
In addition to the foregoing remedies, Lessee shall be liable (except as
otherwise provided above and without duplication of amounts otherwise payable
hereunder) for any and all unpaid Rent due hereunder before, during or after the
exercise of any of the foregoing remedies and for all reasonable and actual
legal fees and other costs and expenses (including the fees and expenses of all
appraisers required by this Section 15) of Lessor and Participants, incurred by
reason of the occurrence of any Lease Event of Default or the exercise of
Lessor's remedies with respect thereto, including all insurance and storage
costs and all costs and expenses incurred in connection with the return of the
Aircraft, Airframe or any Engine or part thereof, in accordance with the terms
of Section 5 or in placing the Aircraft, Airframe or any Engine or part thereof,
in the condition and airworthiness required by Section 5.
Lessor agrees to give Lessee at least 15 days' prior written notice of the
date fixed for any public sale of the Aircraft, the Airframe or any Engine or
part thereof, and of the date on or after which will occur the execution of any
contract providing for any private sale, and any such public sale shall be
conducted in general so as to afford Lessee a reasonable opportunity to bid.
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15.2 Determination of Fair Market Rental Value and Fair Market Sales
Value. For the purpose of this Section 15, the "fair market rental value" or
the "fair market sales value" of the Aircraft shall be the rental value or sales
value, as the case may be, which would be obtained in an arm's-length
transaction between an informed and willing lessee or purchaser, as the case may
be, under no compulsion to lease or purchase, as the case may be, and an
informed and willing lessor or seller in possession, as the case may be, and in
each case shall be determined on an "as is, where is" basis pursuant to an
appraisal by a recognized independent aircraft appraiser chosen by Lessor and
approved by Lessee, which approval shall not be unreasonably withheld or delayed
and shall be deemed granted if such choice is not rejected within 10 days after
Lessee's receipt of notice of Lessor's choice.
15.3 No Waiver, Etc. No remedy referred to in this Section 15 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 of 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 Lease Event of Default shall in any way be, or be construed to be, a waiver
of any earlier or subsequent Lease Event of Default. To the extent permitted by
applicable law, Lessee hereby waives any rights now or hereafter conferred by
statute or otherwise which may require Lessor to sell, lease or otherwise use
the Aircraft, Airframe or any Engine, or part thereof, in mitigation of Lessor's
damages as set forth in this Section 15 or which may otherwise limit or modify
any of Lessor's rights or remedies under this Section 15.
Section 16. Notices. All notices required under the terms and provisions
hereof shall be in writing and shall be given by certified mail, telecopy or any
other customary means of written communication, addressed:
If to Lessee, at 2702 Love Field Dr., P.O. Box 36611, Dallas, Texas
75235-1611 (telecopy no. 214/904-4022), Attention: Treasurer, or at such other
address as Lessee shall from time to time designate in writing;
If to Lessor, at 79 Main Street, P. 0. Box 30007, Salt Lake City, Utah
84130-0007 (telecopy no. 801/350-5053), Attention: Corporate Trust Department,
or at such other address as Lessor shall from time to time designate in writing;
If to any Participant, at its address set forth in the signature pages of
the Participation Agreement, or at such other address as such Participant shall
from time to time designate in writing.
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The effective date of any such notice shall be the date on which it is
received by the addressee. Lessee shall furnish to Lessor for transmission to
Owner Participant and Lender a sufficient number of copies of all reports,
notices, requests, demands, certificates, financial statements and other
instruments furnished hereunder, except in any case where Lessee shall have
transmitted the same directly to any such person.
Section 17. Net Lease; Lessee's Obligations; No Setoff, Counterclaim, Etc.
This is a net lease and it is hereby recognized that Lessor is the owner of the
Aircraft (except that Owner Participant will be the owner for income tax
purposes) and Lessee is the lessee thereof. It is the intent of the parties
hereto that this Lease be a "true lease". Lessee's obligation to pay all Rent
payable 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 which Lessee may have against Lessor (in its
individual or trust capacity), any Participant, any Indemnified Party or any
other Person for any reason whatsoever (except as expressly provided in Section
13.5.2 of the Participation Agreement or in Sections 6 and 7 of the Tax
Indemnification Agreement); (b) any defect in the title, airworthiness,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, the Aircraft, Airframe or any Engine, or any interruption or
cessation in the use or possession thereof by Lessee for any reason whatsoever;
(c) any insolvency, bankruptcy, reorganization or similar proceedings by or
against Lessee; (d) any restriction, prevention or curtailment of or
interference with any use of the Aircraft or part thereof; (e) any invalidity or
unenforceability or disaffirmance of this Lease or any provision hereof or any
of the other Operative Agreements or any provision thereof, in each case whether
against or by Lessee or otherwise; or (f) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
If for any reason whatsoever this Lease shall be terminated in whole or in
part by operation of law or otherwise except as specifically provided herein,
Lessee nonetheless agrees to pay an amount equal to each Basic Rent, Renewal
Rent and Supplemental Rent payment at the time such payment would have become
due and payable in accordance with the terms hereof had this Lease not been
terminated in whole or in part. All Rent payable by Lessee shall be paid without
notice or demand (except as otherwise expressly provided) and without abatement,
suspension, deferment, deduction, diminution or proration by reason of any
circumstance or occurrence whatsoever (except as expressly provided in Section
13.5.2 of the Participation Agreement or in Sections 6 and 7 of the Tax
Indemnification Agreement). Lessee hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which at any time
hereafter may be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender this Lease or any part hereof, or to any abatement,
suppression, deferment, diminution, reduction or proration of Rent except in
accordance with the express terms hereof. Each
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payment of Rent made by Lessee shall be final as to Lessor and Lessee. Lessee
will not seek to recover all or any part of any such payment of Rent for any
reason whatsoever.
Section 18. Renewal Options; Early Termination.
18.1 Renewal Options. At the end of the Base Lease Term or any
Renewal Term, so long as no Lease Event of Default or Lease Default has occurred
and is continuing and the aggregate of all Renewal Terms shall not exceed six
years, Lessee shall have the option to renew this Lease for a Renewal Term;
provided, that if, at the time of exercise by Lessee of any of its renewal
rights set forth in this Section 18.1, Owner Participant and its Affiliates
shall be the owner of all of the beneficial interest in one or more other Boeing
Model 737-200 series aircraft then subject to a lease under which the lessee is
Lessee (all of such aircraft, together with the Aircraft, referred to as the
"Owner Group Aircraft"), then Lessee shall be obligated to exercise such renewal
rights (or to have exercised such renewal rights for a Renewal Term which shall
be then continuing) with respect to at least three of such Owner Group Aircraft
(or such lesser number of Owner Group Aircraft as shall exist at such time). In
order to exercise the option to renew, except as otherwise provided in Section
13.4.1 of the Participation Agreement, Lessee shall notify Lessor thereof in
writing not more than 360 days nor less than 180 days prior to the commencement
of the applicable Renewal Term (which notice shall be irrevocable). The Renewal
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;
provided, that if a Stage III Upgrade shall have occurred and (i) Owner
Participant shall have performed its obligations set forth in Section 13.4 of
the Participation Agreement, upon proper request by Lessee, then such fair
market value shall be determined taking into account the value of the hush kit
installed pursuant to such upgrade, and (ii) if Owner Participant shall not have
so performed or shall not have been requested to do so by Lessee, then such fair
market value shall be determined without taking into account the value of the
hush kit installed pursuant to such upgrade, i.e., as if no Stage III Upgrade
had occurred. Such fair market rental value shall be determined not later than
three months prior to the commencement of such Renewal Term by mutual consent of
Owner Participant and Lessee or, if they shall be unable so to agree, by three
recognized independent aircraft appraisers, one chosen and paid for by Owner
Participant, one chosen and paid for by Lessee and the third appraiser chosen by
the mutual consent of the first two appraisers and paid for equally by Owner
Participant and Lessee, the appraisals of which three appraisers shall be
averaged and such average shall be deemed to be the fair market rental value of
the Aircraft for all purposes hereof; provided, however, that if the appraisal
of one appraiser is more disparate from the average of all three appraisals than
each of the other two appraisals, then the appraisal of such appraiser shall be
excluded, the remaining appraisals shall be averaged and such average shall be
deemed to be the fair market rental value of the Aircraft for all purposes
hereof. If either Owner Participant or Lessee shall fail to appoint an appraiser
by the date which is two months
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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 one month before the commencement of such Renewal Term, then
either Owner Participant 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 an informed and willing lessor (under no
compulsion to lease) and shall be determined on the assumptions that the
Aircraft is in the United States of America, available for use by the lessee and
in the return condition required by Section 5 of this Lease and otherwise in
compliance with the requirements of this Lease. Stipulated Loss Value amounts
that are payable during each such Renewal Term shall be calculated as of the
date of commencement of such Renewal Term and shall be determined by multiplying
1.1 times the appraised value of the Aircraft at such time; provided, however,
that no such amount shall be less than the principal amount of any indebtedness
then secured by a Lien on the Aircraft.
18.2 Early Termination. Provided that this Lease has not been
terminated and provided that no Lease Default or Lease Event of Default shall
have occurred and be continuing hereunder, Lessee shall have the option to
terminate this Lease with respect to the Aircraft not more than 42 days prior to
the expiration of the Base Lease Term or the applicable Renewal Term. Lessee may
exercise such option of termination by delivering irrevocable written notice of
such exercise to Lessor not less than six months' prior written notice of such
advanced date of termination. Such notice shall provide the date elected by
Lessee for such early termination and a calculation of the final payment of
Rent, which shall be due on such early termination date and shall be calculated
as provided in clause (ii) of Section 3.3.
18.3 Default Purchase Option. In the event of Owner Participant's
failure to satisfy its obligations specified in Section 13.4 of the
Participation Agreement, Lessee shall have the option to purchase the Aircraft.
In order to exercise such option, Lessee shall notify Lessor (and, if the
Mortgage is then in effect, Lender) thereof in writing, specifying a Rent
Payment Date on which such purchase is to occur. In such case, Lessee shall
purchase the Aircraft on such Rent Purchase Date at a purchase price equal to
Termination Value. Upon receipt of such purchase price from Lessee and all Rent
and other amounts due hereunder and under any other Operative Agreement, Lessor
shall Transfer to Lessee the Aircraft.
Section 19. Successor Owner Trustee. Lessee agrees that in the case of the
appointment of any successor Owner Trustee pursuant to the terms of the Trust
Agreement, such successor Owner Trustee shall, upon written notice by such
successor Owner Trustee to Lessee, succeed to all the rights, powers and title
of Lessor hereunder and shall be deemed to be Lessor and the owner of the
Aircraft for all purposes hereof
SALE AND LEASE AGREEMENT
43
<PAGE>
without the necessity of any consent or approval by Lessee (but such successor
Owner Trustee shall qualify under the terms of Section 10.2 of the Participation
Agreement) and without in any way altering the terms of this Lease or Lessee's
obligations hereunder. One such appointment and designation of a successor Owner
Trustee shall not exhaust the right to appoint and designate further successor
or additional Owner Trustees pursuant to the Trust Agreement, and such right may
be exercised repeatedly as long as this Lease shall be in effect.
Section 20. Right to Perform for Lessee. If Lessee fails to make any
payment of Rent required to be made by it hereunder or fails to perform or
comply with any of its agreements contained herein, Lessor may (but shall not be
obligated to) make such payment or perform or comply with such agreement, and
the amount of such payment and the amount of the expenses of Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Overdue
Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand.
Section 21. Quiet Enjoyment. So long as this Lease shall not have been
declared to be in default pursuant to Section 15, during the Term Lessor will
not, through its own actions or inactions, interfere in the quiet enjoyment of
the Aircraft by Lessee or any Permitted Sublessee.
Section 22. Investment of Security Funds; Miscellaneous; Amendment.
22.1 Investment of Security Funds. Any moneys required to be paid to
or retained by Lessor which are not required to be paid to Lessee pursuant to
Section 10.6 or 11.4 solely because a Lease Event of Default or Lease Default
under Section 14.1 or 14.5 shall have occurred and be continuing, or which are
held by Lessor pending payment to Lessee pursuant to Section 11.4 or which are
required to be paid to Lessee pursuant to Section 10.3 or 11.4 after completion
of a replacement to be made pursuant to Section 10.2, shall, until paid to
Lessee as provided in Section 10 or 11 or applied as provided herein or in the
Trust Agreement, be invested by Lessor from time to time as directed in writing
by Lessee and at the expense and risk of Lessee in the following securities
(which, except in the case of the shares described in clause (e) below, shall
mature within 91 days of the date of purchase thereof): (a) direct obligations
of the Government; (b) obligations fully guaranteed by the Government; (c) open
market commercial paper of any corporation incorporated under the laws of the
United States of America or any State thereof rated P-1 or its equivalent by
Moody's Investors Service, Inc. and A-1 or its equivalent by Standard & Poor's
Corporation; or (d) certificates of deposit issued by, or bankers' acceptances
of, or time deposits or a deposit account with any bank, trust company or
national banking association incorporated or doing business under the laws of
the United States of America or any state thereof having a combined capital and
SALE AND LEASE AGREEMENT
44
<PAGE>
surplus of at least $50,000,000; or (e) shares of a money market fund registered
under the Investment Company Act of 1940, as amended, the sole assets of which
are direct obligations of the Government. There shall be promptly remitted to
Lessee or its order any gain (including interest received) realized as the
result of any such investment (net of any fees, commissions and other expenses,
if any, incurred in connection with such investment) unless a Lease Event of
Default of a Lease Default under Section 14.1 or 14.5 shall have occurred and be
continuing. Lessee will promptly pay to Lessor, on demand, the amount of any
loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment), such amount to be disposed of in accordance with the terms of the
Trust Agreement.
22.2 Miscellaneous; Amendment. Lessee shall do, execute, acknowledge
and deliver, or shall cause to be done, executed, acknowledged and delivered,
all such further acts, conveyances and assurances as Lessor or any Participant
shall reasonably require for accomplishing the purposes of this Agreement and
the other Operative Agreements. 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
provision hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against which the
enforcement of the change, waiver, discharge or termination is sought. This
Lease shall constitute an agreement of lease, and nothing herein shall be
construed as conveying to Lessee any right, title or interest in or to the
Aircraft, Airframe or Engines except as a lessee only. The section and paragraph
headings in this Lease and the table of contents are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof and all references herein to numbered sections, unless
otherwise indicated, are to sections of this Lease. THIS LEASE HAS BEEN, AND
EACH LEASE SUPPLEMENT AND AMENDMENT HERETO IS INTENDED TO BE, DELIVERED IN THE
STATE OF TEXAS AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE IN
SUCH STATE BY RESIDENTS THEREOF AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. This Lease and
each Lease Supplement and amendment hereto 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.
SALE AND LEASE AGREEMENT
45
<PAGE>
Section 23. Permitted Foreign Air Carriers. Lessor may, in the exercise of
its reasonable business judgment, by written notice to Lessee, remove any
foreign air carrier from Exhibit B and Lessee may, by written notice to Lessor,
request that any foreign air carrier be added to Exhibit B, subject to Lessor's
prior written consent, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, no deletion of an airline from the list of
Permitted Foreign Air Carriers pursuant hereto shall (i) reduce the number of
Permitted Foreign Air Carriers below 35, (ii) affect any existing sublease or
other agreement providing for transfer of possession of the Aircraft, Airframe,
any Engine or Part which was permitted hereunder at the time entered into, or
(iii) preclude any subsequent renewal or extension of such sublease or other
agreement to which the Permitted Foreign Air Carrier under a sublease is
entitled by the terms thereof as originally in effect.
SALE AND LEASE AGREEMENT
46
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed and delivered as of the day and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity except as
expressly stated herein, but solely as Owner
Trustee under the Trust Agreement
By: /s/ Dorian Light Shaw
---------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By: /s/ John D. Owen
---------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
<PAGE>
EXHIBIT A TO
LEASE AGREEMENT
SALE AND LEASE AGREEMENT SUPPLEMENT NO. ______
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO._________, dated __________,
____ is between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its
individual capacity but solely as Owner Trustee under that certain Trust
Agreement, dated as of September 1, 1990 (the "Trust Agreement"), between the
Owner Participant named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES
CO., a Texas corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, as supplemented and amended from
time to time (herein called the "Lease Agreement" and the defined terms therein
being herein used with the same meaning), which Lease Agreement provides in
Section 2 for the execution of a Lease Supplement substantially in the form
hereof for the purpose of Lessee's selling to Lessor, and Lessor's leasing back
to Lessee, the Aircraft under the Lease Agreement as and when delivered by
Lessor to Lessee in accordance with the terms thereof; and
B. The Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached hereto and made a
part hereof and this Lease Supplement, together with such attachment, is being
filed for recordation with the FAA on the date hereof as one document.
In consideration of the premises and other good and sufficient
consideration, and pursuant to Section 2 of the Lease Agreement, Lessor and
Lessee hereby agree as follows:
1. Lessee hereby delivers and sells to Lessor and Lessor hereby accepts
and purchases from Lessee and in turn delivers and leases back to Lessee, and
Lessee hereby accepts and leases back from Lessor, under the Lease Agreement, as
herein supplemented, the following-described Boeing Model 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
SALE AND LEASE AGREEMENT
A-1
<PAGE>
Airframe: U.S. Registration Number N ________SW; Manufacturer's Serial No.
___; and
Engines: Two Pratt & Whitney JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: __________ and ________________.
Each of the Engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. Lessee hereby confirms to Lessor that the Delivered Aircraft has been
or will be duly marked in accordance with the terms of Section 7.1.2 of the
Lease and that Lessee has accepted the Delivered Aircraft for all purposes
hereof and of the Lease Agreement, including its being airworthy, in accordance
with specifications, in good working order and repair and without defect or
inherent vice in title, condition, design, operation or fitness for use, whether
or not discoverable by Lessee as of the date hereof, and free and clear of all
Liens except Permitted Liens.
4. All the provisions of the Lease Agreement are hereby incorporated by
reference in this Lease Supplement, on and as of the date of this Lease
Supplement, to the same extent as if fully set forth herein.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
SALE AND LEASE AGREEMENT
A-2
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to
be duly executed and delivered as of the date and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Owner Trustee under the Trust
Agreement
By:
---------------------------
Title:
Lessee:
SOUTHWEST AIRLINES CO.
By:
---------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
A-3
<PAGE>
EXHIBIT B TO
LEASE AGREEMENT
PERMITTED FOREIGN AIR CARRIERS
Aer Lingus Interflug
Aerolineas Argentinas Japan Air Lines
Aeromexico Japan Air System
Air Canada KLM
Air Europa Korean Air
Air Europe Lan Chile
Air France Lauda Air
Air Inter Linjeflyg
Air Jamaica Lufthansa
Air New Zealand Luxair
Alitalia Maersk
All Nippon Airways Malaysian Airline System
ALM Martinair
Ansett Airlines of Australia Mexicana
Asiana Airlines Monarch Airlines
Australian Airlines Olympic Airlines
Austrian Airlines Qantas Airways
AVENSA Ryanair
Bahamasair Sabena
Bavaria SAS
Braathens S.A.F.E. Saudi Arabia Airlines
Britannia Singapore Airlines
British Airways SouthWest Airlines
British Midland Swissair
CAAC TAP
Canadian Airlines International Thai Airways
Cathay Pacific Airways Transavia Holland
Cayman Airways Transbrasil
China Airlines TransEuropean
Condor Flugdienst UTA
Dan-Air Varig
Finnair Viasa
Garuda Viva Air
Hapag Lloyd
Iberia
Icelandair
SALE AND LEASE AGREEMENT
B-1
<PAGE>
EXHIBIT C TO
LEASE AGREEMENT
OTHER RETURN CONDITIONS
At the time of the return of the Aircraft upon the expiration or earlier
termination of the Term, the Aircraft shall be in the following condition:
1. General Condition
(a) The Aircraft shall be clean and free of leaks, in each case in
accordance with United States commercial airline operating
standards.
(b) All decals shall be clean, secure and legible.
2. Fuselage, Windows and Doors
(a) The fuselage shall be free of loose or pulled or missing
rivets.
(b) The doors shall be free moving, correctly rigged and be fitted
with serviceable seals.
3. Wings and Empennage
(a) The wings shall be free of fuel leaks.
4. Interior
(a) The ceilings, sidewalls and bulkhead panels shall be clean and
free of cracks and stains.
(b) All carpet and seat covers shall be in good condition, clean
and stain free and meet FAR fire resistance regulations.
(c) All seats shall meet FAA fire retardant regulations and be
serviceable, in good condition and repainted as necessary.
(d) All signs and decals shall be in English and be clean and
legible.
SALE AND LEASE AGREEMENT
C-1
<PAGE>
(e) All emergency equipment having a calendar life shall have a
minimum of one year or one hundred per cent of its total
approved life, whichever is less, remaining.
5. Cockpit
(a) All decals shall be in English and be clean, secure and
legible.
(b) All seat covers shall be in good condition, clean and shall
conform to FAR fire resistance regulation.
(c) All seats shall be fully serviceable and shall be repainted as
necessary.
6. Cargo Compartment
(a) All panels shall be in good condition.
(b) All nets shall be in good condition.
7. Fuel Tanks
(a) The fuel tanks shall be substantially free of bacteria growth
and water.
SALE AND LEASE AGREEMENT
C-2
<PAGE>
SCHEDULE I TO
LEASE AGREEMENT
The Lessor's Cost for the Aircraft is $11,000,000.
SALE AND LEASE AGREEMENT
<PAGE>
SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1
THIS SALE AND LEASE AGREEMENT SUPPLEMENT NO. 1 dated September 27, 1990 is
between FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual
capacity but solely as Owner Trustee under that certain Trust Agreement, dated
as of September 1, 1990 (the "Trust Agreement"), between the Owner Participant
named therein and such Bank ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas
corporation ("Lessee").
RECITALS.
A. Lessor and Lessee have heretofore entered into that certain Sale and
Lease Agreement dated as of September 1, 1990, as supplemented and amended from
time to time (herein called the "Lease Agreement" and the defined terms therein
being herein used with the same meaning), which Lease Agreement provides in
Section 2 for the execution of a Lease Supplement substantially in the form
hereof for the purpose of Lessee's selling to Lessor, and Lessor's leasing back
to Lessee, the Aircraft under the Lease Agreement as and when delivered by
Lessor to Lessee in accordance with the terms thereof; and
B. The Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached hereto and made a
part hereof and this Lease Supplement, together with such attachment, is being
filed for recordation with the FAA on the date hereof as one document.
In consideration of the premises and other good and sufficient
consideration, and pursuant to Section 2 of the Lease Agreement, Lessor and
Lessee hereby agree as follows:
1. Lessee hereby delivers and sells to Lessor and Lessor hereby accepts
and purchases from Lessee and in turn delivers and leases back to Lessee, and
Lessee hereby accepts and leases back from Lessor, under the Lease Agreement, as
herein supplemented, the following-described Boeing Model 737-2H4 Aircraft (the
"Delivered Aircraft"), which Delivered Aircraft as of the date hereof consists
of the following:
Airframe: U.S Registration Number N57SW; Manufacturer's Serial No. 21722;
and
Engines: Two Pratt & Whitney JT8D-9A Engines bearing Engine Manufacturer's
Serial Numbers as follows: P707364B and P687758B.
<PAGE>
Each of the Engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.
2. The Delivery Date of the Delivered Aircraft is the date of this Lease
Supplement set forth in the opening paragraph hereof.
3. Lessee hereby confirms to Lessor that the Delivered Aircraft has been
or will be duly marked in accordance with the terms of Section 7.1.2 of the
Lease and that Lessee has accepted the Delivered Aircraft for all purposes
hereof and of the Lease Agreement, including its being airworthy, in accordance
with specifications, in good working order and repair and without defect or
inherent vice in title, condition, design, operation or fitness for use, whether
or not discoverable by Lessee as of the date hereof, and free and clear of all
Liens except Permitted Liens.
4. All the provisions of the Lease Agreement are hereby incorporated by
reference in this Lease Supplement, on and as of the date of this Lease
Supplement, to the same extent as if fully set forth herein.
5. THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF TEXAS AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
-2-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to
be duly executed and delivered as of the date and year first above written.
Lessor:
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By: /s/ Dorian Light Shaw
---------------------------
Title: ASSISTANT VICE PRESIDENT
Lessee:
SOUTHWEST AIRLINES CO.
By: /s/ John D. Owen
---------------------------
John D. Owen
Treasurer
SALE AND LEASE AGREEMENT
3
<PAGE>
EXHIBIT 99.J
THIS IS COUNTERPART NO. TWO (DUPLICATE) OF TWO COUNTERPARTS. TO THE EXTENT THIS
AGREEMENT CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM
COMMERCIAL CODE IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST
HEREIN MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART
OTHER THAN COUNTERPART NO. ONE.
MARINE SHIPPING CONTAINER
VARIABLE LEASE
(COMBINED CONTAINER SET IV)
THIS MARINE SHIPPING CONTAINER VARIABLE LEASE (the "AGREEMENT") made as of
the 17th day of April, 1995 by and between TRANS OCEAN CONTAINER CORPORATION, a
Delaware corporation, whose head office is located at 851 Traeger Avenue, San
Bruno, CA 94066 (hereinafter called the "Lessee") and Investors Asset Holding
Corp., a Massachusetts corporation, not in its individual capacity but solely as
Trustee of the "AFG/ICCU Trust," having a principal place of business c/o
American Finance Group, Exchange Place, Boston, MA 02109 (hereinafter called the
"Lessor").
W I T N E S S E T H:
WHEREAS, the Lessor has agreed to purchase from the Lessee approximately
2500 TEU's (as defined below) of maritime shipping containers, including dry
cargo, open top, and collapsible flat rack containers, which containers shall be
more fully described in Bills of Sale issued pursuant to that certain Purchase
and Sale Agreement of even date herewith (the "Purchase and Sale Agreement")
between the parties (said containers are hereafter called the "Containers");
WHEREAS, the Lessee is engaged in the business of leasing and operating
containers; and
WHEREAS, the Lessor desires to lease the Containers to the Lessee and the
Lessee is willing to lease the Containers from the Lessor, all on the terms and
conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Lessor-Lessee Relationship
(a) The Lessor hereby leases the Containers to the Lessee, and the Lessee
hereby leases the Containers from the Lessor, in accordance with the terms and
conditions set forth below.
(b) In order to further evidence the relationship of lessor
1
<PAGE>
(1) the Lessor has and shall retain exclusive legal and beneficial
ownership of the Containers, and the Lessee shall not have any right, title or
interest in the Containers, except as provided in this Agreement;
(2) in the conduct of its business, the Lessee will not hold itself
out as an owner of the Containers or take any action that would be inconsistent
with the ownership of the Containers by the Lessor or that would otherwise be
inconsistent with, or outside the scope of, the lease created under this
Agreement; and
(3) Lessor and Lessee agree to treat the transactions provided for
in this Agreement as a lease of the Containers by the Lessor to the Lessee for
United States federal income tax purposes and to take positions consistent with
such treatment in filing the respective United States federal income tax
returns, if any, required to be filed thereby.
(c) The Lessee and the Lessor expressly recognize and acknowledge that
this Agreement does not create a partnership, joint venture or other entity
among or between the Lessor, the Lessee, and/or any other person, and is
intended only to set forth the terms and conditions of the lessor/lessee
relationship between the Lessor and the Lessee with respect to the matters
specifically contained herein.
(d) The Lessee acknowledges and agrees that:
(i) LESSOR IS NOT A MANUFACTURER OF THE CONTAINERS OR A MERCHANT OR
DEALER IN PROPERTY OF SUCH KIND;
(ii) ON OR BEFORE THE PURCHASE DATE OF EACH CONTAINER, THE LESSEE
WILL HAVE ACCEPTED THE CONTAINER INTO ITS FLEET OF MANAGED, OWNED AND LEASED
INTERMODAL MARINE CONTAINERS; AND
(iii) LESSOR HAS NOT MADE, AND DOES NOT HEREBY MAKE, ANY
REPRESENTATION, WARRANTY, OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE
MERCHANTABILITY, CONDITION, QUALITY, DURABILITY, DESIGN, OPERATION, FITNESS FOR
USE, OR SUITABILITY OF THE CONTAINERS OR ANY COMPONENT THEREOF IN ANY RESPECT
WHATSOEVER OR IN CONNECTION WITH OR FOR THE PURPOSES AND USES OF THE LESSEE, AND
THE LESSOR HAS NOT MADE AND DOES NOT HEREBY MAKE ANY OTHER REPRESENTATIONS,
WARRANTIES, OR COVENANTS OF ANY KIND AND CHARACTER, EXPRESS OR IMPLIED WITH
RESPECT THERETO, AND SHALL NOT BE LIABLE FOR ANY ACTUAL, INCIDENTAL,
CONSEQUENTIAL, OR OTHER DAMAGES OF OR TO ANY PERSON WHATSOEVER, WITH RESPECT
THERETO, AND THE LESSEE IS LEASING THE CONTAINERS "AS IS AND WITH ALL FAULTS."
(e) Lessee represents, warrants and certifies to the Lessor as of the date
of execution and delivery of this Agreement:
(i) Lessee is duly organized, validly existing and in
2
<PAGE>
good standing under the laws of the state of its incorporation, with full power
to enter into and to pay and perform its obligations under this Agreement, and
is duly qualified and in good standing in all other jurisdictions in the United
States in which the nature of its business or the ownership of its properties,
or both, make such qualification necessary and where failure to so qualify would
materially adversely affect its financial condition or the conduct of its
business or the performance of its obligations under or the enforceability of
this Agreement.
(ii) This Agreement and all related documents have been duly
authorized, executed and delivered by Lessee, are valid, legal and binding
obligations of Lessee, are enforceable against Lessee in accordance with their
terms and do not and will not contravene any provisions of or constitute a
default under Lessee's organizational documents or its by-laws, any agreement to
which it is a party or by which it or its property is bound, or any law,
regulation or order of any governmental authority;
(iii) Lessor's right, title and interest in and to this Agreement
and the Containers and the rentals therefrom will vest in Lessor on the Purchase
Date for such Containers and will not be affected or impaired by the terms of
any agreement or instrument by which Lessee or its property is bound except for
Lessee's rights under this Agreement and the rights of the sublessees under the
applicable subleases of such Containers;
(iv) no approval of, or filing with, any governmental authority or
other person is required in connection with Lessee's entering into, or the
payment or performance of its obligations under, this Agreement except for the
filing of UCC-l financing statements as contemplated by Section 4 of the
Purchase and Sale Agreement;
(v) there are no suits or proceedings pending or, to the knowledge
of Lessee, threatened, before any court or governmental agency against Lessee
which, if decided adversely to Lessee, would materially adversely affect
Lessee's business or financial condition or its ability to perform any of its
obligations under this Agreement;
(vi) there has been no material adverse change to the Lessee's
financial condition or results from its operations since the date of its most
recent audited financial statements delivered to Lessor; and
(vii) the address stated in the preamble to this Agreement as
Lessee's head office is the principal place of business and chief executive
office of Lessee; and Lessee does not conduct business under a trade, assumed or
fictitious name except as follows: Trans Ocean, Trans Ocean Leasing, and TOL.
3
<PAGE>
2. The Lessee's Duties
In consideration of the right to use and operate the Containers as lessee
pursuant to this Agreement, the Lessee agrees that it will, during the term
hereof, perform the following duties, using a level or standard of care no less
than the Lessee would use with respect to containers it owns, leases or operates
for others:
(a) accept delivery of the Containers;
(b) place such marks upon the Containers, register the Containers in
accordance with such tariffs as required for their operation in marine shipping
service, paint the Containers any appropriate color, and place on the Containers
such markings or legends as the Lessee deems required or appropriate;
(c) take all reasonable and customary steps as may be required to provide
for the sublease of the Containers under short, medium and long term leases on
such terms and conditions as it may deem satisfactory, in its sole discretion
(except as otherwise specifically provided for in this Agreement);
(d) pay to the Lessor the Fixed Rent or the Variable Rent (as defined in
Section 6(c)(6)), as the case may be, on the last day of each calendar quarter
immediately following the calendar quarter for which such Fixed Rent or Variable
Rent is payable;
(e) pay all Operating Expenses (as defined below) and file all applicable
tax returns and other reports with respect to ad valorem, gross receipts and
property taxes attributable to the Set Containers (as defined below);
(f) on behalf of Lessor, sell or otherwise dispose of Containers that
become subject to Casualty Occurrences or Ordinary Disposal Occurrences, as
described in Section 4(b) below (for this purpose, a Casualty Occurrence shall
include a "Casualty Occurrence" (as defined below) that occurs prior to the
Purchase Date but that becomes known to Lessee after the Purchase Date);
(g) perform all administrative and related functions necessary for the
operation and subleasing of the Containers, including but not limited to:
(i) maintaining and servicing (or causing the sublessees to maintain
and service) the Containers in a condition that meets the then current general
interchange standards of the International Institute of Container Lessors, Guide
for Container Equipment Inspection, and in such condition as may be required by
any applicable law or the rules or regulations of any governmental body having
jurisdiction over the Containers and as maybe necessary or appropriate to make
the Containers suitable for rental in international commerce;
4
<PAGE>
(ii) supervising all maintenance and repair of each Container,
whether performed by the Lessee, an employee of a depot operator, or other third
party, to ensure such maintenance satisfies the highest of the following
standards:
(A) any standard required or set forth for the Containers or
equipment of a similar class under any applicable industry convention or
governmental law or regulation;
(B) any standard set by any insurance policy under which the
Containers shall from time to time be insured; and
(C) good commercial practice;
(iii) performing periodic inspections and surveys of the Containers
in the possession of depot operators to ensure maintenance of the Containers in
a seaworthy and safe operating condition;
(iv) maintaining records with respect to the rental of the
Containers, locations of the Containers when off-hire, repair and maintenance
history and repair and maintenance activity; and
(v) monitoring the location of the Containers while off-lease.
In performing such administrative and related functions hereunder, the
Lessee shall not knowingly discriminate against or in favor of the Containers
in seeking subleases; and
(h) defend, indemnify and hold the Lessor and any party or parties from
whom Lessor obtained financing for the Containers (the "Lenders") harmless from
and against any claims asserted against them arising out of the possession or
operation of the Containers (including, but not limited to, injury to persons or
loss of or damage to lading or other property), provided that the costs of such
defense, indemnification and holding harmless shall be an Operating Expense for
purposes of Section 6 (excluding, however, those costs or expenses that result
from the gross negligence or willful misconduct of the Lessee).
3. Covenant of Quiet Enjoyment
The Lessor shall not disturb the Lessee's quiet enjoyment of the
Containers provided Lessor is not entitled to terminate this Agreement pursuant
to Section 4(c).
4. Duration
(a) Initial Term; Extension Options. Except as provided below, the term of
this Agreement as to each of the Containers shall
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commence on the date such Container is included in the Container Set (as defined
below) as determined under Section 6(b)(4), and shall remain in full force and
effect until June 30, 2003 (the "Stated Term"), provided that the Lessor is
hereby granted an option to extend the Stated Term of this Agreement on the same
terms and conditions for up to four one-year renewal periods. The Lessor must
provide written notice to Lessee of its election to exercise this renewal option
not less than ninety (90) days prior to the expiration of the Stated Term of
this Agreement or each subsequent renewal period.
(b) Termination due to a Casualty Occurrence or an Ordinary Disposal
Occurrence. Notwithstanding Section 4(a), this Agreement shall terminate as to
any Container upon the total loss or destruction of that Container (a "Casualty
Occurrence") or upon an Ordinary Disposal Occurrence (as defined below) (an
"Ordinary Disposal Occurrence"), unless within ninety (90) days after the Lessee
receives notice of the Casualty Occurrence or within ninety (90) days after the
Ordinary Disposal Occurrence, the Lessee shall, in accordance with Section 9(b)
below, replace that Container with one of like size, type, age, and condition
and shall notify the Lessor of the replacement. The replacement container shall
be deemed to be a "Container" for all purposes of this Agreement from and after
the date of the Casualty Occurrence or the Ordinary Disposal Occurrence, as
applicable. Unless Lessee replaces a Container subject to a Casualty Occurrence
or an Ordinary Disposal Occurrence in accordance with Section 9(b) below,
Lessee will sell, lease or otherwise dispose of such Container, and will
distribute the net proceeds from such sale, lease or other disposition, in
accordance with said section.
For purposes hereof, an "Ordinary Disposal Occurrence" means the
determination by Lessee to dispose of a Container in the ordinary course of
business for one or both of the following reasons: (i) the Container is no
longer marketable, for example, due to technological obsolescence; or (ii) the
Container has suffered such damage that it is not economic to repair and
re-lease the Container as described in the remainder of this section. When a
Container is returned to the Lessee in damaged condition, the Lessee compares
the net cash value of repairing that Container to the net proceeds that would be
received if that Container were instead sold. If the net cash value is less than
the net proceeds, the Lessee will dispose of the Container as an Ordinary
Disposal Occurrence. The net cash value is obtained by subtracting the cost of
restoring that Container to a leasable condition from the estimated present
value of the future cash streams from leasing that Container over its remaining
useful life.
(c) Termination by the Lessor. Notwithstanding Section 4(a), but subject
to Section 4(d), the Lessor may terminate this Agreement as to any Container by
written notice effective upon delivery of the notice to Lessee (except that this
Agreement shall
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automatically terminate without notice in the event of the occurrence under
Section 4(c)(5) below), which notice may be given only in the event that:
(1) the Lessee shall fail to pay to the Lessor the Fixed Rent or the
Variable Rent required by Section 2(d) and such failure shall continue for a
period of ten (10) days after notice thereof by the Lessor to the Lessee;
(2) the Lessee shall assign or transfer any of its rights hereunder
without the prior written consent of the Lessor;
(3) the Lessee shall default in the performance or observance of any
other covenant, condition, agreement, or duty to be performed or observed by the
Lessee under this Agreement and such default shall continue unremedied for a
period of thirty (30) days after notice thereof by the Lessor to the Lessee;
(4) any representation or warranty made by the Lessee in Section
1(e) hereof, Section 5 of the Purchase and Sale Agreement, or in any Bill of
Sale (as defined in the Purchase and Sale Agreement) shall prove to have been
false in any material respect at the time made;
(5) the Lessee shall have (i) ceased doing business as a going
concern, (ii) made an assignment for the benefit of creditors, admitted in
writing its inability to pay its debts as they mature or generally failed to pay
its debts as they become due, (iii) initiated any voluntary bankruptcy or
insolvency proceeding, (iv) failed to obtain the discharge of any bankruptcy or
insolvency proceeding initiated against it by others within 60 days of the date
such proceedings were initiated, or (v) requested or consented to the
appointment of a trustee or receiver with respect to itself or for a substantial
part of its property; or
(6) the Lessee shall make two (2) or more Variable Rent payments in
amounts that, together with all other Variable Rent payments theretofore made,
fail to aggregate a cumulative annual return to the Lessor of fourteen percent
(14%) or more of the aggregate Container Cost of the Containers then under
lease hereunder.
The events described in Sections 4(c)(l), (2), (3), (4) and (5) above are
hereinafter collectively referred to as "Events of Default."
(d) Containers Subject to Sublease. Notwithstanding Sections 4(a) or 4(c),
if a Container is subject to sublease at a time when this Agreement would
otherwise terminate as to the Container, this Agreement shall remain in full
force and effect as to the Container until the last day of the calendar quarter
in which the Container comes off the sublease unless (x) such termination was as
a
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consequence of the Event of Default specified in Section 4(c) (5), or (y) such
termination was as a consequence of any other Event of Default and Lessor gives
the notice described in Section 5(c)(A); provided that, unless termination as to
the Container was pursuant to Section 4(c), the Lessee shall be entitled to
continue this Agreement as to a Container after the last day of the calendar
quarter in which the Container comes off the sublease if in its reasonable
judgment it is economically feasible to restore the Container to a leasable
condition and to re-lease the Container to an end-user, in which case this
Agreement shall continue as to that Container until the last day of the calendar
quarter in which the Container comes off a sublease or the last day of the
calendar quarter in which the Lessee determines that it is not economically
feasible to restore the Container to a leasable condition and to re-lease the
Container to an end-user. Notwithstanding the foregoing, unless Lessor exercises
its renewal option pursuant to Section 4(a), the Lessee shall not be entitled
pursuant to the foregoing proviso to continue this Agreement as to any Container
after the last day of the calendar quarter in which the Container comes off the
sublease without the prior written consent of the Lessor.
(e) Termination by the Lessee. Notwithstanding Section 4(d), the Lessee
may terminate this Agreement as to any Container of a particular size and type
at the end of the Stated Term thereof and at any time thereafter, upon the
election of the Lessee, at the Lessee's sole and absolute discretion, if
Variable Rent specifically allocable to the Set Containers of that size and
type, calculated in a manner analogous to Section 6(c), for the most recent
calendar quarter that can be reasonably calculated by the Lessee, is less than
fourteen percent (14%) of the aggregate Container Cost of Containers of that
size and type then under lease hereunder multiplied by a fraction the numerator
of which is the number of days in that quarter and the denominator of which is
365.
(f) Treatment of Non-Terminated Containers. Notwithstanding the
foregoing, the termination of this Agreement with respect to any individual
Container shall not relieve the Lessee from performing its obligations hereunder
as to any Containers not subject to such termination.
5. Termination.
(a) Settlement of the Variable Rent. Upon any termination of this
Agreement as to any Container, the Lessee shall make a complete and final
settlement of the Fixed Rent and the Variable Rent for the Container as
determined in Section 6 no later than the last day of the calendar quarter
following the calendar quarter in which termination of this Agreement occurs as
to the Container.
(b) Remarketing of the Containers. Upon termination of this Agreement as
to any Container, other than as a consequence of one
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of the events specified in Section 4(b) or 4(c), the Lessor hereby authorizes
the Lessee to remarket the Containers on behalf of the Lessor, and the Lessee
shall, pursuant to such authorization:
(1) sell, lease or otherwise dispose of the Container, at the sole
and absolute discretion of the Lessee; provided that if the Lessee elects to
acquire the Container from the Lessor, the price to be paid for the Container
will be negotiated in an arm's length transaction and if the parties are unable
to agree on a price, Lessee will not be entitled to acquire the Container from
the Lessor. Lessee shall use its best efforts to maximize the net proceeds
received on account of any sale, lease or other disposition of a Container
pursuant to this Section 5(b) using a level or standard of care no less than the
Lessee would use with respect to containers it owns, leases or operates for
others. The net proceeds of the sale, lease or other disposition shall be
allocated between the Lessee and the Lessor as follows:
(A) the Lessor shall first receive an amount equal to the
lesser of (i) the amount of the net proceeds, or (ii) the value of the Container
pursuant to Exhibit A hereto; and
(B) any net proceeds remaining after the allocation to the
Lessor in subpart (A) shall be paid 50% to the Lessor and 5O% to the Lessee as
incentive compensation for handling the sale, lease or other disposition; and
(2) make payment of any share of the net proceeds to be paid the
Lessor pursuant to Section 5(b)(1) coincident with the final Variable Rent
payment for the Container, but in any event, not later than the last day of the
calendar quarter following the calendar quarter in which termination of this
Agreement occurs as to the Container.
For purposes of this Agreement, "net proceeds" means all proceeds
received by the Lessee as a result of the sale, lease or other disposition of a
Container (including without limitation damage recoveries and insurance
proceeds), less all costs of the sale, lease or other disposition (including
without limitation the cost of repairing and/or rehabilitating the Container to
prepare it for sale, sales commissions paid to vendors, and repositioning
costs).
If pursuant to this Section 5(b) the Lessee fails to sell, lease or
otherwise dispose of a Container on or prior to the last day of the calendar
quarter following the calendar quarter in which termination of this Agreement
occurs as to that Container, the Lessee shall, from and after such day, no
longer be entitled to sell, lease or otherwise dispose of that Container
pursuant to this Section 5(b) and the Lessee shall thereupon return that
Container to the Lessor's possession and control "AS IS, WHERE IS." The Lessor
shall thereupon retake possession and control of that
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Container and shall thereafter sell, lease or otherwise dispose of that
Container free from any right or interest of the Lessee but subject to the
matters set forth in the next succeeding paragraph.
On or before the last day of each calendar quarter, commencing with
the calendar quarter in which Lessee returns a Container to the Lessor's
possession and control pursuant to the preceding paragraph, provided no Event of
Default has occurred and is continuing since the commencement of the remarketing
period contained in this Section 5(b), the Lessor and the Lessee shall make a
complete and final settlement of the net proceeds received with respect to any
Container during such quarter. The net proceeds of the sale, lease or other
disposition shall be allocated between the Lessee and the Lessor as follows:
(A) the Lessor shall first receive an amount equal to the
lesser of (i) the amount of the net proceeds, or (ii) the value of the Container
pursuant to Exhibit A hereto; and
(B) any net proceeds remaining after the allocation to the
Lessor in subpart (A) shall be paid 50% to the Lessor and 50% to the Lessee.
(c) Return of the Containers (Event of Default).
(A) Upon termination of this Agreement as a consequence of an Event
of Default, the Lessor may, upon written notice to Lessee (except that no notice
is required with respect to the Event of Default specified in Section 4(c)(5)),
pursuant to the security interest granted under Section 10 below, direct any or
all sublessees of on-lease Containers to make payment directly to the Lessor and
to return the Containers to Lessor at the termination of the subleases and
otherwise exercise all rights and remedies of a secured creditor under the
Uniform Commercial Code in effect in the applicable jurisdiction.
(B) In the alternative, upon termination of this Agreement as a
consequence of an Event of Default (other than the Event of Default specified in
Section 4(c)(5)), if Lessor does not give the notice described in Section
5(c)(A), this Agreement will continue as to any Container subject to sublease at
the time when this Agreement would otherwise terminate as to that Container
until the last day of the calendar quarter in which the Container comes off the
sublease.
(C) In addition, upon termination of this Agreement as a consequence
of an Event of Default, the Lessee shall effect an orderly transition of any
Container that is off-lease at the time of termination, and of any Container
that is redelivered to Lessee by a sublessee (if this Agreement continues
pursuant to Section 5(c)(B)) to the Lessor for its own use or as lessor to a
container operator, all in accordance with the Lessor's directions. In the
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event that the Lessor chooses to continue operation of any such Container for
its own use or as lessor to a container operator, the Lessee shall redeliver
possession of such Container to the Lessor in sound operating condition, normal
wear and tear excepted, and arrange for the transport of such Container to any
of the depot location(s) described on Schedule I attached hereto (or such other
depot locations as may be mutually acceptable to Lessor and Lessee) (any
location described on said Schedule I or as so agreed by Lessor and Lessee being
hereinafter referred to as a "Schedule I Location"), it being understood that
the costs, if any, of transport of such Container to a Schedule I Location shall
be at the expense of the Lessee. Notwithstanding the foregoing, Lessee may
redeliver replacement containers of like size, type, age and condition if the
original Containers were re-delivered by Lessee's sublessees to non-Schedule I
Locations. The Lessee shall not arrange for the transport of more than 400 TEU's
of Containers (or replacement containers) to any of the following Schedule I
Locations: Bremen, Milan, Leghorn, Genoa, Marseille, Chicago or New Orleans,
except as agreed by the Lessor.
(d) Return of the Containers (Performance). Upon termination of this
Agreement as a consequence of the event specified in Section 4(c)(6), this
Agreement will continue as to any Container subject to sublease at the time when
this Agreement would otherwise terminate as to that Container until the last day
of the calendar quarter in which the Container comes off the sublease. The
Lessee shall thereupon effect an orderly transition of such Container, and of
any Container that is off-lease at the time of termination of this Agreement, to
the Lessor for its own use or as lessor to a container operator, all in
accordance with the Lessor's directions. In the event that the Lessor chooses to
continue operation of any such Container for its own use or as lessor to a
container operator, the Lessee shall redeliver possession of such Container to
the Lessor "AS IS, WHERE IS."
6. Fixed Rent; Variable Rent
(a) Payment. During the term of this Agreement, the Lessee shall pay to
the Lessor at a place designated by the Lessor in United States Dollars (1) the
Fixed Rent; and (2) the Variable Rent payment based on the Lessee's use of the
Containers. Because of the difficulty and complexity for the Lessee to account
for the use of each Container separately, the Lessor agrees that the Variable
Rent shall be based on the average use of a set of similar containers (the
"Container Set") and shall be calculated in accordance with the provisions of
this Section. All rentals and any other amounts to be remitted to the Lessor
under this Agreement shall be paid by wire transfer of funds in accordance with
payment instructions confirmed by the Lessor. All remittances due the Lessor
under this Agreement shall be paid without notice or demand, and without
abatement, set-off or deduction of any amounts whatsoever except as specifically
set forth in this Agreement. All
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remittances that become past due will bear interest at a floating rate per annum
equal to the lesser of (i) the "prime" rate of NatWest Bank N.A. as announced
from time to time at its head office in New York, New York, plus two percent
(2%) per annum (with each change in such prime rate to cause an equal and
corresponding change in the rate of interest payable hereunder) or (ii) the
highest rate allowed by California law, from the due date until paid.
(b) General.
(1) Container Set. The Container Set shall be denominated "Combined
Container Set IV" and shall consist of the Containers and such other containers
as are designated by the Lessee as included in the Container Set. The containers
in the Container Set (including the Containers) shall be referred to as "Set
Containers."
(2) Set Container Requirements. Each Set Container must satisfy the
following criteria:
(A) each Set Container must be a standard dry cargo or
special container (other than a refrigerated or tank container) or other
container-related equipment of similar classification and type;
(B) each Set Container must either be (i) owned by the Lessee
or an affiliate of the Lessee or a partnership of which the Lessee is a general
partner; (ii) leased by the Lessee from third parties, such as the Lessor; or
(iii) managed by the Lessee for the account of third parties; and
(C) each Set Container must either be acquired by the Lessee
or an affiliate of the Lessee or a partnership of which the Lessee is a general
partner or committed to the Container Set between January 1, 1992 and December
31, 1994.
(3) Notification to Lessor. The Lessee shall, after all the Set
Containers to be included in the Container Set have been identified, provide the
Lessor with a summary description, in writing, of the Set Containers included in
the Container Set.
(4) Inclusion in the Container Set. A Container shall be considered
to be included in the Container Set on the date that payment for such Container
is received in accordance with the Purchase and Sale Agreement (the "Purchase
Date").
(5) Container Cost. The Container Cost of each Container shall equal
US $2,350 per TEU or as otherwise mutually agreed to by the parties.
(6) Exchange Rate. If the Container Cost is not paid in
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United States dollars, the amount in such dollars shall be calculated based on
the exchange rate prevailing on the date of payment.
(7) TEUs. Each Set Container shall equal the following number of
twenty (20) foot equivalent units ("TEUs"):
(i) Each twenty (20)-foot dry cargo container shall
equal one (l) TEU;
(ii) Each forty (40)-foot dry cargo container shall equal
one and one-half (1.50) TEUs;
(iii) Each twenty (20)-foot open top container shall equal
one and fifty-four hundredths (1.54) TEUs;
(iv) Each forty (40)-foot open top container shall equal two
and forty-eight hundredths (2.48) TEUs;
(v) Each forty (40)-foot collapsible end flat rack container
shall equal two and seventy-six hundredths (2.76) TEUs; and
(vi) Each forty (40)-foot jumbo high cube container shall
equal one and sixty-eight hundredths (l.68) TEUs.
(c) Fixed Rent; Determination of Variable Rent.
(1) Adjusted Gross Revenues of the Container Set. Adjusted gross
revenues of the Container Set ("Adjusted Gross Revenues of the Container Set")
for any particular calendar quarter shall equal (x) the Gross Revenues of the
Container Set for that quarter less (y) the Operating Expenses of the Container
Set for that quarter.
(i) Gross revenues of the Container Set ("Gross Revenues")
for any particular quarter shall equal all revenues of the Lessee relating to
the Container Set accrued during that quarter from leasing or subleasing all Set
Containers, including but not limited to ancillary and all other related
charges, such as pickup and drop off charges, special handling fees, and late
payment fees, less uncollectible accounts receivable with respect to the Set
Containers for the same quarter, as recorded on the books of account of the
Lessee in accordance with generally accepted accounting principles.
(ii) Operating expenses of the Container Set ("Operating
Expenses") for any particular quarter shall equal all operating costs and
expenses incurred in connection with the operation and leasing of the Set
Containers during that quarter, including but not limited to, costs and expenses
related to the following: maintaining, repairing, or refurbishing the Set
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Containers; inspection, handling and storage; transporting the Set Containers
other than to the point of origin of the initial leases or subleases; legal fees
incurred in enforcing lease obligations; insurance; third-party claims arising
out of the possession or operation of the Set Containers (including, but not
limited to, injury to persons and loss of or damage to lading or other
property), including legal fees incurred in defending against such third-party
claims; charges, assessments or levies of any kind against the Set Containers;
and ad valorem, gross receipts and property taxes attributable to the Set
Containers. Notwithstanding the foregoing, the Operating Expenses shall not
include: (w) those costs and expenses that would be considered costs or expenses
associated with ownership of containers (as opposed to those associated with
operation and maintenance of containers), such as costs and expenses incurred by
the Lessee or Lessor in connection with the purchase and sale of the Set
Containers; (x) any taxes incurred by the Lessor in respect of the Lessor's
acquisition of the Containers or any income, capital or franchise taxes imposed
on the Lessor which are based on or measured by its net income, gross receipts
(other than gross receipts attributable to the Set Containers), or net worth
(all of which taxes shall be paid by the Lessor individually); (y) any income,
capital or franchise taxes imposed on the Lessee which are based on or measured
by its net income, gross receipts (other than gross receipts attributable to the
Set Containers), or net worth (all of which taxes shall be paid by the Lessee
individually); or (z) costs and expenses incurred by the Lessee in connection
with the leasing, management, and administration of the Set Containers as would
generally be considered to be a part of the Lessee's own marketing, general and
administrative expenses, including but not limited to, salaries, travel and
entertainment expenses of the Lessee's personnel; rent; and bookkeeping and
accounting charges.
(2) Container Set TEU-Days. For all Set Containers in the Container
Set for any particular calendar quarter, the number of Container Set TEU-days
("Container Set TEU-Days") shall equal the sum of the Monthly Container Set
TEU-Days for each of the months of that quarter. The Monthly Container Set
TEU-Days for any particular month shall equal (x) the number of TEU's of Set
Containers on the first day of the month and the number of TEU's of Set
Containers on the last day of the month, divided by two; multiplied by (y) the
number of days in that month.
(3) Container Set Daily Adjusted Gross Revenues. The "Container Set
Daily Adjusted Gross Revenues" for any particular calendar quarter shall equal
the Adjusted Gross Revenues of the Container Set for that quarter divided by the
number of Container Set TEU-Days for the same quarter.
(4) Lessor Container TEU-Days. For all Containers in the Container
Set for any particular calendar quarter, the number of Lessor Container TEU-days
("Lessor Container TEU-Days") shall equal
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the sum of the Individual Container TEU-Days for each Container for that
quarter. The Individual Container TEU-Days for any particular Container, for any
particular quarter shall equal (x) the applicable TEU factor for a Container of
that size and type (as set forth in Section 6(b)(7) above) multiplied by (y) the
actual number of days during the quarter that the Container was included in the
Container Set; provided that, if in any quarter a Container is subject to a
Casualty Occurrence or an Ordinary Disposal Occurrence (and the Lessee does not
replace that Container pursuant to Section 9(b)), that Container shall be deemed
to be removed from the Container Set at the midpoint of that quarter.
(5) Lessor Adjusted Gross Revenues. The "Lessor Adjusted Gross
Revenues" for any particular calendar quarter shall equal the Container Set
Daily Adjusted Gross Revenues for that quarter multiplied by the number of
Lessor Container TEU-Days for the same quarter.
(6) Fixed Rent and Variable Rent.
(i) Lessee shall pay Lessor "Fixed Rent" with respect to the
Containers included in the Container Set for the period commencing on the
Purchase Date therefor and ending on March 31, 1996 (the "Fixed Rent Period").
Fixed Rent for any particular calendar quarter shall equal the product obtained
by multiplying (x) the number of Lessor Container TEU-Days for that quarter,
divided by the number of days in that quarter, by (y) $98.81.
(ii) Lessee shall pay Lessor "Variable Rent" with respect to
the Containers included in the Container Set for the period commencing on April
1, 1996 and ending on the day this Agreement terminates in accordance with
Section 4 above (the "Variable Rent Period"). Subject to subparts (iii) and (iv)
below, the Variable Rent for any particular calendar quarter shall equal
seventy-five percent (75.0%) of the Lessor Adjusted Gross Revenues for that
quarter.
(iii) If the Variable Rent otherwise payable pursuant to
subpart (ii) for any calendar quarter during the first year of the Variable Rent
Period is less than the product obtained by multiplying (x) the number of Lessor
Container TEU-Days for that quarter, divided by the number of days in that
quarter, by (y) $98.81 (the "first Year Threshold Amount"), the Variable Rent
for that quarter shall be increased by an amount equal to the lesser of: (x)
fifteen percent (15%) times the Lessor Adjusted Gross Revenues for that quarter;
or (y) the amount by which the First Year Threshold Amount exceeds the Variable
Rent otherwise payable pursuant to subpart (ii) for that quarter without the
adjustment provided by this subpart (iii). If the Variable Rent otherwise
payable pursuant to subpart (ii) for any calendar quarter during the second year
of the Variable Rent Period is less than the product obtained by multiplying (x)
the number of Lessor Container
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TEU-Days for that, quarter, divided by the number of days in that quarter, by
(y) $91.69 (the "Second Year Threshold Amount"), the Variable Rent payable with
respect to such Container shall be increased by an amount equal to the lesser
of: (x) fifteen percent (15%) times the Lessor Adjusted Gross Revenues for that
quarter; or (y) the amount by which the Second Year Threshold Amount exceeds the
Variable Rent otherwise payable pursuant to subpart (ii) for that quarter
without the adjustment provided by this subpart (iii). The amount by which
Variable Rent is increased pursuant to this subpart (iii) shall hereinafter be
referred to as "Additional Variable Rent."
(iv) Commencing with the third year of the Variable Rent
Period, the Variable Rent otherwise payable pursuant to subpart (ii) for any
calendar quarter shall be decreased by an amount equal to the lesser of: (x)
one-twelfth of the aggregate Additional Variable Rent; or (y) the amount by
which the Variable Rent otherwise payable pursuant to subpart (ii) for that
quarter without the adjustment provided by this subpart (iv) exceeds the product
obtained by multiplying (A) the number of Lessor Container TEU-Days for that
quarter, divided by the number of days in that quarter, by (B) $80.
Notwithstanding the foregoing, the aggregate deductions from Variable Rent made
pursuant to this subpart (iv) shall in no event exceed the aggregate Additional
Variable Rent.
(7) Carry-Forward of Operating Deficit. If Variable Rent for any
particular calendar quarter is less than zero, the amount by which Variable Rent
is less than zero (the "Operating Deficit") shall be carried forward and offset
against and to the extent of Lessor's positive Variable Rent in subsequent
calendar quarters, without interest, until the Operating Deficit is fully
offset; provided that, no offset pursuant to this Section shall be made for any
quarter for which Additional Variable Rent is payable. In no event shall the
Lessor be obligated to make any direct payment to the Lessee to reimburse the
Lessee for any Operating Deficit.
7. Withholding Taxes; Arthur Andersen Review; Reports.
(a) Withholding Taxes.
(i) If at any time during the term of this Agreement, the Lessee is
required by law to make any deduction or withholding on account of any tax,
assessment or other governmental charge, which is currently in force or may in
the future come into force as a result of the action of any tax authority, with
respect to the Containers, the Fixed Rent, the Variable Rent, or any other
amount payable by the Lessee to the Lessor hereunder, other than any taxes
imposed on the Lessee which are based on or measured by its net income, gross
receipts (other than gross receipts attributable to the Set Containers), or net
worth, the Lessee shall, thereupon be
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entitled to deduct or withhold, or to offset against the Fixed Rent, the
Variable Rent, or any other amount otherwise payable by the Lessee to the Lessor
hereunder, the amount of such tax, assessment or other governmental charge
(together with interest, additions to tax, penalties or other liabilities
related thereto), irrespective of whether such tax, assessment or other
governmental charge is imposed with respect to the then current or a previous
taxable period, and any amount so deducted, withheld, or offset by the Lessee
and paid by the Lessee to the applicable taxing authority pursuant to and in
accordance with the deduction or withholding requirement shall be deemed to have
been paid by the Lessee to Lessor in satisfaction of the requirements of this
Agreement
(ii) The Lessee agrees to execute and deliver all such documents and
instruments, and to take all such action, as the Lessor shall reasonably request
to minimize amounts to be deducted or withheld pursuant to the tax deduction or
withholding requirement or to obtain an exemption from the deduction or
withholding requirement and to effect any necessary compliance therewith.
(iii) If the Lessor is organized under the laws of a jurisdiction
outside the United States, then, on or prior to the date it becomes entitled to
the receipt of any payment hereunder and from time to time thereafter if
requested in writing by the Lessee, the Lessor shall, if and for so long as the
Lessor is lawfully able to do so, provide the Lessee with (i) an accurate,
complete and duly executed Internal Revenue Service Form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that the Lessor is entitled to benefits under an income tax treaty to
which the United States is a party that reduces the rate of withholding tax on
payments under this Agreement or certifying that the income receivable pursuant
to this Agreement is effectively connected with the conduct of a trade or
business in the United States; or (ii) in the event that, by virtue of a change
in law or regulations, such forms are no longer valid, such other evidence of
the Lessor's exemption from withholding (if and for so long as the Lessor is
legally able to provide such evidence) as is reasonably requested by the Lessee.
(iv) If the Lessee makes any deduction or pays any withholding tax
pursuant to this Section, the Lessee shall promptly give the Lessor written
evidence of payment of such tax.
(b) Arthur Andersen Review. Arthur Andersen & Company or such other
independent public accounting firm as may be satisfactory to the Lessor will
review the calculations of the Adjusted Gross Revenues of the Container Set for
each calendar quarter during the Variable Rent Period in the course of
performing the annual audit of the Lessee's financial statements and will
confirm by a written report to the Lessor to accompany the Variable Rent payment
to be paid on or about June 30th of each year during the Variable Rent
17
<PAGE>
Period that the calculations made by the Lessee during the preceding year were
made in accordance with this Agreement. The Lessee will bear the cost of the
review. Any adjustments in the Variable Rent resulting from the review shall be
reflected in the payment that accompanies the written report.
(c) Reports, Inspection.
(i) Concurrently with payment of the Variable Rent for each calendar
quarter, Lessee shall provide to Lessor a report substantially in the form of
Schedule II hereto showing the calculation of the Lessor Adjusted Gross Revenues
for that quarter.
(ii) During the term of this Agreement and for a period of one year
following termination of this Agreement for any reason whatsoever, for the
purpose of verifying the amount of Variable Rent due under this Agreement for
any one or more calendar quarters, Lessor shall have the right on five business
days notice, at Lessor's expense, to examine during the Lessee's. normal
business hours the business records relating to the Containers.
8. Utilization and Other Matters.
(a) The Lessee agrees to use the Containers in accordance with the
standards accepted in the container leasing industry. The Lessor retains the
right to have the Containers inspected at any time, so long as any inspection
does not interfere with normal utilization of the Containers.
(b) The Lessee agrees not to grant or suffer to exist a lien of any kind
on the Containers, or to permit any sublessee to grant or suffer to exist a lien
of any kind on the Containers, except for the following liens or encumbrances
("Permitted Liens"):
(i) liens or encumbrances that result from acts or omissions of the
Lessor;
(ii) liens or charges for current taxes, assessments or other
governmental charges which are either not yet due or are being contested in good
faith and by appropriate proceedings so long, as such proceedings do not involve
any danger of the sale, forfeiture or loss of any Container or any interest
therein;
(iii) materialmen's, mechanics', workmen's, repairmen's, employees'
and other like liens arising in the ordinary course of business which are either
inchoate and relate to an obligation which is not yet due or which are being
contested in good faith and by appropriate proceedings so long as such
proceedings do not involve any danger of the sale, forfeiture or loss of any
Container or any interest therein; and
(iv) the rights of the sublessees of the Containers under
18
<PAGE>
their respective subleases with the Lessee.
Lessor may enter into a financing arrangement with one or more Lenders;
provided that such Lenders acknowledge in writing that they take subject to this
Agreement.
(c) The Lessee will not permit any sublessee to sell or otherwise transfer
title to any Container to any third party.
(d) The Lessee agrees to give the Lessor, within one hundred and eighty
(180) days of the end of each calendar year, an inventory of the Containers as
of year end. This inventory will specify the name of the lessee of each
Container then on lease.
9. Insurance; Total Loss or Destruction.
(a) The Lessee agrees during the term of this Agreement to insure the
Containers against all risks of physical loss and to maintain comprehensive
general liability insurance covering the Containers against bodily injury or
property damage, in each case subject to normal terms and conditions of a
comprehensive insurance policy, the cost of which insurance shall be an
Operating Expense of the Container Set for purposes of Section 6. The Lessee
will provide the Lessor with a Certificate of Insurance evidencing the insurance
for all Containers covered by this Agreement and naming Lessor and Lenders as an
additional insured and loss payee as their interests may appear. If the Lessee,
through its own negligence, does not maintain the insurance in effect, any loss
or expense due to the failure to maintain the insurance in effect shall be the
responsibility of the Lessee and, notwithstanding the provisions of Section 6,
shall not be an Operating Expense of the Container Set for purposes of Section
6.
(b) (i) In the case of a Casualty Occurrence or an Ordinary Disposal
Occurrence as to a Container, the Lessee agrees to replace the Container within
ninety (90) days after Lessee receives notice of the Casualty Occurrence or
within ninety (90) days after the Ordinary Disposal Occurrence with one of like
size, type, age, and condition and to deliver to the Lessor with respect thereto
concurrently with the replacement of such Container a Certificate of Replacement
in the form of Exhibit B attached hereto, a Bill of Sale in substantially the
form attached to the Purchase and Sale Agreement, and an amendment to the
Uniform Commercial Code financing statements originally filed with respect to
this transaction.
(ii) In the alternative, until the last day of the calendar quarter
following the calendar quarter in which there occurs a Casualty Occurrence or an
Ordinary Disposal Occurrence, Lessee may, on behalf of the Lessor, and Lessor
hereby authorizes Lessee to, sell, lease or otherwise dispose of a Container
subject to a Casualty Occurrence or an Ordinary Disposal Occurrence, at the
19
<PAGE>
sole and absolute discretion of the Lessee; provided that, if (x) a Container is
subject to a Casualty Occurrence or an Ordinary Disposal Occurrence during the
period commencing on the Purchase Date and ending on June 30, 1999; and (y) the
total number of Containers included in the Container Set on the Purchase Date
and theretofore sold, leased or otherwise disposed of pursuant to this Section
(calculated on a TEU basis as of the last day of the most recent calendar
quarter during such period) exceeds five percent (5%) of the total number of
Containers (calculated on a TEU basis as of the Purchase Date), Lessee shall
replace such Container in accordance. with the preceding Section and shall not
be entitled to sell, lease or otherwise dispose of such Container pursuant to
this Section. The net proceeds of the sale, lease or other disposition shall be
allocated between the Lessor and the Lessee as follows:
(1) the Lessor shall first receive an amount equal to the
lesser of:
(A) the amount of the net proceeds; or
(B) the value of the Container according to Exhibit A
attached hereto; and
(2) any net proceeds remaining after the allocation to the
Lessor in subpart (1) shall be paid 50% to the Lessor and 50% to the Lessee as
incentive compensation for handling the sale, lease or other disposition.
(iii) The cost of the replacement or the payment shall not be an
Operating Expense of the Container Set for purposes of Section 6.
(iv) If the Lessee elects to replace the Container, it shall be
entitled to retain the net proceeds of the Casualty Occurrence or Ordinary
Disposal Occurrence for its own account, and the Lessor shall transfer all of
its right, title and interest in and to the original Container to the Lessee.
Lessor agrees to execute or to cause to be executed all necessary documents,
including a bill of sale and a Uniform Commercial Code release, to evidence such
transfer to Lessee.
(v) If the Lessee elects to pay the Lessor the amount described in
Section 9(b) (ii) above, the Lessor shall be entitled to Fixed Rent or Variable
Rent on account of the Container subject to the Casualty Occurrence or Ordinary
Disposal Occurrence in accordance with Section 6 and shall be entitled to
receive such amount on or prior to the last day of the calendar quarter
following the calendar quarter in which termination of this Agreement occurs as
to such Container.
10. Security Interest. To secure the prompt and full payment and
performance of any and all of Lessee's obligations hereunder,
20
<PAGE>
Lessee hereby assigns, transfers, sets over, and grants to Lessor a security
interest in all of Lessee's right, title and interest in and to any and all
present or future subleases, leases, chattel paper, agreements for use, or other
similar agreements relating to the Containers, all accounts, rents, payments and
other rights to receive moneys relating thereto, all other general intangibles
thereunder, all books and records and other documents relating thereto, and all
proceeds of the foregoing (in each case to the extent the same relates to the
Containers) (collectively, the "Collateral"). Upon the occurrence and during the
continuance of an Event of Default (provided that the Lessor shall have
delivered to the Lessee written notice of termination of this Agreement
pursuant to Section 4(c) and the written notice described in Section 5 (c) (A),
except that no notices are required with respect to the Event of Default
specified in Section 4(c) (5)), Lessee agrees that Lessor shall have the right
from and after the effective date of termination to receive and collect all
rent and other sums payable to or receivable by Lessee under any such subleases,
and the right to make all waivers and agreements, to give all notices, consents
and releases and to do any and all other things whatsoever which the Lessee is
or may become entitled to do under any sublease (in each case to the extent such
sublease relates to the Containers).
Anything herein to the contrary notwithstanding, nothing contained
in this Section 10 may be interpreted as permitting the Lessor or any Lender,
and no right or remedy may be exercised by the Lessor or any Lender, which would
result in the derogation of any covenant of quiet enjoyment made to any
sublessee under any sublease of a Container.
11. Sale or Transfer by Lessor. The Lessor may at any time sell or
transfer any Container or any interest therein subject to this Agreement,
provided that:
(a) the party to whom the Container is sold or transferred
acknowledges in writing that the sale or transfer is subject to this Agreement;
(b) the Lessor shall not be entitled to offer or sell any Container
or any interest therein or assign or transfer this Agreement or any interest
therein to any resident, domiciliary or citizen of the United States unless the
offer, sale, assignment or transfer is made in compliance with all applicable
United States and state securities laws; and
(c) the Lessor shall not be entitled to sell or transfer any
Container or any interest therein during the term of this Agreement to any
person engaged in the business of operating and leasing ocean-going marine
shipping containers to end-users, or any affiliates thereof (other than PLM
International, Inc. and its affiliates).
21
<PAGE>
With respect to paragraph (b) above, the Lessor agrees that it will not
authorize discussions concerning the sale or transfer of any Container or any
interest therein, or the assignment or transfer of this Agreement or any
interest therein, within the United States. If an agency or court of the United
States or any State thereof makes a legitimate request for information to
evidence compliance with the matters stated in this Section 11, the Lessor
shall, upon notice from the Lessee that such request has been made, disclose
such information or the evidence verifying such information so as to comply with
such request.
12. Assignment or Transfer by Lessee. No assignment hereof by Lessee or
transfer of any of the rights of Lessee hereunder shall be valid or effective as
against the Lessor unless in conformity with the prior written consent of the
Lessor (which consent shall not be unreasonably withheld).
13. Governing Law. This Agreement is to be interpreted and enforced in
accordance with the laws of the State of California.
14. Securities Laws Representation. For the purpose of the United States
and state securities laws, Lessor represents and warrants to the Lessee that the
following are true and correct on the date the Lessor executes this Agreement:
(a) The Lessor has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in containers and of protecting its own interests in connection with
such investment.
(b) The Lessor is entering into this Agreement and acquiring the
Containers or an interest therein for its own account and not with a view to or
for sale in connection with any distribution of a security.
Lessor acknowledges that this transaction has not been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities law. Therefore, if this transaction is deemed a security under
federal or state securities laws, an interest in this Agreement or in the
Containers may not be resold unless it is registered under the Act and all
applicable state securities laws or an exemption from such registration is
available.
15. Amendment.
No modification or amendment of this Agreement shall be valid unless in
writing and executed by the parties hereto.
16. Integration.
This Agreement represents the entire agreement and understand-
22
<PAGE>
ing between the parties hereto and supersedes all prior or contemporaneous
agreements, whether written or oral, with respect to the subject matter hereof.
17. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
18. Title and Headings; Sections.
Title and headings of the sections and subsections of this Agreement are
for convenience of reference only and do not form a part of this Agreement and
shall not in any way affect the interpretation thereof. References to sections
and subsections without further attribution mean sections and subsections of
this Agreement.
19. Successors and Assigns.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective permitted successors and assigns of each
party hereto.
20. Further Assurances.
The parties hereto agree to execute and deliver, or cause to be executed
and delivered, such further instruments or documents and take such further
action as may be reasonably required effectively to carry out the transactions
contemplated herein.
21. Waiver of Jury Trial.
LESSEE AND LESSOR EACH IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION OR PROCEEDING UPON,
ARISING OUT OF, OR RELATED TO THIS AGREEMENT.
22. Chattel Paper.
Only one counterpart of this Agreement shall be marked "Counterpart No.
One" ("Counterpart No. One"), and all other counterparts hereof shall be marked
as, and shall be duplicates. To the extent this Agreement constitutes chattel
paper (as such term is defined in the Uniform Commercial Code in effect in any
applicable jurisdiction), no security interest herein may be created through the
transfer or possession of any counterpart other than Counterpart No. One.
23
<PAGE>
23. Effectiveness.
This Agreement shall be effective, only when it has been executed and
delivered by each of the parties hereto.
EXECUTED as of the 17th day of April, 1995.
TRANS OCEAN CONTAINER CORPORATION,
the Lessee
851 Traeger Avenue
San Bruno, CA. 94066
Telecopy No. (415) 873-6764
By: /s/ [ILLEGIBLE]
------------------------------------
Its: TREASURER
-----------------------------------
INVESTORS ASSET HOLDING CORP., not in its
individual capacity but solely as Trustee
of the "AFG/ICCU Trust," the Lessor
Exchange Place
Boston, MA 02109
Telecopy No. (617) 523-1410
By:
------------------------------------
Its:
-----------------------------------
24
<PAGE>
23. Effectiveness.
This Agreement shall be effective, only when it has been executed and
delivered by each of the parties hereto.
EXECUTED as of the 17th day of April, 1995.
TRANS OCEAN CONTAINER CORPORATION,
the Lessee
851 Traeger Avenue
San Bruno, CA. 94066
Telecopy No. (415) 873-6764
By:
------------------------------------
Its:
-----------------------------------
INVESTORS ASSET HOLDING CORP., not in its
individual capacity but solely as Trustee
of the "AFG/ICCU Trust," the Lessor
Exchange Place
Boston, MA 02109
Telecopy No. (617) 523-1410
By: /s/ [ILLEGIBLE]
------------------------------------
Its: Vice-President
-----------------------------------
24
<PAGE>
EXHIBIT A
VALUE IN THE EVENT OF A CASUALTY OCCURRENCE
OR AN ORDINARY DISPOSAL OCCURRENCE
(As % of Container Cost)
After After
Quarter* Value Quarter* Value
-------- ----- -------- -----
0 103.75% 31 64.77%
1 103.00% 32 62.76%
2 102.23% 33 60.68%
3 101.43% 34 58.53%
4 100.61% 35 56.31%
5 99.76% 36 54.02%
6 98.89% 37 51.66%
7 97.98% 38 49.22%
8 97.05% 39 46.70%
9 96.08% 40 44.10%
10 95.08% 41 41.41%
11 94.05% 42 38.64%
12 92.99% 43 35.77%
13 91.90% 44 32.82%
14 90.76% 45 29.77%
15 89.59% 46 26.61%
16 88.39% 47 23.36%
17 87.14% 48 20.00%
18 85.85% 49 18.61%
19 84.52% 50 17.18%
20 83.15% 51 15.70%
21 81.73% 52 14.17%
22 80.27% 53 12.59%
23 78.76% 54 10.96%
24 77.20% 55 9.28%
25 75.59% 56 7.54%
26 73.93% 57 5.74%
27 72.21% 58 3.89%
28 70.44% 59 1.98%
29 68.61% 60 0.00%
30 66.72%
- ----------
* Quarters begin to be counted as of the beginning of the first calendar quarter
after the calendar quarter in which the Container is included in the Container
Set.
26
<PAGE>
EXHIBIT B
SAMPLE
Certificate of Replacement Number ______
A. Description of the Container(s)
Trans Ocean Container Corporation (the "Lessee") certifies that the
Container(s) listed below in Column 1 (the "Affected Container(s)") that
heretofore were subject to the Marine Shipping Container Variable Lease dated as
of April _____, 1995 (the "Agreement") with Investors Asset Holding Corp., a
Massachusetts corporation, not in its individual capacity but solely as Trustee
of the "AFG/ICCU Trust" (the "Lessor") have been subject to a Casualty
Occurrence or an Ordinary Disposal Occurrence (as such terms are defined in the
Agreement). Therefore, in accordance with Section 9(b) of the Agreement, the
Lessee elects to provide replacement container(s) therefor and certifies that:
(i) the container(s) listed below in Column 2 (the "Replacement Container (s)")
are of like size, type, age and condition as the Affected Container(s), and (ii)
effective on the date indicated below, the Replacement Container(s) shall, for
purposes of the Agreement, replace the Affected Container(s), and (iii) the
Replacement Container(s) are, as of such date, "Containers" for purposes of the
Agreement.
COLUMN 1 COLUMN 2
-------- --------
1. Designation of Containers 1. Designation of Containers
2. Type: 2. Type:
3. Quantity: 3. Quantity:
4. Container 4. Container
Numbers: Numbers:
B. Date Replacement Container(s)
Are Effective Under The Agreement:
C. Lease of the Replacement Containers(s)
The Lessee shall lease the above-designated Replacement Container(s) in
accordance with the terms and conditions of the Agreement.
D. Restriction on Transfer of the Replacement Container(s)
The Lessor may not sell or transfer the above designated Replacement
Container(s) or any interest therein except in accordance with the Agreement.
TRANS OCEAN CONTAINER CORPORATION
By:
-------------------------------
Title:
----------------------------
27
<PAGE>
SCHEDULE I
Specified Depot Locations
for Redelivery of the Containers
Pusan New York
Hong Kong London
Kaohsiung Le Havre
Kobe Antwerp
Nagoya Rotterdam
Yokohama Bremen
Seattle Hamburg
San Francisco/Oakland Marseille
Los Angeles/Long Beach Genoa
Houston Leghorn
New Orleans Milan
Chicago
28
<PAGE>
SCHEDULE II
TRANS OCEAN LTD
CALCULATION OF DAILY ADJUSTED GROSS REVENUE
COMBINED CONTAINER SET IV
? QUARTER 199?
I. CONTAINER SET RESULTS
<TABLE>
<CAPTION>
DRY CARGO DRY CARGO HIGH CUBE OPEN TOP OPEN TOP COLLAPSIBLE
20' 40' DRY 40' 20' 40' FLAT 40' TOTAL
--------- --------- --------- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
GROSS REVENUE $5 $5 $5 $5 $5 $5 $30
BAD DEBT WRITE-OFFS ($1) ($1) ($1) ($1) ($1) ($1) ($6)
--------- --------- --------- -------- -------- ----------- -----
TOTAL GROSS REVENUE $4 $4 $4 $4 $4 $4 $24
REPAIR AND MAINTENANCE EXPENSE $1 $1 $1 $1 $1 $1 $6
OTHER OPERATING EXPENSES $1 $1 $1 $1 $1 $1 $6
--------- --------- --------- -------- -------- ----------- -----
TOTAL EXPENSES $2 $2 $2 $2 $2 $2 $12
--------- --------- --------- -------- -------- ----------- -----
ADJUSTED GROSS REVENUE $2 $2 $2 $2 $2 $2 $12
========= ========= ========= ======== ======== =========== =====
</TABLE>
II. CONTAINER SET TEU DAYS
BEGINNING ENDING AVERAGE DAYS IN CONTAINER SET
MONTH TEUS TEUS TEUS MONTH TEU DAYS
- ---------- --------- ------ ------- ------- -------------
Month 1 6.00 6.00 6.00 31 186.00
Month 2 6.00 6.00 6.00 30 180.00
Month 3 6.00 6.00 6.00 31 186.00
-------------
TOTAL CONTAINER SET TEU DAYS 552.00
=============
III. DAILY ADJUSTED GROSS REVENUE PER TEU
<TABLE>
<CAPTION>
DRY CARGO DRY CARGO HIGH CUBE OPEN TOP OPEN TOP COLLAPSIBLE
20' 40' DRY 40' 20' 40' FLAT 40' TOTAL
--------- --------- --------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE # OF CONTAINER TEU DAYS 92.00 138.00 154.56 92.00 33.44 42.00 552.00
GROSS REVENUE $0.05 $0.04 $0.03 $0.05 $0.15 $0.12 $0.05
BAD DEBT WRITE-OFFS ($0.01) ($0.01) ($0.01) ($0.01) ($0.03) ($0.02) ($0.01)
--------- --------- --------- -------- -------- ----------- ------
TOTAL GROSS REVENUE $0.04 $0.03 $0.03 $0.04 $0.12 $0.10 $0.04
REPAIR AND MAINTENANCE EXPENSE $0.01 $0.01 $0.01 $0.01 $0.03 $0.02 $0.01
OTHER OPERATING EXPENSES $0.01 $0.01 $0.01 $0.01 $0.03 $0.02 $0.01
--------- --------- --------- -------- -------- ----------- ------
TOTAL EXPENSES $0.02 $0.01 $0.01 $0.02 $0.06 $0.05 $0.02
--------- --------- --------- -------- -------- ----------- ------
ADJUSTED GROSS REVENUE $0.02 $0.01 $0.01 $0.02 $0.06 $0.05 $0.02
========= ========= ========= ======== ======== =========== ======
</TABLE>
<PAGE>
TRANS OCEAN LTD
CALCULATION OF LESSOR'S VARIABLE RENT
COMBINED CONTAINER SET IV
? QUARTER 199?
LESSOR: ?
I. LESSOR'S CONTAINER TEU DAYS
40' HIGH
40' DRY CUBE
CARGO DRY CARGO TOTAL
------- --------- ------
NUMBER OF CONTAINER DAYS
IN THE CONTAINER SET: 92 92
TEU FACTOR: 1.50 1.68
------- ---------
LESSOR'S CONTAINER TEU DAYS: 138.00 154.56 292.56
------- --------- ======
II LESSOR'S ADJUSTED GROSS REVENUE
DAILY ADJUSTED GROSS REVENUE PER TEU: $0.02
LESSOR'S CONTAINER TEU DAYS: 292.56
--------
LESSOR'S ADJUSTED GROSS REVENUE $5.85
--------
VARIABLE RENT PERCENTAGE: 75.00%
--------
VARIABLE RENT DUE TO LESSOR: $4.39
========
<PAGE>
CONTAINER TEU DAYS CALCULATION
? QUARTER 199?
LESSOR
TOTAL
UNIT TOTAL
CONTAINER ACTIVITY NUMBER DAYS IN TEU TEU
TYPE DATE OF UNITS QUARTER FACTOR DAYS
- ------------ -------- -------- ------- ------ -------
C40 Month 1 1 92 1.50 138.00
-------- ------- -------
1 92 138.00
J40 Month 1 1 92 1.68 154.56
-------- ------- -------
1 92 154.56
<PAGE>
LLR00D LOAN AMORTIZATION SCHEDULE 9/29/97 10:34:50 PAGE 1
EQUITY OWNER: 8801 AFG TRUST 88-1
PERCENT OWNED: 100.000000%
LESSEE: AMOCO RENTAL SCHEDULE: B-O-9
LENDER NAME: KANSALLIS FINANCE LTD LOAN CODE: KFNL052
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
PAYMENT PMT BALANCE TOTAL INTEREST PRINCIPAL BALANCE
DATE # BEFORE PMT PAYMENT PAYMENT PAYMENT AFTER PMT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/01/1989 1 119,033.61 9,808.71 3,228.79 6,579.92 112,453.69
8/01/1989 2 112,453.69 9,808.71 5,903.82 3,904.89 108,548.80
2/01/1990 3 108,548.80 9,808.71 5,698.81 4,109.90 104,438.90
8/01/1990 4 104,438.90 9,808.71 5,483.04 4,325.67 100,113.23
2/01/1991 5 100,113.23 9,808.71 5,255.94 4,552.77 95,560.46
8/01/1991 6 95,560.46 9,808.71 5,016.92 4,791.79 90,768.67
2/01/1992 7 90,768.67 9,808.71 4,765.36 5,043.35 85,725.32
8/01/1992 8 85,725.32 9,808.71 4,500.58 5,308.13 80,417.19
2/01/1993 9 80,417.19 9,808.71 4,221.90 5,586.81 74,830.38
8/01/1993 10 74,830.38 9,808.71 3,928.60 5,880.11 68,950.27
2/01/1994 11 68,950.27 9,808.71 3,619.89 6,188.82 62,761.45
8/01/1994 12 62,761.45 9,808.71 3,294.98 6,513.73 56,247.72
8/01/1994 56,247.72 17,975.55 .00 17,975.55 38,272.17
2/01/1995 13 38,272.17 6,674.24 2,009.29 4,664.95 33,607.22
8/01/1995 14 33,607.22 6,674.24 1,764.38 4,909.86 28,697.36
2/01/1996 15 28,697.36 6,674.24 1,506.61 5,167.63 23,529.73
8/01/1996 16 23,529.73 6,674.24 1,235.31 5,438.93 18,090.80
2/01/1997 17 18,090.80 6,674.24 949.77 5,724.47 12,366.33
8/01/1997 18 12,366.33 6,674.24 649.23 6,025.01 6,341.32
8/02/1997 6,341.32 6,341.32 .00 6,341.32 .00
2/01/1998 19 .00 .00 .00 .00 .00
182,066.83 63,033.22 119,033.61
</TABLE>
YEARLY RATE OF RETURN: 10.50000%
** END OF REPORT **
<PAGE>
Exhibit A - Value in the Event of a Casualty Occurrence or an Ordinary Disposal
Occurrence
Exhibit B - Certificate of Replacement
Schedule I - Specified Depot Locations
Schedule II - Form of Report re: Lessor Adjusted Gross Revenues
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,468,062
<SECURITIES> 175,617
<RECEIVABLES> 1,767,212
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,996,644
<PP&E> 18,578,185
<DEPRECIATION> 8,461,236
<TOTAL-ASSETS> 14,457,880
<CURRENT-LIABILITIES> 632,892
<BONDS> 3,688,947
0
0
<COMMON> 0
<OTHER-SE> 10,136,041
<TOTAL-LIABILITY-AND-EQUITY> 14,457,880
<SALES> 0
<TOTAL-REVENUES> 2,945,128
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,468,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338,932
<INCOME-PRETAX> 137,523
<INCOME-TAX> 0
<INCOME-CONTINUING> 137,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,523
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
