U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission File No. 0-23444
PAN AM CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0450311
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9300 N.W. 36TH STREET, MIAMI, FLORIDA 33178
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(Address of principal executive offices)
(305) 873-6039
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of October 31, 1996, the Company had a total of 10,920,191 shares of
Common Stock, par value $.0001 per share outstanding.
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PAN AM CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements - Unaudited
Condensed Balance Sheets as of September 30, 1996 and
December 31, 1995.......................................................... 3
Condensed Statements of Development Stage Operations for the
three and nine months ended September 30, 1996 and 1995 and
cumulative for the period from inception to September 30, 1996 ............ 4
Consolidated Statement of Cash Flows - unaudited
for nine months ended September 30, 1996 and 1995 and
cumulative for the period from inception to September 30, 1996............. 5
Notes to Condensed Financial Statements ................................... 6-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 15-19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders........................... 20
Item 6. Exhibits and Reports on Form 8-K.............................................. 20-21
Signature............................................................................. 22
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PAN AM CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET - UNAUDITED
- -----------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
(PREDECESSOR
COMPANY)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,886,771
Receivables, principally traffic 863,622
Expendable aircraft parts 261,787
Prepaid expenses and other assets 820,217
-------------
Total current assets 24,832,397
PROPERTY - Net
2,033,064
OTHER ASSETS:
Service marks (net of accumulated amortization
of $108,830 and $82,211) 1,575,351 $1,601,970
Organizational costs (net of accumulated
amortization of $15,407 and $8,371) 55,664 12,684
Deposits 1,484,280
Investment in affiliate 1,000
------------- --------------
TOTAL $29,981,756 $1,614,654
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,450,066
Note payable to stockholder 1,500,000
Air traffic liability 539,812
Accrued compensation 120,000
Deferred income taxes 155,421
Other accrued expenses 153,080 $ 4,263
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Total current liabilities 5,918,379 4,263
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CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000 shares and 20,000
shares authorized,10,920,191 shares and 750 shares issued and
outstanding respectively 1,092 8
Capital surplus 39,021,109 2,106,031
Capital surplus - stock option 534,264
Deficit accumulated during the development stage (12,817,191) (495,648)
Deferred compensation (790,918 shares) (833,759)
Receivables from officers and stockholders (521,852 shares) (1,842,138)
------------- --------------
Total stockholders' equity
24,063,377 1,610,391
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TOTAL $29,981,756 $1,614,654
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See accompanying notes to consolidated financial statements - unaudited.
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PAN AM CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF DEVELOPMENT STAGE OPERATIONS - UNAUDITED
- ------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED FOR THE
SEPTEMBER 30, SEPTEMBER 30, CUMULATIVE
1996 1995 1996 1995 PERIOD FROM
(PREDECESSOR PREDECESSOR INCEPTION TO
COMPANY) COMPANY) SEPTEMBER 30,
1996
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REVENUES:
Passenger.......................... $ 125,000 $ 125,000 $ 125,000
Cargo and mail..................... 450 450 450
License fees and other income ..... 53,307 73,176 $ 110 73,176
------------ ---------- ----------- ---------- -----------
Total revenues ........... 178,757 198,626 110 198,626
------------ ---------- ----------- ---------- -----------
EXPENSES:
Wages and related costs ........... 2,639,542 $ 28,663 4,189,022 85,989 4,189,022
Professional and technical ........ 941,951 15,205 2,134,959 37,372 2,134,959
Advertising ....................... 951,807 1,291,244 1,291,244
Flight crew training costs ........ 578,146 1,025,497 1,025,497
Reservations and sales ............ 687,843 687,843 687,843
Aircraft maintenance materials
and repairs ..................... 606,643 613,664 613,664
Aircraft rentals .................. 604,792 608,792 608,792
Materials and supplies-other ...... 340,039 420,924 420,924
Facilities and other rents ........ 218,018 406,878 406,878
Aircraft fuel and oil ............. 361,316 361,316 361,316
Insurance ......................... 253,996 290,003 290,003
Passenger service ................. 161,726 237,386 237,386
Depreciation and amortization ..... 90,199 13,073 168,512 33,210 168,512
Communications .................... 106,905 156,320 156,320
Ground handling and landing fees .. 127,250 127,250 127,250
Other ............................. 345,449 5,276 520,757 19,697 520,757
------------ ---------- ----------- ---------- -----------
Total expenses ........... 9,015,622 62,217 13,240,367 176,268 13,240,367
------------ ---------- ----------- ---------- -----------
NON-OPERATING
INCOME (EXPENSES):
Interest income ................... 155,851 390,064 390,064
Interest expense .................. (26,121) (26,121) (26,121)
Write-down of investment .......... (17,000) (17,000)
Other ............................. 420 33,028 33,028
------------ ---------- ----------- ---------- -----------
Total non-operating income 130,150 379,971 379,971
------------ ---------- ----------- ---------- -----------
LOSS BEFORE DEFERRED
INCOME TAX PROVISION (8,706,715) (62,217) (12,661,770) (176,158) (12,661,770)
DEFERRED INCOME
TAX PROVISION ..................... (155,421) (155,421)
------------ ---------- ----------- ---------- -----------
NET LOSS ............................ $(8,706,715) $ (62,217) $(12,817,191) $ (176,158) $(12,817,191)
============ ========== =========== ========== ===========
NET LOSS PER SHARE .................. $ (1.11) $ (82.96) $ (2.21) $ (234.88) $ (2.21)
============ ========== =========== ========== ===========
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING ....................... 7,823,615 750 5,787,976 750 5,787,976
============ ========== =========== ========== ===========
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See accompanying notes to consolidated financial statements - unaudited.
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PAN AM CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
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FOR THE NINE MONTHS ENDED FOR THE CUMULATIVE
SEPTEMBER 30, PERIOD FROM INCEPTION
1996 1995 TO SEPTEMBER 30, 1996
(PREDECESSOR
COMPANY)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................... $(12,817,191) $(176,158) $(12,817,191)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .................. 168,512 33,211 168,512
Deferred compensation amortization ............. 1,167,264 1,167,264
Deferred income taxes .......................... 155,421 155,421
Amortization of prepaid rent ................... 300,110 300,110
Write-off of investment in affiliate ........... 17,000 17,000
Changes in certain assets and liabilities:
Increase in receivables ...................... (863,622) (863,622)
Increase in prepaid expenses ................. (820,217) (820,217)
Increase in accounts payable ................. 3,390,951 3,390,951
Increase in air traffic liability ............ 539,812 539,812
Increase in accrued compensation ............. 120,000 120,000
Increase in accrued expenses ................. 153,080 85,989 153,080
----------- ---------- -----------
Net cash used in operating activities ... (8,488,880) (56,958) (8,488,880)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............... (620,034) (620,034)
Payments for service marks ....................... (77,005)
Investment in affiliate .......................... (18,000) (18,000)
Deposits ......................................... (1,484,280) (1,484,280)
----------- ---------- -----------
Net cash used in investing activities ... (2,122,314) (77,005) (2,122,314)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable ......................... 1,500,000 1,500,000
Issuance of common stock ......................... 31,997,965 31,997,965
Capital contributions ............................ 134,851
----------- ---------- -----------
Net cash provided by financing activities 33,497,965 134,851 33,497,965
----------- ---------- -----------
NET INCREASE IN CASH
22,886,771 888 22,886,771
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .............................. 4,175
----------- ---------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD .................................... $22,886,771 $ 5,063 $ 22,886,771
=========== ========== ===========
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See accompanying notes to consolidated financial statements-unaudited.
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PAN AM CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND FOR THE CUMULATIVE PERIOD FROM
INCEPTION TO SEPTEMBER 30, 1996
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pan Am Corporation (F/K/A Frost Hanna Mergers Group, Inc.) (the "Company" or
"Pan Am"), a development stage company, was formed to serve as a vehicle to
effect a merger, exchange of capital stock, asset acquisition or other
similar business combination (a "Business Combination") with an operating
business. On September 23, 1996, the Company completed a Business Combination
(Merger) with Pan American World Airways, Inc., a Florida corporation
("PAWA"), in a transaction treated for accounting purposes, as a capital
transaction equivalent to the issuance of stock by PAWA for the Company's net
monetary assets which approximated $9.8 million at September 23, 1996.
PAWA, also a development stage company, was established for the purpose of
operating a commercial passenger and cargo airline through its wholly-owned
subsidiary, Pan American Airways, Inc. ("PAA"). On September 19, 1996, PAA
received its final regulatory approvals and on September 26, 1996, Pan Am
commenced operations as a scheduled passenger and cargo air carrier.
As of September 30, 1996, the Company still considers itself a development
stage company. Accordingly, the accompanying unaudited consolidated financial
statements reflect the Company's cumulative development stage operations from
Inception (January 1, 1996) of PAWA.
The following is a summary of significant accounting policies of the Company:
BASIS OF PRESENTATION - The accompanying unaudited consolidated financial
statements as of September 30, 1996 and for each of the three and nine-month
periods ended September 30, 1996 and 1995 and for the cumulative period from
Inception to September 30, 1996 have been prepared by the Company which is
responsible for their integrity and objectivity.
To the best of management's knowledge and belief, the statements and related
information were prepared in conformity with generally accepted accounting
principles and are based on recorded transactions and management's best
estimates and judgments. The interim results of operations are not
necessarily indicative of the results which may be expected for the full
year.
The unaudited consolidated financial statements for the three and nine-month
periods ended September 30, 1996 and 1995 and for the cumulative period from
Inception to September 30, 1996 include, in the opinion of management, all
adjustments (which are normal recurring adjustments) necessary for a fair
presentation of the financial condition and results of operations of the
Company for the periods indicated.
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The September 30, 1996 unaudited consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, Pan American
Airways, Inc. (formerly known as PANF, Inc.), a Florida corporation, Pan
American World Airways, Inc., a Delaware corporation, Pan American Airbridge
Holdings, Inc., a Florida corporation, and EAL Asset Company No. 1, a Florida
corporation. All intercompany balances and transactions have been eliminated.
As required by instructions to Form 10-Q, the combined financial statements
of the Predecessor Company as of December 31, 1995 and for the three and nine
month periods ended September 30, 1995, have been included herein. The
Predecessor Company, also a development stage company, consists of the
combination of Pan American World Airways, Inc., a Delaware corporation, and
Pan American Airbridge Holdings, Inc., a Florida corporation. The Predecessor
Company had common ownership and management and its principal asset, service
marks related to the Pan Am /Registered trademark/ trade name, was held for
development. All intercompany balances and transactions have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - For purposes of consolidated financial
statements, the Company considers all highly-liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
Included in the balance at September 30, 1996 is $7.0 million of restricted
funds received from the second private offering (see Note 8; Stock
Offerings). Such funds were released to the Company on October 9, 1996.
EXPENDABLE AIRCRAFT PARTS - Expendable aircraft parts are carried at the
lower of cost or market, with cost being determined on the first-in,
first-out basis. An allowance is provided when, in the judgment of
management, the realizable value of individual parts declines below the total
cost of such parts.
PROPERTY - Property is stated at the lower of cost or market. Depreciation
and amortization are provided on the straight-line method over the estimated
useful lives of the various assets. Property useful lives are as follows:
Spare rotables....................................... five years
Technical library.................................... five years
Office equipment..................................... five years
Software............................................. five years
AIRCRAFT MAINTENANCE AND REPAIRS - The cost of major renewals and betterments
are capitalized. Routine repairs and maintenance are charged to operations as
incurred. The cost of major scheduled airframe, engine and certain component
overhauls are capitalized and amortized over the periods benefited. Upon
disposition, the cost and related accumulated depreciation are removed from
the accounts, and any related gain or loss is reflected in earnings.
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INTANGIBLE ASSETS - Intangible assets including service marks related to the
Pan Am trade name (stated at cost) and organizational costs are amortized on
the straight-line method over their legal or estimated useful lives,
whichever is shorter, as follows:
Service marks........................................ forty years
Organizational costs................................. five years
The Company continually evaluates the periods of intangible asset
amortization to determine whether events and circumstances subsequent to the
origination date of such assets warrant a revised estimate of useful lives.
In addition, the Company periodically reviews intangible assets to assess
recoverability based upon expectations of undiscounted cash flows from future
operations. An impairment would be recognized in operating results based upon
such reviews.
INVESTMENT IN AFFILIATE - The Company accounts for its investment in
affiliate under the equity method.
DEFERRED COMPENSATION - Deferred compensation, a contra-equity account, is
recorded for the difference between the fair value and the exercise price of
shares of common stock subject to stock options. Deferred compensation is
being amortized on a straight-line method over the one-year vesting period.
REVENUE RECOGNITION - Revenues are recognized when the transportation is
provided. Customer flight deposits and unused passenger tickets sold are
included in air traffic liability. As is customary within the industry, the
Company performs periodic evaluations of this estimated liability, and any
adjustments resulting therefrom, which can be significant, are included in
the results of operations for the periods in which the evaluations are
completed.
PASSENGER TRAFFIC COMMISSIONS - Passenger traffic commissions are recognized
as expense when the transportation is provided and the related revenue is
recognized. The amount of passenger traffic commissions paid but not yet
recognized as expense is included in prepaid expenses and other current
assets in the accompanying consolidated balance sheet.
DEFERRED INCOME TAXES - The Company provides for deferred taxes under the
liability method. Under such method, deferred taxes are adjusted for tax rate
changes as they occur. Deferred income tax assets and liabilities are
computed for differences between the financial statements and the tax basis
of assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to
the amount expected to be realized.
The Company expects to file consolidated income tax returns.
Prior to its contribution, one of the Company's subsidiaries was an S
corporation for federal income tax purposes. Therefore, the income tax
effects of the results of operations prior to such contribution accrue
directly to the previous stockholders. However, on the contribution date,
such subsidiary had a change in its tax status and, accordingly, the Company
recognized a deferred tax liability of $155,421 with a corresponding charge
to the provisions for income taxes
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during the nine months ended September 30, 1996. Had such subsidiary been a C
corporation, it would not have had any provision for income taxes since it
had net losses during all periods.
NEW ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and
for long-lived assets and certain identifiable intangibles to be disposed of.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. An impairment would be recognized in
operating results, when there is a difference between the respective future
cash flows and the carrying value of the long-lived assets. SFAS No. 121 will
apply to the Company for the year ended December 31, 1996. The implementation
of SFAS No. 121 did not have a material impact on the Company's financial
position or result of operations.
In October 1995, FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which will be effective for the Company beginning January 1,
1996. This Statement requires certain disclosures about stock-based employee
compensation arrangements, regardless of the method used to account for them,
defines a fair value based method of accounting for an employee stock option
or similar equity instrument, and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost
for stock-based compensation plans using the intrinsic value method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The Company will continue to apply
APB Opinion No. 25 to its stock based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings per
share.
2. LOSS PER SHARE
Net loss per common share is computed by dividing net loss by the weighted
average number of common stock and common stock equivalent shares
outstanding. For the three and nine-month periods ended September 30, 1996,
the Company's common stock equivalents, consisting of stock options and
warrants outstanding, were anti-dilutive.
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3. PROPERTY - NET
Property at September 30, 1996 consisted of the following:
Spare rotables....................................... $ 797,887
Software.............................................. 500,000
Technical library.................................... 250,000
Training manuals..................................... 50,000
Office equipment..................................... 572,225
-----------
2,170,112
Less: depreciation and amortization.................. 137,048
----------
Total property - net................................. $2,033,064
==========
4. INVESTMENT IN AFFILIATE
The Company's investment in affiliate, which is carried at a nominal value,
consists of a 30% interest in Chalks Air Bridge, Inc., which owns 100% of
Flying Boat, Inc., a Delaware corporation. Flying Boat, Inc. is the owner and
operator of Chalks International Airlines, a seaplane airline. The Company
has granted, without royalties or fees, a license to Flying Boat, Inc. to use
the Pan Am trade name, subject to termination only upon the occurrence of
specific events.
5. DEFERRED INCOME TAXES
Deferred income taxes at September 30, 1996 consisted of the deferred tax
liability related to intangible asset amortization deductions taken for
income tax purposes by a certain subsidiary, but not yet taken for financial
statement purposes.
6. CONTINGENCIES
One of the Company's subsidiaries is a party to litigation involving the
acquisition of the service marks. At the time of acquisition of such service
marks and pursuant to an asset purchase agreement, the seller of the service
marks agreed to sign such documents and take such steps as required for the
subsidiary to record assignments of the service marks in various countries in
which the service marks were registered. Such recordings were to be effected
by documents executed subsequent to the service mark assignment to the
subsidiary. The seller has failed to effect and execute all documents as
requested by the subsidiary. Accordingly, the subsidiary filed suit for
breach of contract, specific performance and injunctive relief to cause an
authorized officer of the seller to execute all required documents. The
seller has entered counterclaims and has attempted to void the asset purchase
agreement. The Company believes that the matter will be resolved in the
Company's favor and that the likelihood of an unfavorable outcome for the
Company in this matter is remote. However, in the unlikely event that the
subsidiary does not prevail in this matter, the loss of the service marks
would have a material adverse effect on the Company. Additionally, the
Company's legal counsel has advised the Company that although the Company is
not a successor to the former Pan Am, certain foreign creditors of the former
Pan Am might seek within their foreign jurisdictions to recover debts of the
former Pan Am from the Company and the
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Company's property might be subject to attachment or seizure on a
"successor liability" theory if the Company were to commence operations in
certain foreign countries.
The Company also has been a party to various litigation in protecting the
service marks, none of which would have a material adverse impact on the
Company's financial statements.
7. STOCKHOLDERS' EQUITY
STOCKHOLDERS' OPTIONS - The Company has granted certain stockholders' options
to purchase the Company's common stock as follows:
Options granted to purchase 790,918 shares of the Company's stock for $1
per share which are exercisable on or after March 4, 1997 and expire on
March 3, 2006. The Company has accounted for the difference between the
fair value of the stock at the date of grant and the $1 exercise price as
deferred compensation, a reduction in stockholders' equity in the
accompanying unaudited consolidated balance sheet. The deferred
compensation is being amortized over the one year vesting period.
Options granted to purchase 276,821 shares of the Company's stock for $1
per share became exercisable immediately upon consummation of the Merger
and expire nine years from the date of the Merger. The Company has
accounted for the difference between the fair value of the stock at the
merger date and the $1 exercise price as capital surplus - stock option
in the accompanying financial statements.
NON-STOCKHOLDER OPTIONS - On July 12, 1996, the Company reached an agreement
in principle with its general sales agent (GSA) for Central/South America to
modify its existing seat prepurchase agreement for Central/South America,
whereby such GSA could advance purchase from the Company up to $15 million in
airline tickets for the travel on the Company's routes. In addition, the
Company and the GSA agreed to modify the number of options to be issued to
such GSA, such that the options would be issued for the purchase of 10,000,
25,000 or 50,000 shares of the Company's common stock for the prepurchase of
seats by such GSA of $5 million, $10 million and $15 million, respectively.
The options will be exercisable for a period of 44 months from the date of
issuance at an exercise price of (i) $5.00 per share during the first eight
months and (ii) $8.10 per share during the three years thereafter.
STOCKHOLDERS' WARRANTS - The Company has granted certain stockholders'
warrants to purchase the Company's common stock as follows:
Warrants to purchase 80,000 shares of the Company's common stock at an
exercise price of (i) $5 per share if exercised during the period ended
May 19, 1997 and (ii) $8.10 per share during the subsequent three-year
period.
Warrants in connection with the initial private offering to purchase an
aggregate of 80,000 shares of the Company's common stock at an exercise
price of (i) $5 per share if exercised during the period ended May 19,
1997 and (ii) $8.10 per share during the subsequent three-year period.
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Warrants in connection with the initial public offering to purchase an
aggregate of 170,000 shares at an exercise price of $8.10 per share
commencing March 19, 1995 for a period of four years.
RECEIVABLES FROM OFFICERS AND STOCKHOLDERS - As described below, the Company
has issued common stock to certain Stockholders subject to payment upon the
occurrence of future events. The amounts receivable from stockholders have
been reflected as a reduction in stockholders' equity in the accompanying
consolidated balance sheet.
In consideration for the issuance of 425,085 shares of the Company's
stock, a certain Stockholder has agreed to contribute $1.5 million in
cash or property upon the Company entering into a definitive lease
agreement with an aircraft leasing firm for two specific A-300 aircraft.
As of July 1996, the Company finalized agreements for the leasing of
these two specified aircraft. In the event that the Stockholder does not
make the required contribution, the Company is entitled to redeem the
425,085 shares from the Stockholder for no consideration.
In consideration for the issuance of 85,017 shares of the Company's
stock, a certain Stockholder has agreed to contribute, upon the Company's
demand, a certain note receivable and a certain route authority which
have a combined estimated value of approximately $300,000. In the event
that the Board of Directors of the Company determine that the value of
the note and route authority are less than $300,000, the Company shall be
entitled to redeem from the Stockholder for no consideration, a number of
shares having a value equal to the difference between the actual value
and $300,000. In the event that the Board of Directors of the Company
determine that the actual value exceeds $300,000, then the Stockholder
(at his option) may receive either cash or additional shares of the
Company's stock under the same methodology described above. The
determination of actual value shall be accomplished as soon as
practicable but in no event later than March 1, 1997.
The Company received notes totaling $41,478 from certain officers in
exchange for 11,750 shares subscribed pursuant to the initial private
offering. The notes earn interest at 6% and are due upon demand.
STOCK OPTION PLAN - The Company's Board of Directors established, subject to
stockholder approval, a stock option plan. Under the plan, an aggregate of
600,000 shares of common stock are available for issuance, the exercise price
of options may not be less than the fair market value of the Company's common
stock on the date of grant. The Company's Compensation and Stock Option
Committee determines the persons to whom grants are made and the vesting,
timing, amounts and other terms of such grants. The Company has approved the
grant of options to purchase 415,000 shares of common stock. The options have
an exercise price of $5.00 per share and generally vest in equal portions
over three years.
8. STOCK OFFERINGS
On April 12, 1996, the Company completed a private offering (the "Initial
Offering") pursuant to which it sold 2,991,623 shares of common stock at
$3.53 per share. The Company received $10,560,429 in cash proceeds from the
Initial Offering and intends to use the proceeds thereof for working capital
expenses.
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On April 29, 1996, the Company completed a second private offering (the
"Second Offering") pursuant to which it sold 1,736,500 shares of common stock
at $5.00 per share. The Company received $8,182,500 in cash proceeds and
$500,000 in other assets from the Second Offering. The Company will use the
proceeds of the Second Offering for working capital expenses.
9. PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed statements of
development stage operations for the nine months ended September 30, 1996 and
1995 give effect to the Merger as if it had occurred at the beginning of each
period presented. The pro forma financial data is provided for comparative
purposes only and do not purport to be indicative of the results which
actually would have been obtained if the Merger had been effected at the
beginning of each period presented or of those results which may be obtained
in the future.
The Merger has been accounted for as a capital transaction equivalent to the
issuance of stock by PAWA for the Company's net monetary assets.
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
Operating revenues......................... $ 198,626 $ 110
============ ==========
Operating expenses..........................$ 14,083,339 $ 447,724
============ ==========
Net income (loss).......................... $(13,240,615) $ (26,552)
============ ==========
Net income (loss) per share.................$ (1.46) $ (0.01)
============ ==========
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company has been involved in several non-cash investing and financing
activities, most of which relate primarily to the Company's initial
capitalization and equity offerings. Summarized below are those transactions
which occurred during the nine months ended September 30, 1996 and for the
cumulative period from Inception to September 30, 1996.
ASSETS CONTRIBUTED .... VALUE
Facility rentals............................... $ 300,110
Service marks.................................. 1,605,550
Aircraft parts and other property.............. 1,809,674
Receivables from officers and stockholders..... 1,842,138
Investment and employment services............. 5,697,691
------------
$ 11,255,163
============
There was no cash paid for income taxes in any of the periods presented.
13
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11. LEASES
The Company leases certain aircraft, space in airport terminals and other
property and equipment under operating leases which expire in various years
through 2005. The Company does not currently have any property under leasing
arrangements which would qualify as capitalized leases.
12. TRANSACTIONS WITH RELATED PARTIES
In September 1996, the Company received a $1.5 million loan from a
Stockholder. The note bears interest at 5% and is due upon demand.
* * * * * *
14
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
Pan Am Corporation (f/k/a Frost Hanna Mergers Group, Inc.) (the "Company" or
"Pan Am") was formed in October 1993 to serve as a vehicle to effect a merger,
exchange of capital stock, asset acquisition or other similar business
combination (a "Business Combination") with an operating business. On September
23, 1996, the Company completed a Business Combination (Merger) with Pan
American World Airways, Inc. ("PAWA"), a Florida corporation. PAWA was a
development stage company established for the purpose of operating a commercial
passenger and cargo airline through its wholly-owned subsidiary, Pan American
Airways, Inc. ("PAA").
From its inception until it commenced flight operations on September 26, 1996,
the Company's activities were limited to start- up activities, including raising
capital, recruiting key operating personnel, obtaining and implementing
computerized passenger reservation and management information systems,
negotiating airport gate and terminal facilities and aircraft leases,
contracting ground handling and aircraft maintenance services, conducting pilot
and flight attendant training and obtaining certification from the Department of
Transportation and the Federal Aviation Administration.
The Company began flight operations on September 26, 1996 with two Airbus A-300
wide-body aircraft providing daily round trip flights between New York, New York
and Miami, Florida and New York, New York and Los Angeles, California. The
following chart indicates the Company's current and planned service for 1996.
===============================================================================
TOTAL NUMBER
NUMBER OF OF ROUND
AS OF MONTH END FLIGHTS TRIPS NEW SERVICE ADDED
--------------- --------- -------- -----------------
September, 1996 4 2 Miami, New York, Los Angeles
December, 1996
(planned) 12 6 San Juan, Puerto Rico
===============================================================================
RESULTS OF OPERATIONS
As previously noted, Pan Am began commercial operations as a low-fare,
full-service airline on September 26, 1996. Prior to that
15
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date, the Company was in the development stage. As a result, management does not
believe that a comparison of the results for the nine or three months ended
September 30, 1996 and 1995 respectively, would be meaningful as it relates to
the new operating entity.
The Company expects both revenues and operating expenses to increase as a result
of the commencement of its flight operations, the introduction and commencement
of service to new markets and the acquisition of additional aircraft.
OPERATING REVENUES
Airline revenue is primarily a function of passenger load factors and
fares charged by the airline. The passenger load factor represents the
percentage of available seats occupied by revenue paying passengers and is
calculated by dividing revenue passenger miles flown by total available seat
miles. Revenue passenger miles are the total miles flown by revenue passengers
during the period. Available seat miles are the product of total seats available
for sale during the period multiplied by the total flight miles operated during
the period.
The Company anticipates that its business will follow the traditional
seasonal trends of the domestic United States airline industry, with traffic and
revenues typically higher during the winter, summer and late fall periods when
business travel is supplemented by discretionary personal travel.
In addition to passenger revenue, the Company will generate revenue from
the shipment of general cargo and mail. The Company will also generate revenue
from the sale of in-flight services such as liquor and movie head-sets.
OPERATING EXPENSES
Operating expenses incurred by the Company will consist primarily of
expenses incurred for salaries, wages and benefits,
16
<PAGE>
aircraft fuel and oil, aircraft leases, maintenance materials and repairs,
agency commissions, other rentals, landing and ground handling fees,
advertising, depreciation and amortization and other operating expenses. It is
anticipated that expenses related to fuel, maintenance and salary, wages and
benefits will comprise the most significant percentages of expenses incurred. It
should be noted that, based upon the gallons of fuel consumed, small
fluctuations in the price of jet fuel could have a significant or material
impact on the Company's operating results.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1996, the Company had $22.9 million in cash and cash
equivalents and a positive net working capital position of approximately $18.9
million. The Company's financial resources have been provided primarily through:
(i) the sale of equity securities to initial investors for $3.5 million in cash
and $7.0 million in other property; (ii) two private placements of equity
securities which yielded approximately $18.7 million in net cash proceeds; and
(iii) approximately $9.8 million in net cash proceeds from the Merger.
Pan Am also intends to raise additional capital from certain advances for the
future purchases of airline seats from its general sales agent for Central/South
America (the "GSA Representative"). Pan Am entered into an agreement (the "GSA
Agreement") pursuant to which the GSA Representative has agreed to be the
exclusive representative of Pan Am in Central/South America. Subject to the
terms and conditions of the GSA Agreement, the GSA Representative has agreed to
make certain cash advances of up to $15 million to Pan Am, which shall be
credited toward the future purchase of seats on Pan Am's routes (the "GSA
Advances").
The Company intends to continue to utilize these proceeds to fund ongoing
operations and for expansion into new markets and the leasing of additional
aircraft to support the Company's planned expansion.
For the period from January, 1996 (the inception of PAWA), through September 30,
1996, the Company expended approximately $9.1 million which related primarily to
pre-operating activities.
The Company's cash operating requirements are expected to increase significantly
in connection with the continued development of its airline operations. The
Company anticipates, based on currently proposed plans and assumptions relating
to its operations, that its current working capital, anticipated proceeds from
the GSA Advances and projected cash flows from operations will be sufficient to
satisfy its contemplated cash requirements. In the event the Company's plans
change or its assumptions change or prove to be inaccurate, or projected cash
flows prove to be insufficient, the Company may be required to seek additional
financing or curtail its growth activities.
17
<PAGE>
To the extent the Company incurs indebtedness, the Company will be subject to
risks associated therewith, including the risks that interest rates may
fluctuate and cash flows may be insufficient to pay principal and interest on
any such indebtedness. The Company has no current arrangements with respect to,
or sources of, additional financing, and it is not anticipated that existing
shareholders of the Company will provide any portion of the Company's future
financing requirements. There can be no assurance that additional financing will
be available to the Company on acceptable terms, or at all.
Pan Am does not anticipate any significant capital expenditures during the next
twelve months. Pan Am's anticipated growth is expected to be achieved through
the use of leased equipment which reduces the level of its capital expenditures.
To the extent that any capital expenditures are incurred, it is anticipated
that they would be funded through external financial sources. Further,
management is currently evaluating the financial and economic benefits of
purchasing aircraft through long-term financing arrangements. It would be
anticipated that any capital outlay required to procure such financing would be
funded from future equity offerings.
Pan Am has entered into definitive lease agreements with respect to five
aircraft, three of which are currently in operation, with the remaining two
aircraft scheduled to be placed in operation in December, 1996 and January,
1997, respectively. The ages of such aircraft range from 14 to 19 years old and
the average age of such aircraft is 15.6 years. The lease terms for these
aircraft are generally five years. The leases generally require maintenance
reserves to be paid monthly, based on usage. Future minimum rental payments
under these five leases over the remaining terms, based on the estimated
delivery dates, are approximately $43.2 million. Pan Am currently intends to
lease additional aircraft as market or other conditions warrant in order to meet
its growth strategy. There can be no assurance that suitable aircraft will be
available for lease on terms satisfactory to Pan Am or that such aircraft can be
delivered on a timely basis. To the extent that suitable aircraft are not
available for lease, Pan Am may be required to seek to purchase such aircraft
which would require the expenditure of significant funds and likely the
incurrence of significant additional indebtedness. There is no assurance that
Pan Am would be able to obtain the capital necessary to fund such acquisitions,
in which case it would be required to reduce or delay its growth strategy.
Prior to commencement of its airline operations, the Company incurred
significant expenses while developing and implementing its systems, standards
and procedures for its operations. It is anticipated that, as a new entrant
carrier, operations will be commenced by the Company at lower load factors and
with promotional or other low fares and related advertising and other costs, all
of which will likely result in start-up related losses. These start-up losses
require a substantial amount of cash to fund. The Company's ability to
18
<PAGE>
increase revenues and achieve profitability is dependent in part upon its
ability to attract a sufficient number of customers at economically viable fares
and operate efficiently. There is no assurance, if or when, the Company will
generate significant revenues or achieve profitability. The Company's prospects,
therefore, must be evaluated in light of the risks and expenses, normally
encountered by a new entrant carrier with limited resources in the highly
competitive airline industry.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, including but not limited
to, economic, competitive and other factors affecting the Company's operations,
markets, expansion strategies, available financing, and other factors discussed
elsewhere in this report and the documents filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this report
will, in fact, occur.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than as previously reported by the Company, the Company is not
presently a party to any other material litigation, nor, to the knowledge of
management, is any such litigation presently threatened.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders of the Company was held on September 4,
1996. At the special meeting, the Company's shareholders approved and adopted
the Acquisition Agreement, dated March 13, 1996, by and between the Company, PA
Acquisition Corporation and Pan American World Airways, Inc. ("Pan Am"),
providing for, among other things, a business combination among the Company and
Pan Am and an amendment to the Company's Articles of Incorporation to change the
name of the Company to "Pan Am Corporation", approved a proposal to amend and
restate the Company's Articles of Incorporation to provide for an authorized
class of Preferred Stock consisting of 100,000,000 shares, par value $.001 per
share, with rights, preferences and designations of such shares to be determined
by the Company's Board of Directors, and approved a proposal to amend and
restate the Company's Articles of Incorporation to comply with the Federal
Aviation Act's prohibition of non-United States citizens from owning more than
25% of the voting interest of any company that owns a United States carrier.
The votes cast for and against the proposal relating to the approval and
adoption of the Acquisition Agreement regarding Pan Am, as well as the number of
abstentions relating to such proposal, were as follows:
FOR 2,286,871
AGAINST 1,950
ABSTAIN 5,166
The votes cast for and against the proposal to amend and restate the
Company's Articles of Incorporation to authorize a class of Preferred Stock, as
well as the number of abstentions, were as follows:
FOR 2,126,359
AGAINST 29,250
ABSTAIN 138,378
The votes cast for and against the proposal to amend and restate the
Company's Articles of Incorporation to comply with federal foreign ownership
restrictions, as well as the number of abstentions, were as follows:
FOR 2,287,301
AGAINST 450
ABSTAIN 6,236
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.1 Aircraft Lease Agreement MSN053 dated as of
September 27,1996 between First Security Bank,
National Association as Lessor and Pan American
Airways, Inc. as Lessee.
10.2 Aircraft Lease Agreement MSN075 dated as of
September 27,1996 between First Security Bank,
20
<PAGE>
National Association as Lessor and Pan American
Airways, Inc. as Lessee.
27. Financial Data Schedule
(b) CURRENT REPORTS ON FORM 8-K
1. On September 23, 1996, the Company filed a Current
Report on Form 8-K, reporting the consummation of the
Acquisition Agreement relating to the business
combination with Pan Am. The Form 8-K included
financial statements of Pan Am for the periods
specified in Rule 3-05(b) of Regulation S-X and the
pro forma financial information specified in Article
11 of Regulation S-X.
2. On October 14, 1996, the Company filed a Current Report
on Form 8-K, as amended pursuant to an Amendment on Form
8-K dated October 24, 1996, relating to the appointment
of Deloitte & Touche LLP as the Company's certified
independent public accountants, replacing Arthur
Andersen LLP.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PAN AM CORPORATION
Date: November 14, 1996 By: /S/ JOHN J. OGILBY
-------------------
John J. Ogilby, Jr.
Chief Financial Officer
22
EXHIBIT 10.1
AIRCRAFT LEASE AGREEMENT MSN053
THIS AIRCRAFT LEASE AGREEMENT MSN053 dated as of September 27,
1996, is between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its
individual capacity but solely as trustee, with its principal place of business
at 79 South Main Street, Salt Lake City, Utah 84111, United States of America
and its successors and assigns hereunder ("Lessor"), and Pan American Airways,
Inc., a company organized under the laws of Florida, with its principal place of
business at 9300 N.W. 36th Street, Miami, Florida ("Lessee").
Lessee desires to lease from Lessor and Lessor is willing to
lease to Lessee the Aircraft described herein upon and subject to the terms and
conditions of this Lease, as hereinafter defined.
In consideration of the mutual promises herein and other good
and valuable consideration the receipt of which is hereby acknowledged, Lessor
and Lessee agree as follows:
Section 1. DEFINITIONS AND INTERPRETATION.
The following terms shall have the following respective
meanings for all purposes of this Lease Agreement:
"AD COST" shall have the meaning set forth in Section 6
hereof.
"AD THRESHOLD" shall have the meaning set forth in Exhibit C.
"ADDITIONAL INSUREDS" shall have the meaning set forth in
Exhibit C.
"AFFILIATE" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with such Person including, without limitation, any partnership of which such
Person or any such other Person is a general partner or managing agent and any
trust which any beneficiary is such Person or any such other Person.
"AIRCRAFT" shall mean the Airframe together with (a) the two
(2) Engines, whether or not installed on the Aircraft, (b) all Parts or
components thereof, (c) all spare parts or ancillary equipment or devices
furnished with the Aircraft under this Lease (including, without limitation, any
thereof listed in Exhibit A-1, A-2, and A-3 hereto or in
<PAGE>
Schedule 1 to any Lease Supplement), (d) all Aircraft Documents, and (e) all
substitutions, replacements and renewals of any and all thereof.
"AIRCRAFT DOCUMENTS" shall mean all historical records
delivered with the Aircraft for work accomplished prior to the Delivery Date and
all records for work accomplished subsequent to the Delivery Date, including but
not limited to the items identified in Exhibit B, together with all documents,
manuals, data, overhaul records, life limited parts traceability, log books,
original Aircraft and Engine delivery documents, serviceable parts tags, FAA
forms, modification records, inspection records and all other records required
to be maintained by Lessee pursuant to the terms of this Lease during the terms
of this Lease or returned to Lessor at the expiration of the Term or otherwise.
"AIRFRAME" shall mean (a) the Airbus A300B4-200 aircraft
described on Exhibit A or any airframe substituted therefore pursuant to Section
6(g) hereof, but not including any Engine or engine installed thereon, and (b)
any and all Parts so long as the same shall be incorporated or installed on or
attached to the Airframe, or any and all Parts removed therefrom so long as
title thereto shall remain vested in Lessor in accordance with the terms of
Section 9 after removal from the Airframe.
"AIRWORTHINESS DIRECTIVE" or "AD" shall mean any airworthiness
directive issued by the FAA or published in the Federal Register and applicable
to aircraft and engines of the same type as the Aircraft and the Engines.
"APPRAISAL PROCEDURE" shall mean a written determination, by
an independent appraiser selected by Lessor, and agreed upon by Lessee of the
Fair Market Rental Value of the Aircraft, the cost of which shall be borne by
the Lessee. Lessor shall select an internationally recognized independent
aircraft appraiser such as Avitas, Avmark Associates or B.K. Associates, who
shall make a determination of fair market rental value.
"APPROVED AUDITOR" shall mean an auditing firm having an
internationally recognized reputation, acceptable to Lessor.
"APPROVED INSURANCE BROKER" shall mean any reputable insurance
broker, or reinsurance broker, of internationally recognized responsibility and
standing in aircraft insurance, acceptable to Lessor.
"APPROVED INSURER" shall mean any reputable insurer or
reinsurer, or insurance broker, or reinsurance broker, of internationally
recognized responsibility and standing in aircraft insurance, acceptable to
Lessor.
"APU" shall mean the Garret model TSCP 700-5 auxiliary power
unit installed in the Airframe.
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<PAGE>
"ASSIGNMENT" shall mean an assignment by Lessee in favor of
Lessor (including the acknowledgment and agreement relating thereto given by the
Permitted Sublessee thereunder), in form and substance reasonably satisfactory
to Lessor.
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code
of 1978, as amended.
"BASE PERIOD" shall have the meaning set forth in Exhibit C
hereto.
"BASE RENT" shall mean the rent for the Aircraft set forth in
Exhibit C hereto and shall be payable throughout the Term for the Aircraft
pursuant to Section 4(a).
"BASE RENT PAYMENT DATE" shall mean each date on which Base
Rent is to be paid in accordance with Exhibit C hereto.
"BENEFICIARY" shall mean the beneficiary under the trust on
behalf of which the Lessor is acting under this Lease, as indicated in Exhibit
C.
"BLOCK HOUR" shall mean each hour or fraction thereof elapsed
from the time the engines or Engines of the Aircraft are started in connection
with the Aircraft's departure from an airport until the engines or Engines of
the Aircraft are shut off after it has arrived at the same or another airport
after an uninterrupted flight.
"BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or other day on which commercial banking institutions in New York, New
York are authorized or required by law to be closed.
"CASUALTY OCCURRENCE" shall mean any of the following events
with respect to the Aircraft, Airframe or any Engine: (a) loss of such property
or its use due to theft or disappearance for a period in excess of twenty (20)
consecutive days, or in any event extending beyond the Term, or destruction,
damage beyond economic repair or rendition of such property permanently unfit
for normal use by Lessee for any reason whatsoever; (b) any damage to such
property which results in an insurance settlement with respect to such property
on the basis of a total loss or on the basis of a compromised or constructive
total loss; (c) the condemnation, confiscation, appropriation or seizure of, or
requisition of title to such property, or the use of such property by or on the
authority of any Governmental Entity or purported Governmental Entity, which in
any such case shall have resulted in the loss of possession thereof by Lessee
for a period in excess of thirty (30) consecutive days (or for such shorter
period ending on the date which is seven (7) days from the date of receipt of an
insurance settlement with respect to such property on the basis of a total loss)
or in any event extending beyond the Term; or (d) prohibition under any
applicable Law of the use of the Aircraft for commercial transportation of
passengers for a period of thirty (30) consecutive days, or in any event
extending beyond the Term.
"CASUALTY VALUE" shall mean the value set forth in Exhibit C
hereto.
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"CLAIMS" shall have the meaning set forth in Section 13.
"CLOSING DOCUMENTS" shall mean each of the documents listed in
Exhibit I hereto.
"COUNTRY OF ORGANIZATION" shall have the meaning set forth in
Exhibit C hereto.
"COUNTRY OF REGISTRATION" shall have the meaning set forth in
Exhibit C hereto.
"DEDUCTIBLE AMOUNT" shall have the meaning set forth in
Exhibit C hereto.
"DEFAULT" shall mean an Event of Default or an event or
condition which, with the lapse of time or the giving of notice or both, would
constitute an Event of Default.
"DELIVERY CONDITIONS" shall mean the conditions set forth in
Section 3 and Exhibit A hereto.
"DELIVERY DATE" shall mean the date on which the Aircraft is
delivered to and accepted by Lessee for purposes of this Lease in accordance
with the delivery conditions set forth herein and in the Exhibits, which shall
be the date of the Lease Supplement No. 1 and Acceptance Certificate.
"DELIVERY LOCATION" shall have the meaning set forth in
Exhibit C hereto.
"DEPOSIT" shall have the meaning set forth in Exhibit C
hereto.
"DISCOUNT RATE" shall mean as of any date the then current
applicable annual rate of interest, compounded periodically at the frequency
that Base Rent payments are due, equal to the Interest Rate.
"DOLLARS" and "$" shall mean lawful currency of the United
States of America.
"ELIGIBLE CLAIM" means a claim made by Lessee on behalf of
the Maintenance Contractor for which disbursement of Maintenance Reserves is
required hereunder.
"EMERGENCY EQUIPMENT LIST" means the emergency equipment list
set forth in Exhibit A-3 hereto.
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"ENGINE" shall mean each of the two (2) General Electric
CF6-50C2 aircraft engines bearing the manufacturer's serial numbers specified
in the Lease Supplement No. 1and Acceptance Certificate, which are initially
installed on or furnished with the Aircraft on the Delivery Date, each such
engine being also identified as to manufacturer, type and manufacturer serial
number on Exhibit A hereto, and any Replacement Engine which may from time to
time be substituted therefor pursuant to Section 11 or 16(c) hereof; together in
each case with any and all Parts incorporated or installed in or attached
thereto or any and all Parts removed therefrom so long as title thereto remains
vested in Lessor in accordance with the terms of Section 9 after removal from
such Engine. Except as otherwise set forth herein, at such time as a Replacement
Engine shall be so substituted, 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.
"ENGINE MANUFACTURER" shall mean having the meaning set forth
in Exhibit C hereto.
"EVENT OF DEFAULT" shall have the meaning specified in any one
or more clauses in Section 17.
"EXCESS AD COSTS THRESHOLD" shall have the meaning set forth
in Exhibit C.
"FAA" shall mean as the context requires, the the United
States Federal Aviation Administration or any successor agency charged with the
administration or enforcement of United States aviation law, so long as the
Aircraft is registered in the United States and otherwise each governmental
airworthiness authority in the jurisdiction of the Country of Registration
having authority with respect to aircraft that is comparable to the authority of
the FAA with respect to aircraft on United States registry.
"FAIR MARKET RENTAL VALUE" shall mean in respect of the
Aircraft for any period of time, the Base Rent which would be payable under a
lease of the Aircraft on an "as is" "where is" basis and otherwise on terms
substantially identical (except for Base Rent and Term) to the terms of this
Lease for such period of time between a willing lessor and and willing lessee
both with full knowledge of the relevant facts, including the actual condition
and maintenance status of the Aircraft at such time, and neither under any
compulsion to enter into the transaction.
"FAR" means regulations issued by the FAA under the Federal
Aviation Act.
"FEDERAL AVIATION ACT" shall mean Subtitle VII, Part A of
Title 49 of the United States Codes, as in effect on the date of this Lease, or
any successor or substituted legislation at the time in effect and applicable.
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<PAGE>
"FLIGHT HOUR" shall mean, with respect to the Airframe or any
Engine installed on the Airframe or any airframe, each hour or part thereof,
measured to two decimal places, elapsing from the moment the wheels of the
Airframe leave the ground on take-off to the moment when the wheels of the
Airframe touch the ground on landing in each case as evidenced by the Aircraft
log book or in any other document recording flight time accepted by the FAA.
"GOVERNMENTAL ENTITY" shall mean and include (a) the FAA; (b)
the United States government or any other national government, or political
subdivision thereof or local jurisdiction therein; (c) a board, commission,
department, division, organ, instrumentality, court, or agency of any entity
described in (a) or (b) above.
"INDEMNITEE" shall mean, subject to the following sentence,
Lessor, the grantor trust of which Lessor is trustee, Lessor's Aircraft Manager,
the Beneficiary and their respective officers, directors, shareholders, agents,
employees, attorneys and successors and assigns. It is further understood and
agreed that, as used in Section 10 hereof, such term shall include each
Indemnitee, any Affiliate of any Indemnitee, and, with respect to any such
Indemnitee or Affiliate, its respective agents, attorneys, employees, officers,
directors, successors and assigns, shareholders, partner unit holders and
beneficiaries thereof, any combination thereof, including, without limitation,
any partner unit holders or beneficiaries of a successor or assignee of an
Indemnitee, and any transferee of an Indemnitee with respect to any interest in
the Aircraft, or any part thereof.
"INTEREST RATE" shall have the meaning set forth in Exhibit C
hereto.
"LAW" shall mean and include (a) any statute, decree,
constitution, regulation, order, judgment or other directive of any Governmental
Entity; (b) any treaty, pact, compact or other agreement to which any
Governmental Entity is a signatory or party; (c) any judicial or administrative
interpretation or application of any Law described in (a) or (b) above; and (d)
any amendment or revision of any Law described in (a), (b) or (c) above.
"LEASE" shall mean this Lease, the Lease Supplement No. 1and
Acceptance Certificate and any and all amendments, revisions, supplements and
modifications thereto.
"LEASE IDENTIFICATION" shall have the meaning set forth in
Exhibit C hereto.
"LEASE SUPPLEMENT NO. 1 AND ACCEPTANCE CERTIFICATE" shall mean
the supplement to this Lease, substantially in the form of Exhibit D hereto, to
be entered into between Lessor and Lessee and executed and delivered by Lessee
and countersigned by Lessor.
"LENDER" shall have the meaning set forth in Exhibit C hereto.
6
<PAGE>
"LESSEE PAYMENTS" shall have the meaning set forth in Section
10(a) hereof.
"LESSEE'S ADDRESS" shall have the meaning set forth in Exhibit
C hereto.
"LESSOR'S ADDRESS" shall have the meaning set forth in Exhibit
C hereto.
"LESSOR'S AIRCRAFT MANAGER" shall mean the person identified
as such in Exhibit C and its successors and assigns and replacements in such
function, as designated by Lessor.
"LESSOR'S LIENS" shall mean any Liens created over the
Aircraft by Lessor, or exercised, asserted or claimed against the Aircraft or
any part thereof arising as a result of (a) claims against Lessor not related to
the transactions contemplated by this Lease; or (b) acts of Lessor, not
contemplated and expressly permitted under this Lease; or (c) Taxes imposed
against Lessor which are not required to be indemnified against by Lessee
pursuant to Section 10; or (d) claims against Lessor arising out of the
voluntary transfer by Lessor of all or any part of its interests in the Aircraft
or this Lease, other than a transfer pursuant to Sections 11 or 18 hereof.
"LIEN" shall mean any mortgage, pledge, lien, charge,
encumbrance, hypothecation, lease, exercise of rights, security interest or
claim or other type of preferential arrangement.
"LOAN" shall have the meaning set forth in Exhibit C hereto.
"LOOSE EQUIPMENT LIST" shall mean the loose equipment list set
forth in Exhibit A-2 hereto.
"MAINTENANCE CONTRACTOR" shall mean any maintenance contractor
duly certified by the FAA to maintain aircraft of the same type as the Aircraft
and chosen by Lessee to maintain the Aircraft in accordance with the Maintenance
Program and approved in writing by Lessor, which approval shall not be
unreasonably withheld.
"MAINTENANCE PROGRAM" shall mean Lessee's FAA approved
maintenance program in effect from time to time for the Aircraft, encompassing
scheduled maintenance, condition-monitored maintenance, maintenance of the
Airframe, Engines and Parts of the Aircraft, complying with all requirements of
the FAA (including without limitation those relating to corrosion prevention and
aging aircraft) and selected by Lessee and approved in writing by Lessor, such
approval not to be unreasonably withheld.
"MAINTENANCE RESERVES" shall mean at anytime the excess of (A)
the sum of (i) Maintenance Reserve Payments actually received by the Lessor in
respect of a particular Maintenance Reserve Account through such point in time
plus (ii) the Maintenance Reserves Credit, if any, less (B) the amounts thereof
applied by Lessor through such point in time pursuant to Section 4(d) hereof
determined in accordance with
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the records maintained by Lessor. If an engine is substituted pursuant to
Section 4(d)(v) other than in connection with a substitution of the Aircraft,
the Maintenance Reserves shall be reduced upon such substitution by the Lessor's
estimate with the cost of placing the substituted Engine in the condition of
the Replacement Engine.
"MAINTENANCE RESERVE ACCOUNT" shall mean each of the
Maintenance Reserve Accounts established pursuant to Section 4(c) hereof.
"MAINTENANCE RESERVE PAYMENT" shall have the meaning set forth
in Exhibit C hereto.
"MAINTENANCE RESERVE CALCULATION PERIOD" shall have the
meaning set forth in Exhibit C hereto.
"MAINTENANCE RESERVE PAYMENT DATE" shall have the meaning set
forth in Exhibit C hereto.
"MANUFACTURER" shall have the meaning set forth in Exhibit C
hereto.
"MORTGAGE" shall have the meaning set forth in Exhibit C
hereto.
"MORTGAGE CONVENTION" shall mean the Convention for the
International Recognition of Rights in Aircraft, signed (ad referendum) at
Geneva, Switzerland, on June 19, 1948, as amended or modified from time to time.
"MPD" means the Airbus Industrie's Maintenance Planning
Document for the Aircraft.
"PART 36" shall mean part 36 of title 14 of the United States
Code of Federal Regulations, as amended or modified from time to time.
"PART 121" shall mean part 121 of title 14 of the United
States Code of Federal Regulations, as amended or modified from time to time.
"PARTS" shall mean all appliances, avionics, components,
parts, instruments, appurtenances, accessories, furnishings, seats, galleys,
galley equipment, serving equipment, lavatories, cargo, handling equipment,
safety equipment and other equipment of whatever nature (other than complete
Engines or engines), which may now (including without limitations, any thereof
listed in Exhibit A-1 hereto or in any Schedule 1 to any Lease Supplement) or
from time to time be incorporated or installed or positioned in or attached to
the Airframe or any Engine, or that remain the property of Lessor pursuant to
the terms of Section 9 despite removal therefrom. Except as otherwise set forth
herein, at such time as a replacement part shall be substituted for a Part in
accordance with Section 9 hereof, the Part so replaced shall cease to be a Part
hereunder.
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"PAYMENT LOCATION" shall have the meaning set forth in Exhibit
C hereto.
"PERMITTED SUBLESSEE" shall mean such Person as may be
approved in writing by Lessor acting in its absolute discretion prior to the
effectiveness of the relevant Sublease. Lessor shall not unreasonably withhold
its approval of a sublessee who in Lessee's reasonable judgment is a responsible
certificated air carrier.
"PERSON" shall mean and include any individual person,
corporation, partnership, business trust, firm, joint stock company, joint
venture, trust, estate, unincorporated organization, association or Governmental
Entity.
"RELATED LEASE" shall mean any other aircraft lease in
existence between Lessor or any Affiliate of Lessor, as lessor, and Lessee
during the term of this Lease.
"REMITTANCE WITHHOLDING" shall have the meaning set forth in
Section 10(a) hereof.
"RENEWAL PERIODS" shall mean the period which follows the end
of the Base Period and as to which Lessee and Lessor shall have agreed to renew
this Lease pursuant to Section 3(g) hereof.
"RENEWAL RENT" shall mean the rent for the Aircraft set forth
in Exhibit C hereto and shall be payable throughout the Renewal Period for the
Aircraft pursuant to Section 4(a).
"RENEWAL RENT PAYMENT DATE" shall mean each date on which
Renewal Rent is to be paid in accordance with Exhibit C hereto.
"RENT" shall mean Base Rent, Renewal Rent and Supplemental
Rent, collectively.
"RENT PAYMENT DATE" shall mean each Base Rent Payment Date and
each Renewal Rent Payment Date.
"REPLACEMENT ENGINE" shall mean an engine of the same
manufacturer and model, or, at Lessee's option, an engine of the same
manufacturer as such Engine of a comparable or an improved model, and remaining
useful life and otherwise of substantially equivalent value, utility,
maintenance status and remaining useful life of the Engine being replaced and
suitable for installation and use on the Airframe without impairing the value or
utility of the Airframe and compatible with the remaining installed Engine.
"RETURN LOCATION" shall have the meaning set forth in Exhibit
C hereto.
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"RETURN OCCASION" shall mean the event that occurs when
possession of the Aircraft is returned from Lessee to Lessor at the end of the
Term of this Lease or upon Lessor taking possession pursuant to Section 16
hereof.
"RIGHT OF FIRST OFFER" shall mean that Right of First Offer
between Lessor and Lessee as stated in Section 20(t).
"Scheduled Delivery Date" shall mean the Scheduled Delivery
Date specified in Exhibit C, which the parties anticipate shall be the Delivery
Date.
"SUBLEASE" shall mean any aircraft sublease with a Permitted
Sublessee entered into in accordance with Section 6(a) hereof, as the same may
be amended, supplemented or otherwise modified from time to time.
"SUPPLEMENTAL RENT" shall mean all amounts, liabilities and
obligations (other than Base Rent and Renewal Rent) which Lessee assumes or
agrees to pay hereunder, or under any document delivered pursuant hereto,
including without limitation: (a) any payment of Casualty Value; (b) any payment
of indemnity required by Sections 10 and 13 hereof; (c) any payment of deposits
(including, without limitations, the Deposit), Maintenance Reserve Payments,
Airframe and Engine adjustments; and (d) to the extent permitted by applicable
Law, interest at the Interest Rate (all computations of interest under this
Lease to be made on the basis of a 360-day year for the actual number of days
elapsed) calculated: (i) on any part of any installment of Base Rent and Renewal
Rent not paid on the due date thereof (determined without regard to the last
sentence of Section 4(a) hereof) for the period from and including the date due
until but excluding the date payment is deemed to be made hereunder and (ii) on
any Supplemental Rent not paid when due hereunder for the period from and
including the date due until but excluding the date payment is deemed to be made
hereunder.
"TAXES" shall mean in connection with the transactions
contemplated by this Lease, any and all value added, sales, turnover, use,
business, gross income, net income, personal property, license, documentation,
transfer, fuel, leasing, occupational, excess profits, excise, gross receipts,
franchise, stamp or income taxes, levies, monetary transfer fees, imposts,
withholdings (including any Remittance Withholdings) or other taxes or duties,
charges, fees or assessments of any nature, or amounts in lieu thereof, together
with any additions to tax, penalties, fines, charges or interest thereon.
"TERM" shall mean the term of this Lease specified in Exhibit
C hereto.
"UCC" shall mean Uniform Commercial Code as in effect from
time to time in any relevant jurisdiction.
Section 2. LEASE AND CONDITIONS.
(a) Lessor hereby agrees to lease the Aircraft to Lessee, and
Lessee hereby agrees to lease the Aircraft from Lessor, subject to the terms and
conditions of this
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Lease, as supplemented by any lease supplement executed by the parties hereto.
The right to lease the Aircraft conferred hereto shall include the use of all
Aircraft Documents.
(b) Lessor's obligation to lease the Aircraft hereunder to
Lessee shall be conditioned upon: (1) the absence of any Default existing (or
circumstances which, if the lease of the Aircraft commenced, would give rise to
a Default) on the Delivery Date; (2) the occurrence of any Casualty Event in
respect of the Aircraft prior to Delivery; (3) the certification by the FAA of
the Aircraft as to type and airworthiness and issuance by the FAA of a valid and
effective certificate of airworthiness for operation in the United States of
America; (4) Lessee shall have arranged for delivery to Lessor of each of the
Closing Documents, each dated as of the Delivery Date (or such other date
satisfactory to Lessor and Lessee) each of which shall be in form and substance
satisfactory to Lessor; and (5) Lessor's receipt at the Payment Location, the
Deposit in the date or dates and in the amount or amounts specified in Exhibit C
on the date or dates and in the amount or amounts specified in Exhibit C.
(c) Lessee's obligation to lease the Aircraft from Lessor
shall be conditioned upon:
(1) A currently valid and effective airworthiness
certificate for the Aircraft has been issued by the FAA;
(2) The FAA has issued a currently valid and
effective Registration Certificate for the Aircraft;
(3) The Aircraft has been placed on Lessee's
operations specifications by the FAA;
(4) The Aircraft Documents are accepted by the FAA as
being in compliance with the FARs;
(5) The Aircraft is immediately eligible under the
FARs to enter into Lessee's revenue service;
(6) A favorable opinion of Lessor's counsel to the
effect that Lessor has duly executed and delivered the Lease and each document
or Exhibit contained therein is legally valid, binding and enforceable; and
(7) An opinion from Crowe and Dunlevy, Special FAA
counsel, to the effect that Lessor is the owner of record and the Aircraft is
duly registered in the United States.
(d) If each of conditions (3), (4) and (5) in the preceding
paragraph (c) are not met by December 31, 1996 (or such later date as Lessor may
agree in writing), Lessor may, but shall not be obligated to, terminate its
obligations hereunder or under the Right of First Offer, by notice to Lessee to
such effect.
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(e) The parties hereto intend that this Lease is a "lease" for
purposes of all applicable Laws, including, without limitation, United States
federal income tax purposes, the UCC and the Bankruptcy Code (including, without
limitation, Section 1110 thereof). Without limiting the generality of the
foregoing, the Lessee agrees that (a) the Aircraft, Engines and Parts leased
hereunder constitute "equipment" described in said Section 1110, (b) Lessee is a
"citizen of the United States (as defined in 40102 of title 49) holding an air
carrier operating certificate issued by the Secretary of Transportation pursuant
to Chapter 447 of title 49 for aircraft capable of carrying 10 or more
individual or 6,000 pounds or more of cargo" as such phrase is used in said
Section 1110; (c) Section 1110 of the Bankruptcy Code applies to this Lease, and
(d) to the extent permitted by Law, not to contest the right of the Lessor to
exercise in respect of the Lease and the property leased hereunder, the rights
provided by said Section 1110 in any proceeding under the Bankruptcy Code. At
all times during the Term legal and beneficial ownership of the Aircraft, each
Engine and each Part leased hereunder shall remain in the Lessor.
Section 3. INSPECTION; DELIVERY AND ACCEPTANCE; TERM.
(a) INSPECTION. On or before the Delivery Date, Lessee shall
be afforded the inspection rights set forth in Exhibit A in order to verify the
Aircraft is in the required Delivery Condition.
(b) PLACE OF DELIVERY AND ACCEPTANCE. Except as otherwise
provided herein, and subject to the terms and conditions of this Agreement, the
Aircraft shall be delivered to and accepted by Lessee at the Delivery Location
on the Delivery Date.
(c) DELIVERY. The Aircraft will be available for delivery on
or about the Scheduled Delivery Date. Lessee agrees to accept the Aircraft, as
provided in Section 3(d) provided the Aircraft satisfies the Delivery Conditions
on the Delivery Date.
(d) ACCEPTANCE OF AIRCRAFT. Except as otherwise provided
herein, the Aircraft to be leased hereunder shall be delivered to Lessee "AS
IS," "WHERE IS" and SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND
REPRESENTATION EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5(a) HEREOF. Upon
acceptance of the Aircraft, Lessee shall thereupon indicate and confirm its
acceptance of the Aircraft by execution and delivery to Lessor of a Lease
Supplement No. 1 and Acceptance Certificate dated the Delivery Date, in the form
set forth as Exhibit D hereto. Nothing in this paragraph shall be construed as
modifying any obligation of Lessor hereunder.
(e) CASUALTY OCCURRENCE TO THE AIRCRAFT PRECEDING DELIVERY. In
the event the Aircraft is lost or damaged beyond economical repair prior to the
Schedule Delivery Date, Lessor shall immediately notify Lessee in writing and
the obligation to
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make the Aircraft available to the Lessee shall terminate and the Deposit shall
be promptly returned by Lessor to Lessee.
(f) TERM OF LEASE. The Term of this Lease shall commence on
the Delivery Date and shall continue for the Term set forth in Exhibit C, unless
extended or earlier terminated pursuant to the provisions hereof.
(g) RENEWAL OPTIONS
(i) Lessee will have two options (each, an "Extension
Option"); the first, to extend the Term of this Agreement for an additional one
year period (the "First Renewal Period") commencing on the scheduled date of
expiration of the initial Term of this Lease and the second to extend the Term
of this Agreement for a further one year period commencing on the scheduled
expiration of the First Renewal Period (the "Second Renewal Period" and together
with the First Renewal Period, the "Renewal Periods"); PROVIDED, HOWEVER, in
each case, that it shall be a condition precedent to Lessee's right to exercise
any Extension Option, that (a) no Default and no Event of Default shall have
occurred and be continuing on the date on which Lessee exercises such Extension
Option, (b) Lessee shall have exercised any preceding Extension Option, and (c)
Lessee shall have provided Lessor with the irrevocable written notice of the
exercise thereof.
(ii) In order to exercise any Extension Option, Lessee must
give written notice to Lessor (a) with respect to the First Extension Lease
Term, not later than 120 days prior to the Lease Term Expiration Date and (b)
with respect to the Second Extension Lease Term, not later than 120 days prior
to the First Extension Lease Term Expiration Date, each of which shall state
that Lessee is exercising the applicable Extension Option hereunder and shall
certify that no Default and no Event of Default has occurred and is continuing
as of the date of such notice. Any such notice shall specify the first and last
day of the applicable Extension Lease Term and shall constitute Lessee's
irrevocable and unconditional obligation to continue to lease the aircraft for
the applicable Extension Lease Term in accordance with the terms of this
Agreement.
(iii) All the Terms of this Agreement shall continue during
any Renewal Period except that the Lessee shall pay Renewal Rent on each Renewal
Rent Payment Date in lieu of the Base Rent on Base Rent Payment Dates.
Section 4. RENT; MAINTENANCE RESERVE; MAINTENANCE AND
MAINTENANCE SUPPORT PROGRAMS.
(a) RENT. Lessee covenants and agrees to pay to Lessor (or to
such other Persons as provided herein) the following as Rent:
(i) BASE RENT: On each Base Rent Payment Date, the Base
Rent; and
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(ii) RENEWAL RENT: Renewal Rent, if any, on each Renewal
Rent Payment Date; and
(iii) SUPPLEMENTAL RENT. Any and all Supplemental Rent as
the same becomes due.
If a Rent Payment Date shall fall on a day which is not a
Business Day, any payment due on such Rent Payment Date shall be made on the
next succeeding Business Day.
(b) PLACE AND METHOD OF PAYMENT. All Rent payable under this
Lease shall be paid in Dollars (except as otherwise specifically provided
herein), in funds immediately available in the account specified under the
Payment Location on Exhibit C hereto, or in such other account as Lessor shall
designate in writing. Payment made as provided in the preceding sentence after
12 o'clock P.M. at the Payment Location will be deemed to have been made on the
next Business Day for all purposes of this Agreement.
(c) MAINTENANCE RESERVE PAYMENTS; STATUS OF MAINTENANCE
RESERVES. Lessee agrees to pay the Maintenance Reserve Payments specified in
Exhibit C hereto during the Term on each Maintenance Reserve Payment Date. The
Maintenance Reserve Payments shall be Supplemental Rent under this Lease and
Lessee shall not have any right, title or interest therein or thereto other than
the rights set forth in Section 4(d) hereof. Lessor has no obligation to return
to Lessee amounts of Maintenance Reserves remaining on account with Lessor at
the time this Lease is terminated. Lessee hereby agrees that no obligation
exists under this Lease for Lessor to segregate such Maintenance Reserves from
its other funds or to account to Lessee for interest, if any, earned thereon.
Six maintenance reserve accounts (each, a "Maintenance Reserve Account") shall
be maintained by Lessor, one in respect of each of the following maintenance
processes;
(i) Airframe "C-Check" Reserve Account for all routine
and non-routine man hours, and all Maintenance
Program inspection items contained in the C-1 and C-2
Checks and all phases of the 3C Check;
(ii) Airframe "D-Check" Reserve Account for all routine
and non-routine man hours, the 9, 10 and 15 year CPCP
inspection SSID inspections, and all Maintenance
Program inspection items contained in the Airframe
"D" Checks.
(iii) Airframe "mid D-Check" Reserve Account for all
routine and non-routine man hours, and all
Maintenance Program inspection items contained in the
C-4, C-6 and Mid-D Checks, the 2 1/2 year, 4 year and
5 year CPCP inspections;
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(iv) Engines Overhaul Reserve Account for all routine and
non-routine man hours for off-wing overhaul,
including Life Limited Part replacement (not
including any Engine components forming part of nose
cowl and thrust reverser);
(v) the APU restoration/shop visit Reserve Account for
all routine and non-routine man hours for APU; and
(vi) Landing Gear Reserve Account for all routine and
non-routine man hours for landing gear overhaul.
(d) DISBURSEMENT OF MAINTENANCE RESERVES; EXCESS COSTS; ETC.
(i) DISBURSEMENT OF MAINTENANCE RESERVES. So long as no
Default or Event of Default is continuing and this Lease has not been declared
in default in accordance with Section 18 hereof and each of the following
conditions precedent have been met in respect thereof, Lessor shall, upon
receipt of the documentation required by Section 4(d)(iv) below, use the
Maintenance Reserves, if any, in each Maintenance Reserve Account to pay the
Maintenance Contractor its actual and commercially reasonable and customary
charges for the work covered by each Maintenance Account:
(1) before any work with respect to such Eligible
Claim is performed, Lessee shall submit in writing to Lessor
the proposed workscope and estimated cost therefor; should
Lessor object to the workscope, cost or entity, then the
parties shall consult as soon as possible to resolve the
issue. If the parties cannot resolve the issue as to
workscope, then such issue shall be presented to the
Manufacturer or Engine Manufacturer for its decision as to the
correct workscope.
(2) if Lessor agrees that such workscope and cost are
reasonable, Lessor shall so notify Lessee thereof within 5
Business Days after Lessor's receipt of Lessee's written
submission.
(3) any work performed that is beyond the Maintenance
Program shall be at Lessees expense and shall not be payable
out of the reserves;
(4) after Lessor and Lessee agree on the
reasonableness of such workscope and cost, Lessee shall have
the work with respect to such Eligible Claim performed in
accordance therewith; and
(5) following completion of the work with respect to
such Eligible Claim, Lessee shall present to Lessor all
original work-sheets, invoices, vouchers and/or receipts with
respect thereto and such other evidence of and information
relating to the performance of such work as Lessor may
reasonably request.
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(ii) EXCESS COSTS. If the aggregate amounts payable to the
Maintenance Contractor as provided in clause (i) above shall exceed the amounts
available in the Maintenance Reserves, the Lessee shall pay such excess costs.
(iii) MAINTENANCE RESERVES UPON DEFAULT. If Lessee fails to
pay Rent hereunder or to pay any other sums due or to perform any of the other
terms and provisions of this Lease or any document delivered pursuant hereto or
is otherwise in Default hereunder, in addition to all other rights Lessor may
have under law or hereunder, Lessor may apply all or a portion of the amount of
the Maintenance Reserves upon occurrence of a Default or Event of Default and
may use, apply or retain all or any portion of the Maintenance Reserves in
partial payment for sums due to Lessor by Lessee, to compensate Lessor for any
sums it may in its discretion advance as a result of a Default by lessee, or to
apply toward losses or expenses Lessor may suffer or incur as a result of
Lessee's Default hereunder. If Lessor applies all or any portion of the
Maintenance Reserves, such application shall not be deemed a cure of any
Default, and upon written demand therefor, Lessee shall pay to Lessor such
additional funds as shall reinstate the original amounts thereof and the failure
of lessee to do so shall be a material breach of this Lease.
(iv) PAYMENT DOCUMENTATION. The Lessee must furnish Lessor
with reasonably acceptable documentation of the Maintenance Contractor's work
prior to any payment pursuant to this Section 4(d), which shall include, without
limitation a representation and warranty by the Maintenance Contractor that all
liens relating to the work in question have been discharged provided, however,
that if required by the Maintenance Contractor, the Lessor shall use Maintenance
Reserves as provided herein to pay deposits in advance of the completion of the
work, provided such deposits are actually required by the Maintenance
Contractor, are commercially reasonable and customary in the industry for work
of the type in question. If any heavy maintenance or shop visit is to be
accomplished by a vendor other than the Maintenance Contractor, such vendor must
be approved by Lessor in writing prior to any such work commencing.
(e) MAINTENANCE SUPPORT PROGRAMS
So long as no Default or Event of Default shall be continuing
and this Lease shall not have been declared in default, Lessor will provide
various support programs to Lessee as summarized below:
(i) To support the increased level of Lessee operations, Lessor hereby agrees to
lease to Lessee one (1) General Electric CF650C2 engine with full QEC and one
(1) Garrett TSCP 700-5 APU in flyaway condition on terms mutually agreeable to
both parties. Lessor will undertake to provide a draft contract to Lessee within
15 business days after the execution of this Aircraft Lease Agreement.
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(ii) To assist Lessee with the transition from the current maintenance program
for the subject Aircraft, Lessor, at its expense, will assign consultants to
work with Lessee to develop the bridging work package requirements and to
transition the Aircraft and records to Lessee's fleet.
(f) NET LEASE; PROHIBITION AGAINST SETOFF, COUNTERCLAIM,
ETC. This Lease is a net lease and except as otherwise expressly provided
herein, Lessor shall have no responsibility (operationally or financially) in
respect of the use or operation of the Aircraft, any Engine or any Part.
Lessee's obligation to pay all Rent due hereunder shall be absolute and
unconditional and shall not be affected or reduced by any circumstances,
including, without limitation, (i) any set-off, counterclaim, recoupment,
defense or other right which Lessee may have against Lessor or any other Person,
the Manufacturer, the Engine Manufacturer, any seller of or Person providing
services with respect to the Aircraft or any other Person, for any reason
whatsoever (whether in connection with the transactions contemplated hereby or
any other transactions), including, without limitation, any breach by Lessor of
its warranties, agreements or covenants contained herein; (ii) any defect in the
title, airworthiness or eligibility for registration under applicable Law, or
any condition, design, operation or fitness for use of, or any damage to or loss
or destruction of, the Aircraft, or any interruption or cessation in the use or
possession thereof by Lessee for any reason whatsoever, whether arising out of
or related to an act or omission of Lessee, or any other Person; (iii) any Liens
with respect to the Aircraft; (iv) the invalidity or unenforceability or lack of
due authorization or other infirmity of this Lease or any absence of right,
power or authority of Lessor or Lessee to enter into this Lease; (v) any
insolvency, bankruptcy, reorganization or similar proceedings by or against
Lessor or Lessee; (vi) any other circumstance or happening of any nature
whatsoever, similar to any of the foregoing; or (vii) any Taxes; it being the
express intention of Lessor and Lessee that all Rent payable hereunder shall be
payable in all events, unless the obligation to pay the same shall be terminated
pursuant to the express provisions of this Lease. Except as provided in this
Agreement and without limitation to Lessee's rights contained herein, each
payment of Rent or any other payments hereunder made by Lessee to Lessor shall
be final and Lessee will not seek to recover any part of such payment from
Lessor for any reason whatsoever except manifest error.
Section 5. REPRESENTATIONS AND WARRANTIES.
(a) LESSOR WARRANTIES AND DISCLAIMER OF WARRANTIES.
THE AIRCRAFT IS TO BE LEASED HEREUNDER "AS IS" AND "WHERE IS".
EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 5(a), LESSOR HAS NOT AND SHALL NOT
BE DEEMED TO HAVE MADE (WHETHER BY VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER
THIS LEASE, OR HAVING ACQUIRED THE AIRCRAFT, OR HAVING DONE OR FAILED TO DO ANY
ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO
THIS LEASE OR OTHERWISE), AND LESSOR HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATION OR
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WARRANTY, EXPRESS OR IMPLIED, AS TO THE AIRWORTHINESS, LACK OF AIRWORTHINESS,
VALUE, DURABILITY, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, OR FITNESS FOR
USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT, OR AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP OF THE AIRCRAFT, THE ABSENCE THEREFROM OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING
FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE
AIRCRAFT; AND LESSEE HEREBY WAIVES, RELEASES, RENOUNCES AND DISCLAIMS
EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR WARRANTIES. EXCEPT AS
EXPRESSLY PROVIDED HEREIN, LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY
TO LESSEE OR ANY OTHER PERSON, WHETHER ARISING IN CONTRACT OR TORT OUT OF ANY
NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE, FOR (i) ANY LIABILITY,
LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE
AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT
THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH, (ii) THE USE,
OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO, (iii)
ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR
CONSEQUENTIAL DAMAGES OR (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE,
REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFTTHE WARRANTIES AND
REPRESENTATIONS SET FORTH IN THIS SECTION 5(a) ARE EXCLUSIVE AND IN LIEU OF ALL
OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND LESSOR
SHALL NOT BE DEEMED TO HAVE MADE ANY OTHER REPRESENTATIONS OR WARRANTIES, EXCEPT
THAT LESSOR HEREBY MAKES THE FOLLOWING REPRESENTATIONS AND WARRANTIES WHICH
SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS LEASE AND THE DELIVERY OF THE
AIRCRAFT:
(i) First Security Bank, National Association is a national
banking association duly organized and validly existing and in good standing
under the Federal laws of the United States, and has the power and authority to
carry on its business as presently conducted and to perform its obligations as
Lessor under this Lease; based on an affidavit of Beneficiary provided to Lessor
upon which Lessee may rely. Beneficiary is a company in good standing, duly
organized and validly existing under the laws of the place of incorporation and
has the power and authority to carry on its business and perform all of its
obligations as presently conducted; Lessor, as trustee, has the authority on
behalf of the trust and the Beneficiary to enter into and be bound by this Lease
and perform Lessor's obligations hereunder;
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(ii) the making and performance by Lessor of this Lease have
been duly authorized by all necessary action on the part of Lessor and will not
violate any provision of federal banking or Utah law or Lessor's articles of
association;
(iii) this Lease has been duly entered into and delivered by
Lessor, and this Lease does, and the Lease Supplement No. 1and Acceptance
Certificate when executed and delivered hereunder will, constitute legal, valid
and binding obligations of Lessor, enforceable in accordance with their
respective terms except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and, to the extent that certain remedies require or
may require enforcement in equity, by such principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
as a court having jurisdiction may impose and by laws which may affect some of
such remedies; and
(iv) Lessor has, and on the Delivery Date will have title to
the Aircraft, which to the best of Lessor's knowledge shall then be free and
clear of all liens except the Mortgage, with full power and authority to lease
the Aircraft to Lessee in accordance with the terms hereof; and
(v) Lessor (or its successors or assigns) is and covenants
that throughout the Term it will remain a "citizen of the United States" within
the meaning of 49 U.S.C. Section 40102, and the rules and regulations of the FAA
thereunder.
(b) MANUFACTURERS', VENDORS' AND SERVICE PROVIDERS' WARRANTIES.
So long as no Event of Default exists and this Lease has not been declared in
default in accordance with Section 18 hereof, Lessor agrees to authorize Lessee
to exercise for the account of Lessor such rights as Lessor may have under any
warranty, express or implied, with respect to the Aircraft made by the
Manufacturer, the Engine Manufacturer, the manufacturer of any Part or any
vendor or service provider, to the extent that the same may be assigned or
otherwise made available to Lessee; provided, however, that upon an Event of
Default and the declaration of this Lease to be in default in accordance with
Section 18 hereof, all such rights shall immediately revert to Lessor to the
exclusion of Lessee including all claims thereunder whether or not perfected.
(c) LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee hereby
makes the following representations and warranties, which representations and
warranties shall survive the execution and delivery of this Lease and the
delivery of the Aircraft:
(i) Lessee is a corporation duly organized and validly
existing in good standing under the Laws of the State of Florida and has the
corporate power and authority to carry on its business as presently conducted
and to perform its obligations under this Lease;
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(ii) this Lease has been duly authorized by all necessary
corporate action on the part of Lessee and does not require any approval of
stockholders of Lessee (or if such approval is required, such approval has been
obtained), and neither the execution and delivery hereof and thereof nor the
consummation of the transactions contemplated hereby and thereby nor compliance
by Lessee with any of the terms and provisions hereof and thereof 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 credit agreement or
instrument, 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 are bound
or affected;
(iii) Lessee has received by the Delivery Date, every consent,
approval or authorization of, and has given every notice to, each Governmental
Entity having jurisdiction with respect to the execution, delivery or
performance of this Lease (including all monetary and other obligations
hereunder) that is required for Lessee to execute and deliver this Lease, and on
or before the Delivery Date will have received such consents, approvals or
authorizations that it is required to obtain by such date, including, without
limitation, approval from every Governmental Entity necessary to allow payment
of all amounts due hereunder in Dollars, and will have given such notices in
order to perform the transactions contemplated hereby and thereby and each such
consent, approval or authorization is valid and effective and has not been
revoked;
(iv) this Lease has been duly executed and delivered by
Lessee, and the Lease does, and the Lease Supplement No. 1and Acceptance
Certificate when executed and delivered by Lessee will, constitute legal, valid
and binding obligations of Lessee, enforceable in accordance with their
respective terms, except as enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and, to the extent
that certain remedies require or may require enforcement by a court of equity,
by such principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) as a court having jurisdiction
may impose and by laws which may affect some of such remedies but which do not
make the available remedies inadequate for the substantial realization of the
benefits provided herein;
(v) there are no suits or proceedings pending or, to the
knowledge of Lessee, threatened in any court or before any regulatory
commission, board or other administrative Governmental Entity against or
affecting Lessee which will have a materially adverse effect on the current
business or financial condition of Lessee;
(vi) Lessee has filed or caused to be filed all tax returns
which are required to be filed by it, 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;
(vii) except for the placing on the Aircraft and on each
Engine of the plates containing the legends referred to in Section 6(f) hereof
and the steps referred to in
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Section 2(b)(3) of Exhibit I hereof (relating to the recordation of Lessor's
title to the Aircraft on the U.S. aircraft registry), no filing or recording of
this Lease or of any other document and no further action, are necessary or
advisable under the Laws of any Governmental Entity (including without
limitation any Governmental Entity) in order to (A) fully protect and establish
Lessor's title to, interest in and property rights with respect to the Aircraft
as against Lessee or any third party and to ensure that property rights of
Lessor therein will have priority in all respects over the claims of all
creditors of Lessee or any third party or (B) ensure the validity, effectiveness
and enforceability of this Lease;
(viii) Except for compliance with the requirements set forth in
Section 2(b)(3) and clause (xiii) of Exhibit I of the Lease (relating to
recordation of the Mortgage on the U.S. aircraft registry), and the placing on
the Aircraft and on each Engine the plates containing the legends referred to in
Section 6(b) of the lease, no further filing, recording or notarization of the
Mortgage or of any other documents, and no further action is necessary or
advisable, under the laws of any Governmental Entity in order to (a) fully
establish and protect the Lender's security interest in the Aircraft and the
Lease as against the Lessee or any third party and to ensure that the security
interest of the Lender will have priority in all respects over the claims of all
creditors of the Lessor, or (b) to ensure the validity, effectiveness and
enforceability of the Mortgage and the practical realization of the benefits and
rights intended to be afforded thereby.
(ix) Lessee is not in default in the performance of any of
its material obligations (A) for the payment of indebtedness for borrowed money
or of any interest or premium thereon or (B) for the payment of rent under any
lease or agreement to lease real, personal or mixed property;
(x) the Maintenance Program for the Aircraft will comply
with all FAA requirements on the Delivery Date;
(xi) the Lessee may make the payments of Rent where and as
provided herein, without the necessity of withholding therefrom any Tax imposed
by any Governmental Entity and neither the execution or delivery of this Lease
Agreement nor the performance thereof will subject the Lessor to any Tax imposed
by any Governmental Entity;
(xii) the choice of law to govern this Lease, as specified in
Section 20(b) hereof, is a valid choice of law and such choice will be upheld in
the courts of the United States and the State of Florida;
(xiii) the submission of Lessee to jurisdiction of the courts
as provided in Section 20(b) hereof is legal, valid and binding on Lessee and
any judgement by such courts relating the subject matter hereof will be
recognized and enforced by the courts in the United States and the State of
Florida; and
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(xiv) Lessee is subject to private commercial law and suit
under the Laws of the Country of Organization and the Country of Registration;
Lessee is not entitled to sovereign immunity under the Laws of the Country of
Organization, the Country of Registration or any other jurisdiction, and neither
Lessee nor its properties or assets have the right of immunity from suit or
execution on the grounds of sovereignty in the Country of Organization, the
Country of Registration or any other jurisdiction; to the extent that Lessee, in
any jurisdiction in which proceedings may at any time be taken for the
determination of any question arising under or for the enforcement of this Lease
(including any interlocutory proceedings or the execution of any judgment or
award arising therefrom), may be entitled to claim or otherwise be accorded for
itself or its property, assets or revenues immunity from suit or attachment
(whether in aid of execution, before judgment or otherwise) or other legal
process, and to the extent that in any such jurisdiction, there may be
attributed to Lessee, or its property, assets or revenues such immunity (whether
or not claimed), Lessee hereby irrevocably agrees not to claim and waives such
immunity to the fullest extent permitted by the law of such jurisdiction;
(xv) Lessee is a "citizen of the United States" within the
meaning of Section 40102 of title 49 of the United States Code;
(xvi) Lessee holds an air carrier operating certificate issued
by the Secretary of Transportation pursuant to Chapter 447 of Title 49 of the
United States Code for aircraft capable of carrying 10 or more individuals;
(xvii) except for the filing for recordation of this Lease and
any Lease Supplement with the FAA and the filing of any UCC financing statements
required, and the placing on the Aircraft and on each Engine of the plates
containing the legends referred to in Section 6(f) hereof, no further filing or
recording other documents and no further filing of this Lease or of the
Mortgage, are necessary or desirable in order to (A) fully protect and establish
Lessor's interest in and property rights with respect to the Aircraft as against
Lessee or any third party and to ensure that the property rights of Lessor
therein will have priority in all respects over the claims of all creditors of
Lessor, (B) ensure the validity effectiveness and enforceability of this Lease,
(C) fully establish and protect the Lender's security interest in the Aircraft
and the Lease as against the Lessee or any third party and to ensure that the
security interest of the Lender will have priority in all respects over the
claims of all creditors of the Lessor, or (D) to ensure the validity,
effectiveness and enforceability of the Mortgage and the practical realization
of the benefits and rights intended to be afforded thereby.
Section 6. POSSESSION AND USE.
(a) POSSESSION.
(i) SUBLEASE, ASSIGNMENT AND TRANSFER. Lessee will not,
without the prior written consent of Lessor, assign, pledge or otherwise
encumber this Lease or sublet or transfer possession or operational control of
the Aircraft, Airframe, any Engine or any
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Part leased hereunder or install any Engine or any Part leased hereunder or
permit any Engine to be installed on any airframe other than the Airframe,
provided that so long as no Default or Event of Default shall have occurred and
be continuing and this Lease Agreement shall not have been declared in default
in accordance with Section 18 hereof, and as long as the action to be taken
shall not affect the registration of the Aircraft, and so long as all necessary
approvals of each Governmental Entity having jurisdiction over the Aircraft,
Lessee, any Permitted Sublessee or other relevant person have been obtained,
then Lessee may:
(A) Without the prior written consent of Lessor,
exchange any Engine with another engine on an aircraft operated by Lessee, or
any Permitted Sublessee under a Sublease, pursuant to a Related Lease;
(B) Without the prior written consent of Lessor,
deliver possession of the Aircraft, the Airframe or any Engine or any Part
thereof to a Maintenance Contractor for testing or other similar purposes or to
any organization for service, repair, maintenance, testing or overhaul work on
the Aircraft, Airframe or Engine or any Part thereof or for alterations or
modifications in or additions to the Aircraft, Airframe or Engine to the extent
required or permitted by the terms hereof;
(C) With the prior written consent of Lessor,
sublease the Aircraft or the Airframe to any Permitted Sublessee on the terms
and conditions satisfactory to Lessor in its absolute discretion, including
those set forth in Section 6(a)(ii);
(D) Without the prior written consent of Lessor,
enter into a charter or wet lease or other similar voyage or short-term
arrangement under which no person other than Lessee is granted any legally
enforceable possessory interest in the Airframe or any Engine and Lessee
retains operational control of the Airframe and any Engines installed thereon at
all times.
(ii) CERTAIN LIMITATIONS ON TRANSFERS. With respect to
any transfer pursuant to this Section 6(a):
(A) The rights of any transferee pursuant to a
transfer permitted by this Section 6(a) shall be subject and subordinate to all
the terms of this Lease, including, without limitation, Sections 17 and 18
hereof and such transferee shall so acknowledge in writing for the benefit of
Lessor;
(B) Lessee shall remain primarily liable hereunder
for the performance of all of the terms of this Lease to the same extent as if
such transfer had not occurred;
(C) No Sublease, charter, wet lease or other similar
arrangement or other transfer pursuant to the terms of this Section 6(a) shall
in any way discharge or diminish any of Lessee's obligations to Lessor
hereunder;
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(D) The term of any transfer or any Sublease,
charter, wet lease or other similar arrangement or other transfer shall not
extend beyond the then existing Term;
(E) Lessee shall assign its rights under any Sublease
to Lessor pursuant to an Assignment;
(F) Any Permitted Sublessee shall have: (i) made
representations comparable to those of the Lessee set forth in Section 5(c)
hereof provided that references therein to Country of Organization shall refer
to the country in which the Permitted Sublessee is organized, the Country of
Registration shall refer to the Country in which the Permitted Sublessee's use
of the Aircraft occurs, and references to the Lease shall refer to such
Sublease, and (ii) agreed to operate the Aircraft in accordance with the terms
hereof and in accordance with all insurance policies relating to the Aircraft,
and the terms of such Sublease (and any agreements entered into in connection
therewith);
(G) Any Sublease shall be substantially identical to
this Agreement, mutatis mutandis, and shall be subject to the prior written
approval of Lessor, acting in its absolute discretion;
(H) Lessee shall use reasonable efforts to provide
Lessor with as much prior written notice as is reasonably practicable of
Lessee's intent to enter into any Sublease; and
(I) With respect to any Sublease, Lessor shall have
received, prior to the commencement of such Sublease, an opinion of independent
counsel (which counsel and opinion shall be satisfactory to Lessor) qualified to
practice law in the jurisdiction of the Permitted Sublessee's domicile in form,
scope and substance satisfactory to Lessor concluding, among other things, that
the terms (including, without limitation, all Lessee representations,
warranties, covenants, indemnitees and waivers, and the provisions relating to
governing law, service of process and jurisdictional submission provisions
thereof) of such Sublease are legal, valid, binding and enforceable in such
jurisdiction and addressing such other matters as Lessor may reasonably request.
Except as provided in this Section 6(a), Lessee
shall not assign any interest in this Lease or any of its rights hereunder or in
any property leased hereunder, and any attempt to do so shall be void AB INITIO.
(b) RECIPROCAL RECOGNITION OF RIGHTS. In the event Lessee
shall have received from the lessor or secured party of any airframe leased to
Lessee or owned by Lessee subject to a conditional sale or other security
agreement, a written agreement (which agreement may be contained in the lease,
conditional sale agreement or security agreement relating to such airframe), and
such lease or conditional sale or other security agreement covering such
airframe also covers an engine or engines owned by the lessor under such lease
or subject to a security interest in favor of the secured party under such
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conditional sale or other security agreement, Lessor hereby agrees for the
benefit of such lessor or secured party that Lessor will not acquire or claim,
as against such lessor or secured party, any right, title or interest in any
such engine as the result of such engine being installed on the Airframe at any
time while such engine is subject to such lease or conditional sale or other
security agreement and owned by such lessor or subject to a security interest in
favor of such secured party. Lessor also hereby agrees for the benefit of the
mortgagee under any mortgage relating to installation of an Engine on an
airframe leased to Lessee, that Lessor will not acquire or claim, as against
such mortgagee, any right, title or interest in any engine subject to the lien
of such mortgage as the result of such engine being installed on the Airframe at
any time while such engine is subject to the lien of such mortgage.
(c) LAWFUL INSURED OPERATIONS. Lessee will, or will cause a
Permitted Sublessee to, operate and use the Aircraft only in lawful commercial
passenger and cargo operations by crews duly certified by the FAA (including,
without limitation, a captain certified by the FAA). Lessee will not maintain,
use or operate the Aircraft, or permit the Aircraft to be maintained, used or
operated in violation of any applicable Law of any Governmental Entity, or in
violation of any airworthiness certificate, or license or registration issued by
any such authority, or contrary to the Manufacturer's or Engine Manufacturer's
operating manuals or instructions or the Maintenance Program for the Aircraft or
the Engines. Lessee agrees not to operate the Aircraft, or permit the Aircraft
to be operated during the Term, unless (i) the Aircraft is covered by insurance
as required by the provisions hereof, and (ii) such operation is in compliance
with the terms of such insurance. Lessee also agrees not to operate or locate
the Aircraft or suffer or permit the Aircraft to be operated or located during
the Term in any area excluded from coverage by any insurance policy issued
pursuant to the requirements of this Lease, and Lessee solely shall bear any
costs and expenses that may arise from any loss or damage (with respect to both
the Aircraft and any affected third parties) that may occur during or in
connection with operations that are excluded from coverage by the insurance
policies issued pursuant to the requirements of this Lease.
(d) MAINTENANCE. Lessee, at its own cost and expense (subject
to the provisions of Section 4 hereof), shall: (i) perform or cause the
Maintenance Contractor to perform all mandatory service, inspections, repair,
maintenance, overhaul and testing, (A) as may be required under FAA rules and
regulations applicable to the Aircraft and in compliance with the Maintenance
Program, (B) in the same manner and with the same care as shall be the case with
similar aircraft and engines of the same make and model as the Aircraft and
Engines owned by or operated by or on behalf of Lessee or a Permitted Sublessee
without discrimination, but with no less care as may be applied to any other
aircraft in Lessee's or Permitted Sublessee's operating fleet, and (C) so as to
keep the Aircraft in as good operating condition and appearance as when
delivered to Lessee subject to normal wear and tear associated with the
operation and maintenance thereof in accordance herewith; (ii) keep the Aircraft
in such condition as is necessary to enable the airworthiness certification of
the Aircraft to be maintained in good standing at all times under FAA
regulations and any other applicable Law; (iii) maintain on a current basis
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throughout the term of this Lease and in the English language accurate,
complete, and current, all Aircraft Documents, which term shall include, without
limitation, those listed in Exhibit B, and all current and historical
maintenance and overhaul records (including, without limitation, all documents
required by the FAA or otherwise to trace all time or cycle controlled Parts to
most recent overhaul or fabrication), all current and historical modification,
addition or alteration records, all log books, all manuals and revisions and
updates thereto, all certification and inspection records (including without
limitation all certifications and forms required by the FAA and otherwise and
all reports, x-rays, video tapes, print-outs and other NDT documents in Lessee's
possession or which Lessee is entitled to possess), and all other materials
required by, and in a manner acceptable to, the FAA any other Governmental
Entity, the Maintenance Program and this Lease; and (iv) permit Lessor or any
authorized representative of Lessor to examine such Aircraft Documents at any
reasonable time.
(e) REGISTRATION. During the Term, Lessee shall at its expense
keep the Aircraft at all times registered under the applicable Laws of the
United States in the name of the Lessor, as owner (and the filings in respect
thereof shall clearly indicate that Lessee has operational responsibility for
the Aircraft and shall include a copy of the Mortgage and this Agreement
approved by Lessor, properly recorded in such registry.)
(f) INSIGNIA. Upon delivery of the Aircraft, Lessee agrees to
place the Lease Identification as set forth in Exhibit C in the cockpit in a
prominent location and to place the Lease Identification on each Engine. Lessee
agrees to make such changes to the Lease Identification as Lessor may reasonably
request from time to time.
(g) COSTS OF AIRWORTHINESS DIRECTIVES
If the total of the reasonable and actual out-of-pocket cost
(without mark-up in direct cost of labor or material) of any single
Airworthiness Directive which is issued during the Lease Term and requires
terminating action either (i) during the Lease Term or (ii) during the one-year
period immediately following expiration of the Lease Term (such cost, the "AD
Cost") exceeds the AD Threshold, the Lessee shall furnish Lessor with an
estimate of the work and such costs relating thereto to comply therewith, and
Lessor and Lessee shall share such costs in the following manner: Lessee shall
bear and pay all costs up to and including the AD Threshold . Lessor shall bear
and pay the amount of such AD Cost greater than the AD Threshold but less than
or equal to the Excess AD Costs Threshold. All costs greater than the Excess AD
Costs Threshold (the "Excess AD Costs") shall be shared by Lessor and Lessee.
Lessee's share of the Excess AD Costs shall be calculated as follows:
Lessee's Share = Excess AD Costs X Remaining Lease Period
-----------------------
Useful Life of Modification
"Remaining Lease Period" shall mean the number of days
remaining in the Base Period plus any exercised Extension Option, plus the
applicable Expected Extension
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Days, after the date of the completion of work to comply with such airworthiness
directive.
"Expected Extension Days" shall mean the number of days by
which the Lease may be extended by using the unexercised Extension Options,
multiplied by a probability factor of 0.5.
"Useful Life of Modification" shall mean the useful life of
the modification, expressed in days, as specified in the airworthiness
directive, or, if no such useful life is specified, then Lessor shall make a
good faith determination of the useful life of the modification.
Lessee shall bear and pay the aggregate AD Cost described
above, and within 45 days following Lessor's receipt from Lessee of appropriate
invoices for the work relating thereto, Lessor shall reimburse Lessee for
Lessor's share of the AD Cost. Lessee shall give Lessor prior written notice of
any such Airworthiness Directive for which the cost is anticipated to exceed the
AD Threshold before commencing any alteration, modification or addition of or to
the Aircraft with respect thereto.
(h) REINSTALLATION OF ENGINES. Any Engine removed from the
Aircraft for scheduled or unscheduled maintenance must have such maintenance
completed and be reinstalled on an aircraft within thirty (30) days of removal,
but in any event prior to the end of the Term or any Renewal Term. If required
by the Manufacturer's maintenance manual, Lessee shall place the Engine in
storage as recommended by the Engine Manufacturer, and shall promptly advise
Lessor in writing as to the place of such storage and any change therein and
shall clearly identify such Engine as an Engine belonging to Lessor in its
storage records and conspicuously on the container or other space in which the
Engine is stored.
(i) REINSTALLATION OF PARTS. If any Part is removed from the
Aircraft, a replacement Part permitted under Section 9 hereof shall be promptly
reinstalled in accordance with Lessee's Maintenance Program. Lessee shall use
its best reasonable efforts to reinstall such Part or a replacement part prior
to the earlier of thirty (30) days after the removal thereof, but in any event
before the expiration of the Term, unless Section 9 hereof clearly permits such
Part to be permanently removed.
Section 7. INFORMATION.
From and after the Delivery Date, Lessee agrees to furnish to
Lessor or Lessor's Aircraft Manager the following:
(a) as soon as available but in any event within forty-five
(45) days following the end of each of the first three fiscal quarter of
Lessee's fiscal year, an unaudited consolidated balance sheet of Lessee, profit
and loss statement, a statement of
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stockholder's equity of Lessee prepared as of the close of each quarterly
period, together with a certificate of the chief financial officer of Lessee,
stating that such reports fairly present the financial position of Lessee in
accordance with generally accepted international accounting principles;
(b) as soon as available but in any event within ninety (90)
days after the close of each fiscal year of Lessee, a balance sheet, profit and
loss statement, and statement of stockholders' equity of lessee (prepared on a
consolidated basis), as of the close of such fiscal year and audited by an
Approved Auditor;
(c) within one hundred twenty (120) days after the close of
each fiscal year of Lessee, a certificate signed by a duly authorized officer of
Lessee, stating (i) that such officer is familiar with the relevant terms of
this Lease and has made a review of Lessee's compliance herewith during the
preceding fiscal year, and (ii) that no event has occurred which constitutes a
Default, or, if such an event has occurred, the nature thereof and action Lessee
has taken or is taking to cure the same;
(d) no later than the tenth (10th) Business Day after each
Rent Payment Date or Renewal Rent Payment Date during the Term, Lessee shall
provide Lessor's Aircraft Manager with a report with respect to the Aircraft
which shall specify for the immediately preceding Maintenance Reserve
Calculation Period: (i) total Flight Hours, Block Hours, days and total cycles
of the Airframe and each Engine; (ii) any scheduled maintenance above a "C"
check performed during such period; (iii) any significant modifications
performed to the Aircraft during such period; (iv) any accident or incident
information relating to the Aircraft; and (v) the status of the accomplishment
of airworthiness directives and manufacturer's service bulletins, including
method of compliance (e.g., terminating action or surveillance);
(d) notice in writing of (i) any proceeding by or against
Lessee, the adverse determination of which would materially adversely affect
Lessee's financial condition, affairs or operations and (ii) any other matter
which materially adversely affects Lessee's financial condition, affairs or
operations or Lessee's ability to perform under this Lease;
(e) from time to time such other information as Lessor or
Lessor's Aircraft Manager may, at its sole discretion, reasonably request,
including, without limitation, other financial statements or financial
information, and information concerning the location, condition, use and
operation of the Aircraft; and
(f) Within 72 hours after the occurrence thereof, notice of
any notices received from the FAA indicating an intent to commence an
investigation of the Lessee or its operations or to impose any disciplinary
action on the Lessee, either of which could, if carried out, have an immediate
materially adverse effect on Lessee's airline operations or the Lessee's ability
to perform its material obligations under this Lease; and
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(g) at least thirty (30) days prior to any scheduled
maintenance on the Aircraft, notice of such scheduled maintenance and the
locations thereof and a reasonable opportunity to have one or more technical
representatives of the Lessor present during the performance thereof with full
access to all related documentation pertaining to such work, including but not
limited to work orders, work cards, parts invoices, labor charges, and reports
of inspection.
At all reasonable times during the Term, which shall include
normal business hours in the location where the Aircraft is physically located
and in the location where the Aircraft Documents are kept, Lessee shall (and
shall cause any Permitted Sublessee to) allow Lessor and/or its authorized
representatives, at their own expense and risk, to conduct an on-board or visual
walk-around inspection of the Aircraft and any Engine (including a visual
walk-around inspection of the Aircraft during any "C" check or other heavy
maintenance) and to inspect the books and records of Lessee or such Permitted
Sublessee relating thereto including all records and logs maintained with
respect to the Aircraft; provided that (i) any such inspection shall be subject
to the safety, security and workplace rules applicable at the location where
such inspection is conducted and any applicable governmental rules or
regulations, and (ii) in the case of an inspection during a maintenance visit,
such inspection shall not in any respect interfere with the normal conduct of
such maintenance visit or extend the time required for such maintenance visit
or, in any event, at any time interfere with the use or operation of the
Airframe or any Engine or with the normal conduct of Lessee's or a Permitted
Sublessee's business. Lessor shall have no duty to make any such inspection and
shall not incur any liability or obligation by reason of not making any such
inspection. Lessor's (or Lessor's Aircraft Manager's) failure to object to any
condition or procedure observed or observable in the course of an inspection
hereunder shall not be deemed to waive or modify any of the terms of this Lease
with respect to such condition or procedure.
Section 8. COVENANTS OF LESSEE.
Lessee covenants and agrees that:
(a) MAINTENANCE OF CORPORATE EXISTENCE. Except as provided in
Section 8(d) below, until the Return Occasion, Lessee will preserve and maintain
its corporate existence and such of its rights, privileges, licenses and
franchises in any jurisdiction where failure to obtain such licensing or
qualification would have a material adverse effect upon Lessee or its ability to
perform its obligations hereunder.
(b) MAINTENANCE OF STATUS. Lessee is, and shall remain so long
as it shall be Lessee under this Lease, duly qualified to carry on its business
as it is now conducted and operate the Aircraft under applicable Law in
accordance with the Terms of this Agreement.
(c) PAYMENT OF TAXES. Lessee will pay or cause to be paid all
Taxes and governmental charges or levies imposed upon it, or upon its income or
profits, or upon any property belonging to it, prior to the date on which
penalties attach thereto and
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prior to the date on which any lawful claim, if not paid, would become a Lien
upon any of the material property of Lessee.
(d) CONSOLIDATION, MERGER, OWNERSHIP, ETC. Without the prior
written consent of Lessor, Lessee shall not consolidate with, merge with or
merge into any other corporation or convey, transfer or lease substantially all
of its assets as an entirety to any other Person, unless, after giving effect to
the transaction, the surviving entity has at least the same net worth and gross
assets as Lessee prior to such transaction, and each of the representations and
warranties of the Lessee set forth herein would be true and correct if made
immediately thereafter.
(e) PLACE OF BUSINESS. Lessee will notify Lessor in writing no
less than four (4) weeks in advance of any change of its principal place of
business or chief executive office.
(f) This Section Reserved.
(g) GOVERNMENTAL CONSENTS. Lessee undertakes to maintain in
full force and effect all governmental consents, licenses, authorizations,
approvals, declarations, filings and registrations obtained or effected in
connection with this Lease and every document or instrument contemplated hereby
and to take all such additional action as may be proper or advisable in
connection herewith or therewith. Lessee further undertakes to obtain or effect
any new or additional governmental consents, licenses, authorizations,
approvals, declarations, filings or registrations as may become necessary for
the performance of any of the terms and conditions of this Lease or any other
document or instrument contemplated hereby.
(h) RESTRICTIONS ON OPERATION. Lessee shall not operate or
locate the Aircraft in any country that is the subject of sanctions under the
U.S. International Economic Emergency Powers Act or U.N. Security Council
directives (presently Cuba, Iran, Iraq, Libya, North Korea and the Federal
Republic of Yugoslavia (Serbia and Montenegro)). It also agrees not to operate
or locate the Aircraft in any country restricted under the U.S. Trading with the
Enemy Act and the U.S. Export Administration Act except as may be permitted by
operating in accordance with the conditions specified by the U.S. Export
Administration Regulations, General License GATS (15 CFR Part 771.19) (presently
Cuba, North Korea and Libya).
(i) Lessee shall remain a "citizen" of the United States"
within the meaning of Section 40102 of Title 49 of the United States Code.
(j) Lessee shall continue to hold an air carrier operating
certificate issued by the Secretary of Transportation pursuant to Chapter 447 of
Title 49 of the United States Code for aircraft capable of carrying 10 or more
individuals.
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Section 9. REPLACEMENT OF PARTS: ALTERATIONS, MODIFICATIONS
AND ADDITIONS.
(a) REPLACEMENT OF PARTS. Lessee, at its own cost and expense,
shall promptly replace all Parts which, from time to time, may become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing during
the Term, Lessee may at its own cost and expense remove or cause to be removed
any Parts, whether or not worn out, destroyed, damaged beyond repair or
permanently rendered unfit for use; PROVIDED that Lessee shall replace at its
own cost and expense such Parts as promptly as practicable and available. All
replacement Parts shall be free and clear of all Liens, other than Liens
permitted by clauses (a) and (b) of Section 14 hereof; shall be in at least the
same modification status and service bulletin accomplishment status; shall be
fully interchangeable as to form, fit and function; shall have been overhauled,
repaired and inspected by an agency acceptable to the Manufacturer, the Engine
Manufacturer and the FAA; and shall be in as good operating condition as, and
have a utility at least equal to and a value and remaining warranty reasonably
approximating the Parts replaced (assuming such replaced parts were in the
condition and repair in which they were required to be maintained by the terms
hereof) and all historical records (dating back to the time of the manufacture
of such Part) relating to such Parts shall be maintained by Lessee.
Notwithstanding the foregoing provision, the right of Lessee to utilize an
agency acceptable to the Manufacturer, the Engine Manufacturer and the FAA shall
not be construed as modifying Lessee's obligations under Section 16 and Exhibit
E with respect to return of the Aircraft in accordance with the standards and
requirements of the FAA as therein provided.
All Parts owned by Lessor which are at any time removed from
the Aircraft shall remain the property of Lessor and subject to this Lease, no
matter where located, until such time as such Parts shall be replaced by Parts
which have been incorporated or installed in or attached to the Aircraft and
which meet the requirements for replacement Parts specified above. Immediately
upon any replacement Part becoming incorporated or installed in or attached to
the Aircraft as above provided, (i) title to the removed part shall thereupon
vest in Lessee, free and clear of all rights of Lessor, (ii) title to such
replacement part shall thereupon vest solely in Lessor and (iii) such
replacement part shall become subject to this Lease and be deemed a Part for all
purposes hereof to the same extent as the Part which it has replaced.
Any Part removed from the Airframe or from any Engine as
provided in this Section 9(a) may be subjected by Lessee or any Permitted
Sublessee to a normal pooling arrangement customary in the airline industry
entered into in the normal course of Lessee's business with a certificated air
carrier approved by Lessor, copies of the documentation for which have been
supplied to, and been approved by Lessor, such approval not to be unreasonably
withheld, provided the part replacing such removed Part shall be incorporated in
or installed on or attached to such Airframe or Engine in accordance with
Sections 9(a) and 9(b) as promptly as practicable after the removal of such
removed Part.
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(b) ALTERATIONS, MODIFICATIONS AND ADDITIONS. Except as
provided elsewhere in this Agreement, Lessee, at its own expense, shall make
such alterations, modifications and additions to the Aircraft as may be required
from time to time to meet the applicable standards of the FAA or to comply with
any Law, rule, directive, bulletin, regulation or order of any Governmental
Entity or of the manufacturer of the Aircraft, Engines or Parts. Lessee, at its
own expense, may from time to time make alterations and modifications in and
additions to the Aircraft, provided no such alteration, modification or addition
diminishes, in Lessor's sole opinion, the remaining warranty, value or utility,
or impairs the condition or airworthiness, of the Aircraft. Title to all Parts
incorporated or installed in or attached or added to the Aircraft as the result
of such alteration, modification or addition shall vest immediately in Lessor
and become subject to this Lease, without the necessity for any further act of
transfer, document or notice. In no event shall Lessor bear any liability or
cost for any alteration, modification or addition to, or for any grounding or
suspension of certification of, the Aircraft, or for any loss of revenue arising
therefrom and title such replacement parts shall vest, without further act, in
the Lessor free and clear of all rights of Lessee or any party claiming through
Lessee. Lessee shall make no alterations, modifications or additions to the
Aircraft that would adversely affect the marketability of the Aircraft. Lessee
(or Permitted Sublessee) may, at its own cost and expense at any time during the
Term, remove or cause to be removed any such Part from the Airframe or an Engine
if (i) such Part is in addition to, and not in replacement of or in substitution
for, any Part originally incorporated or installed in or attached to such
Airframe or Engine at the time of delivery thereof hereunder or any Part in
replacement of, or in substitution for, any such original Part, and (ii) such
Part can be removed from such Airframe or Engine without diminishing or
impairing the value, condition, utility or airworthiness which such Airframe or
Engine would have had at the time of removal had such alteration, modification
or addition not been effected by Lessee (or Permitted Sublessee) assuming the
Aircraft was otherwise maintained in the condition required by this Lease. Upon
the removal of any such Part as above provided, title thereto shall vest,
without further act, in Lessee or, if such part has been removed by a Permitted
Sublessee, in such Permitted Sublessee, free and clear of all rights of Lessor
and such Part shall no longer be deemed a Part hereunder. Any Part not removed
as above provided prior to the return of the Aircraft to Lessor hereunder shall
remain the property of Lessor.
Section 10. GENERAL TAX INDEMNITY. (a) REMITTANCE WITHHOLDING.
Lessee agrees for the benefit of each Indemnitee that all payments by Lessee in
connection with the transactions contemplated by this Lease ("Lessee Payments")
shall be free of all withholdings or deductions of any nature whatsoever
(including, without limitation, Taxes). In the event any such withholding or
deduction is or shall be required, including, without limitation, any
withholding required of any Indemnitee in remitting any such Lessee Payment to
the Beneficiary ("Remittance Withholding"), Lessee shall pay such Lessee
Payments together with such additional amount as is required so that each such
Lessee Payment, and remittance thereof, as the case may be, shall be, under any
circumstances and in any event, after any such withholding or deduction, in the
amount as set forth or referred to in this Lease.
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(b) INDEMNITY. Subject only to the limitations described in
sub-paragraph (c) hereof, Lessee agrees for the benefit of each Indemnitee to
pay and, on written demand, to indemnify and hold each Indemnitee harmless from
all license and registration fees, duties, imposts, deductions, charges and,
without limitation, all Taxes, howsoever levied or imposed, whether levied or
imposed upon or asserted against any Indemnitee, Lessee, the Lease, the
Aircraft, or any part thereof or interest therein, or otherwise by any federal,
state or local government, instrumentality or other taxing authority in the
United States any other country or of a territory or possession or by any
international taxing authority upon or with respect to, or arising out of or
connected with, or based upon or measured:
(i) by the Aircraft, or any part thereof, or interest
therein;
(ii) by the exportation, importation, ownership, delivery,
non-delivery, warehousing, removal, leasing, exchange, acceptance, assigning,
possession, repossession, condition, recording, use, operation, settlement of
any insurance or warranty claim, sale, mortgaging, pledging, financing,
subleasing, rental, retirement, chartering, imposition of any Lien, abandonment,
registration, preparation, installation, modification, repair, maintenance,
replacement, transportation, warehousing, storage, transfer of title, return or
other disposition of the Aircraft or any part thereof or interest therein;
(iii) by the rentals, receipts or earnings arising from any
one or more of the items or acts described in clause (i) or (ii) above
(including, without limitation, the Rent);
(iv) upon or with respect to this Lease, or any other
document pertaining to or in connection with the transactions contemplated by
this Lease; or
(v) otherwise with respect to or in connection with the
transactions contemplated by the Lease; and any out-of-pocket costs and expenses
fairly attributable to any of the foregoing incurred by any Indemnitee.
(c) EXCLUSION. Except as provided in subsection (d) below,
there shall be excluded from the indemnity provided in Section 10(b) (i) taxes
to the extent imposed upon or measured by the net income, profit, capital gain
or net worth of any Indemnitee which are imposed by the United States federal
government and any other taxing authority in any jurisdiction in which the
Lessor is subject to tax as a resident as a consequence of contacts with such
jurisdiction unrelated to the transactions contemplated hereby (ii) any claims
to the extent such claims result from the willful misconduct or gross negligence
of any Indemnitee; (iii) any claim arising out of a period before delivery to
Lessee.
(d) AFTER TAX BASIS OF PAYMENTS. Notwithstanding anything in
this Section 10 to the contrary (including, without limitation, of Section 10(c)
above), Lessee further agrees that, with respect to any payment or indemnity
hereunder, such payment or indemnity the Lessee is required to pay or indemnify
against shall include any amount
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necessary to hold the recipient of the payment or indemnity harmless on an
after-tax basis from all Taxes (including Remittance Withholding, if any)
required to be paid (or in the case of Remittance Withholding, withheld) by such
recipient with respect to such payment or indemnity, so that such recipient
shall receive an amount which, net of any Taxes (including Remittance
Withholding, if any) required to be paid (or in the case of Remittance
Withholding, withheld) by such recipient in respect of such amount, shall be
equal to the amount of payment or indemnity otherwise required hereunder. Any
subsequent reduction in such recipient's deductions, credits, or other
allowances in respect of the payment or accrual of the amount indemnified
against shall be treated as a Tax that is indemnifiable under this Section
without regard to the exclusions set forth in Section 10(c) above.
(e) PAYMENTS. Lessee shall pay all Taxes for which it assumes
liability hereunder when such Taxes are due. If a claim is made against any
Indemnitee for any such Taxes, such Indemnitee shall promptly notify Lessee,
provided, however, that failure to provide such notice shall not affect Lessee's
obligations hereunder to any Indemnitee. Any amount payable as an indemnity to
any Indemnitee or any amount payable to Lessee pursuant to this Section 10 is to
be paid to such party directly, in immediately available funds, by bank wire
transfer at such bank or to such account as specified by the payee in written
directions to the payor, or, if such directions shall not have been given, by
check of the payor payable to the order of the payee and mailed to the payee by
certified mail, postage prepaid at its address as set forth in this Lease,
within ten (10) days after receipt of a written demand therefor from such
Indemnitee or Lessee, as the case may be.
In the event an Indemnitee makes a payment with respect to any
such Taxes (other than with funds advanced to such Indemnitee on an
interest-free basis by Lessee pursuant to this Section 10), Lessee shall pay to
the Indemnitee interest on the amount of such payment at the Interest Rate set
forth in Exhibit C from the date of such Indemnitee's payment to the relevant
taxing authority to the date of such payment by Lessee to the Indemnitee
hereunder.
(f) CONTESTS. So long as (a) no Default or Event of Default is
continuing and this Lease has not been declared in default, (b) a contest of
Taxes does not involve any danger of the sale, forfeiture or loss of the
Aircraft or any interest therein, (c) Lessee has provided the relevant
Indemnitee with an opinion of independent tax counsel acceptable to such
Indemnitee that a meritorious basis exists for contesting such claim, (d) Lessee
has made adequate reserves for such Taxes, then such Indemnitee at Lessee's
written request will at Lessee's sole cost and expense, take such actions as
Lessee shall reasonably request to contest (or, if permitted by Law, to permit
Lessee to contest in the name of such Indemnitee) the validity, applicability or
amount of such Taxes. If such contest is to be initiated by the payment of, and
the claiming of a refund for, any Taxes, Lessee shall advance to the relevant
Indemnitee sufficient funds (on an interest-free basis) to make such payments
and shall indemnify such Indemnitee for any tax consequences resulting from such
advance of funds. Although the relevant Indemnitee may consult in good faith
with Lessee concerning the conduct of any contest, such Indemnitee shall
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control the conduct of all proceedings relating to any such contest which is
brought by or on behalf of such Indemnitee. Any contest initiated hereunder may
be settled or discontinued at any time provided that the relevant Indemnitee
shall have waived any right to indemnification for the Taxes being contested.
(g) REPORTS. In case any report or return is required to be
made with respect to any Taxes which are an obligation of Lessee or for which an
indemnification obligation may arise under this Section 10, Lessee will either
make such report or return in such manner as will show the ownership of the
Aircraft and the Engines in Lessor and send a copy of such report or return to
Lessor or will notify Lessor of such requirement and, if lawfully able to do so,
will make such report or return in such manner as shall be reasonably
satisfactory to Lessor (and Lessee shall hold each Indemnitee harmless from and
against any liabilities, obligations, losses, damages, penalties, claims,
actions, suits and reasonable costs arising out of any insufficiency or
inaccuracy in any such return, statement, report or information). Lessor shall
take such actions as Lessee shall reasonably request and at Lessee's sole cost
and expense, to cooperate with the filings contemplated by this Section 10(g).
As soon as practicable after the beginning of each calendar year (but in no
event later than February 28 of such year), Lessee shall provide Lessor with any
information that Lessor shall reasonably request in writing (by January 31 of
such year) and Lessee can reasonably compile to enable Lessor to allocate
accurately for foreign, state and local tax purposes its rental income for the
preceding calendar year. Lessee shall hold Lessor harmless from and against any
liabilities, obligations, losses, damages, penalties, claims, actions, suits and
costs arising out of any insufficiency or inaccuracy in any information supplied
by Lessee under this Section 10(f). Lessee shall make available to Lessor such
other information and records as are maintained by Lessee regarding the use of
the Aircraft. If, as a result of an audit or otherwise, Lessor reasonably
requests additional information, Lessee shall make available such other
information and records as it maintains in the ordinary course of business.
(h) REFERENCES TO AMOUNTS PAYABLE BY LESSEE. Each amount
stated as payable by Lessee under this Lease is exclusive of Taxes (if any) and
is accordingly to be construed as a reference to that amount plus any Taxes in
respect of it.
(i) SURVIVAL. All of the obligations of Lessee under this
Section 10 shall survive the assignment, expiration or other termination of this
Lease. Such obligations are expressly undertaken by Lessee for the benefit of,
and shall be enforceable by, Lessor and each other Indemnitee. The obligations
of Lessee in respect of all such indemnities, obligations, adjustments and
payments shall be enforceable by, any Indemnitee, without declaring this Lease
to be in default or taking other action thereunder.
Section 11. CASUALTY OCCURRENCES.
(a) CASUALTY OCCURRENCE WITH RESPECT TO THE AIRFRAME. Within
two (2) days after a Casualty Occurrence during the Term with respect to the
Airframe and any Engine then installed thereon, Lessee shall give Lessor and
Lessor's Aircraft Manager
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written notice of such occurrence. On or before the date which is ninety (90)
days after the date of the Casualty Occurrence, but in no event later than two
(2) Business Days after receipt of insurance proceeds in respect of such
Casualty Occurrence, Lessee shall pay to Lessor in immediately available funds
the sum of (i) the Casualty Value of the Aircraft plus (ii) the amount of Rent
(other than Maintenance Reserve Payments), if any, accrued up to the date of
payment of such Casualty Value (on the basis of actual days elapsed and a
360-day year) for each day during the period commencing with, and including, the
last preceding Rent Payment Date and extending to, but excluding, the date of
payment of such Casualty Value. Upon such payment (A) the obligation of Lessee
to make further payments of Rent (other than Supplemental Rent) hereunder shall
terminate, (B) this Lease shall terminate with respect to the Aircraft and (C)
Lessor will transfer to Lessee, without recourse or warranty, all of Lessor's
right, title and interest, if any, in and to the Airframe and Engines (if any)
suffering the Casualty Occurrence, as well as all of Lessor's right, title and
interest in and to any Engine constituting part of the Aircraft but not
installed thereon at the time of the Casualty Occurrence; provided, however,
that there shall be excluded from such assignment any and all claims against any
Persons which arose prior to the date of such assignment, including without
limitation any and all claims against any Persons who may have been responsible,
in whole or in part, for the events giving rise to such Casualty Occurrence, but
such exclusion shall be limited to the portion of such claims which exceeds the
amounts paid to Lessor in respect of such Casualty Occurrence by Lessee or the
insurers under any policy of insurance maintained by Lessee pursuant to Section
12 hereof.
(b) CASUALTY OCCURRENCE WITH RESPECT TO AN ENGINE. Upon a
Casualty Occurrence with respect to an Engine under circumstances in which there
has not occurred a Casualty Occurrence with respect to the Airframe, Lessee
shall forthwith (and in any event within two (2) days after such Casualty
Occurrence) give Lessor written notice thereof and shall, within forty-five (45)
days after such occurrence, convey to Lessor, as replacement for the Engine
suffering a Casualty Occurrence, title to a Replacement Engine. Each Replacement
Engine shall be free of all Liens (except those Liens which are permitted by
paragraphs (a) and (b) of Section 14 hereof) and shall be in as good an
operating condition and shall have a value and utility at least equal to, and
shall have at least the number of Flight Hours or cycles remaining on the Engine
being replaced, assuming the Engine being replaced was in the condition and
repair required by the terms hereof immediately prior to the Casualty
Occurrence, and shall be compatible with the remaining installed Engines. Upon
full compliance by Lessee with the terms of this paragraph, Lessor will transfer
to Lessee title to the Engine which suffered the Casualty Occurrence. Prior to
or at the time of any such conveyance, Lessee, at its own expense, will promptly
(i) furnish Lessor with a full warranty bill of sale, in form and substance
reasonably satisfactory to Lessor, with respect to such Replacement Engine; (ii)
cause a supplement hereto, in form and substance reasonably satisfactory to
Lessor, subjecting such Replacement Engine to this Lease, to be duly executed by
Lessee; (iii) furnish Lessor with such evidence of title to such Replacement
Engine and of compliance with the insurance provisions of Section 12 hereof with
respect to such Replacement Engine as Lessor may reasonably request; (iv)
furnish Lessor with an opinion of Lessee's
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counsel (which counsel shall be reasonably acceptable to Lessor) to the effect
that title to such Replacement Engine has been duly conveyed to Lessor, free and
clear of all Liens, and that such Replacement Engine is duly leased hereunder;
(v) furnish a certificate signed by a duly authorized financial officer or
executive of Lessee certifying that, upon consummation of such replacement, no
Default or Event of Default will exist hereunder; and (vi) furnish Lessor with
such documents as Lessor may reasonably reuest in connection with the
consummation of the transactions contemplated by this Section 11(b), in each
case in form and substance satisfactory to Lessor. Upon full compliance by
Lessee with the terms of this Section 11(b), Lessor will transfer to Lessee "AS
IS AND WHERE IS" and without recourse or warranty, except as to Lessor's title
and the absence of Lessor's Liens, all of the right, title and interest in the
Engine which suffered the Casualty Occurrence and which was originally leased to
Lessee. For all purposes hereof, each such Replacement Engine shall be deemed
part of the property leased hereunder, shall be deemed an "Engine" as defined
herein and shall be deemed part of the same Aircraft as was the Engine replaced
thereof. No Casualty Occurrence covered by this Section 11(b) shall result in
any reduction in Rent.
(c) APPLICATION OF PROCEEDS AND PAYMENTS. Any payments
received at any time by Lessor or by Lessee from any insurer under any policy of
insurance (other than liability insurance) or any other person (other than an
insurer under insurance maintained by Lessor) shall be applied in the manner
specified in Sections 12(d), 12(e) or 12(f) hereof as applicable. Subject to
Section 11(e) hereof, any payments received at any time by Lessor or Lessee from
any Governmental Entity or other Person with respect to a Casualty Occurrence
will be applied as follows:
(i) unless clause (ii) below is applicable, so much of such
payments as shall not exceed the sum of (x) Rent accrued but unpaid through the
date of receipt of such payments plus (y) the Casualty Value required to be paid
by Lessee pursuant to Section 1l(a) of this Lease shall be paid to Lessor in
reduction of Lessee's obligation to pay such unpaid Rent and Casualty Value if
not already paid by Lessee, or, if already paid by Lessee shall be applied by
Lessor to reimburse Lessee for its payment of such Casualty Value and the
balance of such payment, if any, remaining thereafter (if such payment is
received with respect to insurance other than liability insurance) shall be paid
over to, or retained by, Lessee, except to the extent any such amount is
specifically allocable to an interest of Lessor; or
(ii) if such payments are received as a result of a Casualty
Occurrence with respect to an Engine which is being replaced pursuant to Section
11(b), unless a Default or Event of Default shall have occurred and be
continuing or this Lease shall have been declared in default in accordance with
Section 18 hereof, all such payments shall be paid over to, or retained by,
Lessee if Lessee shall have fully performed or, concurrently therewith will
fully perform, the terms of Section 11(b) and of Section 15 hereof with respect
to the Casualty Occurrence for which such payments are made.
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(d) REQUISITION FOR USE BY GOVERNMENT WITH RESPECT TO THE
AIRCRAFT. In the event of the requisition for use by a Governmental Entity of
the Airframe or any Engine (other than a requisition constituting a Casualty
Occurrence), all Lessee's obligations under this Lease with respect to the
Airframe or Engine shall continue to the same extent as if such requisition had
not occurred; provided that all payments received by Lessor from such
Governmental Entity or rental payments for the Aircraft shall be offset against
Lessee's obligation to pay Rent. If the Airframe or any Engine or engine
installed thereon is not returned by such Governmental Entity prior to the last
day of the Term, the Term of the Lease shall nonetheless terminate on such date
in accordance with the provisions hereof. Subject to Section 11(e) hereof, all
payments received by Lessor or Lessee from the Governmental Entity for the use
of the Airframe or Engine during the Term prior to the time such requisition
becomes a Casualty Occurrence shall be paid over to, or retained by, Lessee; and
all payments received by Lessor or Lessee from the Governmental Entity for the
use of such item after such requisition constitutes a Casualty Occurrence or
after the expiration of the Term shall be paid over to, or retained by, Lessor.
Notwithstanding the foregoing, if possession of the Aircraft is recovered or
such Casualty Occurrence shall no longer be continuing on or prior to the date
on which Lessee is required to make any payment pursuant to Section 11(a),
Lessee shall return the Aircraft to Lessor in accordance with Section 16 and
pay, at the time of such return, rental (in arrears) to Lessor with respect to
the period from the end of the Term to and excluding the date of such return in
an amount equal to a pro rata portion of the Base Rent together with all other
amounts payable on a Return Occasion hereunder.
(e) APPLICATION IN DEFAULT. Any amount referred to in Section
11 which is otherwise payable to Lessee shall not be paid 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 Lessor, if at the time
of such payment a Default or an Event of Default shall have occurred and be
continuing, or if Lessor shall have theretofore declared this Lease to be in
default in accordance with Section 18 hereof, all such amounts shall be held by
Lessor as security for the obligations of Lessee, or, at the option of Lessor,
applied by Lessor toward payment of any of Lessee's obligations at the time due
hereunder. At such time as there shall not be continuing any such Default or
Event of Default, all such amounts at the time held by Lessor in excess of the
amount, if any, which Lessor has elected for application as provided above,
shall be paid to Lessee, except that if Lessor shall have theretofore declared
this Lease to be in default in accordance with Section 18 hereof, such amounts
shall be retained by Lessor and disposed of in accordance with the provisions
thereof.
Section 12. INSURANCE.
(a) PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE. Effective
on or before the Delivery Date, Lessee, at its own expense, shall carry and
maintain in full force and effect throughout the Term with Approved Insurers
comprehensive public liability insurance (including, but not limited to,
contractual liability under Section 13 hereof, passenger legal liability,
coverage against claims by employees (greater or other than
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claims covered by Lessee's workmen's compensation insurance), agents or
subcontractors of Lessee or by their respective dependents and by other third
parties, baggage, cargo, mail and airline general liability, including premises,
hangarkeepers and products liability) and property damage insurance with respect
to the Aircraft of the type usual and customary by commercial scheduled airline
standards for airline carriers operating similar aircraft. Such policy shall
include war and allied risks in accordance with standard market practice
(currently "The Extended Coverage Endorsement - AVN 52"). Such insurance shall
be in an amount as is usual and customary by commercial scheduled airline
standards for airline carriers operating similar aircraft, but shall not be less
than the amount under "Public Liability and Property Damage Insurance" (as set
forth on Exhibit C hereto) per occurrence. Lessee shall not discriminate against
the Aircraft in providing such insurance.
(b) INSURANCE AGAINST LOSS OR DAMAGE. Effective on or before
the Delivery Date, Lessee, at its own expense, shall carry and maintain in full
force and effect throughout the Term with Approved Insurers "all-risk" ground
and flight aircraft hull insurance (and aircraft hull war and allied perils
insurance which shall include, but not be limited to, vandalism, war risk and
allied perils, hijacking, disappearance clause and coverage against strikes,
riots, commotions or labor disturbances, malicious acts or acts of sabotage and
unlawful seizure (including confiscation, arrest, nationalization, seizure,
restraint, detention, appropriation, requisition or destruction), threat, by or
under authority of any Governmental Entity, or wrongful exercise of control of
the Aircraft in flight by a person on board the Aircraft acting without the
consent of Lessee) and "all-risk" coverage insurance with respect to Engines and
Parts while not installed on the Aircraft or an aircraft, which in each case is
at least as broad as coverage maintained by passenger airlines similarly
situated to Lessee and operating similar aircraft and engines which comprise
Lessee's fleet. Such insurance shall be for an amount not less than the Casualty
Value for the Aircraft and shall incorporate a 50/50 clause with respect to
"all-risk" hull and war risk coverage. Such insurance may include provisions for
deductibles in an amount usual and customary by commercial scheduled airline
standards for airline carriers operating similar aircraft provided that (i) the
amount of such deductibles must be no greater than the lowest deductible amount
applying to any similar aircraft in Lessee's fleet, (ii) such deductible shall
not apply in the event of a total loss, and (iii) in no event shall the amount
of such deductibles exceed the amount under "Deductible Amount" set forth on
Exhibit C hereto.
(c) REQUIRED POLICY DESIGNATIONS AND PROVISIONS. Each and any
policy of insurance, as applicable, obtained and maintained pursuant to this
Section 12, and each and any policy obtained in substitution or replacement for
any such policies, shall:
(i) designate Lessor or its designee as owner and lessor of
the aircraft covered thereby and the sole loss payee except as provided in
subparagraph (vii) below, and provided, however, that so long as the Loan is in
effect, the Lender shall be the sole loss payee in respect of any loss payable
in respect of the Aircraft as a total loss), and shall designate each of the
Additional Insureds, as its interests may appear (but without
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imposing upon the Additional Insureds any obligation imposed upon the insured,
including, without limitation, the liability to pay any premiums for any such
policies);
(ii) expressly provide that, in respect of the interests of
the Additional Insureds in such policies the insurance shall not be invalidated
by any action or inaction of Lessee, and shall insure the Additional Insureds,
regardless of any breach or violation of any warranty, declaration or condition
contained in such policies by Lessee; provided, that so long as the prevailing
practices of the insurance industry require the same, such provision may be
subject to the condition that the Additional Assured so protected has not
caused, contributed to or knowingly condoned the said act or omission;
(iii) provide that if such insurance is cancelled by the
Approved Insurers for any reason whatsoever, or is adversely changed in any way
with respect to the interests of the Additional Insureds, or if such insurance
is allowed to lapse for nonpayment of premium, such cancellation, adverse change
or lapse shall not be effective as to the Additional Insureds for thirty (30)
days (seven (7) days or such lesser period as from time to time may be
applicable in the case of any war risks and allied perils coverage) after
issuance to Lessor and any Additional Insureds of written notice, via telefax or
overnight courier, by such insurer or insurers of such prospective cancellation,
change or lapse;
(iv) be on a worldwide basis subject only to those
territorial exclusions as are usual and customary with respect to war risks
insurance;
(v) provide that, as against the Additional Insureds, the
insurer waives any rights of set-off, counterclaim or any other deduction,
whether by attachment or otherwise, and agrees to waive rights of subrogation
against the Additional Insureds, provided, however, that such waiver of
subrogation need not extend to claims against third parties nor claims against
the Additional Insureds as to which the Additional Insureds are not entitled to
indemnification under Section 13 hereof;
(vi) provide that no amount due from Lessee or any other
Person to any insurer or broker shall be deducted from any amount payable to a
third party under such insurance policy;
(vii) provide that in the event of any damage or loss, whether
or not a Casualty Occurrence hereunder, which results in a payment, such payment
shall be payable directly to Lessor or its assignee as loss payees, for the
account of all interests; provided, however, that so long as no Default or Event
of Default shall have occurred and be continuing and this Lease shall not have
been declared in default, payments with respect to property damage loss to the
Airframe or Engine not constituting a Casualty Occurrence, or any Part, in any
amount not to exceed One Hundred Thousand U.S. Dollars ($100,000) may be paid to
or on behalf of Lessee to be applied for the repair or replacement necessitated
by such property damage and Lessee shall notify Lessor in writing of any such
payments in excess of One Hundred Thousand U.S. Dollars ($100,000) and the
nature of the property damage giving rise to such payments;
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(viii) provide that none of the Additional Insureds shall be
liable for any insurance premium, commission or calls in connection with such
insurance; and
(ix) provide that the aircraft hull insurance shall not be
subject to an aggregate limit, except with respect to hull war coverage, which
shall have an aggregate of $175 million.The Approved Insurance Broker shall
undertake in the insurance certificate issued by it to advise the Additional
Insureds promptly upon the occurrence of any claim which would reduce the
remaining used portion of such limit.
Each such policy shall be primary without right of
contribution from any other insurance which may be carried by any of the
Additional Insureds, and, with respect to liability coverage, shall expressly
provide 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 and
shall not operate to permit claims recoverable under the hull policy to be
recoverable as liability claims. Lessor is not under any duty or obligation to
verify the existence or adequacy of insurance.
Lessee shall have the right to carry insurance in excess of
the amounts required hereunder (provided that it does not adversely affect the
coverage required to be maintained 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 12 in
a manner adverse to Lessor's interest..
(d) APPLICATION OF INSURANCE PROCEEDS FOR A CASUALTY
OCCURRENCE. Subject to Section 12(f) hereof, it is agreed that insurance
payments which arise from any policy of insurance carried by Lessee and received
as the result of the occurrence of a Casualty Occurrence shall be applied as
follows:
(i) if such payments are received with respect to a Casualty
Occurrence relating to the Airframe and Engines or engines installed on the
Airframe, so much of such payments as shall not exceed the amounts due under
Section 11(a) hereof shall be paid to Lessor, provided, however, that so long as
the Loan is in effect, the Lender shall be the sole loss payee in respect of any
loss payable in respect of the Aircraft as a Total Loss, and the balance to
Lessee; and
(ii) if such payments are received with respect to a Casualty
Occurrence relating to an Engine under circumstances contemplated by Section
1l(b) hereof, such payment shall be adjusted with Lessee (provided that Lessee
has not breached any warranty, declaration or condition contained in the
applicable insurance policy) and paid over to Lessee, provided that Lessee shall
have fully performed, concurrently therewith, will fully perform the terms of
Section 11(b) hereof.
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(e) APPLICATION OF INSURANCE PROCEEDS FOR OTHER THAN A
CASUALTY OCCURRENCE. Subject to the proviso in Section 12(c)(vii) above, the
insurance payments for any property damage loss to the Airframe or any Engine
not constituting a Casualty Occurrence, or to any Part, will be held by Lessor
until Lessee furnishes Lessor with satisfactory evidence that the repairs or
replacement property Lessee is required to perform or obtain in accordance with
the terms of Section 9 of this Lease have been made or obtained by Lessee.
Subject to Section 12(f) hereof and promptly upon receipt of such evidence of
repair or replacement, Lessor shall pay Lessee the amount of the insurance
payment received with respect to such loss.
(f) APPLICATION IN DEFAULT. Any amount referred to in Section
12(d)(i) or (ii), or Section 12(e), which is otherwise payable to Lessee shall
not be paid 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 by
Lessee to Lessor, if at the time of such payment, a Default or an Event of
Default shall have occurred and be continuing or if this Lease shall have been
declared in default in accordance with Section 18 hereof. In either case, all
such amounts shall be held by Lessor as security for the obligations of Lessee,
or, at the option of Lessor, applied by Lessor toward payment of any of Lessee's
obligations at the time due hereunder. At such time as there shall not be
continuing any such Default or Event of Default, all such amounts at the time
held by Lessor in excess of the amount, if any, which Lessor has elected for
application as provided above, shall be paid to Lessee, except that if Lessor
shall have theretofore declared this Lease to be in default in accordance with
Section 18 hereof, such amounts shall be retained by Lessor and disposed of in
accordance with the provisions thereof.
(g) CERTIFICATES OF INSURANCE. On or before the Delivery Date,
and thereafter on each renewal by Lessee of the insurance required hereby, but
not less often than annually, Lessee will furnish to Lessor one or more
certificates, each executed and delivered by an Approved Insurance Broker who is
authorized by one or more Approved Insurers appointed by Lessee, which together
shall describe in reasonable detail insurance carried on the Aircraft and shall
certify that the insurance then maintained on the Aircraft complies with the
terms of this Lease. Lessee will cause each such Approved Insurance Broker who
is authorized by an Approved Insurer to agree to advise Lessor in writing at
least thirty (30) days (seven (7) days or such lesser period as may from time to
time be applicable in the case of any war risk and allied perils coverage) prior
to the non-renewal, termination or cancellation by the underwriters for any
reason (including, without limitation, failure to pay the premium therefor) of
any such insurance or as soon as possible in respect of "non-renewal" or
automatic termination for war risk.
(h) ADDITIONAL INSURANCE. Lessee, at its own expense, shall
carry and maintain in full force and effect throughout the Term with Approved
Insurers such other forms of insurance as shall be agreed by Lessor and Lessee.
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Section 13. INDEMNIFICATION.
(a) INDEMNITY. Lessee agrees to indemnify, reimburse, hold
harmless and defend each Indemnitee from and against any and all claims,
damages, losses, liabilities, demands, suits, judgments, causes of action, legal
proceedings, whether civil or criminal, penalties, fines and other sanctions,
and any attorneys' fees and other reasonable costs and expenses in connection
herewith or therewith, including any of the foregoing arising or imposed with or
without Lessor's fault, or under the doctrine of absolute or strict liability
(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 (a) the Aircraft or this Lease, or the breach of any representation,
warranty or covenant made by Lessee hereunder, or (b) the condition, ownership,
manufacture, purchase, delivery, non-delivery, lease, acceptance, rejection,
possession, return, disposition or use, or operation of the Aircraft either in
the air or on the ground during the Term, or (c) any defect in the Aircraft
(whether or not discovered or discoverable by Lessee or Lessor) 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 the
Aircraft, whether or not the Aircraft is in the possession of Lessee, and
regardless of where the Aircraft may then be located during the Term, or (d) any
transaction, approval, or document contemplated by this Lease 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 of the Aircraft and its subcontractors or any other Person as to
any such Claims, but only to the extent that Lessee satisfies its
indemnification obligation to Lessor hereunder with respect to such Claims.
Lessee hereby waives, and releases each Indemnitee from, any
Claims (whether existing now or hereafter arising) 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 ownership,
leasing, condition, use or operation of the Aircraft, either in the air or on
the ground, or which may be caused by any defect in the Aircraft from the
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
the Aircraft regardless of when such defect may be discovered, whether or not
the Aircraft is at the time in the possession of Lessee, and regardless of the
location of the Aircraft at any such time.
The indemnities contained in this Section 13 shall continue in
full force and effect notwithstanding the expiration or other termination of
this Lease and are expressly made for the benefit of and shall be enforceable by
each Indemnitee.
(b) EXCEPTIONS. Notwithstanding the foregoing provisions of
this Section 13, Lessee shall not be obligated to make any payment by way of
indemnity in respect of any Claims against an Indemnitee:
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(i) which result solely from the gross negligence or
willful misconduct of such Indemnitee; or
(ii) in respect of the Aircraft to the extent that the same
result solely from acts or events which occur after the Aircraft has been
redelivered to Lessor in accordance with Section 16 hereof and is no longer
subject to this Lease.
(c) AFTER TAX BASIS OF PAYMENTS. 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 (including Remittance
Withholding, if any) required to be paid (or in the case of Remittance
Withholding, withheld) by such recipient with respect to such payment or
indemnity, so that such recipient shall receive an amount which, net of any
Taxes (including Remittance Withholding, if any) required to be paid (or in the
case of Remittance Withholding, withheld) by such recipient in respect of such
amount, shall be equal to the amount of payment or indemnity otherwise required
hereunder.
(d) PAYMENTS. Any amount payable as an indemnity to any
Indemnitee by Lessee pursuant to this Section 13 is to be paid to such party
directly, in immediately available funds, by bank wire transfer at such bank or
to such account as specified by the payee in written directions to the payor,
or, if such directions shall not have been given, by check of the payor payable
to the order of the payee and mailed to the payee by certified mail, postage
prepaid at its address as set forth in this Lease, within ten (10) days after
receipt of a written demand therefor from such Indemnitee or Lessee, as the case
may be.
(e) SURVIVAL. All of the obligations of Lessee under this
Section 13 shall survive the assignment, expiration or other termination of this
Lease. Such obligations are expressly undertaken by Lessee for the benefit of,
and shall be enforceable by, Lessor and each other Indemnitee. The obligations
of Lessee in respect of all such indemnities, obligations, adjustments and
payments shall be enforceable by, any Indemnitee, without declaring this Lease
to be in default or taking other action thereunder.
Section 14. LIENS.
LESSEE SHALL NOT DIRECTLY OR INDIRECTLY CREATE, INCUR, ASSUME
OR SUFFER TO EXIST ANY LIEN ON OR WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR
ANY PART, TITLE THERETO OR ANY INTEREST THEREIN, EXCEPT (a) THE RESPECTIVE
RIGHTS OF LESSOR AND LESSEE AS HEREIN PROVIDED; (b) LESSOR'S LIENS WITH RESPECT
TO THE AIRCRAFT, ANY ENGINE OR ANY PART; (c) LIENS FOR TAXES WHICH ARE EITHER
NOT ASSESSED, OR, IF ASSESSED ARE EITHER NOT YET DUE OR BEING CONTESTED IN
ACCORDANCE WITH SECTION 10 HEREOF AND SO LONG AS ADEQUATE RESERVES ARE
MAINTAINED WITH RESPECT TO SUCH LIENS; AND (d) INCHOATE MATERIALMEN'S,
MECHANICS', WORKMEN'S, REPAIRMEN'S, EMPLOYEES', AIRPORT OPERATORS' OR OTHER
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LIKE LIENS ARISING IN THE ORDINARY COURSE OF BUSINESS, WHICH EITHER ARE NOT
DELINQUENT, HAVE BEEN ADEQUATELY BONDED OR ARE BEING CONTESTED IN GOOD FAITH BY
LESSEE, IN EACH CASE SO LONG AS THE AIRCRAFT, SUCH ENGINE OR SUCH PART IS NOT IN
DANGER OF BEING LOST, SOLD, CONFISCATED, FORFEITED OR SEIZED AS A RESULT OF ANY
SUCH LIEN. LESSEE SHALL PROMPTLY, AT ITS OWN EXPENSE, DULY DISCHARGE ANY LIEN
(EXCEPT FOR THE LIENS REFERRED TO IN CLAUSES (a) AND (b) OF THIS SECTION 14) IF
THE SAME SHALL ARISE AT ANY TIME WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY
PART.
Section 15. PERFECTION OF TITLE AND FURTHER ASSURANCES.
If at any time any filing or recording is reasonably necessary
to protect the interest of Lessor or the Lender, Lessee, at its own cost and
expense, shall cause this Lease, the Mortgage, and any financing statements with
respect to its obligations under this Agreement, and any and all additional
instruments which shall be executed pursuant to the terms of this Agreement
(including, without limitation, those referred to in Section 2(b)(3) hereof), to
be kept, filed and recorded and to be re-executed, refiled and re-recorded in
the appropriate office or offices pursuant to applicable Laws, to perfect,
protect and preserve the rights and interests of Lessor or the Lender hereunder
or under the Mortgage and in the Aircraft, including without limitation the
right of the Lessor to repossess, and export from any country the Aircraft, the
Engines and the Parts if the Lease has been declared, or is deemed by its terms
to have been declared in default. At the reasonable request of Lessor, Lessee
shall furnish to Lessor an opinion of counsel or other evidence satisfactory to
Lessor of each such filing or refiling and recordation or rerecordation; it
being understood that Lessor shall bear the cost of any such opinion required by
it in connection with any voluntary sale or refinancing of the Aircraft by the
Lessor in the absence of any Default or Event of Default.
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 Mortgage Convention (or in the case where such
jurisdiction is not a signatory to the Mortgage Convention, under the internal
laws of such jurisdiction) to perfect and preserve the title and interest of
Lessor or the Lender in the Aircraft within any jurisdiction in which Lessee or
any Permitted Sublessee may operate the Aircraft, 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 jurisdiction in which Lessee (or any Permitted Sublessee) may
operate, or any and all acts and things which Lessor may reasonably request, to
perfect and preserve Lessor's ownership rights and the rights of the Lender
regarding the Aircraft within any such jurisdiction.
In addition, Lessee will promptly and duly execute and deliver
to Lessor such further documents and assurances and take such further actions as
Lessor may from time to time reasonably request in order to carry out more
effectively the intent and
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purpose of this Lease and to establish and protect the rights and remedies
created or intended to be created in favor of Lessor hereunder, including
without limitation, if reasonably requested by Lessor at the expense of Lessee,
the execution and delivery of supplements or amendments hereto in recordable
form, subjecting to this Lease any Replacement Engine and the recording or
filing of counterparts thereof, in accordance with the laws of any appropriate
jurisdiction.
Section 16. RETURN OF AIRCRAFT AND RECORDS.
(a) RETURN. Except as otherwise provided herein, on the
expiration of the Term or at such other time as Lessee shall be required to
return the Aircraft to Lessor pursuant to the terms hereof, Lessee, at its own
expense, shall return the Aircraft to Lessor at the location specified as
"Return Location" set forth on Exhibit C hereto, fully equipped with all
required Parts and Engines, duly installed thereon and with all Aircraft
Documents which are complete and shall have been maintained as required by the
terms hereof by delivering the same to Lessor at such location. Until the Lessee
shall have complied in full with its obligations under this Section 16, the
Lessee shall be obligated to continue to perform its obligations under this
Lease, including, without limitation, the obligation to pay Rent and maintain
insurance coverages as though the Term had been extended. In the event the
Aircraft shall have been exported from the United States, Lessee shall be
responsible for securing all export and import permits required to effect such
redelivery and for the payment of all duties incident thereto.
(b) LEGAL STATUS UPON RETURN. Immediately prior to the Return
Occasion, the Lessee shall assure that: (i) the Aircraft, Engines and Parts
shall be free and clear of all Liens, except Lessor's Liens; (ii) the Aircraft
shall be duly certified as an airworthy aircraft by the FAA, if the Aircraft was
at any time during the Lease Term registered in a country other than the United
States, a valid certificate of airworthiness for export installed on the
Aircraft if required; (iii) if the Aircraft was theretofore registered in a
country other than the United States, the Aircraft is equipped and in full
airworthy condition for operation according to FAA standards required to allow
the Aircraft to be operated for commercial transportation of passengers under
applicable rules, regulations and ADs of the FAA; (iv) if the Aircraft was
theretofore registered in a country other than the United States, the Aircraft
is duly deregistered under the applicable Law of the Country of Registration;
(v) the Aircraft is in full compliance with the Return Conditions set forth in
Exhibit E and this Section 16; and (vi) the Aircraft shall be in a maintenance
status consistent with the requirements of Section 6(d) hereof.
(c) RETURN OF ENGINES. In the event that any Replacement
Engine not owned by Lessor shall be delivered installed on the returned Airframe
as set forth in paragraph (a) of this Section 16, Lessee, concurrently with such
delivery, will, at no cost to Lessor, furnish, or cause to be furnished, to
Lessor a full warranty (as to title) bill of sale with respect to such
Replacement Engine, in form and substance satisfactory to Lessor (together with
an opinion of counsel to the effect that such full warranty bill of sale has
been duly authorized and delivered and is enforceable in accordance with its
terms and
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that such Replacement Engine is free and clear of Liens other than Lessor's
Liens), against receipt from Lessor of a bill of sale evidencing the transfer,
without recourse or warranty (except as to the Lessor's title and the absence of
Lessor's Liens), by Lessor to Lessee or its designee of all of Lessor's right,
title and interest in and to an Engine not installed on the Airframe at the time
of the return of the Airframe. If any such bill of sale transferring title of an
engine to Lessor shall be executed by a Permitted Sublessee, Lessee will
guaranty to Lessor the title warranty contained in such bill of sale. Lessee
shall also take (or cause any Permitted Sublessee to take) such other action as
Lessor may reasonably request in connection with such transfer of any such
engine.
(d) SERVICE BULLETIN AND MODIFICATION KITS. At or upon the
return of the Aircraft pursuant to this Section 16, Lessee shall deliver to
Lessor, at no cost to Lessor, all service bulletin kits furnished without charge
by a manufacturer for installation on the Aircraft which have not been so
installed together with appropriate instructions for installation. In the event
such uninstalled kits were purchased or manufactured by Lessee, then Lessor
shall have a right to purchase such kits at Lessee's cost for a period of one
hundred eighty (180) days after return.
(e) CONDITION OF AIRCRAFT. Upon the Return Occasion applicable
to the Aircraft, Lessee shall assure that the Aircraft shall comply with all of
the conditions set forth on Exhibit E hereto.
(f) FINAL INSPECTION. Immediately prior to the Return
Occasion, Lessee shall make the Aircraft available to Lessor at Lessee's
principal maintenance base for detailed inspection, at Lessee's expense, in
order to verify that the condition of the Aircraft complies with the
requirements set forth above, which inspection shall include, and without
limitation, all elements set forth in Exhibit E hereto, (such inspection being
hereinafter referred to as the "Final Inspection"). Lessee shall provide Lessor
with at least thirty (30) days' prior written notice of the time and place of
the Final Inspection. The period allowed for the Final Inspection shall have
such duration as to permit the opening of any areas of the Aircraft which would
be opened during the performance of Lessee's C check to verify satisfaction with
the requirements of Exhibit E and shall continue on consecutive days until all
activity required above to be conducted during the Final Inspection has been
concluded. All storage expenses attributable to any extension of the Term
pursuant to the preceding sentence shall be payable by Lessee.
(g) AIRCRAFT DOCUMENTATION. In order to enable Lessor to
prepare for the Final Inspection of the Aircraft pursuant to Section 16(f)
above, Lessee agrees to make available to Lessor at the Return Location not
later than ten (10) days prior to the commencement of such Final Inspection, the
Aircraft Documents together with such other documentation regarding the
condition, use, maintenance, operation and history of the Aircraft during
Lessee's possession as Lessor may reasonably request.
(h) CORRECTIONS AND SUBSEQUENT CORRECTIONS. In the event that
the Aircraft or any Engine fails upon the Return Occasion to conform to the
return condition
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requirements imposed by this Lease and particularly Section 16 or Exhibit E,
Lessor may (i) continue the obligations of the Lessee under the Lease in effect
in the manner provided for in Section 16(a) above until such condition or
requirement is met or (ii) accept the return of the Aircraft and thereafter have
any such nonconformance corrected or requirement met, at such time as Lessor may
deem appropriate the actual and commercially reasonable and customary charges
then charged by the Person selected by Lessor to perform such correction. Any
direct expense incurred by Lessor for such correction shall become Supplemental
Rent payable by Lessee within thirty (30) days following the submission of a
written statement by Lessor to Lessee, identifying the items corrected and
setting forth the expense of such correction. Lessee's obligations to pay such
Supplemental Rent shall survive the passage of the Expiration Date or other
termination of this Lease.
(i) ADDITIONAL MAINTENANCE, REPAIR OR OVERHAUL. Upon the
Return Occasion and upon written request of Lessor, for a period of up to ten
(10) days, Lessee shall (subject to the availability to Lessee of facilities and
manpower) store and insure the Aircraft and perform such additional maintenance,
repair, or overhaul of the Aircraft as is requested by Lessor in the same manner
and with the same care as used for similar aircraft and engines owned or
operated by Lessee, provided that Lessor shall reimburse Lessee for its
documented direct out-of-pocket costs, without mark-up, for such storage,
maintenance, repair, or overhaul, and such storage and insurance and additional
maintenance, repair or overhaul shall not extend this Lease. Maintenance
requested by Lessor other than that specifically required by the terms of this
Lease shall be performed by Lessee and paid for by Lessor at Lessee's standard
contract rates for such maintenance as agreed to by Lessor.
(j) FUNCTIONAL CHECK FLIGHT. Immediately following completion
of the Final Inspection and prior to the expiration of the Term a flight
demonstration shall be conducted for the Aircraft in accordance with Lessee's
AcceptanceFlight Report GMM-05-39 procedures. Any deficiencies noted during such
flight demonstration shall be corrected at Lessee's expense.
(k) FUEL ON RETURN. On the Return Occasion, Lessee, at its
expense, shall return the Aircraft with an amount of fuel that equals or exceeds
the amount of fuel on board the Aircraft at the Delivery Date.
Section 17. EVENTS OF DEFAULT.
Any one or more of the following occurrences or events shall
constitute an Event of Default:
(a) Lessee shall fail to make any payment of Rent to Lessor
when due hereunder, and such failure shall continue for five (5) Business Days
after written notice thereof is given by Lessor to Lessee;
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(b) Lessee shall fail to obtain and maintain any insurance
required under the provisions of Section 12 hereof or shall operate the Aircraft
outside of the scope of the insurance coverage maintained with respect to the
Aircraft;
(c) Any representation or warranty made by Lessee herein or in
any document or certificate furnished Lessor in connection herewith or therewith
or pursuant hereto shall prove to have been incorrect at the time given in any
material respect and, if the circumstances which render such representation or
warranty incorrect can be remedied so as to render such representation or
warranty correct, such circumstances shall continue unremedied for a period of
Ten (10) days from the earlier to occur of the date of Lessor's written notice
thereof or the date on which Lessee otherwise first has knowledge thereof;
(d) Lessee shall fail to timely comply with the provisions of
Section 20(m) hereof;
(e) Lessee shall fail to timely comply with its obligation
under Section 3 hereof to accept delivery of the Aircraft if tendered by or on
behalf of Lessor in the Delivery Condition required hereby;
(f) Lessee shall fail to timely comply with its obligations
pursuant to Sections 8, 14 or 15 hereof;
(g) Lessee shall make or permit any unauthorized assignment or
transfer of this Lease, or any interest therein, or of the right to possession
of or operational control over the Aircraft, the Airframe, or any Engine;
(h) Lessee shall fail to perform or observe in any material
respect any other covenant, condition or agreement to be performed or observed
by it pursuant to this Lease and such failure shall continue for a period of
thirty (30) days after written notice thereof is given by Lessor to Lessee;
(i) The occurrence of an Event of Default (as defined therein)
under a Related Lease;
(j) Lessee consents to the appointment of a receiver, trustee
or liquidator of itself or of a substantial part of its property, or Lessee
admits in writing its inability to pay its debts generally as they come due, or
makes a general assignment for the benefit of creditors, or Lessee files a
voluntary petition in bankruptcy or a voluntary petition seeking reorganization
in a proceeding under any bankruptcy laws (as now or hereafter in effect), or an
answer admitting the material allegations of a petition filed against Lessee in
any such proceeding, or Lessee by voluntary petition, answer or consent seeks
relief under the provisions of any bankruptcy or other similar law providing for
the reorganization or winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors;
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(k) An order, judgment or decree is entered by any court, with
or without the consent of Lessee, appointing a receiver, trustee or liquidator
for Lessee or of all or any substantial part of its property, or all or any
substantial part of the property of Lessee is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in effect,
undismissed, unstayed or unvacated, or unbonded for a period of sixty (60) days
after the date of entry thereof;
(l) A petition against Lessee in a proceeding under the
bankruptcy, insolvency or other similar Laws (as now or hereafter in effect) of
any Governmental Entity is filed and is not withdrawn or dismissed within sixty
(60) days thereafter, or if, under the provisions of any Law providing for
reorganization or winding-up of corporations which may apply to Lessee, any
court of competent jurisdiction assumes jurisdiction over, or custody or control
of, Lessee or of all or any substantial part of its property and such
jurisdiction, custody or control remains in effect, unrelinquished, unstayed or
unterminated for a period of sixty (60) days;
(m) A final judgment for the payment of money not covered by
insurance in excess of Two Hundred Fifty Thousand U.S. Dollars ($250,000), (or
an equivalent amount in any currency other than Dollars) or final judgments for
the payment of money not covered by insurance in excess of Two Hundred Fifty
Thousand U.S. Dollars $250,000 (or an equivalent amount in any currency other
than Dollars) in the aggregate, shall be rendered against Lessee and the same
shall remain undischarged for a period of ninety (90) days during which
execution thereof shall not be effectively stayed by agreement of the parties
involved, stayed by either court order or appeal, or adequately bonded;
(n) Attachments or other Liens shall be issued or entered
against any substantial portion of the property of Lessee and shall remain
undischarged or unbonded for sixty (60) days except for security interests
created in connection with monies borrowed or obligations agreed to by Lessee in
the ordinary course of its business;
(o) Lessee shall default in the payment of any obligation for
the payment of borrowed money, for the deferred purchase price of property or
for the payment of rent or hire under any lease of aircraft which has a
principal amount of Two Hundred Fifty Thousand U.S. Dollars $250,000 (or an
equivalent amount in any currency other than Dollars) or more (determined in the
case of borrowed money by the amount outstanding under the agreement pursuant to
which such borrowed money was borrowed, in the case of a deferred purchase price
by the remaining balance and in the case of a lease by the present discounted
value of the remaining rent or hire payable thereunder (ignoring any fair market
renewal)) when the same becomes due if such nonpayment results in the right of
such holder to accelerate such indebtedness or any lessor shall have become
entitled to require the payment of any termination, stipulated loss, liquidated
damages or similar amount or to demand repossession of such property; or Lessee
shall be declared in default in the performance of any other term, agreement or
condition contained in any material agreement or instrument under or by which
any such obligation is created,
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evidenced or secured, if the effect of such declaration of default is so
material as to cause or allow such obligation to be accelerated;
(p) Lessee voluntarily suspends all or substantially all of
its airline operations or the franchises, concessions, permits, rights or
privileges required for the conduct of the business and operations of Lessee are
revoked, cancelled or otherwise terminated, and as a result of the foregoing the
predominant business activity of Lessee shall cease to be that of a commercial
airline;
(q) Any franchise, concession, permit, right, privilege or
approval from a Governmental Entity required for the operation, maintenance,
use, insurance or return of the Aircraft or for the payment of Rent by Lessee in
Dollars as specified herein shall be suspended, terminated or cancelled, and
Lessee shall fail to promptly reinstate such franchise, concession, permit,
right, privilege or approval required for such operation, maintenance, use,
insurance, return or payment;
(r) Any Governmental Entity with jurisdiction over Lessee or
any Permitted Sublessee or any agency or instrumentality thereof declares a
moratorium in respect of the payment of any obligations of Lessee or any
Permitted Sublessee or repudiates any such obligations;
(s) There shall be due and owing by Lessee (other than
Lessor's Liens) any substantial claims which under applicable law , would be
secured by a Lien on the Aircraft, any Engine or any Part or which would be
required to be repaid by Lessor as a condition to deregistration or use of the
Aircraft or any Engine, and the aggregate of such claims outstanding equals or
exceeds Two Hundred Fifty Thousand ($250,000) Dollars (or an equivalent amount
in any currency other than Dollars); or
(t) Any other material adverse change since the date hereof in
the condition of Lessee, financial or other, which may adversely affect the
ability of Lessee to perform its obligations hereunder.
Lessee hereby acknowledges that the occurrence of any one of
the foregoing Events of Default would represent a material default in the
performance of its obligations under this Lease.
Section 18. REMEDIES.
Upon the occurrence of any Event of Default and any time
thereafter so long as the same shall be continuing, Lessor may, at its option
declare this Lease to be in default; provided that, upon the occurrence of any
Event of Default specified in paragraphs (j), (k) or (l) of Section 17, the
Lease shall automatically be deemed to have been declared in default. Once this
Lease has been declared to be in default, or is deemed to have been declared in
default then, and at any time thereafter, Lessor shall be entitled
automatically, as of the day prior to such occurrence, to exercise any of the
following
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remedies as Lessor in its sole discretion shall elect, to the extent permitted
by, applicable Law then in effect without 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 and at Lessee's expense, immediately return the Aircraft to
Lessor in the manner specified in such notice, in which event such return shall
not be delayed for purposes of complying with the return conditions specified in
Section 16 hereof (none of which conditions shall be deemed to affect Lessor's
possession of the Aircraft) or be delayed for any other reason. Notwithstanding
the foregoing, at Lessor's option, Lessee shall be required thereafter to take
such actions as would be required by the provisions of this Lease if the
Aircraft were being returned at the end of the Term hereof and Lessor agrees to
cooperate with Lessee's required actions. In addition, 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 is located and take immediate possession of and, at
Lessor's sole option, remove the same (and any engine which is not an Engine but
which is installed on the Airframe, subject to the rights of the owner, lessor
or secured party thereof) by summary proceedings or otherwise, PROVIDED, that
Lessor shall return to Lessee all personal property of Lessee which was on the
Aircraft at the time Lessor re-takes possession of the Aircraft, 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, or otherwise,
caused by such entry or taking, except damages caused by gross negligence or
willful misconduct;
(b) Sell at private or public sale, as Lessor may determine,
or hold, use, operate or lease to others the Aircraft as Lessor in its sole
discretion may determine, all free and clear of any rights to Lessee;
(c) Whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) of this Section 18, Lessor, by fifteen (15) days' written notice
to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and
Lessee shall pay to Lessor, on the payment date specified in such notice, as
liquidated damages for loss of bargain and not as a penalty (in lieu of Base
Rent and Renewal Rent payable for the period commencing after the date specified
for payment in such notice), any unpaid Base Rent and Renewal Rent for the
Aircraft (prorated on a daily basis) to and including the payment date specified
in such notice, plus the amount, if any, of accrued and unpaid Maintenance
Reserve Payments, plus accrued interest thereon to the date specified for
payment in such notice, plus the amount, if any, by which the aggregate Base
Rent for the remainder of the Term, discounted periodically (equal to
installment frequency) to present worth as of the payment date using the
Discount Rate as of such date, exceeds the fair market rental value (determined
pursuant to the Appraisal Procedure) of the Aircraft for the remainder of the
Term, after discounting such fair market rental value periodically (equal to
installment frequency) to present worth as of the payment date specified in such
notice using the Discount Rate as of such date; provided, however, that if prior
to issuance of such written notice by Lessor to Lessee, Lessor leases the
Aircraft to a thirty party for the remainder of
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the Lease Term for an amount that exceeds such fair market rental value as so
determined, then this amount shall be utilized in lieu of such fair market value
in making the foregoing calculation.
(d) In the event that Lessor, pursuant to Section 18(b) above,
shall have relet the Aircraft under a lease which extends at least to the date
upon which the Term for the Aircraft would have expired but for Lessee's
default, Lessor, in lieu of exercising its rights under Section 18(c) above with
respect to the Aircraft, may, if it shall so elect, demand that Lessee pay
Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of bargain
and not as a penalty (in lieu of Base Rent or Renewal Rent, as the case may be,
for the Aircraft payable after the time of reletting) any unpaid Base Rent or
Renewal Rent, as the case may be, for the Aircraft payable up to the date of
reletting, plus the accrued and unpaid Maintenance Reserve Payments, plus
accrued interest thereon to the date specified for payment, plus the amount, if
any, by which the aggregate Base Rent or Renewal Rent for the Aircraft, which
would otherwise have become due over the Term, discounted periodically (equal to
installment frequency) to present worth as of the date of reletting using the
Discount Rate as of such date, exceeds the aggregate basic rental payments to
become due under the reletting from the date of such reletting to the date upon
which the Term for the Aircraft would have expired but for Lessee's default,
discounted periodically (equal to installment frequency) to present worth as of
the date of reletting using the Discount Rate as of such date;
(e) Proceed by appropriate court action or actions, either at
law or in equity, to enforce performance by Lessee of the applicable covenants
of this Lease and to recover damages for the breach thereof and to rescind this
Lease; or
(f) Terminate this Lease by written notice (which notice shall
be effective upon dispatch) and repossess the Aircraft.
(g) Receive from Lessee on demand all out of pocket expenses
of Lessor, including fees and disbursements of counsel, in connection with the
enforcement of this Agreement and any other documents which may be delivered in
connection herewith or therewith. In the event Lessor pays any of the amounts
Lessee is required to pay pursuant to Section 20 hereof, Lessee will, upon
receipt of notice from Lessor specifying the amount paid and furnishing
appropriate invoices, statements or demands for such payment, reimburse Lessor
for such advances.
In addition to the foregoing, Lessee shall be liable for any
and all accrued and unpaid Rent during or after the exercise of any of the
aforementioned remedies, together with interest on such unpaid amounts at the
Interest Rate, and until satisfaction of all of Lessee's obligations to Lessor
hereunder, and for all reasonable legal fees and other reasonable costs and
expenses incurred by Lessor 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 16 hereof or in placing the Aircraft in the
condition and with airworthiness certification as required by such Section.
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In effecting any repossession, Lessor and its representatives
and agents, to the extent permitted by Law, shall: (i) have the right to enter
upon any premises where it reasonably believes the Aircraft, the Airframe, an
Engine or Part to be located; (ii) not be liable, in conversion or otherwise,
for the taking of any personal property of Lessee which is in or attached to the
Aircraft, the Airframe, an Engine or Part which is repossessed; provided,
however, that Lessor shall return to Lessee all personal property of Lessee or
its passengers which was on the Aircraft at the time Lessor re-takes possession
of the Aircraft; (iii) not be liable or responsible, in any manner, for any
inadvertent damage or injury to any of Lessee's property in repossessing and
holding the Aircraft, the Airframe, an Engine or Part, except for that caused by
or in connection with Lessor's gross negligence or willful acts; (iv) have the
right to maintain possession of and dispose of the Aircraft, the Airframe, an
Engine or Part on any premises owned by Lessee or under Lessee's control; and
(v) have the right to obtain a key to any premises at which the Aircraft, the
Airframe, an Engine or Part, may be located from the landlord or owner thereof.
If required by Lessor, Lessee, at its sole expense, shall
assemble and make the Aircraft, the Airframe, an Engine or Part available at a
place designated by Lessor in accordance with Section 16 hereof. Lessee hereby
agrees that, in the event of the return to or repossession by Lessor of the
Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express
or implied) heretofore assigned to Lessee or otherwise held by Lessee shall
without further act, notice or writing be assigned or reassigned to Lessor, if
assignable. Lessee shall be liable to Lessor for all reasonable expenses,
disbursements, costs and fees incurred in (i) repossessing, storing, preserving,
shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, an
Engine or Part to the condition required by Section 16 hereof and (ii) preparing
the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the
sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or
re-leasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby
authorized and instructed, at its option, to make reasonable expenditures which
Lessor considers advisable to repair and restore the Aircraft, the Airframe, an
Engine or Part to the condition required by Section 16 hereof, all at Lessee's
sole expense.
No remedy referred to in this Section 18 is intended to be
exclusive, but, to the extent permissible hereunder or under applicable Law,
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 Default or Event
of Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Default or Event of Default.
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Section 19. ALIENATION.
LESSOR SHALL HAVE THE RIGHT AT ITS SOLE COST AND EXPENSE,
HAVING GIVEN PRIOR WRITTEN NOTICE TO LESSEE, TO ASSIGN OR ENCUMBER ANY INTEREST
OF LESSOR IN THE AIRCRAFT OR THIS LEASE AND/OR THE PROCEEDS HEREOF SUBJECT TO
THE RIGHTS OF LESSEE UNDER THE PROVISIONS OF THIS LEASE. ANY SUCH ASSIGNMENT
SHALL NOT AFFECT LESSEE'S RIGHTS, POWERS, OBLIGATIONS, PRIVILEGES, OPTIONS AND
BENEFITS AVAILABLE TO LESSEE HEREUNDER AND SHALL NOT INVALIDATE THE U.S.
REGISTRATION. TO EFFECT OR FACILITATE ANY SUCH ASSIGNMENT OR ENCUMBRANCE, LESSEE
AGREES TO PROVIDE, AT LESSOR'S SOLE COST AND EXPENSE, SUCH AGREEMENTS, CONSENTS,
CONVEYANCES OR DOCUMENTS AS MAY BE REASONABLY REQUESTED BY LESSOR. THE
AGREEMENTS, COVENANTS, OBLIGATIONS, AND LIABILITIES CONTAINED HEREIN INCLUDING,
BUT NOT LIMITED TO, ALL OBLIGATIONS TO PAY RENT AND INDEMNIFY EACH INDEMNITEE
ARE MADE FOR THE BENEFIT OF EACH INDEMNITEE AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS. ANY PROPOSED SALE OR OF THE AIRCRAFT SHALL BE SUBJECT TO LESSEE'S RIGHT
OF FIRST OFFER.
Section 20. MISCELLANEOUS.
(a) SEVERABILITY AND CONSTRUCTION; HEADINGS. 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; 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 Law, Lessee and/or Lessor hereby waives any provisions of Law which
renders any provisions hereof prohibited or unenforceable in any respect. This
Lease shall constitute an agreement of lease, and nothing herein shall be
construed as conveying to Lessee any right, title or interest in the Aircraft or
any Engine or Part except as a lessee only. The headings in this Lease are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof. Whenever required by the context hereof, the singular shall
include the plural and vice versa. Reference to this Lease shall mean this Lease
as amended or supplemented from time to time.
(b) GOVERNING LAW; JURISDICTION. THIS LEASE SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, UNITED STATES OF AMERICA, (DETERMINED WITHOUT REGARD TO ITS RULES
OF CONFLICT OF LAW) INCLUDING WITHOUT LIMITATION ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
LEASE SHALL BE BROUGHT IN THE NEW YORK STATE COURTS LOCATED IN THE BOROUGH OF
MANHATTAN OR THE FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN;
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PROVIDED, HOWEVER, THAT THIS SHALL NOT LIMIT THE RIGHT OF THE LESSOR TO PROCEED
AGAINST LESSEE AS SET FORTH IN THE FOLLOWING SENTENCE. LESSEE HEREBY IRREVOCABLY
CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT OR ANY OF ITS ASSETS
WITH RESPECT TO THE LEASE MAY BE BROUGHT IN ANY JURISDICTION WHERE LESSEE OR ANY
OF ITS ASSETS MAY BE FOUND, OR IN THE NEW YORK STATE COURTS LOCATED IN THE
BOROUGH OF MANHATTAN OR THE FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN,
OR ALL OF THEM, AS LESSOR MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS LEASE
LESSEE HEREBY IRREVOCABLY SUBMITS TO AND ACCEPTS WITH REGARD TO ANY SUCH ACTION
OR PROCEEDINGS, FOR ITSELF AND IN RESPECT OF ITS ASSETS, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. LESSEE
HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM,
HAVING AN ADDRESS AT 1633 BROADWAY, NEW YORK, NEW YORK 10019 AS ITS AUTHORIZED
AGENT FOR SERVICE OF PROCESS IN NEW YORK IN ANY SUIT OR PROCEEDING WITH RESPECT
TO THIS LEASE. IF LESSEE DOES NOT TAKE ALL ACTION NECESSARY TO APPOINT CT
CORPORATION SYSTEM AS AGENT AS REQUIRED HEREUNDER (INCLUDING PAYMENT OF ANY FEES
TO CT CORPORATION SYSTEM IN CONNECTION WITH SUCH APPOINTMENT), LESSEE HEREBY
APPROVES ANY AND ALL OF LESSOR'S ACTIONS IN CONFIRMING CT CORPORATION SYSTEM'S
APPOINTMENT AS AGENT FOR LESSEE AS SET FORTH IN THIS SECTION. ANY SERVICE ON
SUCH AGENT SHALL BE GOOD SERVICE OF PROCESS IN THE UNITED STATES. A COPY OF ANY
SUCH PROCESS SERVED ON SUCH AGENT SHALL BE PROMPTLY FORWARDED BY OVERNIGHT MAIL
BY THE PERSON COMMENCING SUCH PROCEEDING TO LESSEE AT ITS ADDRESS SET FORTH ON
EXHIBIT C HERETO BUT THE FAILURE OF LESSEE TO RECEIVE SUCH COPIES SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. LESSEE FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO LESSEE AT ITS ADDRESS SET
FORTH ON EXHIBIT C HERETO. THE FOREGOING, HOWEVER, SHALL NOT LIMIT THE RIGHTS OF
LESSOR TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY
LEGAL ACTION OR PROCEEDING OR TO OBTAIN EXECUTION OF JUDGMENT IN ANY
JURISDICTION. LESSEE FURTHER AGREES THAT FINAL JUDGMENT AGAINST LESSEE IN ANY
ACTION OR PROCEEDING IN CONNECTION WITH THIS LEASE SHALL BE CONCLUSIVE AND MAY
BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES OF
AMERICA BY SUIT ON THE JUDGMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL
BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF LESSEE'S INDEBTEDNESS.
LESSEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
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PERMITTED BY LAW, ANY OBJECTION WHICH LESSEE MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS LEASE BROUGHT IN THE STATE OF NEW YORK; AND HEREBY FURTHER IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE
OF NEW YORK HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) NOTICES. All notices required under the terms and
provisions hereof shall be in writing, shall be sent to Lessor or Lessee at
their respective addresses set forth on Exhibit C hereto (or such other
addresses as the parties may designate from time to time in writing) and, except
as otherwise provided herein, such notice shall become effective upon the
earlier of actual receipt or the fifth day following the date such notice is
sent.
(d) LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to
make any payment of Supplemental Rent required to be made by it hereunder or
fails to pay or perform any of its obligation contained herein, Lessor shall
have the right, but not the obligation, to make such payment or perform
suchobligation, and the amount of such payment and the amount of the reasonable
expenses of Lessor incurred in connection with such payment or the performance
therewith, together with interest thereon at the Interest Rate, shall be payable
by Lessee to Lessor (as Supplemental Rent) upon demand. Lessor agrees to notify
Lessee in writing prior to making any payment under this Section 20(d), unless
the Aircraft will be in danger of loss, sale, confiscation, forfeiture or
seizure should such payment not be made. The taking of any such action by Lessor
pursuant to this Section 20(d) shall not constitute a waiver or release of any
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.
(e) COUNTERPARTS. This Lease may be executed simultaneously 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. To the extent, if
any, that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction) no security
interest in this Lease may be created through the transfer of possession of any
counterpart other than the original counterpart, which shall be identified as
the counterpart containing the receipt therefore executed by the Lender on the
signature page thereof.
(f) QUIET ENJOYMENT. Lessor covenants that so long as an Event
of Default shall not have occurred, Lessor shall not disturb or interfere with,
and Lessee shall quietly enjoy, in accordance with the terms hereof, the
Aircraft and all rents, revenues, profits and income thereto, without
disburbance or interference by Lessor or by any Person lawfully claiming by or
through Lessor.
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(g) NO BROKERS. Each of Lessor and Lessee represents that
it has not retained any broker or finder in connection with the transaction
contemplated by this Lease.
(h) PAYMENTS IN DOLLARS. Except as otherwise provided herein,
all amounts to be paid hereunder shall be paid in Dollars, in immediately
available funds.Lessee acknowledges that the specification of Dollars in this
transaction is of the essence and that Dollars shall be the currency of account
in any and all events. The obligations of Lessee hereunder shall not be
discharged by an amount paid in another currency, whether pursuant to a judgment
or otherwise, to the extent that the amount so paid on prompt conversion to
Dollars and transfer to the account specified in Exhibit C under the heading,
"Payment Location" under normal banking procedures does not yield the amount of
Dollars owing to Lessor. In the event that any payment by Lessee, whether
pursuant to judgment or otherwise, upon conversion does not yield such amount of
Dollars, Lessor shall have a separate cause of action against Lessee for the
additional amount necessary to yield the amount of Dollars due and owing to
Lessor.
(i) REGISTRATION AND DEREGISTRATION COSTS. Lessor agrees that
Lessee may obtain a new US registration number for the Aircraft to comply with
Lessee's fleet management requirements. Upon return of the Aircraft to Lessor,
including, without limitation, the reasonable fees and disbursements of counsel,
Lessee may at its option and expense obtain a new US registration number for the
Aircraft in order to retain for Lessee's use the previously used registration
number. Lessee shall be solely responsible for any and all costs relating to
such registration and reregistration of the Aircraft, including, without
limitation, the costs incurred by Lessor to register any Mortgage on the
Aircraft as a result of such registration and reregistration.
(j) TRANSACTION COSTS. Lessor and Lessee shall each be
responsible for its own costs and expenses incurred in connection with the
preparation, negotiation and delivery of this Lease and any other documents or
instruments delivered in connection herewith including, without limitation, the
fees, expenses and disbursements of legal counsel to such party.
(k) TIME IS OF THE ESSENCE. Time and strict and punctual
performance are of the essence with respect to each provision of this Lease.
(l) DISCLAIMER OF CONSEQUENTIAL DAMAGES. LESSEE AGREES THAT IT
SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT
IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES AS A RESULT OF ANY
BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR
WARRANTIES OF LESSOR CONTAINED IN THIS LEASE; PROVIDED, HOWEVER, that this
provision shall not apply if Lessor willfully defaults in its obligation to
deliver the Aircraft to Lessee on the Delivery Date for the purpose of leasing
or selling the Aircraft to another person.
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(m) SECURITY DEPOSIT. As security for the performance of all
of Lessee's obligations under this Lease, Lessee shall pay the Deposit to the
Payment Location as when specified in Exhibit C. Lessor shall have no
obligations to segregate the Deposit from its own funds or to account to Lessee
for interest, if any, earned thereon.
If Lessee fails to pay Rent hereunder or to pay any other sums
due or to perform any of the other terms and provisions of this Lease, or any
document delivered pursuant hereto or thereto or is otherwise in Default
hereunder or thereunder, in addition to all other rights Lessor may have under
law, hereunder or thereunder, Lessor may use, apply or retain all or any portion
of the Deposit in partial payment for sums due to Lessor by Lessee, to
compensate Lessor for any sums it may in its discretion advance as a result of
such Default, or to apply toward losses or expenses Lessor may suffer or incur
as a result of such Default. If Lessor applies all or any portion of the
Deposit, such application shall not be deemed a cure of any Default, and upon
written demand therefor, Lessee shall deposit such additional funds as shall
reinstate the original amounts thereof and the failure of Lessee to do so shall
be a material breach of this Lease. Except as otherwise provided in this Section
20(m), and provided that no Default has occurred and is continuing on the Return
Occasion, Lessor shall return forthwith any portion of the Deposit not
theretofore applied as provided in this Section 20(m) to Lessee.
(n) ENTIRE AGREEMENT; MODIFICATION OR REVISION. This Lease is
intended to be a complete and exclusive statement of the terms of the agreement
of the parties hereto, and this Lease supersedes any prior or contemporaneous
agreements, whether oral or in writing. Neither this Lease nor any term of this
Lease may be modified, rescinded, changed, waived, discharged or terminated
except by a writing signed by the party to be charged. Lessor and Lessee
acknowledge their agreement to the provision of this Section 20(n) by their
signatures below.
(o) TRUSTEE. Except as expressly provided in this Lease,
Lessee acknowledges that this Lease is executed by First Security Bank, National
Association, not in its individual capacity, but solely as Trustee under the
Trust Agreement (the "Trust Agreement") with the Beneficiary as grantor, in the
exercise of the power and authority conferred and vested in it as such Trustee,
that this Lease is intended to bind only the Trust Estate (as defined in the
Trust Agreement) and that nothing herein contained shall be construed as
creating any liability on First Security Bank, National Association,
individually or personally, to perform any agreement herein, all such liability,
if any, being expressly waived by Lessee and by each and every person now or
hereafter claiming by, through or under the holder, except with respect to the
gross negligence or willful misconduct of First Security Bank, National
Association.
(p) CONFIDENTIALITY. Each of Lessee and Lessor agree to and
shall keep confidential this Lease and the terms hereof, all Aircraft Documents
and other data or materials relating to the Aircraft supplied to Lessee by
Lessor, or at the request of Lessor, hereunder and will not disclose, transfer
or otherwise impart any such information to any
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other Person, except (i) as may be required by law or pursuant to any
litigation; (ii) to its Affiliates, permitted assignees, officers, executives,
employees, or agents; (iii) to its financial, accounting or legal advisors who
are under a duty to or agree to hold such information confidential; or (iv) with
respect to any information which is generally available to the public at the
time of disclosure.
(q) GOVERNING LANGUAGE. THE ENGLISH LANGUAGE SHALL GOVERN
THE INTERPRETATION HEREOF. ALL NOTICES HEREUNDER SHALL BE IN ENGLISH.
(r) ACKNOWLEDGEMENT OF MORTGAGE. By executing this Lease,
Lessee acknowledges that this Aircraft has been mortgaged to Lender pursuant to
theMortgage, and that the right of the Lessee to quiet enjoyment referred to in
Section 20(f) hereof, is subject to no Event of Default occurring under this
Lease.
(s) EXHIBITS. The Exhibits to this Agreement shall form an
integral part hereof. Reference herein to any agreement or other instrument
shall be deemed to include references to such agreement or other instruments as
the same may be amended or supplemented or replaced from time to time.
Lessor and Lessee agree that if any of the Exhibits have not
been inserted into this Agreement as of the date hereof, such Exhibit shall be
inserted on or prior to the Delivery Date, and shall thereupon be incorporated
herein and shall form an integral part of this Agreement. Such Exhibits shall be
attached to the originally executed counterparts of this Agreement.
(t) RIGHT OF FIRST OFFER. In the event that during the Term
Lessor shall offer the Aircraft for sale to any person other than an Affiliate
or Lessee, Lessor shall give the Lessee written notice of its intent to offer
the Aircraft , which notice shall state the terms and conditions of the offer.
Lessee shall have ten Business Days after its receipt of such notice to give
Lessor written notice of its interest in purchasing the Aircraft at Fair Market
Value under the terms stated in Lessor's notice. The parties shall negotiate in
good faith a letter of intent for the sale of the Aircraft at Fair Market Value
which letter of intent shall incorporate the terms of the offer and which shall
include the payment by Lessee to Lessor of a deposit in an amount to be agreed.
Such deposit shall become nonrefundable upon the execution of the letter of
intent by both parties. During such period, Lessor shall not offer the Aircraft
to any person other than Lessee. If such letter of intent is not executed by the
parties and the deposit received by Lessor within fifteen Business Days after
Lessee's receipt of Lessor's notice, Lessor shall not be obligated to sell the
Aircraft to Lessee.
(u) POOLING/POWER BY THE HOUR ARRANGEMENT. (i)Lessor and Lessee agree
to enter jointly into negotiations with a third party engine maintenance
contractor to establish an engine pooling and power by the hour overhaul and
repair contract on or before the Scheduled Delivery Date of the Aircraft
hereunder. The contemplated arrangement will
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require contractual obligations on the part of Lessor, Lessee, and the
maintenance contractor. Lessor's obligation to enter into such agreement is
conditioned upon:
(1) written approval of the Lender, if required, of such arrangement;
(2) receipt of legal opinions, satisfactory to Lessor and Lender, that
the interests of both Lessor and Lender are adequately protected;
(3) in the event that any Engine is replaced by another engine, such
engine shall become a Replacement Engine under this Aircraft Lease
Agreement and under the Mortgage; further, such Replacement Engine
shall be of equal value and utility as the Engine so replaced; and
(4) the pool of engines shall only consist of engines leased or owned
by Lessee, Lessor and the engine maintenance contractor; and
(5) In the event that Lessee and Lessor enter into such an agreement,
Lessee shall bear all costs associated with such participation,
including without limitation all fees associated with entering into and
exiting such a pooling arrangement, and the reasonable legal fees and
filing costs incurred by Lessor and Lessee associated with maintaining
perfected security interests in the Engines or Replacement Engines.
(ii) If the Lessor and Lessee are not able to enter into such a pooling
and power by the hour arrangement by the Delivery Date, Lessor and Lessee agree
to share the costs of an unscheduled shop visit resulting from the failure of an
Engine prior to the first scheduled life limited part removal on that Engine
(provided such failure is not attributable to the negligence or willful
misconduct of Lessee, or is a Casualty Occurrence) according to the following
formula:
Lessee Costs = Number Of Lessee Cycles X Costs of Engine Repair
-----------------------
Cycles at Delivery
Where "Costs of Engine Repair" means the actual, reasonable and customary costs
to return the Engine to service; "Number of Lessee Cycles" means the number of
cycles the Engine has been operated since delivery to Lessee; and "Cycles at
Delivery" means the number stated as Cycles Remaining to Next Life Limited Part
Removal pertaining to the failed Engine in Schedule 2 to the Lease Supplement
No. 1 and Acceptance Certificate executed and delivered by Lessee and Lessor at
delivery of the Aircraft. Lessor shall be responsible for the Costs of Engine
Repair which are not Lessee Costs and which are not the result of a Casualty
Occurrence, except such costs which are attributable to Lessee's negligence or
willful misconduct, which shall be wholly borne by Lessee.
(v) ALLOWANCE FOR SEALS, GASKETS, ETC. Lessor shall reimburse Lessee for its
actual out of pocket costs of labor, parts and materials to replace seals,
gaskets, hoses and similar components which may have deteriorated during the
period prior to delivery due to the Aircraft not being operated; PROVIDED THAT
such reimbursement shall be limited to $10,000.00, the replacement must have
been made within fifteen (15) days after the Delivery Date, and Lessee must have
given Lessor an invoice or invoices for such labor,
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parts and materials, together with such supporting documentation as Lessor may
reasonably require, within 45 days after the Delivery Date.
************REMAINDER OF PAGE INTENTIONALLY BLANK***************
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IN WITNESS WHEREOF, Lessor and Lessee, each pursuant to due
authority, have each caused this Aircraft Lease Agreement MSN053 to be executed
by their duly authorized officers as of the day and year first above written.
LESSOR:
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely as trustee
By:__________________________
Name:
Title:
Executed at:
LESSEE:
PAN AMERICAN AIRWAYS, INC., a
company organized and existing under the
laws of the State of Florida
By:__________________________
Name:
Title:
Executed at:
The undersigned Lender acknowledges receipt of this original counterpart of this
Aircraft Lease Agreement MSN053 on this day of , 199 and consents to the
terms hereof.
The United Bank of Kuwait PLC
By:__________________________
Name:
Title:
63
AIRCRAFT LEASE AGREEMENT MSN075
THIS AIRCRAFT LEASE AGREEMENT MSN075 dated as of September 27,
1996, is between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its
individual capacity but solely as trustee, with its principal place of business
at 79 South Main Street, Salt Lake City, Utah 84111, United States of America
and its successors and assigns hereunder ("Lessor"), and Pan American Airways,
Inc., a company organized under the laws of Florida, with its principal place of
business at 9300 N.W. 36th Street, Miami, Florida ("Lessee").
Lessee desires to lease from Lessor and Lessor is willing to
lease to Lessee the Aircraft described herein upon and subject to the terms and
conditions of this Lease, as hereinafter defined.
In consideration of the mutual promises herein and other good
and valuable consideration the receipt of which is hereby acknowledged, Lessor
and Lessee agree as follows:
Section 1. DEFINITIONS AND INTERPRETATION.
The following terms shall have the following respective
meanings for all purposes of this Lease Agreement:
"AD COST" shall have the meaning set forth in Section 6
hereof.
"AD THRESHOLD" shall have the meaning set forth in Exhibit C.
"ADDITIONAL INSUREDS" shall have the meaning set forth in
Exhibit C.
"AFFILIATE" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with such Person including, without limitation, any partnership of which such
Person or any such other Person is a general partner or managing agent and any
trust which any beneficiary is such Person or any such other Person.
"AIRCRAFT" shall mean the Airframe together with (a) the two
(2) Engines, whether or not installed on the Aircraft, (b) all Parts or
components thereof, (c) all spare parts or ancillary equipment or devices
furnished with the Aircraft under this Lease (including, without limitation, any
thereof listed in Exhibit A-1, A-2, and A-3 hereto or in
<PAGE>
Schedule 1 to any Lease Supplement), (d) all Aircraft Documents, and (e) all
substitutions, replacements and renewals of any and all thereof.
"AIRCRAFT DOCUMENTS" shall mean all historical records
delivered with the Aircraft for work accomplished prior to the Delivery Date and
all records for work accomplished subsequent to the Delivery Date, including but
not limited to the items identified in Exhibit B, together with all documents,
manuals, data, overhaul records, life limited parts traceability, log books,
original Aircraft and Engine delivery documents, serviceable parts tags, FAA
forms, modification records, inspection records and all other records required
to be maintained by Lessee pursuant to the terms of this Lease during the terms
of this Lease or returned to Lessor at the expiration of the Term or otherwise.
"AIRFRAME" shall mean (a) the Airbus A300B4-200 aircraft
described on Exhibit A or any airframe substituted therefore pursuant to Section
6(g) hereof, but not including any Engine or engine installed thereon, and (b)
any and all Parts so long as the same shall be incorporated or installed on or
attached to the Airframe, or any and all Parts removed therefrom so long as
title thereto shall remain vested in Lessor in accordance with the terms of
Section 9 after removal from the Airframe.
"AIRWORTHINESS DIRECTIVE" or "AD" shall mean any airworthiness
directive issued by the FAA or published in the Federal Register and applicable
to aircraft and engines of the same type as the Aircraft and the Engines.
"APPRAISAL PROCEDURE" shall mean a written determination, by
an independent appraiser selected by Lessor, and agreed upon by Lessee of the
Fair Market Rental Value of the Aircraft, the cost of which shall be borne by
the Lessee. Lessor shall select an internationally recognized independent
aircraft appraiser such as Avitas, Avmark Associates or B.K. Associates, who
shall make a determination of fair market rental value.
"APPROVED AUDITOR" shall mean an auditing firm having an
internationally recognized reputation, acceptable to Lessor.
"APPROVED INSURANCE BROKER" shall mean any reputable insurance
broker, or reinsurance broker, of internationally recognized responsibility and
standing in aircraft insurance, acceptable to Lessor.
"APPROVED INSURER" shall mean any reputable insurer or
reinsurer, or insurance broker, or reinsurance broker, of internationally
recognized responsibility and standing in aircraft insurance, acceptable to
Lessor.
"APU" shall mean the Garret model TSCP 700-5 auxiliary power
unit installed in the Airframe.
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<PAGE>
"ASSIGNMENT" shall mean an assignment by Lessee in favor of
Lessor (including the acknowledgment and agreement relating thereto given by the
Permitted Sublessee thereunder), in form and substance reasonably satisfactory
to Lessor.
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code
of 1978, as amended.
"BASE PERIOD" shall have the meaning set forth in Exhibit C
hereto.
"BASE RENT" shall mean the rent for the Aircraft set forth in
Exhibit C hereto and shall be payable throughout the Term for the Aircraft
pursuant to Section 4(a).
"BASE RENT PAYMENT DATE" shall mean each date on which Base
Rent is to be paid in accordance with Exhibit C hereto.
"BENEFICIARY" shall mean the beneficiary under the trust on
behalf of which the Lessor is acting under this Lease, as indicated in Exhibit
C.
"BLOCK HOUR" shall mean each hour or fraction thereof elapsed
from the time the engines or Engines of the Aircraft are started in connection
with the Aircraft's departure from an airport until the engines or Engines of
the Aircraft are shut off after it has arrived at the same or another airport
after an uninterrupted flight.
"BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or other day on which commercial banking institutions in New York, New
York are authorized or required by law to be closed.
"CASUALTY OCCURRENCE" shall mean any of the following events
with respect to the Aircraft, Airframe or any Engine: (a) loss of such property
or its use due to theft or disappearance for a period in excess of twenty (20)
consecutive days, or in any event extending beyond the Term, or destruction,
damage beyond economic repair or rendition of such property permanently unfit
for normal use by Lessee for any reason whatsoever; (b) any damage to such
property which results in an insurance settlement with respect to such property
on the basis of a total loss or on the basis of a compromised or constructive
total loss; (c) the condemnation, confiscation, appropriation or seizure of, or
requisition of title to such property, or the use of such property by or on the
authority of any Governmental Entity or purported Governmental Entity, which in
any such case shall have resulted in the loss of possession thereof by Lessee
for a period in excess of thirty (30) consecutive days (or for such shorter
period ending on the date which is seven (7) days from the date of receipt of an
insurance settlement with respect to such property on the basis of a total loss)
or in any event extending beyond the Term; or (d) prohibition under any
applicable Law of the use of the Aircraft for commercial transportation of
passengers for a period of thirty (30) consecutive days, or in any event
extending beyond the Term.
"CASUALTY VALUE" shall mean the value set forth in Exhibit C
hereto.
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"CLAIMS" shall have the meaning set forth in Section 13.
"CLOSING DOCUMENTS" shall mean each of the documents listed in
Exhibit I hereto.
"COUNTRY OF ORGANIZATION" shall have the meaning set forth in
Exhibit C hereto.
"COUNTRY OF REGISTRATION" shall have the meaning set forth in
Exhibit C hereto.
"DEDUCTIBLE AMOUNT" shall have the meaning set forth in
Exhibit C hereto.
"DEFAULT" shall mean an Event of Default or an event or
condition which, with the lapse of time or the giving of notice or both, would
constitute an Event of Default.
"DELIVERY CONDITIONS" shall mean the conditions set forth in
Section 3 and Exhibit A hereto.
"DELIVERY DATE" shall mean the date on which the Aircraft is
delivered to and accepted by Lessee for purposes of this Lease in accordance
with the delivery conditions set forth herein and in the Exhibits, which shall
be the date of the Lease Supplement No. 1 and Acceptance Certificate.
"DELIVERY LOCATION" shall have the meaning set forth in
Exhibit C hereto.
"DEPOSIT" shall have the meaning set forth in Exhibit C
hereto.
"DISCOUNT RATE" shall mean as of any date the then current
applicable annual rate of interest, compounded periodically at the frequency
that Base Rent payments are due, equal to the Interest Rate.
"DOLLARS" and "$" shall mean lawful currency of the United
States of America.
"ELIGIBLE CLAIM" means a claim made by Lessee on behalf of the
Maintenance Contractor for which disbursement of Maintenance Reserves is
required hereunder.
"EMERGENCY EQUIPMENT LIST" means the emergency equipment list
set forth in Exhibit A-3 hereto.
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<PAGE>
"ENGINE" shall mean each of the two (2) General Electric
CF6-50C2 aircraft engines bearing the manufacturer's serial numbers specified in
the Lease Supplement No. 1and Acceptance Certificate, which are initially
installed on or furnished with the Aircraft on the Delivery Date, each such
engine being also identified as to manufacturer, type and manufacturer serial
number on Exhibit A hereto, and any Replacement Engine which may from time to
time be substituted therefor pursuant to Section 11 or 16(c) hereof; together in
each case with any and all Parts incorporated or installed in or attached
thereto or any and all Parts removed therefrom so long as title thereto remains
vested in Lessor in accordance with the terms of Section 9 after removal from
such Engine. Except as otherwise set forth herein, at such time as a Replacement
Engine shall be so substituted, 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.
"ENGINE MANUFACTURER" shall mean having the meaning set forth
in Exhibit C hereto.
"EVENT OF DEFAULT" shall have the meaning specified in any one
or more clauses in Section 17.
"EXCESS AD COSTS THRESHOLD" shall have the meaning set forth
in Exhibit C.
"FAA" shall mean as the context requires, the the United
States Federal Aviation Administration or any successor agency charged with the
administration or enforcement of United States aviation law, so long as the
Aircraft is registered in the United States and otherwise each governmental
airworthiness authority in the jurisdiction of the Country of Registration
having authority with respect to aircraft that is comparable to the authority of
the FAA with respect to aircraft on United States registry.
"FAIR MARKET RENTAL VALUE" shall mean in respect of the
Aircraft for any period of time, the Base Rent which would be payable under a
lease of the Aircraft on an "as is" "where is" basis and otherwise on terms
substantially identical (except for Base Rent and Term) to the terms of this
Lease for such period of time between a willing lessor and and willing lessee
both with full knowledge of the relevant facts, including the actual condition
and maintenance status of the Aircraft at such time, and neither under any
compulsion to enter into the transaction.
"FAR" means regulations issued by the FAA under the Federal
Aviation Act.
"FEDERAL AVIATION ACT" shall mean Subtitle VII, Part A of
Title 49 of the United States Codes, as in effect on the date of this Lease, or
any successor or substituted legislation at the time in effect and applicable.
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<PAGE>
"FLIGHT HOUR" shall mean, with respect to the Airframe or any
Engine installed on the Airframe or any airframe, each hour or part thereof,
measured to two decimal places, elapsing from the moment the wheels of the
Airframe leave the ground on take-off to the moment when the wheels of the
Airframe touch the ground on landing in each case as evidenced by the Aircraft
log book or in any other document recording flight time accepted by the FAA.
"GOVERNMENTAL ENTITY" shall mean and include (a) the FAA; (b)
the United States government or any other national government, or political
subdivision thereof or local jurisdiction therein; (c) a board, commission,
department, division, organ, instrumentality, court, or agency of any entity
described in (a) or (b) above.
"INDEMNITEE" shall mean, subject to the following sentence,
Lessor, the grantor trust of which Lessor is trustee, Lessor's Aircraft Manager,
the Beneficiary and their respective officers, directors, shareholders, agents,
employees, attorneys and successors and assigns. It is further understood and
agreed that, as used in Section 10 hereof, such term shall include each
Indemnitee, any Affiliate of any Indemnitee, and, with respect to any such
Indemnitee or Affiliate, its respective agents, attorneys, employees, officers,
directors, successors and assigns, shareholders, partner unit holders and
beneficiaries thereof, any combination thereof, including, without limitation,
any partner unit holders or beneficiaries of a successor or assignee of an
Indemnitee, and any transferee of an Indemnitee with respect to any interest in
the Aircraft, or any part thereof.
"INTEREST RATE" shall have the meaning set forth in Exhibit C
hereto.
"LAW" shall mean and include (a) any statute, decree,
constitution, regulation, order, judgment or other directive of any Governmental
Entity; (b) any treaty, pact, compact or other agreement to which any
Governmental Entity is a signatory or party; (c) any judicial or administrative
interpretation or application of any Law described in (a) or (b) above; and (d)
any amendment or revision of any Law described in (a), (b) or (c) above.
"LEASE" shall mean this Lease, the Lease Supplement No. 1and
Acceptance Certificate and any and all amendments, revisions, supplements and
modifications thereto.
"LEASE IDENTIFICATION" shall have the meaning set forth in
Exhibit C hereto.
"LEASE SUPPLEMENT NO. 1 AND ACCEPTANCE CERTIFICATE" shall mean
the supplement to this Lease, substantially in the form of Exhibit D hereto, to
be entered into between Lessor and Lessee and executed and delivered by Lessee
and countersigned by Lessor.
"LENDER" shall have the meaning set forth in Exhibit C hereto.
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<PAGE>
"LESSEE PAYMENTS" shall have the meaning set forth in Section
10(a) hereof.
"LESSEE'S ADDRESS" shall have the meaning set forth in Exhibit
C hereto.
"LESSOR'S ADDRESS" shall have the meaning set forth in Exhibit
C hereto.
"LESSOR'S AIRCRAFT MANAGER" shall mean the person identified
as such in Exhibit C and its successors and assigns and replacements in such
function, as designated by Lessor.
"LESSOR'S LIENS" shall mean any Liens created over the
Aircraft by Lessor, or exercised, asserted or claimed against the Aircraft or
any part thereof arising as a result of (a) claims against Lessor not related to
the transactions contemplated by this Lease; or (b) acts of Lessor, not
contemplated and expressly permitted under this Lease; or (c) Taxes imposed
against Lessor which are not required to be indemnified against by Lessee
pursuant to Section 10; or (d) claims against Lessor arising out of the
voluntary transfer by Lessor of all or any part of its interests in the Aircraft
or this Lease, other than a transfer pursuant to Sections 11 or 18 hereof.
"LIEN" shall mean any mortgage, pledge, lien, charge,
encumbrance, hypothecation, lease, exercise of rights, security interest or
claim or other type of preferential arrangement.
"LOAN" shall have the meaning set forth in Exhibit C hereto.
"LOOSE EQUIPMENT LIST" shall mean the loose equipment list set
forth in Exhibit A-2 hereto.
"MAINTENANCE CONTRACTOR" shall mean any maintenance contractor
duly certified by the FAA to maintain aircraft of the same type as the Aircraft
and chosen by Lessee to maintain the Aircraft in accordance with the Maintenance
Program and approved in writing by Lessor, which approval shall not be
unreasonably withheld.
"MAINTENANCE PROGRAM" shall mean Lessee's FAA approved
maintenance program in effect from time to time for the Aircraft, encompassing
scheduled maintenance, condition-monitored maintenance, maintenance of the
Airframe, Engines and Parts of the Aircraft, complying with all requirements of
the FAA (including without limitation those relating to corrosion prevention and
aging aircraft) and selected by Lessee and approved in writing by Lessor, such
approval not to be unreasonably withheld.
"MAINTENANCE RESERVES" shall mean at anytime the excess of (A)
the sum of (i) Maintenance Reserve Payments actually received by the Lessor in
respect of a particular Maintenance Reserve Account through such point in time
plus (ii) the Maintenance Reserves Credit, if any, less (B) the amounts thereof
applied by Lessor through such point in time pursuant to Section 4(d) hereof
determined in accordance with
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the records maintained by Lessor. If an engine is substituted pursuant to
Section 4(d)(v) other than in connection with a substitution of the Aircraft,
the Maintenance Reserves shall be reduced upon such substitution by the
Lessor's estimate with the cost of placing the substituted Engine in the
condition of the Replacement Engine.
"MAINTENANCE RESERVE ACCOUNT" shall mean each of the
Maintenance Reserve Accounts established pursuant to Section 4(c) hereof.
"MAINTENANCE RESERVE PAYMENT" shall have the meaning set forth
in Exhibit C hereto.
"MAINTENANCE RESERVE CALCULATION PERIOD" shall have the
meaning set forth in Exhibit C hereto.
"MAINTENANCE RESERVE PAYMENT DATE" shall have the meaning set
forth in Exhibit C hereto.
"MANUFACTURER" shall have the meaning set forth in Exhibit C
hereto.
"MORTGAGE" shall have the meaning set forth in Exhibit C
hereto.
"MORTGAGE CONVENTION" shall mean the Convention for the
International Recognition of Rights in Aircraft, signed (ad referendum) at
Geneva, Switzerland, on June 19, 1948, as amended or modified from time to time.
"MPD" means the Airbus Industrie's Maintenance Planning
Document for the Aircraft.
"PART 36" shall mean part 36 of title 14 of the United States
Code of Federal Regulations, as amended or modified from time to time.
"PART 121" shall mean part 121 of title 14 of the United
States Code of Federal Regulations, as amended or modified from time to time.
"PARTS" shall mean all appliances, avionics, components,
parts, instruments, appurtenances, accessories, furnishings, seats, galleys,
galley equipment, serving equipment, lavatories, cargo, handling equipment,
safety equipment and other equipment of whatever nature (other than complete
Engines or engines), which may now (including without limitations, any thereof
listed in Exhibit A-1 hereto or in any Schedule 1 to any Lease Supplement) or
from time to time be incorporated or installed or positioned in or attached to
the Airframe or any Engine, or that remain the property of Lessor pursuant to
the terms of Section 9 despite removal therefrom. Except as otherwise set forth
herein, at such time as a replacement part shall be substituted for a Part in
accordance with Section 9 hereof, the Part so replaced shall cease to be a Part
hereunder.
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"PAYMENT LOCATION" shall have the meaning set forth in Exhibit
C hereto.
"PERMITTED SUBLESSEE" shall mean such Person as may be
approved in writing by Lessor acting in its absolute discretion prior to the
effectiveness of the relevant Sublease. Lessor shall not unreasonably withhold
its approval of a sublessee who in Lessee's reasonable judgment is a responsible
certificated air carrier.
"PERSON" shall mean and include any individual person,
corporation, partnership, business trust, firm, joint stock company, joint
venture, trust, estate, unincorporated organization, association or Governmental
Entity.
"RELATED LEASE" shall mean any other aircraft lease in
existence between Lessor or any Affiliate of Lessor, as lessor, and Lessee
during the term of this Lease.
"REMITTANCE WITHHOLDING" shall have the meaning set forth in
Section 10(a) hereof.
"RENEWAL PERIODS" shall mean the period which follows the end
of the Base Period and as to which Lessee and Lessor shall have agreed to renew
this Lease pursuant to Section 3(g) hereof.
"RENEWAL RENT" shall mean the rent for the Aircraft set forth
in Exhibit C hereto and shall be payable throughout the Renewal Period for the
Aircraft pursuant to Section 4(a).
"RENEWAL RENT PAYMENT DATE" shall mean each date on which
Renewal Rent is to be paid in accordance with Exhibit C hereto.
"RENT" shall mean Base Rent, Renewal Rent and Supplemental
Rent, collectively.
"RENT PAYMENT DATE" shall mean each Base Rent Payment Date and
each Renewal Rent Payment Date.
"REPLACEMENT ENGINE" shall mean an engine of the same
manufacturer and model, or, at Lessee's option, an engine of the same
manufacturer as such Engine of a comparable or an improved model, and remaining
useful life and otherwise of substantially equivalent value, utility,
maintenance status and remaining useful life of the Engine being replaced and
suitable for installation and use on the Airframe without impairing the value or
utility of the Airframe and compatible with the remaining installed Engine.
"RETURN LOCATION" shall have the meaning set forth in Exhibit
C hereto.
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"RETURN OCCASION" shall mean the event that occurs when
possession of the Aircraft is returned from Lessee to Lessor at the end of the
Term of this Lease or upon Lessor taking possession pursuant to Section 16
hereof.
"RIGHT OF FIRST OFFER" shall mean that Right of First Offer
between Lessor and Lessee as stated in Section 20(t).
"Scheduled Delivery Date" shall mean the Scheduled Delivery Date specified in
Exhibit C, which the parties anticipate shall be the Delivery Date.
"SUBLEASE" shall mean any aircraft sublease with a Permitted
Sublessee entered into in accordance with Section 6(a) hereof, as the same may
be amended, supplemented or otherwise modified from time to time.
"SUPPLEMENTAL RENT" shall mean all amounts, liabilities and
obligations (other than Base Rent and Renewal Rent) which Lessee assumes or
agrees to pay hereunder, or under any document delivered pursuant hereto,
including without limitation: (a) any payment of Casualty Value; (b) any payment
of indemnity required by Sections 10 and 13 hereof; (c) any payment of deposits
(including, without limitations, the Deposit), Maintenance Reserve Payments,
Airframe and Engine adjustments; and (d) to the extent permitted by applicable
Law, interest at the Interest Rate (all computations of interest under this
Lease to be made on the basis of a 360-day year for the actual number of days
elapsed) calculated: (i) on any part of any installment of Base Rent and Renewal
Rent not paid on the due date thereof (determined without regard to the last
sentence of Section 4(a) hereof) for the period from and including the date due
until but excluding the date payment is deemed to be made hereunder and (ii) on
any Supplemental Rent not paid when due hereunder for the period from and
including the date due until but excluding the date payment is deemed to be made
hereunder.
"TAXES" shall mean in connection with the transactions
contemplated by this Lease, any and all value added, sales, turnover, use,
business, gross income, net income, personal property, license, documentation,
transfer, fuel, leasing, occupational, excess profits, excise, gross receipts,
franchise, stamp or income taxes, levies, monetary transfer fees, imposts,
withholdings (including any Remittance Withholdings) or other taxes or duties,
charges, fees or assessments of any nature, or amounts in lieu thereof, together
with any additions to tax, penalties, fines, charges or interest thereon.
"TERM" shall mean the term of this Lease specified in Exhibit
C hereto.
"UCC" shall mean Uniform Commercial Code as in effect from
time to time in any relevant jurisdiction.
Section 2. LEASE AND CONDITIONS.
(a) Lessor hereby agrees to lease the Aircraft to Lessee, and
Lessee hereby agrees to lease the Aircraft from Lessor, subject to the terms and
conditions of this
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Lease, as supplemented by any lease supplement executed by the parties hereto.
The right to lease the Aircraft conferred hereto shall include the use of all
Aircraft Documents.
(b) Lessor's obligation to lease the Aircraft hereunder to
Lessee shall be conditioned upon: (1) the absence of any Default existing (or
circumstances which, if the lease of the Aircraft commenced, would give rise to
a Default) on the Delivery Date; (2) the occurrence of any Casualty Event in
respect of the Aircraft prior to Delivery; (3) the certification by the FAA of
the Aircraft as to type and airworthiness and issuance by the FAA of a valid and
effective certificate of airworthiness for operation in the United States of
America; (4) Lessee shall have arranged for delivery to Lessor of each of the
Closing Documents, each dated as of the Delivery Date (or such other date
satisfactory to Lessor and Lessee) each of which shall be in form and substance
satisfactory to Lessor; and (5) Lessor's receipt at the Payment Location, the
Deposit in the date or dates and in the amount or amounts specified in Exhibit C
on the date or dates and in the amount or amounts specified in Exhibit C.
(c) Lessee's obligation to lease the Aircraft from
Lessor shall be conditioned upon:
(1) A currently valid and effective airworthiness
certificate for the Aircraft has been issued by the FAA;
(2) The FAA has issued a currently valid and
effective Registration Certificate for the Aircraft;
(3) The Aircraft has been placed on Lessee's
operations specifications by the FAA;
(4) The Aircraft Documents are accepted by the FAA
as being in compliance with the FARs;
(5) The Aircraft is immediately eligible under the
FARs to enter into Lessee's revenue service;
(6) A favorable opinion of Lessor's counsel to the
effect that Lessor has duly executed and delivered the Lease and each document
or Exhibit contained therein is legally valid, binding and enforceable; and
(7) An opinion from Crowe and Dunlevy, Special FAA
counsel, to the effect that Lessor is the owner of record and the Aircraft is
duly registered in the United States.
(d) If each of conditions (3), (4) and (5) in the preceding
paragraph (c) are not met by December 31, 1996 (or such later date as Lessor may
agree in writing), Lessor may, but shall not be obligated to, terminate its
obligations hereunder or under the Right of First Offer, by notice to Lessee to
such effect.
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(e) The parties hereto intend that this Lease is a "lease" for
purposes of all applicable Laws, including, without limitation, United States
federal income tax purposes, the UCC and the Bankruptcy Code (including, without
limitation, Section 1110 thereof). Without limiting the generality of the
foregoing, the Lessee agrees that (a) the Aircraft, Engines and Parts leased
hereunder constitute "equipment" described in said Section 1110, (b) Lessee is a
"citizen of the United States (as defined in 40102 of title 49) holding an air
carrier operating certificate issued by the Secretary of Transportation pursuant
to Chapter 447 of title 49 for aircraft capable of carrying 10 or more
individual or 6,000 pounds or more of cargo" as such phrase is used in said
Section 1110; (c) Section 1110 of the Bankruptcy Code applies to this Lease, and
(d) to the extent permitted by Law, not to contest the right of the Lessor to
exercise in respect of the Lease and the property leased hereunder, the rights
provided by said Section 1110 in any proceeding under the Bankruptcy Code. At
all times during the Term legal and beneficial ownership of the Aircraft, each
Engine and each Part leased hereunder shall remain in the Lessor.
Section 3. INSPECTION; DELIVERY AND ACCEPTANCE; TERM.
(a) INSPECTION. On or before the Delivery Date, Lessee shall
be afforded the inspection rights set forth in Exhibit A in order to verify the
Aircraft is in the required Delivery Condition.
(b) PLACE OF DELIVERY AND ACCEPTANCE. Except as otherwise
provided herein, and subject to the terms and conditions of this Agreement, the
Aircraft shall be delivered to and accepted by Lessee at the Delivery Location
on the Delivery Date.
(c) DELIVERY. The Aircraft will be available for delivery on
or about the Scheduled Delivery Date. Lessee agrees to accept the Aircraft, as
provided in Section 3(d) provided the Aircraft satisfies the Delivery Conditions
on the Delivery Date.
(d) ACCEPTANCE OF AIRCRAFT. Except as otherwise provided
herein, the Aircraft to be leased hereunder shall be delivered to Lessee "AS
IS," "WHERE IS" and SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND
REPRESENTATION EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5(a) HEREOF. Upon
acceptance of the Aircraft, Lessee shall thereupon indicate and confirm its
acceptance of the Aircraft by execution and delivery to Lessor of a Lease
Supplement No. 1 and Acceptance Certificate dated the Delivery Date, in the form
set forth as Exhibit D hereto. Nothing in this paragraph shall be construed as
modifying any obligation of Lessor hereunder.
(e) CASUALTY OCCURRENCE TO THE AIRCRAFT PRECEDING DELIVERY. In
the event the Aircraft is lost or damaged beyond economical repair prior to the
Schedule Delivery Date, Lessor shall immediately notify Lessee in writing and
the obligation to
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make the Aircraft available to the Lessee shall terminate and the Deposit shall
be promptly returned by Lessor to Lessee.
(f) TERM OF LEASE. The Term of this Lease shall commence on
the Delivery Date and shall continue for the Term set forth in Exhibit C, unless
extended or earlier terminated pursuant to the provisions hereof.
(g) RENEWAL OPTIONS
(i) Lessee will have two options (each, an "Extension
Option"); the first, to extend the Term of this Agreement for an additional one
year period (the "First Renewal Period") commencing on the scheduled date of
expiration of the initial Term of this Lease and the second to extend the Term
of this Agreement for a further one year period commencing on the scheduled
expiration of the First Renewal Period (the "Second Renewal Period" and together
with the First Renewal Period, the "Renewal Periods"); PROVIDED, HOWEVER, in
each case, that it shall be a condition precedent to Lessee's right to exercise
any Extension Option, that (a) no Default and no Event of Default shall have
occurred and be continuing on the date on which Lessee exercises such Extension
Option, (b) Lessee shall have exercised any preceding Extension Option, and (c)
Lessee shall have provided Lessor with the irrevocable written notice of the
exercise thereof.
(ii) In order to exercise any Extension Option, Lessee must
give written notice to Lessor (a) with respect to the First Extension Lease
Term, not later than 120 days prior to the Lease Term Expiration Date and (b)
with respect to the Second Extension Lease Term, not later than 120 days prior
to the First Extension Lease Term Expiration Date, each of which shall state
that Lessee is exercising the applicable Extension Option hereunder and shall
certify that no Default and no Event of Default has occurred and is continuing
as of the date of such notice. Any such notice shall specify the first and last
day of the applicable Extension Lease Term and shall constitute Lessee's
irrevocable and unconditional obligation to continue to lease the aircraft for
the applicable Extension Lease Term in accordance with the terms of this
Agreement.
(iii) All the Terms of this Agreement shall continue during
any Renewal Period except that the Lessee shall pay Renewal Rent on each Renewal
Rent Payment Date in lieu of the Base Rent on Base Rent Payment Dates.
Section 4. RENT; MAINTENANCE RESERVE; MAINTENANCE AND
MAINTENANCE SUPPORT PROGRAMS.
(a) RENT. Lessee covenants and agrees to pay to Lessor
(or to such other Persons as provided herein) the following as Rent:
(i) BASE RENT: On each Base Rent Payment Date, the Base
Rent; and
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(ii) RENEWAL RENT: Renewal Rent, if any, on each Renewal
Rent Payment Date; and
(iii) SUPPLEMENTAL RENT. Any and all Supplemental Rent as
the same becomes due.
If a Rent Payment Date shall fall on a day which is not a
Business Day, any payment due on such Rent Payment Date shall be made on the
next succeeding Business Day.
(b) PLACE AND METHOD OF PAYMENT. All Rent payable under this
Lease shall be paid in Dollars (except as otherwise specifically provided
herein), in funds immediately available in the account specified under the
Payment Location on Exhibit C hereto, or in such other account as Lessor shall
designate in writing. Payment made as provided in the preceding sentence after
12 o'clock P.M. at the Payment Location will be deemed to have been made on the
next Business Day for all purposes of this Agreement.
(c) MAINTENANCE RESERVE PAYMENTS; STATUS OF MAINTENANCE
RESERVES. Lessee agrees to pay the Maintenance Reserve Payments specified in
Exhibit C hereto during the Term on each Maintenance Reserve Payment Date. The
Maintenance Reserve Payments shall be Supplemental Rent under this Lease and
Lessee shall not have any right, title or interest therein or thereto other than
the rights set forth in Section 4(d) hereof. Lessor has no obligation to return
to Lessee amounts of Maintenance Reserves remaining on account with Lessor at
the time this Lease is terminated. Lessee hereby agrees that no obligation
exists under this Lease for Lessor to segregate such Maintenance Reserves from
its other funds or to account to Lessee for interest, if any, earned thereon.
Six maintenance reserve accounts (each, a "Maintenance Reserve Account") shall
be maintained by Lessor, one in respect of each of the following maintenance
processes;
(i) Airframe "C-Check" Reserve Account for all routine
and non-routine man hours, and all Maintenance
Program inspection items contained in the C-1 and C-2
Checks and all phases of the 3C Check;
(ii) Airframe "D-Check" Reserve Account for all routine
and non-routine man hours, the 9, 10 and 15 year CPCP
inspection SSID inspections, and all Maintenance
Program inspection items contained in the Airframe
"D" Checks.
(iii) Airframe "mid D-Check" Reserve Account for all
routine and non-routine man hours, and all
Maintenance Program inspection items contained in the
C-4, C-6 and Mid-D Checks, the 2 1/2 year, 4 year and
5 year CPCP inspections;
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(iv) Engines Overhaul Reserve Account for all routine and
non-routine man hours for off-wing overhaul,
including Life Limited Part replacement (not
including any Engine components forming part of nose
cowl and thrust reverser);
(v) the APU restoration/shop visit Reserve Account for
all routine and non-routine man hours for APU; and
(vi) Landing Gear Reserve Account for all routine and
non-routine man hours for landing gear overhaul.
(d) DISBURSEMENT OF MAINTENANCE RESERVES; EXCESS COSTS;
ETC.
(i) DISBURSEMENT OF MAINTENANCE RESERVES. So long as no
Default or Event of Default is continuing and this Lease has not been declared
in default in accordance with Section 18 hereof and each of the following
conditions precedent have been met in respect thereof, Lessor shall, upon
receipt of the documentation required by Section 4(d)(iv) below, use the
Maintenance Reserves, if any, in each Maintenance Reserve Account to pay the
Maintenance Contractor its actual and commercially reasonable and customary
charges for the work covered by each Maintenance Account:
(1) before any work with respect to such Eligible
Claim is performed, Lessee shall submit in writing to Lessor
the proposed workscope and estimated cost therefor; should
Lessor object to the workscope, cost or entity, then the
parties shall consult as soon as possible to resolve the
issue. If the parties cannot resolve the issue as to
workscope, then such issue shall be presented to the
Manufacturer or Engine Manufacturer for its decision as to the
correct workscope.
(2) if Lessor agrees that such workscope and cost are
reasonable, Lessor shall so notify Lessee thereof within 5
Business Days after Lessor's receipt of Lessee's written
submission.
(3) any work performed that is beyond the Maintenance
Program shall be at Lessees expense and shall not be payable
out of the reserves;
(4) after Lessor and Lessee agree on the
reasonableness of such workscope and cost, Lessee shall have
the work with respect to such Eligible Claim performed in
accordance therewith; and
(5) following completion of the work with respect to
such Eligible Claim, Lessee shall present to Lessor all
original work-sheets, invoices, vouchers and/or receipts with
respect thereto and such other evidence of and information
relating to the performance of such work as Lessor may
reasonably request.
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(ii) EXCESS COSTS. If the aggregate amounts payable to the
Maintenance Contractor as provided in clause (i) above shall exceed the amounts
available in the Maintenance Reserves, the Lessee shall pay such excess costs.
(iii) MAINTENANCE RESERVES UPON DEFAULT. If Lessee fails to
pay Rent hereunder or to pay any other sums due or to perform any of the other
terms and provisions of this Lease or any document delivered pursuant hereto or
is otherwise in Default hereunder, in addition to all other rights Lessor may
have under law or hereunder, Lessor may apply all or a portion of the amount of
the Maintenance Reserves upon occurrence of a Default or Event of Default and
may use, apply or retain all or any portion of the Maintenance Reserves in
partial payment for sums due to Lessor by Lessee, to compensate Lessor for any
sums it may in its discretion advance as a result of a Default by lessee, or to
apply toward losses or expenses Lessor may suffer or incur as a result of
Lessee's Default hereunder. If Lessor applies all or any portion of the
Maintenance Reserves, such application shall not be deemed a cure of any
Default, and upon written demand therefor, Lessee shall pay to Lessor such
additional funds as shall reinstate the original amounts thereof and the failure
of lessee to do so shall be a material breach of this Lease.
(iv) PAYMENT DOCUMENTATION. The Lessee must furnish Lessor
with reasonably acceptable documentation of the Maintenance Contractor's work
prior to any payment pursuant to this Section 4(d), which shall include, without
limitation a representation and warranty by the Maintenance Contractor that all
liens relating to the work in question have been discharged provided, however,
that if required by the Maintenance Contractor, the Lessor shall use Maintenance
Reserves as provided herein to pay deposits in advance of the completion of the
work, provided such deposits are actually required by the Maintenance
Contractor, are commercially reasonable and customary in the industry for work
of the type in question. If any heavy maintenance or shop visit is to be
accomplished by a vendor other than the Maintenance Contractor, such vendor must
be approved by Lessor in writing prior to any such work commencing.
(e) MAINTENANCE SUPPORT PROGRAMS
So long as no Default or Event of Default shall be continuing
and this Lease shall not have been declared in default, Lessor will provide
various support programs to Lessee as summarized below:
(i) To support the increased level of Lessee operations, Lessor hereby agrees to
lease to Lessee one (1) General Electric CF650C2 engine with full QEC and one
(1) Garrett TSCP 700-5 APU in flyaway condition on terms mutually agreeable to
both parties. Lessor will undertake to provide a draft contract to Lessee within
15 business days after the execution of this Aircraft Lease Agreement.
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(ii) To assist Lessee with the transition from the current maintenance program
for the subject Aircraft, Lessor, at its expense, will assign consultants to
work with Lessee to develop the bridging work package requirements and to
transition the Aircraft and records to Lessee's fleet.
(f) NET LEASE; PROHIBITION AGAINST SETOFF, COUNTERCLAIM,
ETC. This Lease is a net lease and except as otherwise expressly provided
herein, Lessor shall have no responsibility (operationally or financially) in
respect of the use or operation of the Aircraft, any Engine or any Part.
Lessee's obligation to pay all Rent due hereunder shall be absolute and
unconditional and shall not be affected or reduced by any circumstances,
including, without limitation, (i) any set-off, counterclaim, recoupment,
defense or other right which Lessee may have against Lessor or any other Person,
the Manufacturer, the Engine Manufacturer, any seller of or Person providing
services with respect to the Aircraft or any other Person, for any reason
whatsoever (whether in connection with the transactions contemplated hereby or
any other transactions), including, without limitation, any breach by Lessor of
its warranties, agreements or covenants contained herein; (ii) any defect in the
title, airworthiness or eligibility for registration under applicable Law, or
any condition, design, operation or fitness for use of, or any damage to or loss
or destruction of, the Aircraft, or any interruption or cessation in the use or
possession thereof by Lessee for any reason whatsoever, whether arising out of
or related to an act or omission of Lessee, or any other Person; (iii) any Liens
with respect to the Aircraft; (iv) the invalidity or unenforceability or lack of
due authorization or other infirmity of this Lease or any absence of right,
power or authority of Lessor or Lessee to enter into this Lease; (v) any
insolvency, bankruptcy, reorganization or similar proceedings by or against
Lessor or Lessee; (vi) any other circumstance or happening of any nature
whatsoever, similar to any of the foregoing; or (vii) any Taxes; it being the
express intention of Lessor and Lessee that all Rent payable hereunder shall be
payable in all events, unless the obligation to pay the same shall be terminated
pursuant to the express provisions of this Lease. Except as provided in this
Agreement and without limitation to Lessee's rights contained herein, each
payment of Rent or any other payments hereunder made by Lessee to Lessor shall
be final and Lessee will not seek to recover any part of such payment from
Lessor for any reason whatsoever except manifest error.
Section 5. REPRESENTATIONS AND WARRANTIES.
(a) LESSOR WARRANTIES AND DISCLAIMER OF WARRANTIES.
THE AIRCRAFT IS TO BE LEASED HEREUNDER "AS IS" AND "WHERE IS".
EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 5(a), LESSOR HAS NOT AND SHALL NOT
BE DEEMED TO HAVE MADE (WHETHER BY VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER
THIS LEASE, OR HAVING ACQUIRED THE AIRCRAFT, OR HAVING DONE OR FAILED TO DO ANY
ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO
THIS LEASE OR OTHERWISE), AND LESSOR HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATION OR
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WARRANTY, EXPRESS OR IMPLIED, AS TO THE AIRWORTHINESS, LACK OF AIRWORTHINESS,
VALUE, DURABILITY, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, OR FITNESS FOR
USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT, OR AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP OF THE AIRCRAFT, THE ABSENCE THEREFROM OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING
FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE
AIRCRAFT; AND LESSEE HEREBY WAIVES, RELEASES, RENOUNCES AND DISCLAIMS
EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR WARRANTIES. EXCEPT AS
EXPRESSLY PROVIDED HEREIN, LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY
TO LESSEE OR ANY OTHER PERSON, WHETHER ARISING IN CONTRACT OR TORT OUT OF ANY
NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE, FOR (i) ANY LIABILITY,
LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE
AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT
THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH, (ii) THE USE,
OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO, (iii)
ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR
CONSEQUENTIAL DAMAGES OR (iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE,
REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFTTHE WARRANTIES AND
REPRESENTATIONS SET FORTH IN THIS SECTION 5(a) ARE EXCLUSIVE AND IN LIEU OF ALL
OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND LESSOR
SHALL NOT BE DEEMED TO HAVE MADE ANY OTHER REPRESENTATIONS OR WARRANTIES, EXCEPT
THAT LESSOR HEREBY MAKES THE FOLLOWING REPRESENTATIONS AND WARRANTIES WHICH
SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS LEASE AND THE DELIVERY OF THE
AIRCRAFT:
(i) First Security Bank, National Association is a national
banking association duly organized and validly existing and in good standing
under the Federal laws of the United States, and has the power and authority to
carry on its business as presently conducted and to perform its obligations as
Lessor under this Lease; based on an affidavit of Beneficiary provided to Lessor
upon which Lessee may rely. Beneficiary is a company in good standing, duly
organized and validly existing under the laws of the place of incorporation and
has the power and authority to carry on its business and perform all of its
obligations as presently conducted; Lessor, as trustee, has the authority on
behalf of the trust and the Beneficiary to enter into and be bound by this Lease
and perform Lessor's obligations hereunder;
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(ii) the making and performance by Lessor of this Lease have
been duly authorized by all necessary action on the part of Lessor and will not
violate any provision of federal banking or Utah law or Lessor's articles of
association;
(iii) this Lease has been duly entered into and delivered by
Lessor, and this Lease does, and the Lease Supplement No. 1and Acceptance
Certificate when executed and delivered hereunder will, constitute legal, valid
and binding obligations of Lessor, enforceable in accordance with their
respective terms except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and, to the extent that certain remedies require or
may require enforcement in equity, by such principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
as a court having jurisdiction may impose and by laws which may affect some of
such remedies; and
(iv) Lessor has, and on the Delivery Date will have title to
the Aircraft, which to the best of Lessor's knowledge shall then be free and
clear of all liens except the Mortgage, with full power and authority to lease
the Aircraft to Lessee in accordance with the terms hereof; and
(v) Lessor (or its successors or assigns) is and covenants
that throughout the Term it will remain a "citizen of the United States" within
the meaning of 49 U.S.C. Section 40102, and the rules and regulations of the FAA
thereunder.
(b) MANUFACTURERS', VENDORS' AND SERVICE PROVIDERS'WARRANTIES.
So long as no Event of Default exists and this Lease has not been declared in
default in accordance with Section 18 hereof, Lessor agrees to authorize Lessee
to exercise for the account of Lessor such rights as Lessor may have under any
warranty, express or implied, with respect to the Aircraft made by the
Manufacturer, the Engine Manufacturer, the manufacturer of any Part or any
vendor or service provider, to the extent that the same may be assigned or
otherwise made available to Lessee; provided, however, that upon an Event of
Default and the declaration of this Lease to be in default in accordance with
Section 18 hereof, all such rights shall immediately revert to Lessor to the
exclusion of Lessee including all claims thereunder whether or not perfected.
(c) LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee hereby
makes the following representations and warranties, which representations and
warranties shall survive the execution and delivery of this Lease and the
delivery of the Aircraft:
(i) Lessee is a corporation duly organized and validly
existing in good standing under the Laws of the State of Florida and has the
corporate power and authority to carry on its business as presently conducted
and to perform its obligations under this Lease;
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(ii) this Lease has been duly authorized by all necessary
corporate action on the part of Lessee and does not require any approval of
stockholders of Lessee (or if such approval is required, such approval has been
obtained), and neither the execution and delivery hereof and thereof nor the
consummation of the transactions contemplated hereby and thereby nor compliance
by Lessee with any of the terms and provisions hereof and thereof 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 credit agreement or
instrument, 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 are bound
or affected;
(iii) Lessee has received by the Delivery Date, every consent,
approval or authorization of, and has given every notice to, each Governmental
Entity having jurisdiction with respect to the execution, delivery or
performance of this Lease (including all monetary and other obligations
hereunder) that is required for Lessee to execute and deliver this Lease, and on
or before the Delivery Date will have received such consents, approvals or
authorizations that it is required to obtain by such date, including, without
limitation, approval from every Governmental Entity necessary to allow payment
of all amounts due hereunder in Dollars, and will have given such notices in
order to perform the transactions contemplated hereby and thereby and each such
consent, approval or authorization is valid and effective and has not been
revoked;
(iv) this Lease has been duly executed and delivered by
Lessee, and the Lease does, and the Lease Supplement No. 1and Acceptance
Certificate when executed and delivered by Lessee will, constitute legal, valid
and binding obligations of Lessee, enforceable in accordance with their
respective terms, except as enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and, to the extent
that certain remedies require or may require enforcement by a court of equity,
by such principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) as a court having jurisdiction
may impose and by laws which may affect some of such remedies but which do not
make the available remedies inadequate for the substantial realization of the
benefits provided herein;
(v) there are no suits or proceedings pending or, to the
knowledge of Lessee, threatened in any court or before any regulatory
commission, board or other administrative Governmental Entity against or
affecting Lessee which will have a materially adverse effect on the current
business or financial condition of Lessee;
(vi) Lessee has filed or caused to be filed all tax returns
which are required to be filed by it, 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;
(vii) except for the placing on the Aircraft and on each
Engine of the plates containing the legends referred to in Section 6(f) hereof
and the steps referred to in
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Section 2(b)(3) of Exhibit I hereof (relating to the recordation of Lessor's
title to the Aircraft on the U.S. aircraft registry), no filing or recording of
this Lease or of any other document and no further action, are necessary or
advisable under the Laws of any Governmental Entity (including without
limitation any Governmental Entity) in order to (A) fully protect and establish
Lessor's title to, interest in and property rights with respect to the Aircraft
as against Lessee or any third party and to ensure that property rights of
Lessor therein will have priority in all respects over the claims of all
creditors of Lessee or any third party or (B) ensure the validity, effectiveness
and enforceability of this Lease;
(viii) Except for compliance with the requirements set forth in
Section 2(b)(3) and clause (xiii) of Exhibit I of the Lease (relating to
recordation of the Mortgage on the U.S. aircraft registry), and the placing on
the Aircraft and on each Engine the plates containing the legends referred to in
Section 6(b) of the lease, no further filing, recording or notarization of the
Mortgage or of any other documents, and no further action is necessary or
advisable, under the laws of any Governmental Entity in order to (a) fully
establish and protect the Lender's security interest in the Aircraft and the
Lease as against the Lessee or any third party and to ensure that the security
interest of the Lender will have priority in all respects over the claims of all
creditors of the Lessor, or (b) to ensure the validity, effectiveness and
enforceability of the Mortgage and the practical realization of the benefits and
rights intended to be afforded thereby.
(ix) Lessee is not in default in the performance of any of
its material obligations (A) for the payment of indebtedness for borrowed money
or of any interest or premium thereon or (B) for the payment of rent under any
lease or agreement to lease real, personal or mixed property;
(x) the Maintenance Program for the Aircraft will comply
with all FAA requirements on the Delivery Date;
(xi) the Lessee may make the payments of Rent where and as
provided herein, without the necessity of withholding therefrom any Tax imposed
by any Governmental Entity and neither the execution or delivery of this Lease
Agreement nor the performance thereof will subject the Lessor to any Tax imposed
by any Governmental Entity;
(xii) the choice of law to govern this Lease, as specified in
Section 20(b) hereof, is a valid choice of law and such choice will be upheld in
the courts of the United States and the State of Florida;
(xiii) the submission of Lessee to jurisdiction of the courts
as provided in Section 20(b) hereof is legal, valid and binding on Lessee and
any judgement by such courts relating the subject matter hereof will be
recognized and enforced by the courts in the United States and the State of
Florida; and
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(xiv) Lessee is subject to private commercial law and suit
under the Laws of the Country of Organization and the Country of Registration;
Lessee is not entitled to sovereign immunity under the Laws of the Country of
Organization, the Country of Registration or any other jurisdiction, and neither
Lessee nor its properties or assets have the right of immunity from suit or
execution on the grounds of sovereignty in the Country of Organization, the
Country of Registration or any other jurisdiction; to the extent that Lessee, in
any jurisdiction in which proceedings may at any time be taken for the
determination of any question arising under or for the enforcement of this Lease
(including any interlocutory proceedings or the execution of any judgment or
award arising therefrom), may be entitled to claim or otherwise be accorded for
itself or its property, assets or revenues immunity from suit or attachment
(whether in aid of execution, before judgment or otherwise) or other legal
process, and to the extent that in any such jurisdiction, there may be
attributed to Lessee, or its property, assets or revenues such immunity (whether
or not claimed), Lessee hereby irrevocably agrees not to claim and waives such
immunity to the fullest extent permitted by the law of such jurisdiction;
(xv) Lessee is a "citizen of the United States" within
the meaning of Section 40102 of title 49 of the United States Code;
(xvi) Lessee holds an air carrier operating certificate issued
by the Secretary of Transportation pursuant to Chapter 447 of Title 49 of the
United States Code for aircraft capable of carrying 10 or more individuals;
(xvii) except for the filing for recordation of this Lease and
any Lease Supplement with the FAA and the filing of any UCC financing statements
required, and the placing on the Aircraft and on each Engine of the plates
containing the legends referred to in Section 6(f) hereof, no further filing or
recording other documents and no further filing of this Lease or of the
Mortgage, are necessary or desirable in order to (A) fully protect and establish
Lessor's interest in and property rights with respect to the Aircraft as against
Lessee or any third party and to ensure that the property rights of Lessor
therein will have priority in all respects over the claims of all creditors of
Lessor, (B) ensure the validity effectiveness and enforceability of this Lease,
(C) fully establish and protect the Lender's security interest in the Aircraft
and the Lease as against the Lessee or any third party and to ensure that the
security interest of the Lender will have priority in all respects over the
claims of all creditors of the Lessor, or (D) to ensure the validity,
effectiveness and enforceability of the Mortgage and the practical realization
of the benefits and rights intended to be afforded thereby.
Section 6. POSSESSION AND USE.
(a) POSSESSION.
(i) SUBLEASE, ASSIGNMENT AND TRANSFER. Lessee will not,
without the prior written consent of Lessor, assign, pledge or otherwise
encumber this Lease or sublet or transfer possession or operational control of
the Aircraft, Airframe, any Engine or any
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Part leased hereunder or install any Engine or any Part leased hereunder or
permit any Engine to be installed on any airframe other than the Airframe,
provided that so long as no Default or Event of Default shall have occurred and
be continuing and this Lease Agreement shall not have been declared in default
in accordance with Section 18 hereof, and as long as the action to be taken
shall not affect the registration of the Aircraft, and so long as all necessary
approvals of each Governmental Entity having jurisdiction over the Aircraft,
Lessee, any Permitted Sublessee or other relevant person have been obtained,
then Lessee may:
(A) Without the prior written consent of Lessor,
exchange any Engine with another engine on an aircraft operated by Lessee, or
any Permitted Sublessee under a Sublease, pursuant to a Related Lease;
(B) Without the prior written consent of Lessor,
deliver possession of the Aircraft, the Airframe or any Engine or any Part
thereof to a Maintenance Contractor for testing or other similar purposes or to
any organization for service, repair, maintenance, testing or overhaul work on
the Aircraft, Airframe or Engine or any Part thereof or for alterations or
modifications in or additions to the Aircraft, Airframe or Engine to the extent
required or permitted by the terms hereof;
(C) With the prior written consent of Lessor,
sublease the Aircraft or the Airframe to any Permitted Sublessee on the terms
and conditions satisfactory to Lessor in its absolute discretion, including
those set forth in Section 6(a)(ii);
(D) Without the prior written consent of Lessor,
enter into a charter or wet lease or other similar voyage or short-term
arrangement under which no person other than Lessee is granted any legally
enforceable possessory interest in the Airframe or any Engine and Lessee retains
operational control of the Airframe and any Engines installed thereon at all
times.
(ii) CERTAIN LIMITATIONS ON TRANSFERS. With respect to
any transfer pursuant to this Section 6(a):
(A) The rights of any transferee pursuant to a
transfer permitted by this Section 6(a) shall be subject and subordinate to all
the terms of this Lease, including, without limitation, Sections 17 and 18
hereof and such transferee shall so acknowledge in writing for the benefit
of Lessor;
(B) Lessee shall remain primarily liable hereunder
for the performance of all of the terms of this Lease to the same extent as if
such transfer had not occurred;
(C) No Sublease, charter, wet lease or other similar
arrangement or other transfer pursuant to the terms of this Section 6(a) shall
in any way discharge or diminish any of Lessee's obligations to Lessor
hereunder;
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(D) The term of any transfer or any Sublease,
charter, wet lease or other similar arrangement or other transfer shall not
extend beyond the then existing Term;
(E) Lessee shall assign its rights under any Sublease
to Lessor pursuant to an Assignment;
(F) Any Permitted Sublessee shall have: (i) made
representations comparable to those of the Lessee set forth in Section 5(c)
hereof provided that references therein to Country of Organization shall refer
to the country in which the Permitted Sublessee is organized, the Country of
Registration shall refer to the Country in which the Permitted Sublessee's use
of the Aircraft occurs, and references to the Lease shall refer to such
Sublease, and (ii) agreed to operate the Aircraft in accordance with the terms
hereof and in accordance with all insurance policies relating to the Aircraft,
and the terms of such Sublease (and any agreements entered into in connection
therewith);
(G) Any Sublease shall be substantially identical to
this Agreement, mutatis mutandis, and shall be subject to the prior written
approval of Lessor, acting in its absolute discretion;
(H) Lessee shall use reasonable efforts to provide
Lessor with as much prior written notice as is reasonably practicable of
Lessee's intent to enter into any Sublease; and
(I) With respect to any Sublease, Lessor shall have
received, prior to the commencement of such Sublease, an opinion of independent
counsel (which counsel and opinion shall be satisfactory to Lessor) qualified to
practice law in the jurisdiction of the Permitted Sublessee's domicile in form,
scope and substance satisfactory to Lessor concluding, among other things, that
the terms (including, without limitation, all Lessee representations,
warranties, covenants, indemnitees and waivers, and the provisions relating to
governing law, service of process and jurisdictional submission provisions
thereof) of such Sublease are legal, valid, binding and enforceable in such
jurisdiction and addressing such other matters as Lessor may reasonably request.
Except as provided in this Section 6(a), Lessee shall
not assign any interest in this Lease or any of its rights hereunder or in any
property leased hereunder, and any attempt to do so shall be void AB INITIO.
(b) RECIPROCAL RECOGNITION OF RIGHTS. In the event Lessee
shall have received from the lessor or secured party of any airframe leased to
Lessee or owned by Lessee subject to a conditional sale or other security
agreement, a written agreement (which agreement may be contained in the lease,
conditional sale agreement or security agreement relating to such airframe), and
such lease or conditional sale or other security agreement covering such
airframe also covers an engine or engines owned by the lessor under such lease
or subject to a security interest in favor of the secured party under such
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conditional sale or other security agreement, Lessor hereby agrees for the
benefit of such lessor or secured party that Lessor will not acquire or claim,
as against such lessor or secured party, any right, title or interest in any
such engine as the result of such engine being installed on the Airframe at any
time while such engine is subject to such lease or conditional sale or other
security agreement and owned by such lessor or subject to a security interest in
favor of such secured party. Lessor also hereby agrees for the benefit of the
mortgagee under any mortgage relating to installation of an Engine on an
airframe leased to Lessee, that Lessor will not acquire or claim, as against
such mortgagee, any right, title or interest in any engine subject to the lien
of such mortgage as the result of such engine being installed on the Airframe at
any time while such engine is subject to the lien of such mortgage.
(c) LAWFUL INSURED OPERATIONS. Lessee will, or will cause a
Permitted Sublessee to, operate and use the Aircraft only in lawful commercial
passenger and cargo operations by crews duly certified by the FAA (including,
without limitation, a captain certified by the FAA). Lessee will not maintain,
use or operate the Aircraft, or permit the Aircraft to be maintained, used or
operated in violation of any applicable Law of any Governmental Entity, or in
violation of any airworthiness certificate, or license or registration issued by
any such authority, or contrary to the Manufacturer's or Engine Manufacturer's
operating manuals or instructions or the Maintenance Program for the Aircraft or
the Engines. Lessee agrees not to operate the Aircraft, or permit the Aircraft
to be operated during the Term, unless (i) the Aircraft is covered by insurance
as required by the provisions hereof, and (ii) such operation is in compliance
with the terms of such insurance. Lessee also agrees not to operate or locate
the Aircraft or suffer or permit the Aircraft to be operated or located during
the Term in any area excluded from coverage by any insurance policy issued
pursuant to the requirements of this Lease, and Lessee solely shall bear any
costs and expenses that may arise from any loss or damage (with respect to both
the Aircraft and any affected third parties) that may occur during or in
connection with operations that are excluded from coverage by the insurance
policies issued pursuant to the requirements of this Lease.
(d) MAINTENANCE. Lessee, at its own cost and expense (subject
to the provisions of Section 4 hereof), shall: (i) perform or cause the
Maintenance Contractor to perform all mandatory service, inspections, repair,
maintenance, overhaul and testing, (A) as may be required under FAA rules and
regulations applicable to the Aircraft and in compliance with the Maintenance
Program, (B) in the same manner and with the same care as shall be the case with
similar aircraft and engines of the same make and model as the Aircraft and
Engines owned by or operated by or on behalf of Lessee or a Permitted Sublessee
without discrimination, but with no less care as may be applied to any other
aircraft in Lessee's or Permitted Sublessee's operating fleet, and (C) so as to
keep the Aircraft in as good operating condition and appearance as when
delivered to Lessee subject to normal wear and tear associated with the
operation and maintenance thereof in accordance herewith; (ii) keep the Aircraft
in such condition as is necessary to enable the airworthiness certification of
the Aircraft to be maintained in good standing at all times under FAA
regulations and any other applicable Law; (iii) maintain on a current basis
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throughout the term of this Lease and in the English language accurate,
complete, and current, all Aircraft Documents, which term shall include, without
limitation, those listed in Exhibit B, and all current and historical
maintenance and overhaul records (including, without limitation, all documents
required by the FAA or otherwise to trace all time or cycle controlled Parts to
most recent overhaul or fabrication), all current and historical modification,
addition or alteration records, all log books, all manuals and revisions and
updates thereto, all certification and inspection records (including without
limitation all certifications and forms required by the FAA and otherwise and
all reports, x-rays, video tapes, print-outs and other NDT documents in Lessee's
possession or which Lessee is entitled to possess), and all other materials
required by, and in a manner acceptable to, the FAA any other Governmental
Entity, the Maintenance Program and this Lease; and (iv) permit Lessor or any
authorized representative of Lessor to examine such Aircraft Documents at any
reasonable time.
(e) REGISTRATION. During the Term, Lessee shall at its expense
keep the Aircraft at all times registered under the applicable Laws of the
United States in the name of the Lessor, as owner (and the filings in respect
thereof shall clearly indicate that Lessee has operational responsibility for
the Aircraft and shall include a copy of the Mortgage and this Agreement
approved by Lessor, properly recorded in such registry.)
(f) INSIGNIA. Upon delivery of the Aircraft, Lessee agrees to
place the Lease Identification as set forth in Exhibit C in the cockpit in a
prominent location and to place the Lease Identification on each Engine. Lessee
agrees to make such changes to the Lease Identification as Lessor may reasonably
request from time to time.
(g) COSTS OF AIRWORTHINESS DIRECTIVES
If the total of the reasonable and actual out-of-pocket cost
(without mark-up in direct cost of labor or material) of any single
Airworthiness Directive which is issued during the Lease Term and requires
terminating action either (i) during the Lease Term or (ii) during the one-year
period immediately following expiration of the Lease Term (such cost, the "AD
Cost") exceeds the AD Threshold, the Lessee shall furnish Lessor with an
estimate of the work and such costs relating thereto to comply therewith, and
Lessor and Lessee shall share such costs in the following manner: Lessee shall
bear and pay all costs up to and including the AD Threshold . Lessor shall bear
and pay the amount of such AD Cost greater than the AD Threshold but less than
or equal to the Excess AD Costs Threshold. All costs greater than the Excess AD
Costs Threshold (the "Excess AD Costs") shall be shared by Lessor and Lessee.
Lessee's share of the Excess AD Costs shall be calculated as follows:
Lessee's Share = Excess AD Costs X Remaining Lease Period
----------------------
Useful Life of Modification
"Remaining Lease Period" shall mean the number of days
remaining in the Base Period plus any exercised Extension Option, plus the
applicable Expected Extension
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Days, after the date of the completion of work to comply with such airworthiness
directive.
"Expected Extension Days" shall mean the number of days by
which the Lease may be extended by using the unexercised Extension Options,
multiplied by a probability factor of 0.5.
"Useful Life of Modification" shall mean the useful life of
the modification, expressed in days, as specified in the airworthiness
directive, or, if no such useful life is specified, then Lessor shall make a
good faith determination of the useful life of the modification.
Lessee shall bear and pay the aggregate AD Cost described
above, and within 45 days following Lessor's receipt from Lessee of appropriate
invoices for the work relating thereto, Lessor shall reimburse Lessee for
Lessor's share of the AD Cost. Lessee shall give Lessor prior written notice of
any such Airworthiness Directive for which the cost is anticipated to exceed the
AD Threshold before commencing any alteration, modification or addition of or to
the Aircraft with respect thereto.
(h) REINSTALLATION OF ENGINES. Any Engine removed from the
Aircraft for scheduled or unscheduled maintenance must have such maintenance
completed and be reinstalled on an aircraft within thirty (30) days of removal,
but in any event prior to the end of the Term or any Renewal Term. If required
by the Manufacturer's maintenance manual, Lessee shall place the Engine in
storage as recommended by the Engine Manufacturer, and shall promptly advise
Lessor in writing as to the place of such storage and any change therein and
shall clearly identify such Engine as an Engine belonging to Lessor in its
storage records and conspicuously on the container or other space in which the
Engine is stored.
(i) REINSTALLATION OF PARTS. If any Part is removed from the
Aircraft, a replacement Part permitted under Section 9 hereof shall be promptly
reinstalled in accordance with Lessee's Maintenance Program. Lessee shall use
its best reasonable efforts to reinstall such Part or a replacement part prior
to the earlier of thirty (30) days after the removal thereof, but in any event
before the expiration of the Term, unless Section 9 hereof clearly permits such
Part to be permanently removed.
Section 7. INFORMATION.
From and after the Delivery Date, Lessee agrees to furnish to
Lessor or Lessor's Aircraft Manager the following:
(a) as soon as available but in any event within forty-five
(45) days following the end of each of the first three fiscal quarter of
Lessee's fiscal year, an unaudited consolidated balance sheet of Lessee, profit
and loss statement, a statement of
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stockholder's equity of Lessee prepared as of the close of each quarterly
period, together with a certificate of the chief financial officer of Lessee,
stating that such reports fairly present the financial position of Lessee in
accordance with generally accepted international accounting principles;
(b) as soon as available but in any event within ninety (90)
days after the close of each fiscal year of Lessee, a balance sheet, profit and
loss statement, and statement of stockholders' equity of lessee (prepared on a
consolidated basis), as of the close of such fiscal year and audited by an
Approved Auditor;
(c) within one hundred twenty (120) days after the close of
each fiscal year of Lessee, a certificate signed by a duly authorized officer of
Lessee, stating (i) that such officer is familiar with the relevant terms of
this Lease and has made a review of Lessee's compliance herewith during the
preceding fiscal year, and (ii) that no event has occurred which constitutes a
Default, or, if such an event has occurred, the nature thereof and action Lessee
has taken or is taking to cure the same;
(d) no later than the tenth (10th) Business Day after each
Rent Payment Date or Renewal Rent Payment Date during the Term, Lessee shall
provide Lessor's Aircraft Manager with a report with respect to the Aircraft
which shall specify for the immediately preceding Maintenance Reserve
Calculation Period: (i) total Flight Hours, Block Hours, days and total cycles
of the Airframe and each Engine; (ii) any scheduled maintenance above a "C"
check performed during such period; (iii) any significant modifications
performed to the Aircraft during such period; (iv) any accident or incident
information relating to the Aircraft; and (v) the status of the accomplishment
of airworthiness directives and manufacturer's service bulletins, including
method of compliance (e.g., terminating action or surveillance);
(d) notice in writing of (i) any proceeding by or against
Lessee, the adverse determination of which would materially adversely affect
Lessee's financial condition, affairs or operations and (ii) any other matter
which materially adversely affects Lessee's financial condition, affairs or
operations or Lessee's ability to perform under this Lease;
(e) from time to time such other information as Lessor or
Lessor's Aircraft Manager may, at its sole discretion, reasonably request,
including, without limitation, other financial statements or financial
information, and information concerning the location, condition, use and
operation of the Aircraft; and
(f) Within 72 hours after the occurrence thereof, notice of
any notices received from the FAA indicating an intent to commence an
investigation of the Lessee or its operations or to impose any disciplinary
action on the Lessee, either of which could, if carried out, have an immediate
materially adverse effect on Lessee's airline operations or the Lessee's ability
to perform its material obligations under this Lease; and
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(g) at least thirty (30) days prior to any scheduled
maintenance on the Aircraft, notice of such scheduled maintenance and the
locations thereof and a reasonable opportunity to have one or more technical
representatives of the Lessor present during the performance thereof with full
access to all related documentation pertaining to such work, including but not
limited to work orders, work cards, parts invoices, labor charges, and reports
of inspection.
At all reasonable times during the Term, which shall include
normal business hours in the location where the Aircraft is physically located
and in the location where the Aircraft Documents are kept, Lessee shall (and
shall cause any Permitted Sublessee to) allow Lessor and/or its authorized
representatives, at their own expense and risk, to conduct an on-board or visual
walk-around inspection of the Aircraft and any Engine (including a visual
walk-around inspection of the Aircraft during any "C" check or other heavy
maintenance) and to inspect the books and records of Lessee or such Permitted
Sublessee relating thereto including all records and logs maintained with
respect to the Aircraft; provided that (i) any such inspection shall be subject
to the safety, security and workplace rules applicable at the location where
such inspection is conducted and any applicable governmental rules or
regulations, and (ii) in the case of an inspection during a maintenance visit,
such inspection shall not in any respect interfere with the normal conduct of
such maintenance visit or extend the time required for such maintenance visit
or, in any event, at any time interfere with the use or operation of the
Airframe or any Engine or with the normal conduct of Lessee's or a Permitted
Sublessee's business. Lessor shall have no duty to make any such inspection and
shall not incur any liability or obligation by reason of not making any such
inspection. Lessor's (or Lessor's Aircraft Manager's) failure to object to any
condition or procedure observed or observable in the course of an inspection
hereunder shall not be deemed to waive or modify any of the terms of this Lease
with respect to such condition or procedure.
Section 8. COVENANTS OF LESSEE.
Lessee covenants and agrees that:
(a) MAINTENANCE OF CORPORATE EXISTENCE. Except as provided in
Section 8(d) below, until the Return Occasion, Lessee will preserve and maintain
its corporate existence and such of its rights, privileges, licenses and
franchises in any jurisdiction where failure to obtain such licensing or
qualification would have a material adverse effect upon Lessee or its ability to
perform its obligations hereunder.
(b) MAINTENANCE OF STATUS. Lessee is, and shall remain so long
as it shall be Lessee under this Lease, duly qualified to carry on its business
as it is now conducted and operate the Aircraft under applicable Law in
accordance with the Terms of this Agreement.
(c) PAYMENT OF TAXES. Lessee will pay or cause to be paid all
Taxes and governmental charges or levies imposed upon it, or upon its income or
profits, or upon any property belonging to it, prior to the date on which
penalties attach thereto and
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prior to the date on which any lawful claim, if not paid, would become a Lien
upon any of the material property of Lessee.
(d) CONSOLIDATION, MERGER, OWNERSHIP, ETC. Without the prior
written consent of Lessor, Lessee shall not consolidate with, merge with or
merge into any other corporation or convey, transfer or lease substantially all
of its assets as an entirety to any other Person, unless, after giving effect to
the transaction, the surviving entity has at least the same net worth and gross
assets as Lessee prior to such transaction, and each of the representations and
warranties of the Lessee set forth herein would be true and correct if made
immediately thereafter.
(e) PLACE OF BUSINESS. Lessee will notify Lessor in writing no
less than four (4) weeks in advance of any change of its principal place of
business or chief executive office.
(f) This Section Reserved.
(g) GOVERNMENTAL CONSENTS. Lessee undertakes to maintain in
full force and effect all governmental consents, licenses, authorizations,
approvals, declarations, filings and registrations obtained or effected in
connection with this Lease and every document or instrument contemplated hereby
and to take all such additional action as may be proper or advisable in
connection herewith or therewith. Lessee further undertakes to obtain or effect
any new or additional governmental consents, licenses, authorizations,
approvals, declarations, filings or registrations as may become necessary for
the performance of any of the terms and conditions of this Lease or any other
document or instrument contemplated hereby.
(h) RESTRICTIONS ON OPERATION. Lessee shall not operate or
locate the Aircraft in any country that is the subject of sanctions under the
U.S. International Economic Emergency Powers Act or U.N. Security Council
directives (presently Cuba, Iran, Iraq, Libya, North Korea and the Federal
Republic of Yugoslavia (Serbia and Montenegro)). It also agrees not to operate
or locate the Aircraft in any country restricted under the U.S. Trading with the
Enemy Act and the U.S. Export Administration Act except as may be permitted by
operating in accordance with the conditions specified by the U.S. Export
Administration Regulations, General License GATS (15 CFR Part 771.19) (presently
Cuba, North Korea and Libya).
(i) Lessee shall remain a "citizen" of the United States"
within the meaning of Section 40102 of Title 49 of the United States Code.
(j) Lessee shall continue to hold an air carrier operating
certificate issued by the Secretary of Transportation pursuant to Chapter 447 of
Title 49 of the United States Code for aircraft capable of carrying 10 or more
individuals.
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Section 9. REPLACEMENT OF PARTS: ALTERATIONS, MODIFICATIONS
AND ADDITIONS.
(a) REPLACEMENT OF PARTS. Lessee, at its own cost and expense,
shall promptly replace all Parts which, from time to time, may become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing during
the Term, Lessee may at its own cost and expense remove or cause to be removed
any Parts, whether or not worn out, destroyed, damaged beyond repair or
permanently rendered unfit for use; PROVIDED that Lessee shall replace at its
own cost and expense such Parts as promptly as practicable and available. All
replacement Parts shall be free and clear of all Liens, other than Liens
permitted by clauses (a) and (b) of Section 14 hereof; shall be in at least the
same modification status and service bulletin accomplishment status; shall be
fully interchangeable as to form, fit and function; shall have been overhauled,
repaired and inspected by an agency acceptable to the Manufacturer, the Engine
Manufacturer and the FAA; and shall be in as good operating condition as, and
have a utility at least equal to and a value and remaining warranty reasonably
approximating the Parts replaced (assuming such replaced parts were in the
condition and repair in which they were required to be maintained by the terms
hereof) and all historical records (dating back to the time of the manufacture
of such Part) relating to such Parts shall be maintained by Lessee.
Notwithstanding the foregoing provision, the right of Lessee to utilize an
agency acceptable to the Manufacturer, the Engine Manufacturer and the FAA shall
not be construed as modifying Lessee's obligations under Section 16 and Exhibit
E with respect to return of the Aircraft in accordance with the standards and
requirements of the FAA as therein provided.
All Parts owned by Lessor which are at any time removed from
the Aircraft shall remain the property of Lessor and subject to this Lease, no
matter where located, until such time as such Parts shall be replaced by Parts
which have been incorporated or installed in or attached to the Aircraft and
which meet the requirements for replacement Parts specified above. Immediately
upon any replacement Part becoming incorporated or installed in or attached to
the Aircraft as above provided, (i) title to the removed part shall thereupon
vest in Lessee, free and clear of all rights of Lessor, (ii) title to such
replacement part shall thereupon vest solely in Lessor and (iii) such
replacement part shall become subject to this Lease and be deemed a Part for all
purposes hereof to the same extent as the Part which it has replaced.
Any Part removed from the Airframe or from any Engine as
provided in this Section 9(a) may be subjected by Lessee or any Permitted
Sublessee to a normal pooling arrangement customary in the airline industry
entered into in the normal course of Lessee's business with a certificated air
carrier approved by Lessor, copies of the documentation for which have been
supplied to, and been approved by Lessor, such approval not to be unreasonably
withheld, provided the part replacing such removed Part shall be incorporated in
or installed on or attached to such Airframe or Engine in accordance with
Sections 9(a) and 9(b) as promptly as practicable after the removal of such
removed Part.
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(b) ALTERATIONS, MODIFICATIONS AND ADDITIONS. Except as
provided elsewhere in this Agreement, Lessee, at its own expense, shall make
such alterations, modifications and additions to the Aircraft as may be required
from time to time to meet the applicable standards of the FAA or to comply with
any Law, rule, directive, bulletin, regulation or order of any Governmental
Entity or of the manufacturer of the Aircraft, Engines or Parts. Lessee, at its
own expense, may from time to time make alterations and modifications in and
additions to the Aircraft, provided no such alteration, modification or addition
diminishes, in Lessor's sole opinion, the remaining warranty, value or utility,
or impairs the condition or airworthiness, of the Aircraft. Title to all Parts
incorporated or installed in or attached or added to the Aircraft as the result
of such alteration, modification or addition shall vest immediately in Lessor
and become subject to this Lease, without the necessity for any further act of
transfer, document or notice. In no event shall Lessor bear any liability or
cost for any alteration, modification or addition to, or for any grounding or
suspension of certification of, the Aircraft, or for any loss of revenue arising
therefrom and title such replacement parts shall vest, without further act, in
the Lessor free and clear of all rights of Lessee or any party claiming through
Lessee. Lessee shall make no alterations, modifications or additions to the
Aircraft that would adversely affect the marketability of the Aircraft. Lessee
(or Permitted Sublessee) may, at its own cost and expense at any time during the
Term, remove or cause to be removed any such Part from the Airframe or an Engine
if (i) such Part is in addition to, and not in replacement of or in substitution
for, any Part originally incorporated or installed in or attached to such
Airframe or Engine at the time of delivery thereof hereunder or any Part in
replacement of, or in substitution for, any such original Part, and (ii) such
Part can be removed from such Airframe or Engine without diminishing or
impairing the value, condition, utility or airworthiness which such Airframe or
Engine would have had at the time of removal had such alteration, modification
or addition not been effected by Lessee (or Permitted Sublessee) assuming the
Aircraft was otherwise maintained in the condition required by this Lease. Upon
the removal of any such Part as above provided, title thereto shall vest,
without further act, in Lessee or, if such part has been removed by a Permitted
Sublessee, in such Permitted Sublessee, free and clear of all rights of Lessor
and such Part shall no longer be deemed a Part hereunder. Any Part not removed
as above provided prior to the return of the Aircraft to Lessor hereunder shall
remain the property of Lessor.
Section 10. GENERAL TAX INDEMNITY. (a) REMITTANCE WITHHOLDING.
Lessee agrees for the benefit of each Indemnitee that all payments by Lessee in
connection with the transactions contemplated by this Lease ("Lessee Payments")
shall be free of all withholdings or deductions of any nature whatsoever
(including, without limitation, Taxes). In the event any such withholding or
deduction is or shall be required, including, without limitation, any
withholding required of any Indemnitee in remitting any such Lessee Payment to
the Beneficiary ("Remittance Withholding"), Lessee shall pay such Lessee
Payments together with such additional amount as is required so that each such
Lessee Payment, and remittance thereof, as the case may be, shall be, under any
circumstances and in any event, after any such withholding or deduction, in the
amount as set forth or referred to in this Lease.
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(b) INDEMNITY. Subject only to the limitations described in
sub-paragraph (c) hereof, Lessee agrees for the benefit of each Indemnitee to
pay and, on written demand, to indemnify and hold each Indemnitee harmless from
all license and registration fees, duties, imposts, deductions, charges and,
without limitation, all Taxes, howsoever levied or imposed, whether levied or
imposed upon or asserted against any Indemnitee, Lessee, the Lease, the
Aircraft, or any part thereof or interest therein, or otherwise by any federal,
state or local government, instrumentality or other taxing authority in the
United States any other country or of a territory or possession or by any
international taxing authority upon or with respect to, or arising out of or
connected with, or based upon or measured:
(i) by the Aircraft, or any part thereof, or interest
therein;
(ii) by the exportation, importation, ownership, delivery,
non-delivery, warehousing, removal, leasing, exchange, acceptance, assigning,
possession, repossession, condition, recording, use, operation, settlement of
any insurance or warranty claim, sale, mortgaging, pledging, financing,
subleasing, rental, retirement, chartering, imposition of any Lien, abandonment,
registration, preparation, installation, modification, repair, maintenance,
replacement, transportation, warehousing, storage, transfer of title, return or
other disposition of the Aircraft or any part thereof or interest therein;
(iii) by the rentals, receipts or earnings arising from any
one or more of the items or acts described in clause (i) or (ii) above
(including, without limitation, the Rent);
(iv) upon or with respect to this Lease, or any other
document pertaining to or in connection with the transactions contemplated by
this Lease; or
(v) otherwise with respect to or in connection with the
transactions contemplated by the Lease; and any out-of-pocket costs and expenses
fairly attributable to any of the foregoing incurred by any Indemnitee.
(c) EXCLUSION. Except as provided in subsection (d) below,
there shall be excluded from the indemnity provided in Section 10(b) (i) taxes
to the extent imposed upon or measured by the net income, profit, capital gain
or net worth of any Indemnitee which are imposed by the United States federal
government and any other taxing authority in any jurisdiction in which the
Lessor is subject to tax as a resident as a consequence of contacts with such
jurisdiction unrelated to the transactions contemplated hereby (ii) any claims
to the extent such claims result from the willful misconduct or gross negligence
of any Indemnitee; (iii) any claim arising out of a period before delivery to
Lessee.
(d) AFTER TAX BASIS OF PAYMENTS. Notwithstanding anything in
this Section 10 to the contrary (including, without limitation, of Section 10(c)
above), Lessee further agrees that, with respect to any payment or indemnity
hereunder, such payment or indemnity the Lessee is required to pay or indemnify
against shall include any amount
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necessary to hold the recipient of the payment or indemnity harmless on an
after-tax basis from all Taxes (including Remittance Withholding, if any)
required to be paid (or in the case of Remittance Withholding, withheld) by such
recipient with respect to such payment or indemnity, so that such recipient
shall receive an amount which, net of any Taxes (including Remittance
Withholding, if any) required to be paid (or in the case of Remittance
Withholding, withheld) by such recipient in respect of such amount, shall be
equal to the amount of payment or indemnity otherwise required hereunder. Any
subsequent reduction in such recipient's deductions, credits, or other
allowances in respect of the payment or accrual of the amount indemnified
against shall be treated as a Tax that is indemnifiable under this Section
without regard to the exclusions set forth in Section 10(c) above.
(e) PAYMENTS. Lessee shall pay all Taxes for which it assumes
liability hereunder when such Taxes are due. If a claim is made against any
Indemnitee for any such Taxes, such Indemnitee shall promptly notify Lessee,
provided, however, that failure to provide such notice shall not affect Lessee's
obligations hereunder to any Indemnitee. Any amount payable as an indemnity to
any Indemnitee or any amount payable to Lessee pursuant to this Section 10 is to
be paid to such party directly, in immediately available funds, by bank wire
transfer at such bank or to such account as specified by the payee in written
directions to the payor, or, if such directions shall not have been given, by
check of the payor payable to the order of the payee and mailed to the payee by
certified mail, postage prepaid at its address as set forth in this Lease,
within ten (10) days after receipt of a written demand therefor from such
Indemnitee or Lessee, as the case may be.
In the event an Indemnitee makes a payment with respect to any
such Taxes (other than with funds advanced to such Indemnitee on an
interest-free basis by Lessee pursuant to this Section 10), Lessee shall pay to
the Indemnitee interest on the amount of such payment at the Interest Rate set
forth in Exhibit C from the date of such Indemnitee's payment to the relevant
taxing authority to the date of such payment by Lessee to the Indemnitee
hereunder.
(f) CONTESTS. So long as (a) no Default or Event of Default is
continuing and this Lease has not been declared in default, (b) a contest of
Taxes does not involve any danger of the sale, forfeiture or loss of the
Aircraft or any interest therein, (c) Lessee has provided the relevant
Indemnitee with an opinion of independent tax counsel acceptable to such
Indemnitee that a meritorious basis exists for contesting such claim, (d) Lessee
has made adequate reserves for such Taxes, then such Indemnitee at Lessee's
written request will at Lessee's sole cost and expense, take such actions as
Lessee shall reasonably request to contest (or, if permitted by Law, to permit
Lessee to contest in the name of such Indemnitee) the validity, applicability or
amount of such Taxes. If such contest is to be initiated by the payment of, and
the claiming of a refund for, any Taxes, Lessee shall advance to the relevant
Indemnitee sufficient funds (on an interest-free basis) to make such payments
and shall indemnify such Indemnitee for any tax consequences resulting from such
advance of funds. Although the relevant Indemnitee may consult in good faith
with Lessee concerning the conduct of any contest, such Indemnitee shall
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control the conduct of all proceedings relating to any such contest which is
brought by or on behalf of such Indemnitee. Any contest initiated hereunder may
be settled or discontinued at any time provided that the relevant Indemnitee
shall have waived any right to indemnification for the Taxes being contested.
(g) REPORTS. In case any report or return is required to be
made with respect to any Taxes which are an obligation of Lessee or for which an
indemnification obligation may arise under this Section 10, Lessee will either
make such report or return in such manner as will show the ownership of the
Aircraft and the Engines in Lessor and send a copy of such report or return to
Lessor or will notify Lessor of such requirement and, if lawfully able to do so,
will make such report or return in such manner as shall be reasonably
satisfactory to Lessor (and Lessee shall hold each Indemnitee harmless from and
against any liabilities, obligations, losses, damages, penalties, claims,
actions, suits and reasonable costs arising out of any insufficiency or
inaccuracy in any such return, statement, report or information). Lessor shall
take such actions as Lessee shall reasonably request and at Lessee's sole cost
and expense, to cooperate with the filings contemplated by this Section 10(g).
As soon as practicable after the beginning of each calendar year (but in no
event later than February 28 of such year), Lessee shall provide Lessor with any
information that Lessor shall reasonably request in writing (by January 31 of
such year) and Lessee can reasonably compile to enable Lessor to allocate
accurately for foreign, state and local tax purposes its rental income for the
preceding calendar year. Lessee shall hold Lessor harmless from and against any
liabilities, obligations, losses, damages, penalties, claims, actions, suits and
costs arising out of any insufficiency or inaccuracy in any information supplied
by Lessee under this Section 10(f). Lessee shall make available to Lessor such
other information and records as are maintained by Lessee regarding the use of
the Aircraft. If, as a result of an audit or otherwise, Lessor reasonably
requests additional information, Lessee shall make available such other
information and records as it maintains in the ordinary course of business.
(h) REFERENCES TO AMOUNTS PAYABLE BY LESSEE. Each amount
stated as payable by Lessee under this Lease is exclusive of Taxes (if any) and
is accordingly to be construed as a reference to that amount plus any Taxes in
respect of it.
(i) SURVIVAL. All of the obligations of Lessee under this
Section 10 shall survive the assignment, expiration or other termination of this
Lease. Such obligations are expressly undertaken by Lessee for the benefit of,
and shall be enforceable by, Lessor and each other Indemnitee. The obligations
of Lessee in respect of all such indemnities, obligations, adjustments and
payments shall be enforceable by, any Indemnitee, without declaring this Lease
to be in default or taking other action thereunder.
Section 11. CASUALTY OCCURRENCES.
(a) CASUALTY OCCURRENCE WITH RESPECT TO THE AIRFRAME. Within
two (2) days after a Casualty Occurrence during the Term with respect to the
Airframe and any Engine then installed thereon, Lessee shall give Lessor and
Lessor's Aircraft Manager
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written notice of such occurrence. On or before the date which is ninety (90)
days after the date of the Casualty Occurrence, but in no event later than two
(2) Business Days after receipt of insurance proceeds in respect of such
Casualty Occurrence, Lessee shall pay to Lessor in immediately available funds
the sum of (i) the Casualty Value of the Aircraft plus (ii) the amount of Rent
(other than Maintenance Reserve Payments), if any, accrued up to the date of
payment of such Casualty Value (on the basis of actual days elapsed and a
360-day year) for each day during the period commencing with, and including, the
last preceding Rent Payment Date and extending to, but excluding, the date of
payment of such Casualty Value. Upon such payment (A) the obligation of Lessee
to make further payments of Rent (other than Supplemental Rent) hereunder shall
terminate, (B) this Lease shall terminate with respect to the Aircraft and (C)
Lessor will transfer to Lessee, without recourse or warranty, all of Lessor's
right, title and interest, if any, in and to the Airframe and Engines (if any)
suffering the Casualty Occurrence, as well as all of Lessor's right, title and
interest in and to any Engine constituting part of the Aircraft but not
installed thereon at the time of the Casualty Occurrence; provided, however,
that there shall be excluded from such assignment any and all claims against any
Persons which arose prior to the date of such assignment, including without
limitation any and all claims against any Persons who may have been responsible,
in whole or in part, for the events giving rise to such Casualty Occurrence, but
such exclusion shall be limited to the portion of such claims which exceeds the
amounts paid to Lessor in respect of such Casualty Occurrence by Lessee or the
insurers under any policy of insurance maintained by Lessee pursuant to Section
12 hereof.
(b) CASUALTY OCCURRENCE WITH RESPECT TO AN ENGINE. Upon a
Casualty Occurrence with respect to an Engine under circumstances in which there
has not occurred a Casualty Occurrence with respect to the Airframe, Lessee
shall forthwith (and in any event within two (2) days after such Casualty
Occurrence) give Lessor written notice thereof and shall, within forty-five (45)
days after such occurrence, convey to Lessor, as replacement for the Engine
suffering a Casualty Occurrence, title to a Replacement Engine. Each Replacement
Engine shall be free of all Liens (except those Liens which are permitted by
paragraphs (a) and (b) of Section 14 hereof) and shall be in as good an
operating condition and shall have a value and utility at least equal to, and
shall have at least the number of Flight Hours or cycles remaining on the Engine
being replaced, assuming the Engine being replaced was in the condition and
repair required by the terms hereof immediately prior to the Casualty
Occurrence, and shall be compatible with the remaining installed Engines. Upon
full compliance by Lessee with the terms of this paragraph, Lessor will transfer
to Lessee title to the Engine which suffered the Casualty Occurrence. Prior to
or at the time of any such conveyance, Lessee, at its own expense, will promptly
(i) furnish Lessor with a full warranty bill of sale, in form and substance
reasonably satisfactory to Lessor, with respect to such Replacement Engine; (ii)
cause a supplement hereto, in form and substance reasonably satisfactory to
Lessor, subjecting such Replacement Engine to this Lease, to be duly executed by
Lessee; (iii) furnish Lessor with such evidence of title to such Replacement
Engine and of compliance with the insurance provisions of Section 12 hereof with
respect to such Replacement Engine as Lessor may reasonably request; (iv)
furnish Lessor with an opinion of Lessee's
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counsel (which counsel shall be reasonably acceptable to Lessor) to the effect
that title to such Replacement Engine has been duly conveyed to Lessor, free and
clear of all Liens, and that such Replacement Engine is duly leased hereunder;
(v) furnish a certificate signed by a duly authorized financial officer or
executive of Lessee certifying that, upon consummation of such replacement, no
Default or Event of Default will exist hereunder; and (vi) furnish Lessor with
such documents as Lessor may reasonably reuest in connection with the
consummation of the transactions contemplated by this Section 11(b), in each
case in form and substance satisfactory to Lessor. Upon full compliance by
Lessee with the terms of this Section 11(b), Lessor will transfer to Lessee "AS
IS AND WHERE IS" and without recourse or warranty, except as to Lessor's title
and the absence of Lessor's Liens, all of the right, title and interest in the
Engine which suffered the Casualty Occurrence and which was originally leased to
Lessee. For all purposes hereof, each such Replacement Engine shall be deemed
part of the property leased hereunder, shall be deemed an "Engine" as defined
herein and shall be deemed part of the same Aircraft as was the Engine replaced
thereof. No Casualty Occurrence covered by this Section 11(b) shall result in
any reduction in Rent.
(c) APPLICATION OF PROCEEDS AND PAYMENTS. Any payments
received at any time by Lessor or by Lessee from any insurer under any policy of
insurance (other than liability insurance) or any other person (other than an
insurer under insurance maintained by Lessor) shall be applied in the manner
specified in Sections 12(d), 12(e) or 12(f) hereof as applicable. Subject to
Section 11(e) hereof, any payments received at any time by Lessor or Lessee from
any Governmental Entity or other Person with respect to a Casualty Occurrence
will be applied as follows:
(i) unless clause (ii) below is applicable, so much of such
payments as shall not exceed the sum of (x) Rent accrued but unpaid through the
date of receipt of such payments plus (y) the Casualty Value required to be paid
by Lessee pursuant to Section 1l(a) of this Lease shall be paid to Lessor in
reduction of Lessee's obligation to pay such unpaid Rent and Casualty Value if
not already paid by Lessee, or, if already paid by Lessee shall be applied by
Lessor to reimburse Lessee for its payment of such Casualty Value and the
balance of such payment, if any, remaining thereafter (if such payment is
received with respect to insurance other than liability insurance) shall be paid
over to, or retained by, Lessee, except to the extent any such amount is
specifically allocable to an interest of Lessor; or
(ii) if such payments are received as a result of a Casualty
Occurrence with respect to an Engine which is being replaced pursuant to Section
11(b), unless a Default or Event of Default shall have occurred and be
continuing or this Lease shall have been declared in default in accordance with
Section 18 hereof, all such payments shall be paid over to, or retained by,
Lessee if Lessee shall have fully performed or, concurrently therewith will
fully perform, the terms of Section 11(b) and of Section 15 hereof with respect
to the Casualty Occurrence for which such payments are made.
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(d) REQUISITION FOR USE BY GOVERNMENT WITH RESPECT TO THE
AIRCRAFT. In the event of the requisition for use by a Governmental Entity of
the Airframe or any Engine (other than a requisition constituting a Casualty
Occurrence), all Lessee's obligations under this Lease with respect to the
Airframe or Engine shall continue to the same extent as if such requisition had
not occurred; provided that all payments received by Lessor from such
Governmental Entity or rental payments for the Aircraft shall be offset against
Lessee's obligation to pay Rent. If the Airframe or any Engine or engine
installed thereon is not returned by such Governmental Entity prior to the last
day of the Term, the Term of the Lease shall nonetheless terminate on such date
in accordance with the provisions hereof. Subject to Section 11(e) hereof, all
payments received by Lessor or Lessee from the Governmental Entity for the use
of the Airframe or Engine during the Term prior to the time such requisition
becomes a Casualty Occurrence shall be paid over to, or retained by, Lessee; and
all payments received by Lessor or Lessee from the Governmental Entity for the
use of such item after such requisition constitutes a Casualty Occurrence or
after the expiration of the Term shall be paid over to, or retained by, Lessor.
Notwithstanding the foregoing, if possession of the Aircraft is recovered or
such Casualty Occurrence shall no longer be continuing on or prior to the date
on which Lessee is required to make any payment pursuant to Section 11(a),
Lessee shall return the Aircraft to Lessor in accordance with Section 16 and
pay, at the time of such return, rental (in arrears) to Lessor with respect to
the period from the end of the Term to and excluding the date of such return in
an amount equal to a pro rata portion of the Base Rent together with all other
amounts payable on a Return Occasion hereunder.
(e) APPLICATION IN DEFAULT. Any amount referred to in Section
11 which is otherwise payable to Lessee shall not be paid 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 Lessor, if at the time
of such payment a Default or an Event of Default shall have occurred and be
continuing, or if Lessor shall have theretofore declared this Lease to be in
default in accordance with Section 18 hereof, all such amounts shall be held by
Lessor as security for the obligations of Lessee, or, at the option of Lessor,
applied by Lessor toward payment of any of Lessee's obligations at the time due
hereunder. At such time as there shall not be continuing any such Default or
Event of Default, all such amounts at the time held by Lessor in excess of the
amount, if any, which Lessor has elected for application as provided above,
shall be paid to Lessee, except that if Lessor shall have theretofore declared
this Lease to be in default in accordance with Section 18 hereof, such amounts
shall be retained by Lessor and disposed of in accordance with the provisions
thereof.
Section 12. INSURANCE.
(a) PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE. Effective
on or before the Delivery Date, Lessee, at its own expense, shall carry and
maintain in full force and effect throughout the Term with Approved Insurers
comprehensive public liability insurance (including, but not limited to,
contractual liability under Section 13 hereof, passenger legal liability,
coverage against claims by employees (greater or other than
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claims covered by Lessee's workmen's compensation insurance), agents or
subcontractors of Lessee or by their respective dependents and by other third
parties, baggage, cargo, mail and airline general liability, including premises,
hangarkeepers and products liability) and property damage insurance with respect
to the Aircraft of the type usual and customary by commercial scheduled airline
standards for airline carriers operating similar aircraft. Such policy shall
include war and allied risks in accordance with standard market practice
(currently "The Extended Coverage Endorsement - AVN 52"). Such insurance shall
be in an amount as is usual and customary by commercial scheduled airline
standards for airline carriers operating similar aircraft, but shall not be less
than the amount under "Public Liability and Property Damage Insurance" (as set
forth on Exhibit C hereto) per occurrence. Lessee shall not discriminate against
the Aircraft in providing such insurance.
(b) INSURANCE AGAINST LOSS OR DAMAGE. Effective on or before
the Delivery Date, Lessee, at its own expense, shall carry and maintain in full
force and effect throughout the Term with Approved Insurers "all-risk" ground
and flight aircraft hull insurance (and aircraft hull war and allied perils
insurance which shall include, but not be limited to, vandalism, war risk and
allied perils, hijacking, disappearance clause and coverage against strikes,
riots, commotions or labor disturbances, malicious acts or acts of sabotage and
unlawful seizure (including confiscation, arrest, nationalization, seizure,
restraint, detention, appropriation, requisition or destruction), threat, by or
under authority of any Governmental Entity, or wrongful exercise of control of
the Aircraft in flight by a person on board the Aircraft acting without the
consent of Lessee) and "all-risk" coverage insurance with respect to Engines and
Parts while not installed on the Aircraft or an aircraft, which in each case is
at least as broad as coverage maintained by passenger airlines similarly
situated to Lessee and operating similar aircraft and engines which comprise
Lessee's fleet. Such insurance shall be for an amount not less than the Casualty
Value for the Aircraft and shall incorporate a 50/50 clause with respect to
"all-risk" hull and war risk coverage. Such insurance may include provisions for
deductibles in an amount usual and customary by commercial scheduled airline
standards for airline carriers operating similar aircraft provided that (i) the
amount of such deductibles must be no greater than the lowest deductible amount
applying to any similar aircraft in Lessee's fleet, (ii) such deductible shall
not apply in the event of a total loss, and (iii) in no event shall the amount
of such deductibles exceed the amount under "Deductible Amount" set forth on
Exhibit C hereto.
(c) REQUIRED POLICY DESIGNATIONS AND PROVISIONS. Each
and any policy of insurance, as applicable, obtained and maintained pursuant to
this Section 12, and each and any policy obtained in substitution or replacement
for any such policies, shall:
(i) designate Lessor or its designee as owner and lessor of
the aircraft covered thereby and the sole loss payee except as provided in
subparagraph (vii) below, and provided, however, that so long as the Loan is in
effect, the Lender shall be the sole loss payee in respect of any loss payable
in respect of the Aircraft as a total loss), and shall designate each of the
Additional Insureds, as its interests may appear (but without
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imposing upon the Additional Insureds any obligation imposed upon the insured,
including, without limitation, the liability to pay any premiums for any such
policies);
(ii) expressly provide that, in respect of the interests of
the Additional Insureds in such policies the insurance shall not be invalidated
by any action or inaction of Lessee, and shall insure the Additional Insureds,
regardless of any breach or violation of any warranty, declaration or condition
contained in such policies by Lessee; provided, that so long as the prevailing
practices of the insurance industry require the same, such provision may be
subject to the condition that the Additional Assured so protected has not
caused, contributed to or knowingly condoned the said act or omission;
(iii) provide that if such insurance is cancelled by the
Approved Insurers for any reason whatsoever, or is adversely changed in any way
with respect to the interests of the Additional Insureds, or if such insurance
is allowed to lapse for nonpayment of premium, such cancellation, adverse change
or lapse shall not be effective as to the Additional Insureds for thirty (30)
days (seven (7) days or such lesser period as from time to time may be
applicable in the case of any war risks and allied perils coverage) after
issuance to Lessor and any Additional Insureds of written notice, via telefax or
overnight courier, by such insurer or insurers of such prospective cancellation,
change or lapse;
(iv) be on a worldwide basis subject only to those
territorial exclusions as are usual and customary with respect to war risks
insurance;
(v) provide that, as against the Additional Insureds, the
insurer waives any rights of set-off, counterclaim or any other deduction,
whether by attachment or otherwise, and agrees to waive rights of subrogation
against the Additional Insureds, provided, however, that such waiver of
subrogation need not extend to claims against third parties nor claims against
the Additional Insureds as to which the Additional Insureds are not entitled to
indemnification under Section 13 hereof;
(vi) provide that no amount due from Lessee or any other
Person to any insurer or broker shall be deducted from any amount payable to a
third party under such insurance policy;
(vii) provide that in the event of any damage or loss, whether
or not a Casualty Occurrence hereunder, which results in a payment, such payment
shall be payable directly to Lessor or its assignee as loss payees, for the
account of all interests; provided, however, that so long as no Default or Event
of Default shall have occurred and be continuing and this Lease shall not have
been declared in default, payments with respect to property damage loss to the
Airframe or Engine not constituting a Casualty Occurrence, or any Part, in any
amount not to exceed One Hundred Thousand U.S. Dollars ($100,000) may be paid to
or on behalf of Lessee to be applied for the repair or replacement necessitated
by such property damage and Lessee shall notify Lessor in writing of any such
payments in excess of One Hundred Thousand U.S. Dollars ($100,000) and the
nature of the property damage giving rise to such payments;
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(viii) provide that none of the Additional Insureds shall be
liable for any insurance premium, commission or calls in connection with such
insurance; and
(ix) provide that the aircraft hull insurance shall not be
subject to an aggregate limit, except with respect to hull war coverage, which
shall have an aggregate of $175 million.The Approved Insurance Broker shall
undertake in the insurance certificate issued by it to advise the Additional
Insureds promptly upon the occurrence of any claim which would reduce the
remaining used portion of such limit.
Each such policy shall be primary without right of
contribution from any other insurance which may be carried by any of the
Additional Insureds, and, with respect to liability coverage, shall expressly
provide 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 and
shall not operate to permit claims recoverable under the hull policy to be
recoverable as liability claims. Lessor is not under any duty or obligation to
verify the existence or adequacy of insurance.
Lessee shall have the right to carry insurance in excess of
the amounts required hereunder (provided that it does not adversely affect the
coverage required to be maintained 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 12 in
a manner adverse to Lessor's interest..
(d) APPLICATION OF INSURANCE PROCEEDS FOR A CASUALTY
OCCURRENCE. Subject to Section 12(f) hereof, it is agreed that insurance
payments which arise from any policy of insurance carried by Lessee and received
as the result of the occurrence of a Casualty Occurrence shall be applied as
follows:
(i) if such payments are received with respect to a Casualty
Occurrence relating to the Airframe and Engines or engines installed on the
Airframe, so much of such payments as shall not exceed the amounts due under
Section 11(a) hereof shall be paid to Lessor, provided, however, that so long as
the Loan is in effect, the Lender shall be the sole loss payee in respect of any
loss payable in respect of the Aircraft as a Total Loss, and the balance to
Lessee; and
(ii) if such payments are received with respect to a Casualty
Occurrence relating to an Engine under circumstances contemplated by Section
1l(b) hereof, such payment shall be adjusted with Lessee (provided that Lessee
has not breached any warranty, declaration or condition contained in the
applicable insurance policy) and paid over to Lessee, provided that Lessee shall
have fully performed, concurrently therewith, will fully perform the terms of
Section 11(b) hereof.
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(e) APPLICATION OF INSURANCE PROCEEDS FOR OTHER THAN A
CASUALTY OCCURRENCE. Subject to the proviso in Section 12(c)(vii) above, the
insurance payments for any property damage loss to the Airframe or any Engine
not constituting a Casualty Occurrence, or to any Part, will be held by Lessor
until Lessee furnishes Lessor with satisfactory evidence that the repairs or
replacement property Lessee is required to perform or obtain in accordance with
the terms of Section 9 of this Lease have been made or obtained by Lessee.
Subject to Section 12(f) hereof and promptly upon receipt of such evidence of
repair or replacement, Lessor shall pay Lessee the amount of the insurance
payment received with respect to such loss.
(f) APPLICATION IN DEFAULT. Any amount referred to in Section
12(d)(i) or (ii), or Section 12(e), which is otherwise payable to Lessee shall
not be paid 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 by
Lessee to Lessor, if at the time of such payment, a Default or an Event of
Default shall have occurred and be continuing or if this Lease shall have been
declared in default in accordance with Section 18 hereof. In either case, all
such amounts shall be held by Lessor as security for the obligations of Lessee,
or, at the option of Lessor, applied by Lessor toward payment of any of Lessee's
obligations at the time due hereunder. At such time as there shall not be
continuing any such Default or Event of Default, all such amounts at the time
held by Lessor in excess of the amount, if any, which Lessor has elected for
application as provided above, shall be paid to Lessee, except that if Lessor
shall have theretofore declared this Lease to be in default in accordance with
Section 18 hereof, such amounts shall be retained by Lessor and disposed of in
accordance with the provisions thereof.
(g) CERTIFICATES OF INSURANCE. On or before the Delivery Date,
and thereafter on each renewal by Lessee of the insurance required hereby, but
not less often than annually, Lessee will furnish to Lessor one or more
certificates, each executed and delivered by an Approved Insurance Broker who is
authorized by one or more Approved Insurers appointed by Lessee, which together
shall describe in reasonable detail insurance carried on the Aircraft and shall
certify that the insurance then maintained on the Aircraft complies with the
terms of this Lease. Lessee will cause each such Approved Insurance Broker who
is authorized by an Approved Insurer to agree to advise Lessor in writing at
least thirty (30) days (seven (7) days or such lesser period as may from time to
time be applicable in the case of any war risk and allied perils coverage) prior
to the non-renewal, termination or cancellation by the underwriters for any
reason (including, without limitation, failure to pay the premium therefor) of
any such insurance or as soon as possible in respect of "non-renewal" or
automatic termination for war risk.
(h) ADDITIONAL INSURANCE. Lessee, at its own expense,
shall carry and maintain in full force and effect throughout the Term with
Approved Insurers such other forms of insurance as shall be agreed by Lessor and
Lessee.
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Section 13. INDEMNIFICATION.
(a) INDEMNITY. Lessee agrees to indemnify, reimburse, hold
harmless and defend each Indemnitee from and against any and all claims,
damages, losses, liabilities, demands, suits, judgments, causes of action, legal
proceedings, whether civil or criminal, penalties, fines and other sanctions,
and any attorneys' fees and other reasonable costs and expenses in connection
herewith or therewith, including any of the foregoing arising or imposed with or
without Lessor's fault, or under the doctrine of absolute or strict liability
(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 (a) the Aircraft or this Lease, or the breach of any representation,
warranty or covenant made by Lessee hereunder, or (b) the condition, ownership,
manufacture, purchase, delivery, non-delivery, lease, acceptance, rejection,
possession, return, disposition or use, or operation of the Aircraft either in
the air or on the ground during the Term, or (c) any defect in the Aircraft
(whether or not discovered or discoverable by Lessee or Lessor) 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 the
Aircraft, whether or not the Aircraft is in the possession of Lessee, and
regardless of where the Aircraft may then be located during the Term, or (d) any
transaction, approval, or document contemplated by this Lease 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 of the Aircraft and its subcontractors or any other Person as to
any such Claims, but only to the extent that Lessee satisfies its
indemnification obligation to Lessor hereunder with respect to such Claims.
Lessee hereby waives, and releases each Indemnitee from, any
Claims (whether existing now or hereafter arising) 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 ownership,
leasing, condition, use or operation of the Aircraft, either in the air or on
the ground, or which may be caused by any defect in the Aircraft from the
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
the Aircraft regardless of when such defect may be discovered, whether or not
the Aircraft is at the time in the possession of Lessee, and regardless of the
location of the Aircraft at any such time.
The indemnities contained in this Section 13 shall continue in
full force and effect notwithstanding the expiration or other termination of
this Lease and are expressly made for the benefit of and shall be enforceable by
each Indemnitee.
(b) EXCEPTIONS. Notwithstanding the foregoing provisions of
this Section 13, Lessee shall not be obligated to make any payment by way of
indemnity in respect of any Claims against an Indemnitee:
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(i) which result solely from the gross negligence or
willful misconduct of such Indemnitee; or
(ii) in respect of the Aircraft to the extent that the same
result solely from acts or events which occur after the Aircraft has been
redelivered to Lessor in accordance with Section 16 hereof and is no longer
subject to this Lease.
(c) AFTER TAX BASIS OF PAYMENTS. 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 (including Remittance
Withholding, if any) required to be paid (or in the case of Remittance
Withholding, withheld) by such recipient with respect to such payment or
indemnity, so that such recipient shall receive an amount which, net of any
Taxes (including Remittance Withholding, if any) required to be paid (or in the
case of Remittance Withholding, withheld) by such recipient in respect of such
amount, shall be equal to the amount of payment or indemnity otherwise required
hereunder.
(d) PAYMENTS. Any amount payable as an indemnity to any
Indemnitee by Lessee pursuant to this Section 13 is to be paid to such party
directly, in immediately available funds, by bank wire transfer at such bank or
to such account as specified by the payee in written directions to the payor,
or, if such directions shall not have been given, by check of the payor payable
to the order of the payee and mailed to the payee by certified mail, postage
prepaid at its address as set forth in this Lease, within ten (10) days after
receipt of a written demand therefor from such Indemnitee or Lessee, as the case
may be.
(e) SURVIVAL. All of the obligations of Lessee under this
Section 13 shall survive the assignment, expiration or other termination of this
Lease. Such obligations are expressly undertaken by Lessee for the benefit of,
and shall be enforceable by, Lessor and each other Indemnitee. The obligations
of Lessee in respect of all such indemnities, obligations, adjustments and
payments shall be enforceable by, any Indemnitee, without declaring this Lease
to be in default or taking other action thereunder.
Section 14. LIENS.
LESSEE SHALL NOT DIRECTLY OR INDIRECTLY CREATE, INCUR, ASSUME
OR SUFFER TO EXIST ANY LIEN ON OR WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR
ANY PART, TITLE THERETO OR ANY INTEREST THEREIN, EXCEPT (a) THE RESPECTIVE
RIGHTS OF LESSOR AND LESSEE AS HEREIN PROVIDED; (b) LESSOR'S LIENS WITH RESPECT
TO THE AIRCRAFT, ANY ENGINE OR ANY PART; (c) LIENS FOR TAXES WHICH ARE EITHER
NOT ASSESSED, OR, IF ASSESSED ARE EITHER NOT YET DUE OR BEING CONTESTED IN
ACCORDANCE WITH SECTION 10 HEREOF AND SO LONG AS ADEQUATE RESERVES ARE
MAINTAINED WITH RESPECT TO SUCH LIENS; AND (d) INCHOATE MATERIALMEN'S,
MECHANICS', WORKMEN'S, REPAIRMEN'S, EMPLOYEES', AIRPORT OPERATORS' OR OTHER
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LIKE LIENS ARISING IN THE ORDINARY COURSE OF BUSINESS, WHICH EITHER ARE NOT
DELINQUENT, HAVE BEEN ADEQUATELY BONDED OR ARE BEING CONTESTED IN GOOD FAITH BY
LESSEE, IN EACH CASE SO LONG AS THE AIRCRAFT, SUCH ENGINE OR SUCH PART IS NOT IN
DANGER OF BEING LOST, SOLD, CONFISCATED, FORFEITED OR SEIZED AS A RESULT OF ANY
SUCH LIEN. LESSEE SHALL PROMPTLY, AT ITS OWN EXPENSE, DULY DISCHARGE ANY LIEN
(EXCEPT FOR THE LIENS REFERRED TO IN CLAUSES (a) AND (b) OF THIS SECTION 14) IF
THE SAME SHALL ARISE AT ANY TIME WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY
PART.
Section 15. PERFECTION OF TITLE AND FURTHER ASSURANCES.
If at any time any filing or recording is reasonably necessary
to protect the interest of Lessor or the Lender, Lessee, at its own cost and
expense, shall cause this Lease, the Mortgage, and any financing statements with
respect to its obligations under this Agreement, and any and all additional
instruments which shall be executed pursuant to the terms of this Agreement
(including, without limitation, those referred to in Section 2(b)(3) hereof), to
be kept, filed and recorded and to be re-executed, refiled and re-recorded in
the appropriate office or offices pursuant to applicable Laws, to perfect,
protect and preserve the rights and interests of Lessor or the Lender hereunder
or under the Mortgage and in the Aircraft, including without limitation the
right of the Lessor to repossess, and export from any country the Aircraft, the
Engines and the Parts if the Lease has been declared, or is deemed by its terms
to have been declared in default. At the reasonable request of Lessor, Lessee
shall furnish to Lessor an opinion of counsel or other evidence satisfactory to
Lessor of each such filing or refiling and recordation or rerecordation; it
being understood that Lessor shall bear the cost of any such opinion required by
it in connection with any voluntary sale or refinancing of the Aircraft by the
Lessor in the absence of any Default or Event of Default.
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 Mortgage Convention (or in the case where such
jurisdiction is not a signatory to the Mortgage Convention, under the internal
laws of such jurisdiction) to perfect and preserve the title and interest of
Lessor or the Lender in the Aircraft within any jurisdiction in which Lessee or
any Permitted Sublessee may operate the Aircraft, 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 jurisdiction in which Lessee (or any Permitted Sublessee) may
operate, or any and all acts and things which Lessor may reasonably request, to
perfect and preserve Lessor's ownership rights and the rights of the Lender
regarding the Aircraft within any such jurisdiction.
In addition, Lessee will promptly and duly execute and deliver
to Lessor such further documents and assurances and take such further actions as
Lessor may from time to time reasonably request in order to carry out more
effectively the intent and
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purpose of this Lease and to establish and protect the rights and remedies
created or intended to be created in favor of Lessor hereunder, including
without limitation, if reasonably requested by Lessor at the expense of Lessee,
the execution and delivery of supplements or amendments hereto in recordable
form, subjecting to this Lease any Replacement Engine and the recording or
filing of counterparts thereof, in accordance with the laws of any appropriate
jurisdiction.
Section 16. RETURN OF AIRCRAFT AND RECORDS.
(a) RETURN. Except as otherwise provided herein, on the
expiration of the Term or at such other time as Lessee shall be required to
return the Aircraft to Lessor pursuant to the terms hereof, Lessee, at its own
expense, shall return the Aircraft to Lessor at the location specified as
"Return Location" set forth on Exhibit C hereto, fully equipped with all
required Parts and Engines, duly installed thereon and with all Aircraft
Documents which are complete and shall have been maintained as required by the
terms hereof by delivering the same to Lessor at such location. Until the Lessee
shall have complied in full with its obligations under this Section 16, the
Lessee shall be obligated to continue to perform its obligations under this
Lease, including, without limitation, the obligation to pay Rent and maintain
insurance coverages as though the Term had been extended. In the event the
Aircraft shall have been exported from the United States, Lessee shall be
responsible for securing all export and import permits required to effect such
redelivery and for the payment of all duties incident thereto.
(b) LEGAL STATUS UPON RETURN. Immediately prior to the Return
Occasion, the Lessee shall assure that: (i) the Aircraft, Engines and Parts
shall be free and clear of all Liens, except Lessor's Liens; (ii) the Aircraft
shall be duly certified as an airworthy aircraft by the FAA, if the Aircraft was
at any time during the Lease Term registered in a country other than the United
States, a valid certificate of airworthiness for export installed on the
Aircraft if required; (iii) if the Aircraft was theretofore registered in a
country other than the United States, the Aircraft is equipped and in full
airworthy condition for operation according to FAA standards required to allow
the Aircraft to be operated for commercial transportation of passengers under
applicable rules, regulations and ADs of the FAA; (iv) if the Aircraft was
theretofore registered in a country other than the United States, the Aircraft
is duly deregistered under the applicable Law of the Country of Registration;
(v) the Aircraft is in full compliance with the Return Conditions set forth in
Exhibit E and this Section 16; and (vi) the Aircraft shall be in a maintenance
status consistent with the requirements of Section 6(d) hereof.
(c) RETURN OF ENGINES. In the event that any Replacement
Engine not owned by Lessor shall be delivered installed on the returned Airframe
as set forth in paragraph (a) of this Section 16, Lessee, concurrently with such
delivery, will, at no cost to Lessor, furnish, or cause to be furnished, to
Lessor a full warranty (as to title) bill of sale with respect to such
Replacement Engine, in form and substance satisfactory to Lessor (together with
an opinion of counsel to the effect that such full warranty bill of sale has
been duly authorized and delivered and is enforceable in accordance with its
terms and
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that such Replacement Engine is free and clear of Liens other than Lessor's
Liens), against receipt from Lessor of a bill of sale evidencing the transfer,
without recourse or warranty (except as to the Lessor's title and the absence of
Lessor's Liens), by Lessor to Lessee or its designee of all of Lessor's right,
title and interest in and to an Engine not installed on the Airframe at the time
of the return of the Airframe. If any such bill of sale transferring title of an
engine to Lessor shall be executed by a Permitted Sublessee, Lessee will
guaranty to Lessor the title warranty contained in such bill of sale. Lessee
shall also take (or cause any Permitted Sublessee to take) such other action as
Lessor may reasonably request in connection with such transfer of any such
engine.
(d) SERVICE BULLETIN AND MODIFICATION KITS. At or upon the
return of the Aircraft pursuant to this Section 16, Lessee shall deliver to
Lessor, at no cost to Lessor, all service bulletin kits furnished without charge
by a manufacturer for installation on the Aircraft which have not been so
installed together with appropriate instructions for installation. In the event
such uninstalled kits were purchased or manufactured by Lessee, then Lessor
shall have a right to purchase such kits at Lessee's cost for a period of one
hundred eighty (180) days after return.
(e) CONDITION OF AIRCRAFT. Upon the Return Occasion applicable
to the Aircraft, Lessee shall assure that the Aircraft shall comply with all of
the conditions set forth on Exhibit E hereto.
(f) FINAL INSPECTION. Immediately prior to the Return
Occasion, Lessee shall make the Aircraft available to Lessor at Lessee's
principal maintenance base for detailed inspection, at Lessee's expense, in
order to verify that the condition of the Aircraft complies with the
requirements set forth above, which inspection shall include, and without
limitation, all elements set forth in Exhibit E hereto, (such inspection being
hereinafter referred to as the "Final Inspection"). Lessee shall provide Lessor
with at least thirty (30) days' prior written notice of the time and place of
the Final Inspection. The period allowed for the Final Inspection shall have
such duration as to permit the opening of any areas of the Aircraft which would
be opened during the performance of Lessee's C check to verify satisfaction with
the requirements of Exhibit E and shall continue on consecutive days until all
activity required above to be conducted during the Final Inspection has been
concluded. All storage expenses attributable to any extension of the Term
pursuant to the preceding sentence shall be payable by Lessee.
(g) AIRCRAFT DOCUMENTATION. In order to enable Lessor to
prepare for the Final Inspection of the Aircraft pursuant to Section 16(f)
above, Lessee agrees to make available to Lessor at the Return Location not
later than ten (10) days prior to the commencement of such Final Inspection, the
Aircraft Documents together with such other documentation regarding the
condition, use, maintenance, operation and history of the Aircraft during
Lessee's possession as Lessor may reasonably request.
(h) CORRECTIONS AND SUBSEQUENT CORRECTIONS. In the event that
the Aircraft or any Engine fails upon the Return Occasion to conform to the
return condition
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requirements imposed by this Lease and particularly Section 16 or Exhibit E,
Lessor may (i) continue the obligations of the Lessee under the Lease in effect
in the manner provided for in Section 16(a) above until such condition or
requirement is met or (ii) accept the return of the Aircraft and thereafter have
any such nonconformance corrected or requirement met, at such time as Lessor may
deem appropriate the actual and commercially reasonable and customary charges
then charged by the Person selected by Lessor to perform such correction. Any
direct expense incurred by Lessor for such correction shall become Supplemental
Rent payable by Lessee within thirty (30) days following the submission of a
written statement by Lessor to Lessee, identifying the items corrected and
setting forth the expense of such correction. Lessee's obligations to pay such
Supplemental Rent shall survive the passage of the Expiration Date or other
termination of this Lease.
(i) ADDITIONAL MAINTENANCE, REPAIR OR OVERHAUL. Upon the
Return Occasion and upon written request of Lessor, for a period of up to ten
(10) days, Lessee shall (subject to the availability to Lessee of facilities and
manpower) store and insure the Aircraft and perform such additional maintenance,
repair, or overhaul of the Aircraft as is requested by Lessor in the same manner
and with the same care as used for similar aircraft and engines owned or
operated by Lessee, provided that Lessor shall reimburse Lessee for its
documented direct out-of-pocket costs, without mark-up, for such storage,
maintenance, repair, or overhaul, and such storage and insurance and additional
maintenance, repair or overhaul shall not extend this Lease. Maintenance
requested by Lessor other than that specifically required by the terms of this
Lease shall be performed by Lessee and paid for by Lessor at Lessee's standard
contract rates for such maintenance as agreed to by Lessor.
(j) FUNCTIONAL CHECK FLIGHT. Immediately following completion
of the Final Inspection and prior to the expiration of the Term a flight
demonstration shall be conducted for the Aircraft in accordance with Lessee's
AcceptanceFlight Report GMM-05-39 procedures. Any deficiencies noted during such
flight demonstration shall be corrected at Lessee's expense.
(k) FUEL ON RETURN. On the Return Occasion, Lessee, at its
expense, shall return the Aircraft with an amount of fuel that equals or exceeds
the amount of fuel on board the Aircraft at the Delivery Date.
Section 17. EVENTS OF DEFAULT.
Any one or more of the following occurrences or events shall
constitute an Event of Default:
(a) Lessee shall fail to make any payment of Rent to Lessor
when due hereunder, and such failure shall continue for five (5) Business Days
after written notice thereof is given by Lessor to Lessee;
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(b) Lessee shall fail to obtain and maintain any insurance
required under the provisions of Section 12 hereof or shall operate the Aircraft
outside of the scope of the insurance coverage maintained with respect to the
Aircraft;
(c) Any representation or warranty made by Lessee herein or in
any document or certificate furnished Lessor in connection herewith or therewith
or pursuant hereto shall prove to have been incorrect at the time given in any
material respect and, if the circumstances which render such representation or
warranty incorrect can be remedied so as to render such representation or
warranty correct, such circumstances shall continue unremedied for a period of
Ten (10) days from the earlier to occur of the date of Lessor's written notice
thereof or the date on which Lessee otherwise first has knowledge thereof;
(d) Lessee shall fail to timely comply with the provisions
of Section 20(m) hereof;
(e) Lessee shall fail to timely comply with its obligation
under Section 3 hereof to accept delivery of the Aircraft if tendered by or on
behalf of Lessor in the Delivery Condition required hereby;
(f) Lessee shall fail to timely comply with its obligations
pursuant to Sections 8, 14 or 15 hereof;
(g) Lessee shall make or permit any unauthorized assignment or
transfer of this Lease, or any interest therein, or of the right to possession
of or operational control over the Aircraft, the Airframe, or any Engine;
(h) Lessee shall fail to perform or observe in any material
respect any other covenant, condition or agreement to be performed or observed
by it pursuant to this Lease and such failure shall continue for a period of
thirty (30) days after written notice thereof is given by Lessor to Lessee;
(i) The occurrence of an Event of Default (as defined therein)
under a Related Lease;
(j) Lessee consents to the appointment of a receiver, trustee
or liquidator of itself or of a substantial part of its property, or Lessee
admits in writing its inability to pay its debts generally as they come due, or
makes a general assignment for the benefit of creditors, or Lessee files a
voluntary petition in bankruptcy or a voluntary petition seeking reorganization
in a proceeding under any bankruptcy laws (as now or hereafter in effect), or an
answer admitting the material allegations of a petition filed against Lessee in
any such proceeding, or Lessee by voluntary petition, answer or consent seeks
relief under the provisions of any bankruptcy or other similar law providing for
the reorganization or winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors;
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(k) An order, judgment or decree is entered by any court, with
or without the consent of Lessee, appointing a receiver, trustee or liquidator
for Lessee or of all or any substantial part of its property, or all or any
substantial part of the property of Lessee is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in effect,
undismissed, unstayed or unvacated, or unbonded for a period of sixty (60) days
after the date of entry thereof;
(l) A petition against Lessee in a proceeding under the
bankruptcy, insolvency or other similar Laws (as now or hereafter in effect) of
any Governmental Entity is filed and is not withdrawn or dismissed within sixty
(60) days thereafter, or if, under the provisions of any Law providing for
reorganization or winding-up of corporations which may apply to Lessee, any
court of competent jurisdiction assumes jurisdiction over, or custody or control
of, Lessee or of all or any substantial part of its property and such
jurisdiction, custody or control remains in effect, unrelinquished, unstayed or
unterminated for a period of sixty (60) days;
(m) A final judgment for the payment of money not covered by
insurance in excess of Two Hundred Fifty Thousand U.S. Dollars ($250,000), (or
an equivalent amount in any currency other than Dollars) or final judgments for
the payment of money not covered by insurance in excess of Two Hundred Fifty
Thousand U.S. Dollars $250,000 (or an equivalent amount in any currency other
than Dollars) in the aggregate, shall be rendered against Lessee and the same
shall remain undischarged for a period of ninety (90) days during which
execution thereof shall not be effectively stayed by agreement of the parties
involved, stayed by either court order or appeal, or adequately bonded;
(n) Attachments or other Liens shall be issued or entered
against any substantial portion of the property of Lessee and shall remain
undischarged or unbonded for sixty (60) days except for security interests
created in connection with monies borrowed or obligations agreed to by Lessee in
the ordinary course of its business;
(o) Lessee shall default in the payment of any obligation for
the payment of borrowed money, for the deferred purchase price of property or
for the payment of rent or hire under any lease of aircraft which has a
principal amount of Two Hundred Fifty Thousand U.S. Dollars $250,000 (or an
equivalent amount in any currency other than Dollars) or more (determined in the
case of borrowed money by the amount outstanding under the agreement pursuant to
which such borrowed money was borrowed, in the case of a deferred purchase price
by the remaining balance and in the case of a lease by the present discounted
value of the remaining rent or hire payable thereunder (ignoring any fair market
renewal)) when the same becomes due if such nonpayment results in the right of
such holder to accelerate such indebtedness or any lessor shall have become
entitled to require the payment of any termination, stipulated loss, liquidated
damages or similar amount or to demand repossession of such property; or Lessee
shall be declared in default in the performance of any other term, agreement or
condition contained in any material agreement or instrument under or by which
any such obligation is created,
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evidenced or secured, if the effect of such declaration of default is so
material as to cause or allow such obligation to be accelerated;
(p) Lessee voluntarily suspends all or substantially all of
its airline operations or the franchises, concessions, permits, rights or
privileges required for the conduct of the business and operations of Lessee are
revoked, cancelled or otherwise terminated, and as a result of the foregoing the
predominant business activity of Lessee shall cease to be that of a commercial
airline;
(q) Any franchise, concession, permit, right, privilege or
approval from a Governmental Entity required for the operation, maintenance,
use, insurance or return of the Aircraft or for the payment of Rent by Lessee in
Dollars as specified herein shall be suspended, terminated or cancelled, and
Lessee shall fail to promptly reinstate such franchise, concession, permit,
right, privilege or approval required for such operation, maintenance, use,
insurance, return or payment;
(r) Any Governmental Entity with jurisdiction over Lessee or
any Permitted Sublessee or any agency or instrumentality thereof declares a
moratorium in respect of the payment of any obligations of Lessee or any
Permitted Sublessee or repudiates any such obligations;
(s) There shall be due and owing by Lessee (other than
Lessor's Liens) any substantial claims which under applicable law , would be
secured by a Lien on the Aircraft, any Engine or any Part or which would be
required to be repaid by Lessor as a condition to deregistration or use of the
Aircraft or any Engine, and the aggregate of such claims outstanding equals or
exceeds Two Hundred Fifty Thousand ($250,000) Dollars (or an equivalent amount
in any currency other than Dollars); or
(t) Any other material adverse change since the date hereof in
the condition of Lessee, financial or other, which may adversely affect the
ability of Lessee to perform its obligations hereunder.
Lessee hereby acknowledges that the occurrence of any one of
the foregoing Events of Default would represent a material default in the
performance of its obligations under this Lease.
Section 18. REMEDIES.
Upon the occurrence of any Event of Default and any time
thereafter so long as the same shall be continuing, Lessor may, at its option
declare this Lease to be in default; provided that, upon the occurrence of any
Event of Default specified in paragraphs (j), (k) or (l) of Section 17, the
Lease shall automatically be deemed to have been declared in default. Once this
Lease has been declared to be in default, or is deemed to have been declared in
default then, and at any time thereafter, Lessor shall be entitled
automatically, as of the day prior to such occurrence, to exercise any of the
following
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remedies as Lessor in its sole discretion shall elect, to the extent permitted
by, applicable Law then in effect without 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 and at Lessee's expense, immediately return the Aircraft to
Lessor in the manner specified in such notice, in which event such return shall
not be delayed for purposes of complying with the return conditions specified in
Section 16 hereof (none of which conditions shall be deemed to affect Lessor's
possession of the Aircraft) or be delayed for any other reason. Notwithstanding
the foregoing, at Lessor's option, Lessee shall be required thereafter to take
such actions as would be required by the provisions of this Lease if the
Aircraft were being returned at the end of the Term hereof and Lessor agrees to
cooperate with Lessee's required actions. In addition, 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 is located and take immediate possession of and, at
Lessor's sole option, remove the same (and any engine which is not an Engine but
which is installed on the Airframe, subject to the rights of the owner, lessor
or secured party thereof) by summary proceedings or otherwise, PROVIDED, that
Lessor shall return to Lessee all personal property of Lessee which was on the
Aircraft at the time Lessor re-takes possession of the Aircraft, 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, or otherwise,
caused by such entry or taking, except damages caused by gross negligence or
willful misconduct;
(b) Sell at private or public sale, as Lessor may determine,
or hold, use, operate or lease to others the Aircraft as Lessor in its sole
discretion may determine, all free and clear of any rights to Lessee;
(c) Whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or
paragraph (b) of this Section 18, Lessor, by fifteen (15) days' written notice
to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and
Lessee shall pay to Lessor, on the payment date specified in such notice, as
liquidated damages for loss of bargain and not as a penalty (in lieu of Base
Rent and Renewal Rent payable for the period commencing after the date specified
for payment in such notice), any unpaid Base Rent and Renewal Rent for the
Aircraft (prorated on a daily basis) to and including the payment date specified
in such notice, plus the amount, if any, of accrued and unpaid Maintenance
Reserve Payments, plus accrued interest thereon to the date specified for
payment in such notice, plus the amount, if any, by which the aggregate Base
Rent for the remainder of the Term, discounted periodically (equal to
installment frequency) to present worth as of the payment date using the
Discount Rate as of such date, exceeds the fair market rental value (determined
pursuant to the Appraisal Procedure) of the Aircraft for the remainder of the
Term, after discounting such fair market rental value periodically (equal to
installment frequency) to present worth as of the payment date specified in such
notice using the Discount Rate as of such date; provided, however, that if prior
to issuance of such written notice by Lessor to Lessee, Lessor leases the
Aircraft to a thirty party for the remainder of
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the Lease Term for an amount that exceeds such fair market rental value as so
determined, then this amount shall be utilized in lieu of such fair market value
in making the foregoing calculation.
(d) In the event that Lessor, pursuant to Section 18(b) above,
shall have relet the Aircraft under a lease which extends at least to the date
upon which the Term for the Aircraft would have expired but for Lessee's
default, Lessor, in lieu of exercising its rights under Section 18(c) above with
respect to the Aircraft, may, if it shall so elect, demand that Lessee pay
Lessor, and Lessee shall pay Lessor, as liquidated damages for loss of bargain
and not as a penalty (in lieu of Base Rent or Renewal Rent, as the case may be,
for the Aircraft payable after the time of reletting) any unpaid Base Rent or
Renewal Rent, as the case may be, for the Aircraft payable up to the date of
reletting, plus the accrued and unpaid Maintenance Reserve Payments, plus
accrued interest thereon to the date specified for payment, plus the amount, if
any, by which the aggregate Base Rent or Renewal Rent for the Aircraft, which
would otherwise have become due over the Term, discounted periodically (equal to
installment frequency) to present worth as of the date of reletting using the
Discount Rate as of such date, exceeds the aggregate basic rental payments to
become due under the reletting from the date of such reletting to the date upon
which the Term for the Aircraft would have expired but for Lessee's default,
discounted periodically (equal to installment frequency) to present worth as of
the date of reletting using the Discount Rate as of such date;
(e) Proceed by appropriate court action or actions, either at
law or in equity, to enforce performance by Lessee of the applicable covenants
of this Lease and to recover damages for the breach thereof and to rescind this
Lease; or
(f) Terminate this Lease by written notice (which notice shall
be effective upon dispatch) and repossess the Aircraft.
(g) Receive from Lessee on demand all out of pocket expenses
of Lessor, including fees and disbursements of counsel, in connection with the
enforcement of this Agreement and any other documents which may be delivered in
connection herewith or therewith. In the event Lessor pays any of the amounts
Lessee is required to pay pursuant to Section 20 hereof, Lessee will, upon
receipt of notice from Lessor specifying the amount paid and furnishing
appropriate invoices, statements or demands for such payment, reimburse Lessor
for such advances.
In addition to the foregoing, Lessee shall be liable for any
and all accrued and unpaid Rent during or after the exercise of any of the
aforementioned remedies, together with interest on such unpaid amounts at the
Interest Rate, and until satisfaction of all of Lessee's obligations to Lessor
hereunder, and for all reasonable legal fees and other reasonable costs and
expenses incurred by Lessor 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 16 hereof or in placing the Aircraft in the
condition and with airworthiness certification as required by such Section.
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In effecting any repossession, Lessor and its representatives
and agents, to the extent permitted by Law, shall: (i) have the right to enter
upon any premises where it reasonably believes the Aircraft, the Airframe, an
Engine or Part to be located; (ii) not be liable, in conversion or otherwise,
for the taking of any personal property of Lessee which is in or attached to the
Aircraft, the Airframe, an Engine or Part which is repossessed; provided,
however, that Lessor shall return to Lessee all personal property of Lessee or
its passengers which was on the Aircraft at the time Lessor re-takes possession
of the Aircraft; (iii) not be liable or responsible, in any manner, for any
inadvertent damage or injury to any of Lessee's property in repossessing and
holding the Aircraft, the Airframe, an Engine or Part, except for that caused by
or in connection with Lessor's gross negligence or willful acts; (iv) have the
right to maintain possession of and dispose of the Aircraft, the Airframe, an
Engine or Part on any premises owned by Lessee or under Lessee's control; and
(v) have the right to obtain a key to any premises at which the Aircraft, the
Airframe, an Engine or Part, may be located from the landlord or owner thereof.
If required by Lessor, Lessee, at its sole expense, shall
assemble and make the Aircraft, the Airframe, an Engine or Part available at a
place designated by Lessor in accordance with Section 16 hereof. Lessee hereby
agrees that, in the event of the return to or repossession by Lessor of the
Aircraft, the Airframe, an Engine or Part, any rights in any warranty (express
or implied) heretofore assigned to Lessee or otherwise held by Lessee shall
without further act, notice or writing be assigned or reassigned to Lessor, if
assignable. Lessee shall be liable to Lessor for all reasonable expenses,
disbursements, costs and fees incurred in (i) repossessing, storing, preserving,
shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, an
Engine or Part to the condition required by Section 16 hereof and (ii) preparing
the Aircraft, the Airframe, an Engine or Part for sale or lease, advertising the
sale or lease of the Aircraft, the Airframe, an Engine or Part and selling or
re-leasing the Aircraft, the Airframe, an Engine or Part. Lessor is hereby
authorized and instructed, at its option, to make reasonable expenditures which
Lessor considers advisable to repair and restore the Aircraft, the Airframe, an
Engine or Part to the condition required by Section 16 hereof, all at Lessee's
sole expense.
No remedy referred to in this Section 18 is intended to be
exclusive, but, to the extent permissible hereunder or under applicable Law,
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 Default or Event
of Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Default or Event of Default.
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<PAGE>
Section 19. ALIENATION.
LESSOR SHALL HAVE THE RIGHT AT ITS SOLE COST AND EXPENSE,
HAVING GIVEN PRIOR WRITTEN NOTICE TO LESSEE, TO ASSIGN OR ENCUMBER ANY INTEREST
OF LESSOR IN THE AIRCRAFT OR THIS LEASE AND/OR THE PROCEEDS HEREOF SUBJECT TO
THE RIGHTS OF LESSEE UNDER THE PROVISIONS OF THIS LEASE. ANY SUCH ASSIGNMENT
SHALL NOT AFFECT LESSEE'S RIGHTS, POWERS, OBLIGATIONS, PRIVILEGES, OPTIONS AND
BENEFITS AVAILABLE TO LESSEE HEREUNDER AND SHALL NOT INVALIDATE THE U.S.
REGISTRATION. TO EFFECT OR FACILITATE ANY SUCH ASSIGNMENT OR ENCUMBRANCE, LESSEE
AGREES TO PROVIDE, AT LESSOR'S SOLE COST AND EXPENSE, SUCH AGREEMENTS, CONSENTS,
CONVEYANCES OR DOCUMENTS AS MAY BE REASONABLY REQUESTED BY LESSOR. THE
AGREEMENTS, COVENANTS, OBLIGATIONS, AND LIABILITIES CONTAINED HEREIN INCLUDING,
BUT NOT LIMITED TO, ALL OBLIGATIONS TO PAY RENT AND INDEMNIFY EACH INDEMNITEE
ARE MADE FOR THE BENEFIT OF EACH INDEMNITEE AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS. ANY PROPOSED SALE OR OF THE AIRCRAFT SHALL BE SUBJECT TO LESSEE'S RIGHT
OF FIRST OFFER.
Section 20. MISCELLANEOUS.
(a) SEVERABILITY AND CONSTRUCTION; HEADINGS. 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; 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 Law, Lessee and/or Lessor hereby waives any provisions of Law which
renders any provisions hereof prohibited or unenforceable in any respect. This
Lease shall constitute an agreement of lease, and nothing herein shall be
construed as conveying to Lessee any right, title or interest in the Aircraft or
any Engine or Part except as a lessee only. The headings in this Lease are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof. Whenever required by the context hereof, the singular shall
include the plural and vice versa. Reference to this Lease shall mean this Lease
as amended or supplemented from time to time.
(b) GOVERNING LAW; JURISDICTION. THIS LEASE SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, UNITED STATES OF AMERICA, (DETERMINED WITHOUT REGARD TO ITS RULES
OF CONFLICT OF LAW) INCLUDING WITHOUT LIMITATION ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
LEASE SHALL BE BROUGHT IN THE NEW YORK STATE COURTS LOCATED IN THE BOROUGH OF
MANHATTAN OR THE FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN;
55
<PAGE>
PROVIDED, HOWEVER, THAT THIS SHALL NOT LIMIT THE RIGHT OF THE LESSOR TO PROCEED
AGAINST LESSEE AS SET FORTH IN THE FOLLOWING SENTENCE. LESSEE HEREBY IRREVOCABLY
CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT OR ANY OF ITS ASSETS
WITH RESPECT TO THE LEASE MAY BE BROUGHT IN ANY JURISDICTION WHERE LESSEE OR ANY
OF ITS ASSETS MAY BE FOUND, OR IN THE NEW YORK STATE COURTS LOCATED IN THE
BOROUGH OF MANHATTAN OR THE FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN,
OR ALL OF THEM, AS LESSOR MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS LEASE
LESSEE HEREBY IRREVOCABLY SUBMITS TO AND ACCEPTS WITH REGARD TO ANY SUCH ACTION
OR PROCEEDINGS, FOR ITSELF AND IN RESPECT OF ITS ASSETS, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. LESSEE
HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM,
HAVING AN ADDRESS AT 1633 BROADWAY, NEW YORK, NEW YORK 10019 AS ITS AUTHORIZED
AGENT FOR SERVICE OF PROCESS IN NEW YORK IN ANY SUIT OR PROCEEDING WITH RESPECT
TO THIS LEASE. IF LESSEE DOES NOT TAKE ALL ACTION NECESSARY TO APPOINT CT
CORPORATION SYSTEM AS AGENT AS REQUIRED HEREUNDER (INCLUDING PAYMENT OF ANY FEES
TO CT CORPORATION SYSTEM IN CONNECTION WITH SUCH APPOINTMENT), LESSEE HEREBY
APPROVES ANY AND ALL OF LESSOR'S ACTIONS IN CONFIRMING CT CORPORATION SYSTEM'S
APPOINTMENT AS AGENT FOR LESSEE AS SET FORTH IN THIS SECTION. ANY SERVICE ON
SUCH AGENT SHALL BE GOOD SERVICE OF PROCESS IN THE UNITED STATES. A COPY OF ANY
SUCH PROCESS SERVED ON SUCH AGENT SHALL BE PROMPTLY FORWARDED BY OVERNIGHT MAIL
BY THE PERSON COMMENCING SUCH PROCEEDING TO LESSEE AT ITS ADDRESS SET FORTH ON
EXHIBIT C HERETO BUT THE FAILURE OF LESSEE TO RECEIVE SUCH COPIES SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. LESSEE FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO LESSEE AT ITS ADDRESS SET
FORTH ON EXHIBIT C HERETO. THE FOREGOING, HOWEVER, SHALL NOT LIMIT THE RIGHTS OF
LESSOR TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY
LEGAL ACTION OR PROCEEDING OR TO OBTAIN EXECUTION OF JUDGMENT IN ANY
JURISDICTION. LESSEE FURTHER AGREES THAT FINAL JUDGMENT AGAINST LESSEE IN ANY
ACTION OR PROCEEDING IN CONNECTION WITH THIS LEASE SHALL BE CONCLUSIVE AND MAY
BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES OF
AMERICA BY SUIT ON THE JUDGMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL
BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF LESSEE'S INDEBTEDNESS.
LESSEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
56
<PAGE>
PERMITTED BY LAW, ANY OBJECTION WHICH LESSEE MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS LEASE BROUGHT IN THE STATE OF NEW YORK; AND HEREBY FURTHER IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE
OF NEW YORK HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) NOTICES. All notices required under the terms and
provisions hereof shall be in writing, shall be sent to Lessor or Lessee at
their respective addresses set forth on Exhibit C hereto (or such other
addresses as the parties may designate from time to time in writing) and, except
as otherwise provided herein, such notice shall become effective upon the
earlier of actual receipt or the fifth day following the date such notice is
sent.
(d) LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to
make any payment of Supplemental Rent required to be made by it hereunder or
fails to pay or perform any of its obligation contained herein, Lessor shall
have the right, but not the obligation, to make such payment or perform
suchobligation, and the amount of such payment and the amount of the reasonable
expenses of Lessor incurred in connection with such payment or the performance
therewith, together with interest thereon at the Interest Rate, shall be payable
by Lessee to Lessor (as Supplemental Rent) upon demand. Lessor agrees to notify
Lessee in writing prior to making any payment under this Section 20(d), unless
the Aircraft will be in danger of loss, sale, confiscation, forfeiture or
seizure should such payment not be made. The taking of any such action by Lessor
pursuant to this Section 20(d) shall not constitute a waiver or release of any
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.
(e) COUNTERPARTS. This Lease may be executed simultaneously 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. To the extent, if
any, that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction) no security
interest in this Lease may be created through the transfer of possession of any
counterpart other than the original counterpart, which shall be identified as
the counterpart containing the receipt therefore executed by the Lender on the
signature page thereof.
(f) QUIET ENJOYMENT. Lessor covenants that so long as an Event
of Default shall not have occurred, Lessor shall not disturb or interfere with,
and Lessee shall quietly enjoy, in accordance with the terms hereof, the
Aircraft and all rents, revenues, profits and income thereto, without
disburbance or interference by Lessor or by any Person lawfully claiming by or
through Lessor.
57
<PAGE>
(g) NO BROKERS. Each of Lessor and Lessee represents that it
has not retained any broker or finder in connection with the transaction
contemplated by this Lease.
(h) PAYMENTS IN DOLLARS. Except as otherwise provided herein,
all amounts to be paid hereunder shall be paid in Dollars, in immediately
available funds.Lessee acknowledges that the specification of Dollars in this
transaction is of the essence and that Dollars shall be the currency of account
in any and all events. The obligations of Lessee hereunder shall not be
discharged by an amount paid in another currency, whether pursuant to a judgment
or otherwise, to the extent that the amount so paid on prompt conversion to
Dollars and transfer to the account specified in Exhibit C under the heading,
"Payment Location" under normal banking procedures does not yield the amount of
Dollars owing to Lessor. In the event that any payment by Lessee, whether
pursuant to judgment or otherwise, upon conversion does not yield such amount of
Dollars, Lessor shall have a separate cause of action against Lessee for the
additional amount necessary to yield the amount of Dollars due and owing to
Lessor.
(i) REGISTRATION AND DEREGISTRATION COSTS. Lessor agrees that
Lessee may obtain a new US registration number for the Aircraft to comply with
Lessee's fleet management requirements. Upon return of the Aircraft to Lessor,
including, without limitation, the reasonable fees and disbursements of counsel,
Lessee may at its option and expense obtain a new US registration number for the
Aircraft in order to retain for Lessee's use the previously used registration
number. Lessee shall be solely responsible for any and all costs relating to
such registration and reregistration of the Aircraft, including, without
limitation, the costs incurred by Lessor to register any Mortgage on the
Aircraft as a result of such registration and reregistration.
(j) TRANSACTION COSTS. Lessor and Lessee shall each be
responsible for its own costs and expenses incurred in connection with the
preparation, negotiation and delivery of this Lease and any other documents or
instruments delivered in connection herewith including, without limitation, the
fees, expenses and disbursements of legal counsel to such party.
(k) TIME IS OF THE ESSENCE. Time and strict and punctual
performance are of the essence with respect to each provision of this Lease.
(l) DISCLAIMER OF CONSEQUENTIAL DAMAGES. LESSEE AGREES THAT IT
SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT
IT MAY OTHERWISE HAVE TO RECOVER, CONSEQUENTIAL DAMAGES AS A RESULT OF ANY
BREACH OR ALLEGED BREACH BY LESSOR OF ANY OF THE AGREEMENTS, REPRESENTATIONS OR
WARRANTIES OF LESSOR CONTAINED IN THIS LEASE; PROVIDED, HOWEVER, that this
provision shall not apply if Lessor willfully defaults in its obligation to
deliver the Aircraft to Lessee on the Delivery Date for the purpose of leasing
or selling the Aircraft to another person.
58
<PAGE>
(m) SECURITY DEPOSIT. As security for the performance of all
of Lessee's obligations under this Lease, Lessee shall pay the Deposit to the
Payment Location as when specified in Exhibit C. Lessor shall have no
obligations to segregate the Deposit from its own funds or to account to Lessee
for interest, if any, earned thereon.
If Lessee fails to pay Rent hereunder or to pay any other sums
due or to perform any of the other terms and provisions of this Lease, or any
document delivered pursuant hereto or thereto or is otherwise in Default
hereunder or thereunder, in addition to all other rights Lessor may have under
law, hereunder or thereunder, Lessor may use, apply or retain all or any portion
of the Deposit in partial payment for sums due to Lessor by Lessee, to
compensate Lessor for any sums it may in its discretion advance as a result of
such Default, or to apply toward losses or expenses Lessor may suffer or incur
as a result of such Default. If Lessor applies all or any portion of the
Deposit, such application shall not be deemed a cure of any Default, and upon
written demand therefor, Lessee shall deposit such additional funds as shall
reinstate the original amounts thereof and the failure of Lessee to do so shall
be a material breach of this Lease. Except as otherwise provided in this Section
20(m), and provided that no Default has occurred and is continuing on the Return
Occasion, Lessor shall return forthwith any portion of the Deposit not
theretofore applied as provided in this Section 20(m) to Lessee.
(n) ENTIRE AGREEMENT; MODIFICATION OR REVISION. This Lease is
intended to be a complete and exclusive statement of the terms of the agreement
of the parties hereto, and this Lease supersedes any prior or contemporaneous
agreements, whether oral or in writing. Neither this Lease nor any term of this
Lease may be modified, rescinded, changed, waived, discharged or terminated
except by a writing signed by the party to be charged. Lessor and Lessee
acknowledge their agreement to the provision of this Section 20(n) by their
signatures below.
(o) TRUSTEE. Except as expressly provided in this Lease,
Lessee acknowledges that this Lease is executed by First Security Bank, National
Association, not in its individual capacity, but solely as Trustee under the
Trust Agreement (the "Trust Agreement") with the Beneficiary as grantor, in the
exercise of the power and authority conferred and vested in it as such Trustee,
that this Lease is intended to bind only the Trust Estate (as defined in the
Trust Agreement) and that nothing herein contained shall be construed as
creating any liability on First Security Bank, National Association,
individually or personally, to perform any agreement herein, all such liability,
if any, being expressly waived by Lessee and by each and every person now or
hereafter claiming by, through or under the holder, except with respect to the
gross negligence or willful misconduct of First Security Bank, National
Association.
(p) CONFIDENTIALITY. Each of Lessee and Lessor agree to and
shall keep confidential this Lease and the terms hereof, all Aircraft Documents
and other data or materials relating to the Aircraft supplied to Lessee by
Lessor, or at the request of Lessor, hereunder and will not disclose, transfer
or otherwise impart any such information to any
59
<PAGE>
other Person, except (i) as may be required by law or pursuant to any
litigation; (ii) to its Affiliates, permitted assignees, officers, executives,
employees, or agents; (iii) to its financial, accounting or legal advisors who
are under a duty to or agree to hold such information confidential; or (iv) with
respect to any information which is generally available to the public at the
time of disclosure.
(q) GOVERNING LANGUAGE. THE ENGLISH LANGUAGE SHALL GOVERN THE
INTERPRETATION HEREOF. ALL NOTICES HEREUNDER SHALL BE IN ENGLISH.
(r) ACKNOWLEDGEMENT OF MORTGAGE. By executing this Lease,
Lessee acknowledges that this Aircraft has been mortgaged to Lender pursuant to
theMortgage, and that the right of the Lessee to quiet enjoyment referred to in
Section 20(f) hereof, is subject to no Event of Default occurring under this
Lease.
(s) EXHIBITS. The Exhibits to this Agreement shall form an
integral part hereof. Reference herein to any agreement or other instrument
shall be deemed to include references to such agreement or other instruments as
the same may be amended or supplemented or replaced from time to time.
Lessor and Lessee agree that if any of the Exhibits have not
been inserted into this Agreement as of the date hereof, such Exhibit shall be
inserted on or prior to the Delivery Date, and shall thereupon be incorporated
herein and shall form an integral part of this Agreement. Such Exhibits shall be
attached to the originally executed counterparts of this Agreement.
(t) RIGHT OF FIRST OFFER. In the event that during the Term
Lessor shall offer the Aircraft for sale to any person other than an Affiliate
or Lessee, Lessor shall give the Lessee written notice of its intent to offer
the Aircraft , which notice shall state the terms and conditions of the offer.
Lessee shall have ten Business Days after its receipt of such notice to give
Lessor written notice of its interest in purchasing the Aircraft at Fair Market
Value under the terms stated in Lessor's notice. The parties shall negotiate in
good faith a letter of intent for the sale of the Aircraft at Fair Market Value
which letter of intent shall incorporate the terms of the offer and which shall
include the payment by Lessee to Lessor of a deposit in an amount to be agreed.
Such deposit shall become nonrefundable upon the execution of the letter of
intent by both parties. During such period, Lessor shall not offer the Aircraft
to any person other than Lessee. If such letter of intent is not executed by the
parties and the deposit received by Lessor within fifteen Business Days after
Lessee's receipt of Lessor's notice, Lessor shall not be obligated to sell the
Aircraft to Lessee.
(u) POOLING/POWER BY THE HOUR ARRANGEMENT. (i)Lessor and Lessee agree
to enter jointly into negotiations with a third party engine maintenance
contractor to establish an engine pooling and power by the hour overhaul and
repair contract on or before the Scheduled Delivery Date of the Aircraft
hereunder. The contemplated arrangement will
60
<PAGE>
require contractual obligations on the part of Lessor, Lessee, and the
maintenance contractor. Lessor's obligation to enter into such agreement is
conditioned upon:
(1) written approval of the Lender, if required, of such arrangement;
(2) receipt of legal opinions, satisfactory to Lessor and Lender, that
the interests of both Lessor and Lender are adequately protected;
(3) in the event that any Engine is replaced by another engine, such
engine shall become a Replacement Engine under this Aircraft Lease
Agreement and under the Mortgage; further, such Replacement Engine
shall be of equal value and utility as the Engine so replaced; and
(4) the pool of engines shall only consist of engines leased or owned
by Lessee, Lessor and the engine maintenance contractor; and
(5) In the event that Lessee and Lessor enter into such an agreement,
Lessee shall bear all costs associated with such participation,
including without limitation all fees associated with entering into and
exiting such a pooling arrangement, and the reasonable legal fees and
filing costs incurred by Lessor and Lessee associated with maintaining
perfected security interests in the Engines or Replacement Engines.
(ii) If the Lessor and Lessee are not able to enter into such a pooling
and power by the hour arrangement by the Delivery Date, Lessor and Lessee agree
to share the costs of an unscheduled shop visit resulting from the failure of an
Engine prior to the first scheduled life limited part removal on that Engine
(provided such failure is not attributable to the negligence or willful
misconduct of Lessee, or is a Casualty Occurrence) according to the following
formula:
Lessee Costs = Number Of Lessee Cycles X Costs of Engine Repair
-----------------------
Cycles at Delivery
Where "Costs of Engine Repair" means the actual, reasonable and customary costs
to return the Engine to service; "Number of Lessee Cycles" means the number of
cycles the Engine has been operated since delivery to Lessee; and "Cycles at
Delivery" means the number stated as Cycles Remaining to Next Life Limited Part
Removal pertaining to the failed Engine in Schedule 2 to the Lease Supplement
No. 1 and Acceptance Certificate executed and delivered by Lessee and Lessor at
delivery of the Aircraft. Lessor shall be responsible for the Costs of Engine
Repair which are not Lessee Costs and which are not the result of a Casualty
Occurrence, except such costs which are attributable to Lessee's negligence or
willful misconduct, which shall be wholly borne by Lessee.
(v) ALLOWANCE FOR SEALS, GASKETS, ETC. Lessor shall reimburse Lessee for its
actual out of pocket costs of labor, parts and materials to replace seals,
gaskets, hoses and similar components which may have deteriorated during the
period prior to delivery due to the Aircraft not being operated; PROVIDED THAT
such reimbursement shall be limited to $10,000.00, the replacement must have
been made within fifteen (15) days after the Delivery Date, and Lessee must have
given Lessor an invoice or invoices for such labor,
61
<PAGE>
parts and materials, together with such supporting documentation as Lessor may
reasonably require, within 45 days after the Delivery Date.
************REMAINDER OF PAGE INTENTIONALLY BLANK***************
62
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee, each pursuant to due
authority, have each caused this Aircraft Lease Agreement MSN075 to be executed
by their duly authorized officers as of the day and year first above written.
LESSOR:
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely as trustee
By:__________________________
Name:
Title:
Executed at:
LESSEE:
PAN AMERICAN AIRWAYS, INC., a
company organized and existing under the
laws of the State of Florida
By:__________________________
Name:
Title:
Executed at:
The undersigned Lender acknowledges receipt of this original counterpart
of this Aircraft Lease Agreement MSN075 on this day of , 199 and
consents to the terms hereof.
The United Bank of Kuwait PLC
By:__________________________
Name:
Title:
63
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PAN AM CORPORATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 INCLUDED IN FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 22,886,771
<SECURITIES> 0
<RECEIVABLES> 863,622
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,832,397
<PP&E> 2,170,112
<DEPRECIATION> (137,048)
<TOTAL-ASSETS> 29,981,756
<CURRENT-LIABILITIES> 5,918,379
<BONDS> 0
0
0
<COMMON> 1,092
<OTHER-SE> 24,062,285
<TOTAL-LIABILITY-AND-EQUITY> 29,981,756
<SALES> 198,626
<TOTAL-REVENUES> 198,626
<CGS> 13,240,367
<TOTAL-COSTS> 13,240,367
<OTHER-EXPENSES> 17,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,121
<INCOME-PRETAX> (12,661,770)
<INCOME-TAX> (155,421)
<INCOME-CONTINUING> (12,817,191)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,817,191)
<EPS-PRIMARY> (2.21)
<EPS-DILUTED> (2.21)
</TABLE>
